Bid alternates are common elements of construction solicitations that allow owners to evaluate optional additions or deletions to the base scope. Understanding how to strategically price alternates can differentiate you from competitors and increase your win rate.
This guide covers the fundamentals of bid alternates and advanced strategies for pricing them effectively.
Understanding Bid Alternates
Bid alternates represent optional scope items that owners may choose to include or exclude from the contract after bid evaluation.
Types of Bid Alternates
Add Alternates
- Optional scope additions to the base bid
- Owner may elect to add if budget allows
- Examples: upgraded finishes, additional rooms, enhanced systems
Deduct Alternates
- Optional scope reductions from the base bid
- Owner may elect to remove if budget constrained
- Examples: reduced finish levels, phased construction, value engineering items
Substitution Alternates
- Alternative products or systems
- Replace specified items with alternatives
- May be additive or deductive
Why Owners Use Alternates
Owners include alternates to:
- Manage budget uncertainty
- Maintain flexibility in scope decisions
- Evaluate value engineering options
- Phase project scope as funding allows
- Test market pricing for optional elements
Base Bid vs. Alternate Considerations
How you handle the relationship between base bid and alternates affects competitiveness.
Base Bid Priority
Most procurement rules prioritize the base bid:
- Award typically based on base bid price
- Alternates considered after identifying low bidder
- Base bid must be complete and competitive
- Never sacrifice base bid competitiveness for alternates
Strategic Implications
Consider the likely scenario:
When Owner Likely to Accept Alternates
- Price alternates competitively
- Alternates extend your competitive advantage
- Volume helps if you're already low
When Owner Unlikely to Accept Alternates
- Focus resources on base bid accuracy
- Alternates less critical to outcome
- Don't overinvest in alternate pricing
Pricing Add Alternates
Strategic considerations for add alternate pricing.
Full Cost Recovery
Calculate complete costs for add alternates:
Direct Costs
- Labor for additional scope
- Materials specific to alternate
- Equipment requirements
- Subcontractor work
Indirect Costs
- Extended general conditions (if applicable)
- Additional supervision
- Insurance on added scope
- Extended bonding costs
Markup
- Overhead allocation
- Profit margin
- Risk contingency
Volume Discount Consideration
When add alternates create efficiencies:
- Shared mobilization costs
- Crew productivity improvements
- Material volume discounts
- Reduced unit costs at scale
These efficiencies can make your alternate pricing more competitive while maintaining margins.
Timing Considerations
Consider when alternates would be executed:
- Work concurrent with base bid (efficient)
- Work after base bid completion (remobilization costs)
- Impact on overall schedule
- Seasonal or weather factors
Pricing Deduct Alternates
Deduct alternates require careful strategic thinking.
True Cost Deduction
Calculate actual savings from scope reduction:
- Removed labor costs
- Eliminated material costs
- Reduced equipment needs
- Subcontractor scope reductions
- Schedule impact savings
Overhead Recovery Challenge
Key strategic concern: overhead and profit recovery
If Deduction Equals Full Cost
- You lose overhead and profit from base bid
- Creates margin pressure on reduced project
- May make project unprofitable
Strategic Approach
- Deduct direct costs only
- Maintain overhead and profit in base bid
- Protect overall project margins
Minimum Project Size
Consider your overhead requirements:
- Calculate minimum project size for profitability
- Evaluate if deducted project meets threshold
- Price deducts to maintain viability
- Avoid winning unprofitable reduced projects
Advanced Alternate Strategies
Sophisticated approaches to alternate pricing.
Competitive Positioning
Use alternates strategically in competitive situations:
If Expecting to Be Low on Base
- Price alternates competitively
- Extend your advantage if alternates accepted
- Volume adds to total opportunity
If Expecting to Be Close on Base
- Aggressive alternate pricing may win contract
- Lower alternate might swing decision your way
- Consider strategic pricing on key alternates
Reading Owner Intent
Evaluate which alternates are likely to be accepted:
Signals of High Priority Alternates
- Detailed specifications for alternate
- Site work already planned for alternate
- Owner questions focused on alternate
- Budget discussions mention alternate
Signals of Unlikely Alternates
- Minimal specification detail
- Optional or nice-to-have language
- Late addition to bid documents
- No pre-bid questions about alternate
Subcontractor Coordination
Manage subcontractor alternate pricing:
- Request sub pricing on all alternates
- Coordinate scope inclusions/exclusions
- Verify subs understand alternate descriptions
- Get complete alternate coverage
Common Alternate Scenarios
Handle typical situations effectively.
Phased Construction Alternates
When alternates create project phases:
- Calculate remobilization costs between phases
- Consider general conditions for extended duration
- Evaluate crew efficiency across phases
- Price schedule impacts
Quality Level Alternates
When alternates change finish levels:
- Calculate material cost differences accurately
- Consider labor productivity differences
- Include any warranty differences
- Evaluate long-term maintenance implications
System Alternates
When alternates substitute building systems:
- Get complete pricing from different trades
- Evaluate coordination requirements
- Consider long-term operating costs (if relevant)
- Include design differences if applicable
Bid Form Completion
Properly complete alternate sections on bid forms.
Required Format
Follow bid form requirements:
- Use specified format (lump sum, unit price)
- Complete all alternate lines
- Show add or deduct clearly
- Sign and acknowledge all alternates
Mathematical Accuracy
Verify calculations:
- Double-check all arithmetic
- Ensure signs are correct (add vs. deduct)
- Verify totals if required
- Cross-check with estimating spreadsheets
Clarifications
Address any questions:
- Note any scope clarifications
- Document assumptions
- Identify exclusions if applicable
- Avoid qualifications that risk rejection
Evaluating Competitor Alternate Strategies
Learn from bid results.
Bid Analysis
After bid opening:
- Record competitor alternate pricing
- Calculate base bid plus alternates combinations
- Identify pricing patterns
- Note aggressive or conservative approaches
Competitive Intelligence
Build knowledge over time:
- Track competitors' alternate strategies
- Identify market pricing patterns
- Understand owner evaluation approaches
- Refine your strategy based on results
Frequently Asked Questions
Should I price deduct alternates as a full cost deduction?
Generally, no. Price deduct alternates to cover your direct cost savings while preserving overhead and profit in the base bid. Full cost deductions reduce your margins on the final project.
Can alternates change my position from low to high bidder?
Typically, no. Most procurements determine the low bidder based on base bid first, then evaluate alternates. However, check specific bid documents for evaluation criteria.
How should I handle an alternate I don't want?
Price it honestly but don't sacrifice margin. If the deduct makes the project unprofitable, price it conservatively. You cannot typically refuse work on accepted alternates.
What if I discover an error in alternate pricing after submission?
Rules vary by procurement. Generally, errors in alternates are handled similarly to base bid errors. Contact the contracting officer immediately if you discover a material error.
Should I ask pre-bid questions about alternates?
Yes. If alternate scope is unclear, submit questions through proper channels. Clear understanding enables accurate pricing and reduces risk.
Conclusion
Bid alternates provide opportunities for strategic differentiation beyond base bid pricing. By understanding owner intent, calculating true costs, and applying strategic pricing approaches, contractors can use alternates to improve win rates while protecting margins.
Focus first on a competitive base bid, then apply appropriate strategies to alternates based on likelihood of acceptance and competitive positioning needs.
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