Why the Cheapest Tender Could Cost the Most

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PROCUREMENT  ·  TENDER STRATEGY  ·  COMMERCIAL AWARENESS Why the Cheapest Tender Could Cost the Most The lowest price wins the award. Six months into the project, the employer understands why no one else submitted that price. Price-only procurement is one of the most expensive decisions a client can make. Projects Associates  ·  Contract Administration Desk  ·  18 August 2026

+31% final payments vs the winner's own bid 45.6% average cost overrun Nigerian studies s.33 Lowest evaluated cost is not lowest price

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WHAT HAPPENED

The following is a composite, constructed to illustrate a documented pattern rather than to describe a particular job. Three contractors are invited to tender a commercial development against a pre-tender estimate of ₦660m. The bids return at ₦650m, ₦710m and ₦620m — an average of ₦660m, matching the estimate almost exactly. The board awards the lowest bid on price alone.

By month six, the project was in difficulty. The structural steel package had been tendered by the contractor at below-market rates, and the subcontractor was seeking remeasurement of quantities that had been "estimated" in the tender. The mechanical and electrical scope had been reduced at tender stage to get the price down, and was now being reinstated as additional works. The programme was ten weeks behind.

The final account settles at ₦855 million — 38% above the winning tender and 30% above the estimate. The ₦30 million saved against the next-lowest bid has become ₦195 million spent above budget. Note that the average across the 148-tender study is +31% on the winning bid; this composite sits modestly above it, not at the extreme.

“The cheapest price is not always the lowest cost. On the evidence, it is usually the opening position of a negotiation the client has already lost leverage in.”

How low tenders recover their margin

A contractor who submits a price they know to be below market is not making a commercial error. They are making a commercial strategy. The strategy depends on the employer's procurement process providing insufficient rigour — and the construction process providing sufficient opportunity for recovery through variations, re-measurement, and scope claims.

The most common recovery mechanisms are: pricing work items at below-cost rates on items that are likely to decrease, and above-cost on items likely to increase; using inaccurate quantities to create re-measurement opportunities; reducing the scope included in the tender to the minimum defensible interpretation; and submitting aggressive claims for variations, delays, and additional costs from the earliest possible stage.

None of these strategies require dishonesty. They require an information asymmetry — the contractor knowing more about the true cost than the employer. Price-only procurement perpetuates this asymmetry by removing the conversation about methodology, programme, risk, and commercial approach that might expose the gap.

What "lowest evaluated cost" actually permits

Two distinct levers exist, and they are often confused. The first is the responsiveness and pre-qualification gate, which runs before any financial envelope is opened: methodology and programme, risk allocation and assumptions, track record on comparable work, the experience of the proposed team. Under a lowest-evaluated-cost regime these are pass-or-fail tests, and they are where most of the available protection actually sits. The second is the set of economic factors of evaluation — non-price criteria converted into money and added to the tendered figure.

The standard bidding documents also supply a specific and underused remedy. Where the bid producing the lowest evaluated price is seriously unbalanced or front-loaded in the Employer's opinion, the Employer may require the bidder to produce detailed price analyses for any or all items in the Bill of Quantities, to demonstrate that those rates are internally consistent with the construction methods and programme proposed. Having reviewed them, the Employer may require the performance security to be increased at the bidder's expense. That is an objective, auditable answer to front-loaded pricing, and it needs no change to the award rule.

Nigerian public procurement does not work quite this way, and it is worth being precise. Section 33(1) of the Public Procurement Act 2007 provides that the successful bid shall be the lowest cost bid from amongst the bids adjudged responsive. Quality is not scored against price; it enters as a pass-or-fail responsiveness and pre-qualification gate. But "lowest evaluated cost" is a term of art, and it carries more room than most evaluation committees use: it means the bid ranked lowest using criteria in addition to price, quantified in monetary terms and disclosed in the bidding documents. Operating and life-cycle cost are routine economic factors of evaluation for goods and plant. For works the position is tighter — the standard bidding document permits no evaluation criteria beyond those it lists, so whole-life cost can only influence a works award if it was written in before tenders were invited.

“Price-only procurement does not save money. It defers the cost to a point in the project where the employer has no leverage to control it.”

THE BROADER POINT

Use the room the Act already gives you.

The employer who awards on tendered price alone, without interrogating what sits behind it, has not necessarily saved money. They have deferred costs to the worst possible point in the project — when the contractor is on site, the programme is committed, and the employer has no viable alternative. The remedy is not simply more evaluator discretion, which in a market with documented bidding corruption carries risks of its own. It is to use the room Section 33 already provides: economic factors monetised and disclosed before tendering, price analyses demanded where a low bid is seriously unbalanced or front-loaded, and performance security increased where those analyses justify it.

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