Bid evaluation from the owner's side: why the lowest price is rarely the real price

Three bids are on the table for the rig, the vessel or the EPC package, and one is clearly cheaper. Finance likes it, and nobody on the steering committee wants to argue for paying more. The trouble is that the number on the summary sheet is rarely what you end up paying, and a bid evaluation that stops at that number misses the real price: what each bid leaves out, what it assumes, and what the contract lets the contractor charge once work starts.

Bid evaluation from the owner's side is the work of finding that real price before you sign, while every bidder still wants the job. Here is what to decide before the envelopes open, where hidden cost tends to sit, and how to compare offers that were never written to be compared.

Why does the lowest bid so often cost more than it shows?

A low bid is not automatically a bad bid. But a low price on paper can mean three different things, and the summary sheet does not say which.

• A real advantage. A rig coming off another job or a vessel already in the region. Good news, once confirmed.
• A different scope. The bidder priced less work than you asked for, or assumed friendlier weather, progress and waiting.
• A bet on changes. The bidder priced to win and plans to recover its margin through paid changes to the scope, standby charges and claims, once switching contractor is no longer realistic.

The last two are how a contract that looked cheap at award ends up costing more than the bids it beat. Once the contractor's people and equipment are on site, time spent arguing is mostly paid for by the owner, in day rates, standby or a later finish, and a contractor losing money makes different choices about crews, spares and safety margins.

How should you set tender evaluation criteria before the envelopes open?

The most important decisions in a bid evaluation are made before a single bid arrives. Once you have seen the prices, any criterion written afterwards is shaped by the bidder you already prefer. Settle the method first, write it down, and have it signed off by operations, engineering, contracts and finance.

• Pass or fail gates. Suitable equipment, named key people, an acceptable safety record, the financial strength to carry the job, and acceptance of your main contract terms.
• Weighted technical criteria. A short list of factors that predict delivery on this project, not a checklist copied from the last tender.
• A scoring guide. What strong, adequate and weak answers look like, so two evaluators reading the same bid score it alike.
• A rule for price. How commercial offers will be adjusted, and how price and technical scores combine into one recommendation.

Take the weights from your risk picture, not from habit. The risks already logged through your project and risk management process show which criteria matter most: if schedule and the handoffs between contractors (where one contractor's work ends and the next begins) are the biggest threats, those should carry the most weight.

Where you can, keep technical and commercial scoring apart: evaluators should not see prices until their technical scores are locked. That stops a cheap bid scoring well because everyone wants it to, and leaves an audit trail for when a partner, a lender or a losing bidder asks why.

What does a technical bid evaluation actually check?

Stripped of the paperwork, a technical bid evaluation answers four plain questions. Can this contractor do the work? With what equipment and which people? On what plan? And does it understand what you are asking for?

The fourth question separates bids. A contractor that asks sharp questions during the tender, flags a handoff you had missed or proposes a method that removes a risk is showing you how it will behave in execution. One that confirms compliance with everything, at a price well below the rest, may not have read the scope closely.

Where do assumptions and clauses hide the real cost?

Most of the gap between the price on paper and the price you pay sits in fine print that rarely reaches the award presentation.

• Exclusions and assumptions. Work left to you, or conditions the bidder assumes will hold. Each one is a cost you carry or a claim waiting to happen.
• Waiting time. Standby, weather downtime and waiting on your other contractors. On rig and vessel contracts these can matter as much as the headline day rate.
• Getting there and back. Bringing the rig or vessel and its crew to your site and away again (mobilisation and demobilisation): transit days, fuel and fixed fees, kept low in one bid and padded in another.
• Change rates. What applies when the scope moves, which it will. A low base price with expensive change rates is not a low price.
• Liability and price adjustment. Caps on what the contractor pays if things go wrong, indemnities, and price adjustments for fuel, labour or currency. A bidder that rewrites these has changed what you are buying, even at the same number.
• Deviations. The bidder's list of everything it does not accept. Read it first, not last.

How do you compare bids that are not comparable?

Bids rarely arrive in the same shape: one lump sum, one day rate with extras, one that leaves out half the logistics. Picking the smallest total is not an evaluation. Bid normalisation means rebuilding each offer on the same basis, so you compare the cost of your project rather than the cost of whatever each bidder chose to price.

• Build one reference scenario. Same scope, realistic duration and allowance for weather and waiting, on your schedule rather than each bidder's.
• Price the gaps. Put your own cost on every exclusion and add it to that bid.
• Price the deviations. Where a bidder has pushed risk back onto you, estimate its cost and add it to the offer.
• Ask before you assume. Close gaps in a written clarification round. If one bid sits far below the others, ask that bidder to show how the price works. A serious contractor can.
• Compare evaluated cost. The normalised figure, next to the technical score, is what goes to the award decision.

This is often where the cheapest bid slides to the middle of the table, and sometimes the most expensive proves the best value because it priced risks the others left out. It is the core of how we approach tendering and contracting as owner's engineer: on your side of the table, asking what the contract will really cost you.

When is the lowest price the right answer?

Sometimes it is. When the scope is tightly defined, the work is routine, the bids have been normalised and the low bidder clears every technical gate, paying more buys you nothing. The point of bid evaluation is not to punish a low price. It is to know what you are buying before you buy it.

Part of the protection comes before scoring, in how work is split between contractors. In one of our published engagements, "Subsea decommissioning, contracted without surprises", an operator facing its first decommissioning campaign asked us to shape the contracting strategy, run the tender for vessels and services, and supervise execution. Scope interfaces, the points where one piece of work hands over to the next, were defined before they could become claims.

If a tender is about to go out, or the bids on your desk refuse to line up, tell us where you are. The partner who sets the evaluation criteria with you stays through award, so the reasoning behind the choice does not leave the room with a junior.