INTERNATIONAL JOURNAL OF

PROJECT
MANAGEMENT
International Journal of Project Management 24 (2006) 156–166
www.elsevier.com/locate/ijproman

Unit-price-based model for evaluating competitive bids

a,*
Wei-Chih Wang , Han-Hsiang Wang a, Yu-Ting Lai a, John Chien-Chung Li b

a
Department of Civil Engineering, National Chiao Tung University, 1001, Ta-Hsueh Road, Hsinchu 300, Taiwan
b
Institute of Construction Management, National Central University, Taiwan

Received 7 September 2004; received in revised form 21 April 2005; accepted 7 June 2005

Abstract

A lump-sum lowest bid method allows project administrators of public construction projects to reject any bid if they determine
the bid price is unreasonable. In practice however, few bids are rejected because of the lack of an objective process for evaluating the
lowest bids. While past research assessed the bids based on total bid price, this study proposes a bid evaluation model developed
based on the level of unit prices. In the proposed model, the lowest bid is assessed according to the unit prices electronically obtained
from the owner and all qualified bidders. Moreover, a differential ratio is defined to measure the deviation between the unit prices
submitted by both the owner and the lowest bidder. The merits of this innovative model are demonstrated by applying it to two
subprojects of a building construction project. Practitioners and governmental officers have confirmed the feasibility of the model
provided the languages or clauses describing the modeling algorithms are explicated in the general or special conditions of tendering
documents.

2005 Elsevier Ltd and IPMA. All rights reserved.

Keywords: Project procurement; Competitive bid; Electronic bidding; Unit price and cost item

1. Introduction Although project administrators of public construc-

A lump-sum lowest bid method awards the contract
for a construction project to the bidder who submits
the lowest bid price. One major shortcoming of this
method is that the submission of offers that are unrea-
sonably low is not unusual. Awarding contracts to
unreasonably low bidders frequently causes delays and
results in poor quality construction. Most such cases
end up in contractual disputes or litigation. Also, statis-
tically, projects awarded to the lowest bids are more
likely to experience excessive cost growth than are pro-
jects awarded to more reasonable bids [1].
*
Corresponding author. Tel.: +886 3 5712121x54952; fax: +886 3
5716257.
E-mail addresses: weichih@mail.nctu.edu.tw (W.-C. Wang), rijo-
wang.cv90g@nctu.edu.tw (H.-H. Wang), albert66@giga.net.tw (Y.-T.
Lai), johnli@cc.ncu.edu.tw (J. Chien-Chung Li).
tion projects are allowed to reject the lowest bid if the
bid price is considered to be unreasonable, in reality,
very few bids are rejected. Without an objective process
described in the tender documents to support their bid
evaluations, a rejected bidder may challenge such a prac-
tice by appealing to a court. Consequently, lengthy
court procedures can delay the procurement process.
For example, Taiwan has tendered approximately
201,819 public construction projects out in the last six
year (i.e., from May 1998 to May 2004). Moreover, up
to around 99.2% (=200,273/201,819) of the projects
adopted the lowest bid method for tendering. The aver-
age bid ratio (winning bid divided by the project ceiling
price) of these projects was about 0.79. However, less
than 1% of these lowest-bid projects had executed a pro-
cess for evaluating the lowest bid, despite many owners
complaining that their lowest bids were suspiciously
low.

0263-7863/$30.00
2005 Elsevier Ltd and IPMA. All rights reserved.

doi:10.1016/j.ijproman.2005.06.002
 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
The lowest bid method contains a prequalification
process to eliminate unqualified competitors. However,
this process focuses on bidder performance of past
projects and financial status rather than considering
how each bidder plans to manage the current project
(e.g., how the bidder allocates the costs to perform
the work). Since the Taiwanese economy is currently
suffering from low growth or even declining, unscru-
pulous contractors may bid for a project using unrea-
sonably low prices simply to obtain the project for the
sake of their survival. A low bid price may be politi-
cally desirable to project administrators, because it
indicates that the project administrators are conscious
of saving taxpayer money. However, an unrealistically
low bid implies that the winner may cut corners dur-
ing construction to maintain profits. Namely, the win-
ner can perform the project in bad faith using
substituted equipment or materials with inferior qual-
ity, constructing poor quality work, or allocating
insufficient numbers of engineers and laborers for sav-
ing costs (as a result, the management quality is im-
pacted). Hence, ensuring that the lowest bid price is
reasonable given the work to be performed is essential
to successful project procurement.
Current models have focused on evaluating the
lowest bid based on total bid price. That is, the lowest
project bid is identified as discordant or unreasonable
using statistical procedures that investigate the dis-
agreement between the lowest total bid price and the
other submitted bid prices. Learning from interviews
with several contractors in Taiwan, a rejected bidder
would be expected to respond to the project adminis-
trators by asking: ‘‘which parts of my estimates are
unreasonable or mistaken?’’ Certainly, the past ap-
proach that assesses bids based on total-bid-price level
cannot adequately defend against such a bid-rejection
argument. Consequently, administrators of public con-
struction projects in Taiwan remain very reluctant to
challenge the lowest bid because of the lack of a
quantitative model to objectively review the lowest
bid and to justify the decisions of the administrators.
The Public Construction Commission (PCC; Execu-
tive Yuan, Taiwan) – the highest government entity
responsible for public construction work – has initi-
ated this work. This work proposes an electronic-facil-
itated model that examines the lowest bid based on
the unit prices of cost items of the project. The
remainder of this paper is organized as follows. The
current procurement practice of public construction
projects is examined first. Past research on the bidding
area then is reviewed. Next, the proposed model is de-
scribed, and its detailed workings are demonstrated
using two example projects. Furthermore, feedback
from the government and industry is given, and the
strengths of the model are discussed. Finally, conclu-
sions are provided.
157
2. Current tendering practice of public construction
projects in Taiwan
The Government Procurement Law in Taiwan, sub-
sequently termed GPL, was promulgated on May 27,
1998, and took effect one year later [2]. GPL contains
three tendering procedures, including open tendering,
selective tendering, and limited tendering. A public en-
tity (project owner) generally applies open tendering to
procure most projects. Under open tendering, a public
notice is issued to invite all interested suppliers to submit
their bids. Meanwhile, in the selective tendering proce-
dure, a public notice is issued inviting all interested sup-
pliers to submit their qualification documents for
prequalification evaluation and, after the evaluation,
the qualified suppliers are invited to bid. An entity can
apply the limited tendering procedure based on compli-
cated procurement situations. In the limited tendering
procedure, two or more suppliers are invited to compete
for tendering, or alternatively only one supplier is
invited.
GPL has two categories of contract-awarding meth-
ods: the lowest bid tendering method (LBT) and the
most favorable tendering method (MFT). If the LBT
method is used, a bidder that adheres to the require-
ments set forth in the tender documentation and has
the lowest bid price is awarded the contract. If a pro-
curement entity adopts the MFT method (a type of multi-
criteria bid evaluation method), the bidder with a tender
that fulfills the requirements set forth in the tender doc-
umentation and whose proposal is most favorable to the
entity, is considered the winning bidder.
If the lowest bid method is adopted, the project
administrators or contracting officers normally should
determine a project ceiling price or cost estimate to use
as a threshold or reference point for accepting or reject-
ing bids [2]. If the lowest bid exceeds the project ceiling
price, all bids are rejected; otherwise, the contract is
awarded to the lowest bidder. Additionally, if the total
or a part of the offered price of the lowest bid is suspi-
ciously low, and is likely to impair contract performance
quality, then the project administrators can ask the low-
est bidder to provide either a reasonable explanation or
additional security before the deadline set by the project
administrators. If such a suspicious lowest bidder fails to
defend his estimates, the contract is not awarded to this
bidder; and the bidder offering the second lowest bid is
then deemed the lowest bidder and the process repeats.
Nevertheless, most project owners simply request a
suspicious lowest bidder to provide an additional secu-
rity (called a ‘‘differential security bond’’) to ‘‘protect’’
their projects and are reluctant to evaluate the lowest
bid. Such reluctance is largely owing to that the pro-
ject procurement process is likely to be suspended if
the rejected bidder appeals to the court regarding
the rejection decision (or to the Complaint Review
158 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
Board for Government Procurement in Taiwan) and
the project administrators cannot strongly defend their
decisions. Accordingly, very few bids are rejected.
Notably, this is even the case for projects with a bid
ratio of only 0.3–0.4 (that is, the winning bid is only
30–40% of the cost estimate of the owner). As ex-
pected, disputes, arbitrations or lawsuits or contractor
bankruptcies frequently occur in relation to these low-
bid projects in Taiwan (including those provided by
differential security bonds).
Notably, in a few cases, a lowest bidder may seek
rejection by intentionally providing poor explanations
to defend their low bids when they find that their bid
is actually too low owing to a poor or mistaken estima-
tion. In such a case, this bidder can still refund their bid
bond following rejection; otherwise, their bid bond may
not be refunded. A refusal to provide an explanation
would be considered an intentional interference in the
tendering process.
3. Pertinent literature
Pertinent research on bidding can be broadly classi-
fied into six categories: prequalification, determination
of bid mark-up, selection of bid-awarding method,
determination of project ceiling price, adjustment of
bid unit prices following project awarding, and evalua-
tion of competitive bids.
Prequalification – As a pre-tender process, prequalifi-
cation assesses the capabilities of contractors to
complete a contract satisfactorily [3], and it is a deci-
sion-making process that involves a wide range of crite-
ria for which information is often qualitative, subjective,
and imprecise [4]. These criteria include past failures,
financial status, financial stability, credit ratings, experi-
ence, ability, management personnel, and management
knowledge [5]. Lo et al. [6] concluded that improper pre-
qualification requirements severely delayed a project
and increased the cost to the project owner.
Determination of bid mark-up – Numerous studies
have examined bid mark-up strategies from the perspec-
tive of the number of competitors involved [7], the re-
source constraints and opportunity costs of the bidder
[8], the cost uncertainty [9], the probability of winning
the bid [10], and other factors influencing the bids [11].
Meanwhile, other researchers attempted to implement
bid make-up strategies using mathematical methods,
including utility theory [12], neural networks [13], fuzzy
set theory [14], analytic hierarchy process [15], and case-
based reasoning [16].
Selection of bid-awarding method – Besides the afore-
mentioned lowest bid and the most favorable tendering
methods, other typical contractor selection methods in-
clude the A + B method, average bid method and multi-
criteria evaluation methods. Herbsman and Ellis [17]
designed an A-plus-B method that regarded construc-
tion cost and time as selection criteria. This method is
a converted lowest bid method [18]. The average bid
method attempts to identify the average bid value by
totaling all bid prices and then dividing this number
by the total number of bids. The winning bidder is the
one whose bidding price is nearest to but below the aver-
age bid value [19]. In the multi-criteria evaluation meth-
od, Alsugair [20] proposed a framework, involving 36
evaluation factors grouped into nine classes. Also, Lai
et al. [21] presented a six-criteria-based bid evaluation
model currently used in China. Besides the above meth-
ods, Holt [22] collected and reviewed various potential
methods, including the multi-attribute utility theory,
cluster analysis method, multiple regression method,
and fuzzy set theory method.
Determination of project ceiling price – Before open-
ing the bidding, a project cost threshold or cost estimate
must be decided by a project owner as a reference for
evaluating competing bids. Wang [23] proposed a sys-
tematic procedure that is developed according to a util-
ity-based multi-criteria evaluation model and a cost
model. In the procedure of Wang, the multi-criteria
evaluation model is applied to reflect owner preferences
regarding the decision criteria, and the cost model is de-
rived to establish a cumulative cost distribution for set-
ting cost threshold boundaries.
Adjustment of bid unit prices following project award-
ing – The research in this category deals with the assess-
ment and adjustment of unit prices for a lump-sum
project that has already been awarded [24]. The main
objective of this type of research is to produce a reason-
able allocation of total bid price to each cost item for
preventing an unbalanced bid.
Evaluation of competitive bids – The research most
relevant to this investigation is that evaluating competi-
tive bids for a lump-sum bidding project. This type of re-
search examines the decision to accept or reject the
lowest project bid depending on whether or not the low-
est bid price is considered reasonable [25,26]. For exam-
ple, Crowley and Hancher [25] proposed a quantitative
method that comprised preparation and examination
phases. The preparation phase used the bid records of
historical projects to develop a suitable transformation
scale (for isolating inherent bid variation from variabil-
ity arising from project size alone) and a discordant
threshold (a measure of disagreement). Extensive histor-
ical data were required to establish the threshold limits
of discordant bids for bid assessments. The examination
phase assessed apparently low bids according to the ex-
pected recurrence of scale deviations between the med-
ian (market value) and the low bid. Based on the
preferences of the owners regarding the expected recur-
rence, the bid can either be accepted or rejected. Crow-
ley [27] investigated the most effective models (median
and normalized median absolute deviation, respectively)
 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
for location and scale estimators designed to achieve
more accurate bid evaluations. Additionally, Skitmore
et al. [28] employed seven data sets to conduct a bid-
spread analysis to explore the nature and statistical
properties of bids, and concluded that bids were entirely
random, being drawn from a lognormal distribution.
Overall, current bid evaluation models have four major
characteristics; (1) the bid evaluations emphasize the to-
tal bid price; (2) the models require that a database of
previous bids of past projects be established; (3) the ac-
cept/reject decisions in existing models are made com-
pletely based on various statistical analyses (such as
the t value and the Z score); (4) no mechanism is pro-
vided to enable the lowest bidders to defend their
estimates.
4. Electronic-facilitated unit-price-based bid evaluation
model
4.1. Reasons of adopting a unit-price-based approach
A bidder must determine the unit price of each cost
item to prepare a detailed estimate of a project. Then,
the unit price multiplied by the quantity for each item
yields the costs of the item. The sum of the costs of all
cost items is the total bid price of the project. Such a de-
tailed estimate takes a long time for a responsible bidder
to make. When a bidder is rejected because his bid is too
low, he is certainly expected to challenge the project
administrators by asking, ‘‘which aspects of my esti-
mates are unreasonable?’’ Current models evaluate low
bids from the total bid price and neglect a detailed eval-
uation of the cost estimate. The modeling results are
such that convincing the rejected bidder of the unrea-
sonableness of his total bid price, developed from a de-
tailed cost estimate approach is difficult. Therefore, a
model that can provide detailed evaluations of cost
items is sought. The cost of an item is dominated by
the unit price. Accordingly, a unit-price-based bid eval-
uation model is proposed to support the bid-rejection
decisions to identify which of the estimates in a low
bid are unreasonable.
Moreover, the unit-price-based approach offers
added value: it allows the ambiguous specifications
and drawings associated with high or low cost items sub-
mitted by the bidder, to be clarified. Such clarification
helps to reduce disputes during the execution of con-
struction work related to cost items. Hence, the control
of the construction is improved.
4.2. Project cost
In practice, two approaches have evolved for organiz-
ing construction work items to estimate project costs
[29]. One approach is to identify work according to
159
the categories contained in the projectÕs written specifi-
cations, such as those of the Construction Specification
Institute (CSI) for building projects. The other approach
employs a work breakdown structure (WBS) to identify
work items by their location on the project. The devel-
oped model is based on the CSI estimate format that
is commonly used in public construction projects in Tai-
wan. Thus, the costs of a construction project are orga-
nized according to four levels of estimates: (1) total bid
price; (2) level of project summary or bid summary. This
level summarizes various cost categories. Typical cost
categories for a building project include direct costs,
such as site-work excavation, concrete, equipment,
mechanical, and other indirect costs, such as tax, insur-
ance, and overheads (or profits); (3) cost item level (also
called the bill item or line item, and here simply termed
‘‘item’’). Each cost category is subdivided into smaller
cost items for particular construction processes. For
example, the cost items for the second-level site-work
excavation cost category may be subdivided into slurry
wall, piling, finish grading, and so on. The cost of an
item equals the product of its unit price and quantity;
(4) unit price level. A unit price is expressed as the cost
required to complete a unit of work associated with a
cost item, for example the cost of constructing a square
meter of slurry wall. The term ‘‘cost item’’ here implies
the cost item in the third level.
4.3. Prerequisite of the model
The proposed model depends on an electronic bid-
ding process. The notice to bidders or general conditions
(part of the bid package documents) must contain infor-
mation concerning the rules of the model algorithms to
ensure that the model can be executed (that is, to be
open and fair while avoiding any disputes from bidders).
The tender documents must also state that a bidder
should submit his bidding package with an electronic
spreadsheet file (such as Excel) of project cost estimates.
A submitted bidding package without this completed file
will be disqualified.
4.4. The model
After the lowest bid is found, the model is applied to
determine whether the bid price is reasonable. The de-
tails of the model are illustrated as follows (see Fig. 1).
First of all, if the lowest bid equals or exceeds 80% of
the project ceiling price, then this lowest bid is consid-
ered reasonable and the contract should be awarded to
the lowest bidder. Otherwise, this lowest bid should be
further evaluated. The reasons for using 80% as a
threshold are: (1) eighty percent of the project ceiling
price is a commonly used reference to determine whether
an extra differential security bond should be provided
in most construction projects in Taiwan. For example,
160 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166

(bidder 1) (NT$)
The lowest bid is found

Unit price

3300
255,000

661,000

70
No
Lowest bid < 0.8 Project ceiling price?

Yes
Preparation step: integrating the unitprices from the owner and all

Maximum unit
qualified bidders in to a single file

price (NT$)

6500

550
312,000

736,000
Evaluation step: evaluating the unitprice submitted by
the lowest bidder

Clarification step: clarifying the suspiciously

Average unit
price (NT$)
unreasonable unit prices

5103

173
255,577

653,000
Decision step: deciding whether the total bid price is
reasonable

Minimum unit
Is the lowest bid reasonable?

price (NT$)
No Yes

3300
230,600

578,000

55
The second lowest bid is The contract is awarded
deemed the lowest bid to the lowest bidder

D = (B
O)/O (%)
Fig. 1. The proposed model.

Differential ratio
suppose that the project ceiling price is $100 million and
the lowest bid is $70 million (bid ratio is 70%), then the
lowest bidder must submit an extra bond of $10 million

20

36

46
4
(80% of $100 million–$70 million) to the project owner;
(2) using 80% as a threshold indicates that a bid exceed-
(lowest bid)
Unit price

ing the average bid ratio (about 0.79) of past projects in B (NT$)

5000
250,000

640,000

70
Taiwan is directly treated as reasonable.
Preparation step – Then, if the lowest bid is viewed as
suspicious (that is, bid ratio < 0.8), the preparation step
(owner) O (NT$)

is performed to facilitate the bid assessments. Prepara-

tion involves establishing an integrated file by combin-
Unit price

ing the unit prices from all parties (including the

311,882

996,710
4797

130
owner and the qualified bidders) into a single spread-
sheet. Table 1 gives an example of the data found in
such an integrated spreadsheet file. In this integrated file,
Quantity

a differential ratio, Dj, for cost item j is defined:

345
34

10
10,004

Dj ¼ ðBj
Oj Þ=Oj ; ð1Þ

where Bj and Oj denote the unit prices submitted by the
Example of integrated spreadsheet of cost estimate

Each

Each
Unit

M2

M3

lowest bidder and owner, respectively, for cost item j. A

positive Dj implies that the unit price submitted by the
Piling 140 cm2 (30.5 m depth)

Piling 260 cm2 (30.5 m depth)

lowest bidder exceeds that assessed by the owner, and

vice versa. A higher positive or lower negative value of
Dj indicates a greater difference between Bj and Oj.
Notably, in Table 1, dollar values are represented in
Item description

New Taiwan (NT) dollars (1 US dollar @ 30 New Tai-

Finish grading

wan dollars). Subsequently, dollar values are expressed

Excavation
Slurry wall

in NT dollars.
Evaluation step – Next, the evaluation step is executed
to examine whether the unit prices submitted by the low-
est bidder are reasonable. Specifically, based on the cal-
Item no.
Table 1

culated differential ratio of each cost item, each unit

1–16
1–1
1–2

1–9
...

...

price (Bj) submitted by the lowest bidder is assessed to

1
 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
determine which of the following three categories it falls
into:
 Reasonable unit price – If
r1 6 Dj 6 r1, (r1 denotes a
constant between 0 and 1 or a percentage between 0%
and 100%), then Bj is reasonable. Namely, if the dif-
ference (percentage difference) between the unit prices
provided by the lowest bidder and the owner falls
within a specified range, then Bj is directly considered
reasonable. For example, a value of 0.3 (or 30%) for
r1 indicates that Bj is reasonable if
0.3 6 Dj 6 0.3.
Restated, Bj is acceptable if it lies between 0.7 Oj
and 1.3 Oj.
 Suspicious unit price – If
r2 6 Dj <
r1 or
r1 < Dj 6 r2, then Bj is suspicious. Notably, r1 < r2
for example, r1 = 0.3 and r2 = 0.4. Namely, Bj is sus-
picious because it is slightly low, but not too low
(such as,
0.4 6 Dj <
0.3); or it is slightly high,
but not too high (such as, 0.3 < Dj 6 0.4).
 Unreasonable unit price – If
Dj <
r2 or r2 < Dj,
then Bj is directly deemed unreasonable. Restated,
Bj is not classified into either the reasonable or the
suspicious unit price is unreasonable.
The values r1 and r2 are used to help identify reason-
able, suspicious and unreasonable unit prices. The deter-
mined values of r1 and r2 for a project are related to the
bid ratio (lowest bid divided by the project ceiling price)
of the project. In the proposed model, if the lowest bid is
under 80% (approximately the mean bid ratio of previ-
ous projects in Taiwan) of the project ceiling price, then
this lowest bid should be further evaluated. Therefore,
on average, the unit price submitted by the lowest bidder
is expected to be at least 20% lower than that assessed by
the owner. Then, setting the value of r1 greater than 20%
or 0.2 is practical. Setting r1 6 0.2 (e.g., r1 = 0.1) will
probably cause most unit prices to be either suspicious
or unreasonable. In contrast, higher r1 values result in
more reasonable unit prices.
Since r1 > 0.2 and r1 < r2, r2 > r1 > 0.2. The value of
r2 relates to the lowest bid ratio that is regarded as
acceptable. For instance, if project administrators re-
gard a bid ratio of 60% as the lowest acceptable bid ratio
(meaning that the lowest bid is 40% less than the project
ceiling price), r2 can be set to 0.4, because, on average,
the unit price submitted by the lowest bidder is 40%
smaller than that evaluated by the owner at a bid ratio
of 60%.
Clarification step – The clarification step is used to
clarify the suspicious unit prices. This step is executed
by a rule-based phase and an explanation-based phase.
In the rule-based phase, the minimum and maximum
unit prices submitted by other qualified bidders with re-
spect to each cost item are calculated first. The minimum
unit price, minj, of cost item j then is calculated accord-
ing to the unit prices proposed by all other qualified bid-
161
ders (excluding the lowest bidder), and resembles the
calculation of the maximum unit price (maxj) of cost
item j. The rule-based phase then works as follows.
 A suspiciously low Bj (that is,
r2 6 Dj <
r1) is
revised to a reasonable one if minj 6 Bj. Practically,
provided at least one qualified bidder proposes a unit
price even lower than or equal to Bj, then it is hard to
reject Bj.
 A suspiciously high Bj (that is, r1 < Dj 6 r2) is revised
to a reasonable one if Bj 6 maxj. In practice, at least
one qualified bidder proposes a unit price even higher
than or equal to Bj, in which case it is hard to reject
Bj.
If a suspicious Bj does not pass the above the
rule-based phase, then the explanation-based phase
continues to evaluate Bj. That is, the bidder is given an
opportunity to explain or offer evidence to back up their
estimate. Based on discussions with several practitioners
and governmental officers in Taiwan, several types of
accepting or rejecting the lowest bidderÕs explanation
are identified and summarized in Table 2. Generally, if
the lowest bidder can provide evidence demonstrating
that the low unit price results from the types of self-sup-
plied equipment, guaranteed low price from material
suppliers, guaranteed low price from subcontractors,
and mistaken owner estimates, then the explanation is
accepted and Bj is considered reasonable. However,
the explanations, including mistakenly filled in data,
bidding strategy and false interpretation of work
requirements, should not be accepted and Bj should be
considered unreasonable. Moreover, if the suspicious-
ness of Bj results from the ambiguous specifications pro-
vided in the tendering documentation, then further
discussion is needed. If the specifications are determined
to be too vague (namely, implying the faults are caused
by the owner side), then Bj is reasonable; otherwise, it is
unreasonable. Following this step, each suspicious unit
price can eventually be treated as either reasonable or
unreasonable.
Decision step – Finally, the model decides whether the
total bid price is reasonable. This decision is made based
on whether the amount of the total unreasonable cost
(TUC) exceeds the total bid price (TBP) by a predefined
threshold ratio, TR (for example, 30%). The total unrea-
sonable cost, TUC, is given by
X
J
TUC ¼ ðBj  Qj Þ; ð2Þ
j¼1
where Qj denotes the quantity in relation to the unrea-
sonable unit price Bj for cost item j. Bj · Qj is termed
the extended cost for item j. Consequently, the lowest
bid price is considered unreasonable if the value of
TUC/TBP exceeds the value of TR (that is, indicating
162 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166

Table 2
Types of accepting/rejecting of bidder explanation or evidence
No. BidderÕs explanation or evidence
1 Self-supplied equipment
2 Guaranteed low price from material suppliers
3 Guaranteed low price from subcontractors
4 OwnerÕs mistaken estimates
5 Mistakenly filled in data
6 Bidding strategy
7 False interpretation of work requirements
8 Ambiguous technical specifications
Description Suggested decision
The unit price associated with executing these equipment-related Accepted
cost items is lower than if acquired in the normal market
Certain materials can be provided at a low price because they are Accepted
provided in large volume for this and other projects in which the
bidder is involved
Several subcontractors and crews are happy to charge low prices to Accepted
maintain good relationships with the bidder to gain future job
opportunities
The unit price estimated by the owner is unreasonable or wrong Accepted
The bidder filled in the cost data mistakenly Rejected
Frequently, many Taiwanese bidders argue that they are willing to Rejected
faithfully perform the job even when the work is expected to be
non-profitable. The unreasonably low unit prices are submitted
only to win the contract to keep the bidderÕs company alive
The bidder had wrong interpretation of the amount of the work Rejected
required for a particular cost item
The bidder prefers to a low unit price of the cost item that has Discussed
ambiguous specifications

that the percentage of the unreasonable costs over the
total bid price is too high); otherwise, the bid is treated
as reasonable. Unreasonable lowest bids are rejected.
Furthermore, the second lowest bid is considered the
lowest bid, and the above-mentioned modeling steps
are repeated to evaluate this new lowest bid.
The determined value of TR for a project is also re-
lated to the bid ratio of the project. The lowest bid is
considered to be reasonable if its bid ratio exceeds 0.8
(or 80%). Namely, a 20% difference between the bid
price and the project ceiling price is reasonable. Accord-
ingly, TR is suggested to exceed 0.2, indicating that the
total unreasonable costs can reasonably exceed the bid
price by 20%. Similarly, the highest value of TR is re-
lated to the lowest bid ratio that is acceptable to the
project administrators. For example, if project adminis-
trators consider a bid ratio of 60% to be the lowest
acceptable bid ratio, then the value of TR may equal
0.4 (=1
0.6). Thus, the value of TR will be set between
0.2 and 0.4.
5. Example
The proposed model is applied to two subprojects
(architectural and electrical) of a building project to
demonstrate its potential merits. The building project
is in central Taipei, Taiwan. Besides three underground
floors, the project includes a 14-story hotel-like dormi-
tory, a six-story educational building, a three-story of-
fice building, and a six-story building including an
800-seat meeting hall, and a 200-person convention hall.
The total project budget is approximately NT
$1,278,000,000 (US $42,600,000). (The project was
fast-tracked for completion by mid 2000). Notably, in
reality the two subprojects were both awarded to the
lowest bidder. The architectural subproject attracted
eight bidders, one of whom was disqualified during the
prequalification process. Furthermore, the electrical
subproject attracted eight bidders who were all qualified.
5.1. Evaluation results
The lowest of the qualified bids for the architectural
project was $830,000,000 representing a bid ratio of up
to 0.94 (=$830,000,000/$880,000,000). Using the pro-
posed model, the lowest bid can then be considered rea-
sonable because the bid ratio is over 0.8; this subproject
accordingly can be tendered out. However, the model is
also applied to the architectural subproject to further
examine the reasonableness of the proposed unit prices
of the lowest bid. Additionally, the electrical subproject
has a bid ratio (0.76 = $121,510,000/$159,900,000) of
below 0.8, and certainly should be further evaluated.
Suppose r1 = 0.3 and r2 = 0.4. Then, following con-
ducting the preparation and evaluation steps of the pro-
posed model, Table 3 lists the numbers of unit prices
that are treated as reasonable, suspicious or unreason-
able for each subproject. In the architectural subproject,
only about 46.05% (263/571) of cost items have a rea-
sonable unit price, and up to around 53.95% of unit
prices are either suspicious or unreasonable. Similarly,
the number of cost items with reasonable unit prices is
also less than half (34.03%) of the total number of cost
items (1619) in the electrical subproject. The middle of
Table 3 illustrates the two extreme values of differential
ratio found in each subproject. The extreme differential
ratio values indicate how widely the unit prices proposed
 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
Table 3
Number of reasonable, suspicious and unreasonable unit prices in each subproject
Subproject Ceiling price Lowest bid Bid Total no. Smallest D (%)
ratio of items
Architectural 880,000,000 830,000,000 0.94 571
98
Electrical 159,900,000 121,510,000 0.76 1619
100
by both owner and lowest bidder can vary. For example,
in the architectural subproject, the smallest and largest
values of Dj are
98% and 5,347%, respectively. Cer-
tainly, the unit prices corresponding to these two ex-
treme values of Dj should be categorized as
unreasonable.
Table 4 further shows the sums of the extended costs
of the reasonable, suspicious and unreasonable items in
each subproject. In the architectural subproject, the rea-
sonable cost is approximately 76.89% of the total bid
price. Assume that the threshold ratio (TR ) is prede-
fined as 30%. Although the suspicious unit prices have
not been clarified, the lowest bid of this subproject can
be directly considered reasonable because the sum of
both the suspicious and unreasonable costs is just
23.11% (below 30%).
As indicated earlier, the lowest bid price of an electri-
cal subproject is suspicious (namely, bid ratio is below
0.8). Based on the proposed model, although the suspi-
cious items have not been clarified, the lowest bid of the
electrical subproject can be directly considered unrea-
sonable. Namely, the unreasonable cost of the lowest
bid is up to 44.30%, which exceeds the threshold ratio
(30%). Thus, the lowest bid of the electrical subproject
should be rejected. And the second lowest then becomes
the lowest; the modeling steps then should be repeated.
However, as noted earlier, this electrical subproject
was awarded to the lowest bidder and no bid assess-
ments were conducted. To learn more about the effect
of this lowest bid on the subproject, the owner of the
subproject and the electrical contractor were inter-
viewed. The owner indicated that the contractor had
been proposing to use substituted equipment and mate-
rials throughout the construction phase to reduce costs.
Consequently, arguments frequently arise between the
owner and the contractor. Additionally, the contractor
admitted that his bidding strategy was simply intended
to gain the contract, increase the business volume of
his company, and thus allow him to profit on sales of
shares.
Table 4
Reasonable, suspicious and unreasonable costs in each subproject
Lowest bid Reasonable cost Suspicious cost
Architectural 830,000,000 638,188,895 (76.89%) 62,837,514 (7.57%)
Electrical 121,510,000 49,817,797 (41.00%) 17,867,780 (14.70%)
163
Largest D (%) No. of items
Reasonable Suspicious Unreasonable
5347 263 (46.05%) 61 (10.68%) 247 (43.26%)
2668 551 (34.03%) 209 (12.91%) 859 (53.06%)
5.2. Evaluation results of an alternative model
The above model considers the minimum unit price
(minj) and maximum unit price (maxj) submitted by
other qualified bidders with respect to each cost item j
for clarifying suspicious unit prices. An alternative ap-
proach is considering the average unit price (avej) calcu-
lated from the prices submitted by all qualified bidders
(including the lowest bidder) in the evaluation step. In
an alternative model, the criteria used to assess each unit
price (Bj) can be as follows:
 Reasonable unit price – If
r1 6 Dj 6 r1, then Bj is
reasonable. This criterion is the same as that of the
original model.
 Suspicious unit price – If {
r2 6 Dj 6
r1 and
(1
r2)avej 6 Bj} or {r1 < Dj 6 r2 and Bj 6 (1 + r2)-
avej} then Bj is suspicious. For example, suppose
r1 = 0.3 and r2 = 0.4. Then, if {
0.4 6 Dj <
0.3
and 0.6avej 6 Bj} or {0.3 < Dj 6 0.4 and Bj 6 1.4
avej} then Bj is suspicious. This criterion is stricter
than that of the original model. The practical implica-
tion is that a slightly low Bj, such as,

0.4 6 Dj <
0.3 can be treated as suspicious pro-
vided it is not too low, for example, Bj must be greater
than or equal to 0.6avej. Furthermore, a slightly high
Bj such as, 0.3 < Dj 6 0.4 can be treated as suspicious
provided it is not too high (for example, Bj must be
lower than or equal to 1.4avej).
 Unreasonable unit price – If Bj is not considered
either reasonable or suspicious, then it is considered
unreasonable.
Clarification then is conducted to clarify the suspi-
cious unit prices based on the aforementioned explana-
tion-based phase. Also suppose r1 = 0.3 and r2 = 0.4.
According to the alternative model, Table 5 lists the rea-
sonable, suspicious and unreasonable costs for the same
subprojects. This alternative model suggests the same
decisions in accepting/rejecting the lowest bids for the
Unreasonable cost Suggested decision (threshold ratio = 30%)
128,973,591 (15.54%) Accept the bid (7.57% + 15.54%
= 23.11% < 30%)
53,824,423 (44.30%) Reject the bid (44.30% > 30%)
164 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
Table 5
Reasonable, suspicious and unreasonable costs in each subproject based on an alternative model
Lowest bid Reasonable cost Suspicious cost
Architectural 830,000,000 638,188,895 (76.89%) 60,216,198 (7.25%)
Electrical 121,510,000 49,817,797 (41.00%) 14,482,868 (11.92%)
architectural and electrical subprojects. Generally, when
applied to the two subprojects, the results of this alter-
native model closely resemble those of the original
model. For example, in the architectural subproject, the
reasonable costs evaluated using both models are identi-
cal. Moreover, the percentages of the suspicious costs
obtained from the original and alternative models are
7.57% and 7.25%, respectively, and the difference is only
0.32%. Additionally, the percentages of unreasonable
costs obtained from the original and alternative models
are 15.54% and 15.86%, respectively. Notably, either the
original or alternative models are recommended pro-
vided the required languages or clauses of the tendering
documents have specified a particular model to be used
for the bid evaluations.
6. Discussions
The proposed model was demonstrated to several
industrial practitioners and governmental officers in
Taiwan. Overall, those to whom the model was demon-
strated strongly praised its ability to improve current
public procurement practices in Taiwan. Also, during
this investigation, the following lessons were learned.
 Successfully implementing the preparation step of the
model depends on all biddersÕ submitting electronic
spreadsheet files. However, submitting the bid pro-
posal with an electronic file should be feasible based
on the experience learned from a preceding research
of Wang [24]. The research of Wang [24] focused on
the phase in which the project was awarded to the
lowest bidder, and established an electronic-based
procedure to support review and adjustment of the
proposed unit prices of the lowest bidder. And none
of the bidders for several practical projects failed to
meet the requirement to submit an electronic file.
Additionally, a Taiwanese administrative order has
suggested that a public construction project with a
budget exceeding NT $50,000,000 (US $1,666,667)
be procured by forcing the bidders to submit their
cost estimates in electronic format, further increasing
the feasibility of using an electronic-facilitated bid
evaluation process [24].
 The tendering documentation should explicitly con-
tain language or clauses to force the legal execution
of the evaluation process. For example, the language
should include the requirement to submit an elec-
Unreasonable cost Suggested decision (Threshold ratio = 30%)
31,594,907 (15.86%) Accept the bid (7.25% + 15.86%
= 23.11% < 30%)
57,209,335 (47.08%) Reject the bid (47.08% > 30%)
tronic file with a fulfilled unit price for each cost item,
the steps of evaluating a lowest bid, and the explicit
values of r1, r2 and TR.
 The committee members entrusted with reviewing the
explanations/evidence of the lowest bidder should be
carefully selected. Besides the representatives from
the architect/engineer of the project, the outside
experts and union representatives should be consid-
ered as members of the committee. Moreover, audit-
ing officers should be formally invited to witness the
evaluation process for purposes of declaring it fair
and open.
 Furthermore, the reasons for accepting/rejecting a
unit price are suggested to be publicized to enable
the evaluation experience (similar to historical court
cases) to be applied to future projects.
 The records (including the explanations and evidence
provided by the bidder) of those bid evaluation meet-
ings should constitute part of the contractual docu-
ments, legalizing the model results.
 The proposed model can inspire bidders to recognize
the benefits of submitting accurate estimates, eventu-
ally improving their estimation skills.
 The time required to evaluate the lowest bid should
be sufficient to execute the model steps. Based on
the experience of Wang [24], the time period may be
14–21 calendar days depending on the number of pro-
ject cost items involved. Moreover, during this per-
iod, the preparation step typically takes 2–3 days,
the evaluation step takes 2–4 days, and the clarifica-
tion step takes 10 to 14 days.
 One method of shortening the evaluation time is to
reduce the number of cost items requiring evaluation.
For example, the 1619 cost items in the electrical sub-
project can be reduced to only include certain signif-
icant cost items that mostly govern project quality. If
those significant unit prices are evaluated as being
reasonable, the potential adverse impact of a low
bid can be limited. Typical significant cost items
may include: (1) structure related (for example piling
and steel materials); (2) quality-related (for example
inspector fees, laboratory fees, and drawing composi-
tion fees); (3) governmental regulation-related (for
example environmental protection fees, waste dirt
dumping fees, and construction insurance fees); and
equipment-related (for example chiller, process
exhaust system, heating, ventilation and air condi-
tioning, and fire protection system). Therefore,
instead of preparing a long list of cost items in the
 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
electronic file, a short list containing only the signifi-
cant cost items can be used. Notably, the total bid
price (TBP ) in Eq. (2) should then be replaced with
the sum of the costs of these significant items.
 Fixing the costs offered (or fixing a minimum bid
price) by suitable legal contracts and defining appro-
priate quality measures could perhaps help mitigate
the adverse consequences of unreasonably low bids.
However, in such a case, project administrators
should adopt a different bid-awarding method (such
as multi-criteria evaluation method rather than the
low-bid method discussed herein) to award project
contracts, because the bid prices of all bidders will
be the same (when the costs offered are fixed) or will
be very close (when the minimum bid price is fixed).
Hence, the bid price is not an appropriate criterion.
Additional criteria should be defined for selecting a
winner. Hence, the feasibility of fixing the costs or
minimum costs for bid evaluation should be
addressed by future research.
 Because the key evaluation criterion, Dj, is calculated
based on the value of the estimated unit price of the
owner (Oj), it is important to ensure the value of Oj
is reasonable. In a poor estimation situation, under-
estimating is more likely than over-estimating, based
on experience of public construction projects in Tai-
wan [23]. Under-estimation reveals that the ownerÕs
project ceiling price and associated unit prices (Oj)
are low. Hence, the difference between the unit prices
submitted by the owner and the lowest bidder tends
to be small. Consequently, the unit price (Bj) submit-
ted by the lowest bidder is unlikely to be treated as
unreasonable, unless it is extremely low. Generally,
under-estimations favor the lowest bidders. To estab-
lish a fair bid evaluation environment, the proposed
model can be extended to consider only those cost
items that have acceptable ownerÕs unit prices. For
instance, if the ownerÕs unit price (Oj) is between the
minimum unit price (minj) and the maximum unit
price (maxj) submitted by other qualified bidders,
then Oj is acceptable. Otherwise, Oj is unacceptable
and the corresponding cost item j should be excluded
from the bid evaluations.
 Although the execution of the proposed model is
straightforward, it should be presented to project
administrators of public procurement entities and
contractors via conferences, training programs and
other means. Conferences and training programs
are often held to promote a new administration order
or governmental regulations in Taiwan. Accordingly,
the project administrators and contractors will be
familiar with the modeling steps when the model is
implemented.
 A low bidder can also be a beneficiary because the
execution of the developed model can help to clarify
ambiguous tendering documents. A rejected low bid-
165
der may appreciate this model if his unreasonably low
bid price is caused by mistaken estimates. Therefore,
both project administrators and bidders should be
willing to accept the proposed bid evaluation model,
because it can support a win-win situation.
7. Conclusions
This study proposes a unit-price-based model for
evaluating competitive bids. The developed model and
existing models have two similarities; (1) they all con-
sider the bid prices submitted by other qualified bidders,
and (2) they all allow the second lowest bid to continue
to be evaluated if the lowest bid is rejected. However, the
presented model differs in four main ways from the
existing models. First, in the proposed model, the assess-
ment of a lowest bid concerns unit prices rather than the
total bid price (the total bid price is also used a criterion
to indicate whether a lowest bid should be further eval-
uated). Second, the proposed model evaluates a low bid
based on the unit price data (submitted by the owner
and the other qualified bidders) obtained for the project
of interest rather than from historical data. The use of
data concerning historical projects to evaluate bids can
easily be challenged, primarily because the quality-re-
lated specifications of a particular cost item (even with
the same item name) in different projects may vary, so
the corresponding unit prices of the cost item in various
projects are also likely to vary. Third, in the developed
model, the evaluation and clarification steps identify
which parts of a low bid are unreasonable. The decision
is made according to whether the total unreasonable
cost exceeds the total bid price by a predefined threshold
ratio. Restated, the accept/reject decisions are not made
based on statistical analyses. Fourth, the clarification
step in the proposed model enables the low bidder to de-
fend suspicious unit prices. Therefore, the low bidder
also participates in the bid evaluation process. Eventu-
ally, the low bidder will likely be satisfied with the deci-
sion even if he is rejected. Notably, Government
Procurement Law in Taiwan mandates such a clarifica-
tion step in any proposed bid evaluation model [2].
The entire modeling process can be viewed as an elec-
tronically facilitated evaluation of the cost allocation of
the low bid. Although the proposed model may not be
developed based on complex mathematical theories, its
practical implications can contribute to current public
procurement practice, as indicated by several industrial
practitioners in Taiwan. After the lowest bid is consid-
ered reasonable (namely, the contract is won), the model
proposed by Wang can be used to revise the unreason-
able unit prices to reasonable ones given the fixed total
bid price (that is, to reshuffle the unreasonable costs)
[24]. The finalized contractual unit prices then can serve
166 W.-C. Wang et al. / International Journal of Project Management 24 (2006) 156–166
as a mutually agreeable basis for handling future change
orders. Then, a fully electronic government procurement
system may be established.
Acknowledgements
The writers like to thank the reviewers for their care-
ful evaluation and thoughtful comments. Also, the writ-
ers thank the National Science Council of Taiwan for
financially supporting this research under Contract
No. NSC92-2211-E-009-005.
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