The bid that is too low as a budget risk

A contractor that has bid below its own costs has four ways to recover, and all of them go through the client. Recognising them in advance makes it possible to assess a bid for what it will cost, not for what it states.

• Variations. Every gap in the design, every clarification, every choice left open becomes an opportunity for a variation request. A contractor making a loss looks for them; a contractor in balance discusses them.
• Claims and disputes. In public works the contractor enters riserve (formal claims) in the contract accounts; in private works it disputes measurements and prices. These sums do not appear in the progress statements but weigh on the final cost, as the article on claims, disputes and termination explains.
• Quality and time. Materials at the edge of the specification, reduced crews, slowed work: the cost is not always in euros, but the client pays it in delays, more frequent inspections and defects to be put right.
• Replacing the contractor. If the contractor cannot cope, the site stops. The client pays for the work done, awards completion to another contractor at a price no longer negotiated under competition, and bears the time lost.

The public contracts code requires the best bid to be checked when it appears abnormally low. The full regime, written from the point of view of the operator who has to justify its bid, is covered on the page on abnormally low tenders. What matters here is what the stazione appaltante (the public contracting authority) must be able to do to protect the budget.

The check covers four qualities of the bid. The contracting authority assesses "the appropriateness, seriousness, sustainability and feasibility" of the best bid (D.Lgs. 36/2023, art. 110(1), unofficial translation). It asks the operator for explanations in writing, with a deadline of no more than 15 days (para. 2). The explanations may concern the economics of the construction method, the technical solutions chosen or the exceptionally favourable conditions available to the bidder, and the originality of the works proposed (para. 3).

Two justifications are not admitted. No explanations are accepted on mandatory minimum wages or on safety costs (art. 110(4)). The bid is excluded if the explanations are insufficient or if they reveal breaches of social and environmental obligations, inappropriate safety charges or staff costs below the minimum (para. 5).

The first clue is already in the bid. The financial bid must state, "on pain of exclusion, the labour costs and the company's own charges" for safety, except for supplies without installation and intellectual services (art. 108(9)). Comparing these sums with the design's labour estimate is the quickest check. How labour and safety charges are estimated is explained on the page on labour costs and safety charges.

For the budget, there is only one practical consequence: the contracting authority must have its own estimate against which to read the bid. Without an estimate of labour and of the main items, the request for explanations becomes a formality and the sustainability assessment has nothing to be measured against. A record of the check, reasoned on figures, also protects a decision to exclude.

Exclusion changes the reference price. If the best bid is excluded, the bids remaining in the tender are all higher. A budget calculated on the deepest discount is therefore fragile: the prudent reference is the sustainable bid, not the lowest one. If no sustainable bid fits within the budget, the question becomes that of bids above the budget.

The private client need follow no procedure, but can ask the same questions. Nothing requires it to check a low quote, and nothing prevents it from doing so. The public contracts code's grid is a good reminder: appropriateness, seriousness, sustainability, feasibility.

The comparison starts from a common basis. A quote is abnormal only by comparison with comparable quotes: if the contractors have not responded on the same bill of quantities, the gap may come from missing items rather than low prices. The method is described in Comparing contractor quotes on the same basis.

The useful questions are asked in writing before choosing. On which items does the contractor depart most from the estimate, and why; what share of the price covers labour, and with which crews; how safety costs are treated; which work is subcontracted and on what terms; which exclusions are implied. The answers, or their absence, say a great deal about sustainability.

Signal in the quote	What it may hide	Question to ask in writing
Isolated discount compared with the other bids	Missing items or a misreading	Does the quote cover every item in the bill?
Main items far below the estimate	Price to be recovered through variations	Which technical solution is this price based on?
Labour far below the estimate	Reduced crews, longer timescales, subcontracting	How many people, for how long, on what contract?
Safety given as a minimal lump sum	Charges not covered	Which safety provisions are included?
Generic exclusions	Extras on site	Which work items are excluded, one by one?
High advance payment requested	Financial fragility	Why this payment structure?

The contract can reduce the risk, not remove it. Payments tied to measured progress rather than to dates, a priced bill of quantities annexed to the contract as the reference for variations, a written procedure for authorising variations, consistent with the rule that the client's authorisation "must be proved in writing" (art. 1659 of the civil code): these tools limit the room a contractor in difficulty has to recover. They do not, however, turn an unsustainable price into a sustainable one.

If the site stops, getting out costs money. The client may withdraw from the contract even once the works have started, but must indemnify the appaltatore (the contractor) for the expenses incurred, the work carried out and the loss of profit (art. 1671 of the civil code). Added to the cost of completion by another contractor, the bill for an excessive discount can far exceed the initial saving.

The example is entirely fictitious, with amounts excluding VAT. For a private project with a works estimate of 500,000 euros, three contractors respond on the same bill of quantities.

Item	Contractor A	Contractor B	Contractor C
Stated total	380,000 euros	455,000 euros	470,000 euros
Gap from the estimate	- 120,000 (24 per cent)	- 45,000 (9 per cent)	- 30,000 (6 per cent)
Unpriced items, at estimate value	+ 55,000	0	0
Normalised total	435,000 euros	455,000 euros	470,000 euros
Stated labour (estimate: 135,000)	95,000 euros	128,000 euros	132,000 euros

The reading takes two steps. After normalisation, A's advantage over B falls from 75,000 to 20,000 euros. A gap of 40,000 euros on labour against the estimate remains, however (135,000 - 95,000), which A will have to explain with a credible organisation or recover elsewhere. If the answers do not convince, the prudent reference for the budget is B at 455,000 euros, and A's apparent advantage is a risk, not a saving.