This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its July 1987 decision in Garcia-Allen/Turner v. Department of Transportation, the Florida Division of Administrative Hearings upheld a decision to reject a low bid for budgetary reasons. The case dealt with a federally funded tendering process administered by the Florida Department of Transportation for the construction of a parking facility in the City of Miami. While the Department’s policy allowed it to automatically accept low bids that came within seven percent of the pre-bid budget estimate, the low bid exceeded the estimate by over 21 percent. However, as the Court noted, the low bidder was able to show the Department, referred to below as FDOT, that its pre-bid estimate was outdated and failed to properly account for cost inflation:
On June 30, representatives of FDOT and Petitioner met informally in FDOT’s central offices in Tallahassee, Florida, at which time Petitioner presented certain information tending to show that the pre-bid estimate of the cost to construct the Allapattah project was out of date, unrealistically low and that Petitioner’s bid was realistic and reasonably competitive…[A]s a result of the information presented by Petitioner during the June 30 meeting, FDOT realized that the pre-bid estimate of the cost to construct the Allapattah project, which was initially prepared in October, 1984, by its architectural/engineering consultant, who also designed the project, the Kaiser Transit Group, had not been updated to reflect any increase in costs attributable to inflation. Although FDOT had in February, reviewed its architectural/engineering consultant’s October, 1984 estimated cost of construction and made minor adjustments thereto in the process of converting such estimate to the computerized format customarily used by its Estimates Office, FDOT did not address the impact of inflation on the estimate. Thus, following the June 30, meeting with Petitioner, FDOT decided to develop a new estimate for the project, whereupon its Estimates and Architectural Offices jointly undertook the task of considering inflationary impact. The resulting new estimate stated a cost of $14,317,608.00 to construct the project. That cost exceeded the pre-bid estimate that FDOT had used in its initial evaluation of Petitioner’s bid by approximately Two Million Dollars, thus bringing Petitioner’s bid within seven percent (7 percent) of FDOT’s estimated cost to construct the project and causing Petitioner’s bid to be subject to FDOT’s automatic award criteria.
While the Department ultimately concluded that the low bid fell within the seven percent range of acceptability, once inflation costs were properly incorporated into its price estimate, federal funding for the project had already been withdrawn after the Department’s initial internal determination concluded that the bid was too high. The Court ultimately found that under the circumstances, since the federal funding was withdrawn, the Department’s decision to reject the low bid was reasonable. However, as this case illustrates, relying on outdated pre-bid budget estimates can give rise to post-bid controversy and litigation when those estimates are relied upon as a basis for rejecting a bid. Purchasing institutions should therefore ensure that their price estimates are accurate before embarking on a competitive bidding process.
