Reading an abnormally low price

They carry neither the same consequences nor the same treatment. A low price may stem from error, omission or strategy.

Error. The contractor has miscalculated, on a quantity, a unit or a transfer.

Omission. The contractor has not priced a work, having failed to see or understand it.

Restrictive interpretation. The contractor has priced a lesser work than intended, relying on ambiguous drafting.

Commercial strategy. The contractor has deliberately reduced its margin, for reasons of its own.

Only the fourth is good news for the client. The other three will produce a claim or a dispute during the works.

Cause	Indicator to spot	Treatment
Arithmetical error	An isolated variance on one item	Request a written explanation
Omitted work	An item missing or under-measured	Check the scope
Different assumption	A coherent price on another basis	Restate on a common basis
Commercial strategy	A low price coherent overall	Examine capacity

Four indicators, in order of checking.

The arithmetic check catches errors of transfer or multiplication.

The completeness check catches omission, by verifying that every item is priced.

Item-by-item comparison catches restrictive interpretation: the variance concentrates on a few items rather than spreading.

The request for clarification distinguishes the first three causes from the fourth.

A variance spread evenly across all items suggests commercial strategy; a concentrated variance suggests error or omission.

Three configurations, not to be confused. They separate the arithmetical error from the aggressive bid.

One contractor far below the others on an item generally signals an omission or a restrictive interpretation on its part.

One contractor far above on an item may signal that it has understood a requirement the others missed, which reverses the reading.

All contractors diverging on the same item calls the drafting of the item into question, not the contractors.

The second configuration is the most misread: the dearest bid on an item is sometimes the only one that understood the work.

Four points.

Request written clarification, identifying precisely the item concerned.

Do not disclose competitors' prices, which would distort the tender and, in public contracts, be irregular.

Have the scope confirmed rather than the price. The useful question is not why it is low, but what is included.

Document the answer, which becomes an element of interpretation of the contract in any later dispute.

In public contracts, the examination of abnormally low bids follows its own rules, to be checked against the applicable regulations.

Three consequences, where the variance comes from one of the first three causes. They surface during the works.

Additional works, restoring the real price during the works, covered in the article on additional works.

Tensions in execution, a contractor in economic difficulty not performing in good conditions.

Failure, in extreme cases, with the consequences for time and cost that entails.

These three risks are not read in the amount, but in the analysis of variances.

Four rules.

Treat a wide variance as a question, not as a bargain.

Locate the variance item by item before drawing conclusions.

Question the scope rather than the price in the request for clarification.

Flag the associated risk to the client, rather than letting the amount decide alone.