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"Front-loaded"Bids

Monday, July 01, 2002 06:02 pm

 
"Front-loaded"Bids

A bid is "front-loaded"if the total price is allocated in a manner where elements of the work to be performed, and paid for, early in a project bear a disproportionate amount of cost, overhead and profit. In other words, the contractor is attempting to maximize revenue early in the project by assigning overstated values to preliminary portions of the work.

A front-loaded contract poses financial dangers for a project owner. It is never in an owner's best interest to pay a contractor an amount that exceeds the value of the work in place. In a worst-case scenario, it is a disincentive for completion. Even assuming diligence and good faith on the part of the contractor, it leaves the owner in a difficult position. In the event of a termination for default or convenience, the owner will have no effective way to recoup the overpayment.

Responsiveness

In the public contract arena, front-loaded bids are usually addressed in the context of bid responsiveness. Does the front-loading of a low bid represent a material deviation from the solicitation and provide grounds for rejection? A frontloaded bid is not automatically nonresponsive. The misallocation of costs must be substantial. In the words of the Federal Acquisition Regulation, it must pose an "unacceptable risk"to the government. FAR 15.404-2(g) If unacceptable risk is not present, a federal agency must a [...]

 
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