The lowest bid winning bid method is the selection mechanism in which the bidder with the lowest price among all bidders wins the bid. Its essential function is to solve the problem of out-of-control project budgets and ensure that the owner pays the lowest price to the contractor and the contractor provides the most satisfactory project to the owner. From the perspective of international practice, the lowest price winning bid method also exposed problems such as low price, low quality, and "beard engineering" in the early days of its application. However, with the implementation of supporting guarantee measures, this method has survived for a century.
Among them, the project guarantee mechanism is a necessary element in the guarantee measures of the lowest price winning bid method. Specifically, it consists of insurance guarantee and performance guarantee as the rational basis for "lowest price winning bid". For example, the U.S. federal government requires bidders to issue a bid guarantee of 20% of the insured amount before bidding and a performance guarantee of 100% of the contract amount after winning the bid, under the principle of directly awarding the contract to the lowest bidder. Correspondingly, the tenderer must accept the lowest bidder, otherwise it must provide a complete explanation: why it thinks the bidder is not credible, why it thinks the price is unreasonable, etc.
What roles can bid guarantees and performance guarantees play in “winning the bid at the lowest price”? How can it play a greater role?
1. Bid guarantee + performance guarantee: meet the requirements of the lowest bid winning method
To win the lowest bid, the first requirement is that the bid price is the lowest, and the second requirement is that the completed building can satisfy the owner. Bid guarantees and performance guarantees correspond to these two requirements respectively.
Bid guarantee means that the guarantor guarantees to the owner that project bidders will fulfill their bidding obligations, including signing the contract after winning the bid and submitting follow-up guarantees. For the lowest bid winning method, the reason why the bid guarantee includes the successful bidder's failure to sign a contract within the scope of the guarantee is to compensate the owner for the economic losses caused by the failure to sign the contract at the lowest price. Correspondingly, bid guarantees usually use the difference between the winning bid price and the bid price of the contractor who finally concluded the contract as the compensation amount, or use the guarantee amount as the penalty amount.
Performance guarantee means that the guarantor guarantees to the owner that the project contractor will fulfill its construction contract obligations and ensure that the project is completed on schedule with quality and quantity. For the lowest bid winning method, the performance guarantee includes the failure of the successful bidder to perform various obligations as stipulated in the contract into the scope of the guarantee, in order to compensate the owner for the economic losses caused by the failure to obtain a satisfactory project.
2. Bid guarantee + performance guarantee: plug the loopholes in the lowest price winning bid law
The implementation of bid guarantee and performance guarantee can firstly ensure the smooth implementation of the lowest price winning bid law, and secondly can correct it Practical issues of the lowest bid winning bid method and standardizing market competition.
Under the lowest price winning bid method, the winning bid price is lower or even far lower than the cost price. The problem is quite serious, and the too low quotation pave the way for a series of problems in the contract performance process: cutting corners and cutting corners. Shoddy goods have brought about the problem of "low price and low quality". Limited budgets and excessive funding gaps have brought about "bearded projects" that cannot be completed on time and "half-finished projects" that cannot be completed. For a long time, competition among contractors in terms of management, cost, quality, and reputation has turned into competition in the ability to prepare budgets, compete in the ability to detect bids, and even competition in advance construction, which is harmful to competition in the construction market.
In the lowest bid winning bid, the basic principle of curbing breach of contract is to implement breach of contract responsibilities and increase breach of contract costs. Bidding guarantees and performance guarantees can ensure that the responsibility for "low price, low quality" and "bearded projects" returns to themselves: the recovery mechanism and counter-guarantee setting of the project guarantee can make claims against the contractor after compensating the owner, which in fact transfers the default risk back to the risk source. The application of bid guarantees and performance guarantees can change the result of contractors winning bids at unreasonably low prices: if they advance, they will suffer losses, if they retreat, they will be punished - unreasonable low prices that "starve their peers to death, exhaust themselves to death, and cheat the owners to death" can also Contained at source.
3. Bidding guarantee + performance guarantee: from low insurance amount to high insurance amount
Of course, bidding guarantee and performance guarantee must meet the requirements of the lowest price winning bid law and block the lowest price winning bid law. The role of loopholes is positively correlated with the amount of insurance: the amount of guarantee determines the upper limit of guarantee liability and also limits the realization of the guarantee function.
Compared with areas with high insured amounts such as the United States, my country’s 2% bid guarantee is more difficult to encourage contractors to treat bidding more cautiously and establish a reasonable minimum evaluation guarantee for winning the bid. The 10% performance guarantee can only play a limited role. of breach of contract regulation. In addition, the pre-qualification effect that high-insured bidding guarantees can play and the owner protection role that high-insured performance guarantees can play will also be greatly reduced in the case of low insured amounts.
It is worth noting that the regulatory authorities have consciously guided the development of performance guarantees towards high insured amounts: on September 24, the General Office of the State Council forwarded the Ministry of Housing and Urban-Rural Development’s "Notice on Improving the Quality Assurance System and Improving the Quality of Construction Projects" After requiring "the implementation of high-insurance performance guarantees for the exploration of using the lowest bid to win the bid," on September 30, the Ministry of Housing and Urban-Rural Development also issued the "Guiding Opinions on Further Strengthening the Bidding Supervision of Housing Construction and Municipal Infrastructure Projects (Draft for Comment)" to Explore the implementation of high-insurance performance guarantees using the lowest reasonable bid price.
In addition, the "Guiding Opinions on Accelerating the Implementation of the Project Guarantee System for Housing Construction and Municipal Infrastructure Projects" jointly issued by six departments also deleted the sentence "the amount of the bid guarantee shall not exceed the bidding project" in the previous draft for comments. 2% of the estimated price, with a maximum of no more than 800,000 yuan," which leaves room for innovation in bidding guarantees to increase the insured amount.
Starting from the relationship between the owner and the contractor, using bid guarantees and performance guarantees to establish a mechanism of rights, responsibilities, and benefits that are relatively independent and interdependent is an important means to improve the lowest bid winning method. At the same time, promoting the marketization of the project cost management system and encouraging the diversification of property rights of bidding groups are also necessary supporting measures.
Taken together, the role of the lowest bidder in winning the bid is predicated on a sound market mechanism, risk control measures in place, and a complete credit system. While implementing the lowest price winning bid law, we must establish and improve a constraint guarantee mechanism and comprehensively constrain bidding from the legal, technical and moral levels to ensure its smooth implementation.