It's 15 minutes until "Bid Time," and all the Bid Runners for the Bidders are calling back to their offices and asking their Senior Estimators for the Base Bid price and the prices for the Alternates to fill in on the Bid Proposal Forms. But the Senior Estimators are all focusing their attention completely on the Base Bid estimates and have almost forgotten about the Alternates. Now they suddenly realize that they have only a few minutes to come up with prices for these Alternates and still be able to get their Bids turned in before the unyielding "Bid Time" arrives!
As any contractor will tell you, this scene is not an uncommon one. It seems that every time a construction project is bid, it always goes down to the last minute before the estimators are able to finalize their Base Bid price and the prices of any Alternates. And it's also true that quite often estimators are so rushed that they forget the Alternates and have to almost guess at these alternate prices at the last minute. That is why you often see a wide spread in prices on the Alternates: Because contractors do not allow enough time (or just don't have enough time) to properly estimate the cost of the Alternates.
With only a limited amount of time available to estimate the cost of the Alternates, which type of Alternate is best for you to use, "Additive" or "Deductive?" Which one will save your client the most money? Let's investigate and compare these two types.
ADDITIVE AND DEDUCTIVE ALTERNATES CAN BE USED FOR THE SAME PURPOSE.
There is an understandable need for alternates. In case the project goes over budget, one or more of the alternates can then be adapted to keep the project within the owner's budget, which allows an award to be made. But this can be accomplished with Additive Alternates as well as with Deductive Alternates. Instead of starting with a higher Base Bid and accepting Deductive Alternates to bring the price down to the owner's budget, start with the minimum Base Bid and accept Additive Alternates until the price is brought up to the owner's maximum allowable budget. Either way, your clients can use the alternates to bring their projects within budget, and get the most construction for their dollar. So which type of Alternate is best for your client? Read on.
ADDITIVE ALTERNATES TAKE LESS TIME (TO ESTIMATE) THAN DEDUCTIVE ALTERNATES
On the surface, it appears that it would take the same amount of time to price a Deductive Alternate as an Additive Alternate. Actually, it is a more complicated process and will take longer to price a Deductive Alternate. Here's why.
When pricing a Deductive Alternate, the contractor must not only be concerned with the cost of the work in question--he/she must also be concerned with, and confirm, how much money he/she has included in the base bid estimate for the work being deleted. Naturally, the contractor does not want to deduct more than he/she has included in their base bid for the work in question. So, they have to take time to find these costs in their Base Bid estimate before including these same costs in the Deductive Alternates.
On the other hand, pricing an Additive Alternate is like pricing another small project, separate from the original base bid. The estimators do not have to be concerned with how much they have included in their Base Bid for the work in question. They simply calculate the cost of the work involved in the Additive Alternate and then include that alternate price on the bid form along with their base bid. This saves the Bidders time that they can use to look for ways to reduce their Base Bid. This will result in their Base Bid prices being lower. On Bid Day, contractors spend a huge amount of time looking for ways to reduce their prices. The more time they have available for this operation, the lower their prices will be.
CONTRACTORS' FEES MAY NOT BE INCLUDED IN DEDUCTIVE ALTERNATES
In pricing a Deductive Alternate, contractors may not credit the project for the overhead and profit on the work being deleted. When time is running out on bid day, contractors will quickly put together the major cost items in a Deductive Alternate, often leaving out their overhead and profit on these items. Their motive for doing this is not to make more money. They simply may not have time to properly calculate the fees associated with the work being deleted in the Deductive Alternate.
WITH ADDITIVE ALTERNATES, OMISSION ERRORS FAVOR THE OWNER
Another advantage to owners in asking for Additive Alternates in lieu of Deductive Alternates is that omission errors favor the Owner rather than the Bidder. On Bid Day the Bidders are extremely busy putting their bids together. Small errors and omissions do occur. If they mistakenly omit the cost of a portion of the work described in a Deductive Alternate, then it's to the Bidder's advantage if that Deductive Alternate is accepted, because a portion of the work would be deleted without the bidder properly crediting the owner for that work. On the other hand, if the Owners accepts an Additive Alternate, where the Bidder has mistakenly omitted the cost of a portion of the described in the Additive Alternate, then the advantage goes to the Owner.
SUMMARY
Both Deductive and Additive Alternates take time away from preparing the Base Bid and should be used only when absolutely necessary, and then they should be limited to a maximum of three. It is best to make these alternates Additive Alternates. The reasons for using Additive Alternates all favor the owner, whereas using Deductive Alternates may favor the Bidders. Deductive alternates take more time away from preparing the Base Bid, and may not include credits for all the associated costs and fees. However, Additive Alternates: 1) Are easier for the Bidders to prepare, 2) Take less time to prepare, 3) Have less chance for errors, 4) Favor the Owner if all associated costs are not included, 5) Can be used for the same purpose as Deductive Alternates, and 6) Can save your client thousands of dollars over Deductive Alternates. Therefore, from an Owner's viewpoint, Additive Alternates win hands down over Deductive alternates. Every Time.