18.6 Alternates, Allowances, Unit Prices & Contract Award

Handling Alternates, Allowances & Unit Prices

To balance construction scope with rigid client budgets, architects integrate financial adjustment mechanisms into the procurement documents.

Alternates (AIA Document A701 Section 4.2.1)

An alternate is a defined portion of work described in the bidding documents for which bidders submit a separate price that may be added to or deducted from the base bid:

• Add Alternates: Scope enhancements that increase the base bid if accepted (e.g., adding a rooftop photovoltaic solar array, finishing a third-floor shell space, or upgrading acoustic ceilings).
• Deduct Alternates: Scope deletions that decrease the base bid if accepted (e.g., omitting decorative aluminum sunshades, substituting resilient flooring for terrazzo, or deleting exterior landscaping beds).
• Budget Balancing Strategy: Alternates provide the owner with pre-priced contractual levers. If competitive base bids come in over budget, the owner can accept deduct alternates to bring the contract sum within available capital funds without cancelling the procurement or redesigning the project.

ALTERNATE SELECTION & PREVENTING BID MANIPULATION
═══════════════════════════════════════════════════════════════════════════════════════════
Bidder A: Base Bid = $1,000,000 | Alt 1 (Add) = $50,000 | Alt 2 (Add) = $30,000
Bidder B: Base Bid = $1,020,000 | Alt 1 (Add) = $10,000 | Alt 2 (Add) = $40,000
───────────────────────────────────────────────────────────────────────────────────────────
SCENARIO 1 (Base Bid Only):                Bidder A is Low ($1,000,000 vs $1,020,000)
SCENARIO 2 (Base Bid + Alt 1):             Bidder B is Low ($1,030,000 vs $1,050,000)
───────────────────────────────────────────────────────────────────────────────────────────
LEGAL RULE: Public owners CANNOT arbitrarily select Alt 1 to favor Bidder B.
Alternates MUST be accepted in the strict numerical sequence listed in the bid documents!
═══════════════════════════════════════════════════════════════════════════════════════════

Prevention of Bid Rigging in Alternate Selection

In public competitive bidding, the handling of alternates represents a significant ethical and legal risk. If an owner could freely pick and choose alternates after opening bids, the owner could manipulate combinations to steer the contract award to a favored contractor (as illustrated above). To guarantee procurement integrity:

• Rigid Priority Order: Bidding documents must establish an unyielding, pre-determined priority sequence (e.g., Base Bid, then Alternate No. 1, then Alternate No. 2). The owner must accept alternates in that exact order down to the limit of available funding.
• Determining Low Bidder: The lowest responsive bidder is identified based on the total sum of the Base Bid plus all sequentially accepted alternates within the established budget ceiling.

Cash Allowances (AIA Document A201 Section 3.8)

Cash allowances are stipulated monetary sums included in the contract when specific material or equipment selections cannot be finalized prior to bidding (e.g., decorative lighting fixtures, custom architectural hardware, imported stone tiles):

• Costs Included in Allowance: Under AIA A201 Section 3.8.2, the allowance covers the net purchase price of materials and equipment delivered to the jobsite, including all applicable taxes and trade discounts.
• Costs Excluded from Allowance (In Base Contract): The contractor's costs for unloading, uncrating, on-site storage, handling, labor for installation, overhead, profit, and commercial insurance are excluded from the allowance and must be included by the contractor in the base Contract Sum.
• Contract Adjustment: If the actual cost of purchasing the approved materials exceeds or is less than the allowance sum, the Contract Sum is adjusted by a Change Order reflecting the exact net difference without contractor markup for overhead and profit.

Unit Prices

Unit prices represent pre-established rates per unit of measurement for specific items of work where exact quantities are unknown during bidding (e.g., cubic yards of unexpected rock excavation, linear feet of helical micropiles, square feet of decayed timber decking replacement):

• Balanced vs. Unbalanced Bids: Unit prices must reflect realistic market rates. Contractors sometimes submit unbalanced bids—artificially inflating unit prices for early excavation work while deflating later unit prices—to front-load payments or exploit anticipated quantity underestimates. The architect must scrutinize unit price tabulations; an excessively unbalanced bid can be deemed non-responsive and rejected.

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Contract Award Instruments, Execution & Date of Commencement

Once the architect and owner complete bid evaluations and identify the lowest responsive and responsible bidder, the project moves into formal contract execution.

Bid Irrevocability Period

Under AIA Document A701 Section 4.4, bidders agree that their bids remain binding and cannot be withdrawn for a designated evaluation period—standardly 30, 60, or 90 calendar days following bid opening. This window provides the owner and architect necessary time to verify references, obtain public council approvals, and finalize project financing.

Notice of Award

The owner issues a formal, written Notice of Award notifying the successful contractor that their bid has been selected. The Notice of Award directs the contractor to submit the following required documents within a stipulated timeframe (standardly 7 to 10 calendar days):

1. Executed Owner-Contractor Agreement.
2. Executed AIA Document A312 Performance Bond and Payment Bond.
3. Certificates of Insurance (AIA Document G715 or ACORD Form) demonstrating compliance with contractual insurance limits.

Standard Owner-Contractor Agreements

The standard legal instruments governing construction include:

• AIA Document A101: Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum (Lump Sum). Utilized for traditional Design-Bid-Build projects where comprehensive Construction Documents define a static scope.
• AIA Document A102: Standard Form of Agreement Between Owner and Contractor where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price (GMP). Standardly utilized for CM at-Risk and fast-track negotiated contracts.

Notice to Proceed (NTP) & Date of Commencement

Under AIA Document A201 Section 8.1.2, the Date of Commencement of the Work is the date established in the agreement, or if no date is fixed, the date specified in a formal written Notice to Proceed (NTP) issued by the owner.

CONTRACT AWARD & COMMENCEMENT SEQUENCE
┌──────────────────────────────┐
│ Bid Opening & Evaluation     │ Low responsive & responsible bidder selected
└──────────────┬───────────────┘
               │
┌──────────────▼───────────────┐
│ Notice of Award Issued       │ Contractor has 7-10 days to deliver bonds/insurance
└──────────────┬───────────────┘
               │
┌──────────────▼───────────────┐
│ Contract Execution (A101)    │ Agreement signed; construction loan recorded
└──────────────┬───────────────┘
               │
┌──────────────▼───────────────┐
│ Notice to Proceed (NTP)      │ Formally establishes DATE OF COMMENCEMENT;
└──────────────────────────────┘ starts clock on Contract Time & Substantial Completion

Critical Legal & Financial Significance of the NTP

The formal Notice to Proceed carries immense legal and financial significance:

1. Starts Contract Time: The Date of Commencement established in the NTP officially starts the running clock for Contract Time. The contractual deadline for Substantial Completion (and the accrual of liquidated damages for late completion) is calculated directly from this benchmark.
2. Mechanics' Lien & Mortgage Priority Protection: The contractor is strictly prohibited from commencing any physical work on site—including clearing trees, grading earth, or delivering storage trailers—prior to the Date of Commencement. In many legal jurisdictions, if a contractor performs physical work on site before the construction lender records their mortgage or deed of trust, subsequent mechanics' liens filed by unpaid subcontractors can "relate back" to the very first day of physical activity, wiping out the lender's primary security interest. The owner and lender issue the Notice to Proceed only after verifying that the mortgage has been officially recorded in public land records.