THE WINNER’S CURSE, PART 1
You didn’t find the best vendor. You found the one who understood the work least.
You ran a clean procurement. Five bids came in. You picked the lowest, came in well under the next one up, and the sponsor was pleased.
Six months later you’re negotiating the fourth change order and wondering where the savings went. They didn’t go anywhere. They were never there. You bought the winner’s curse.
What is the winner’s curse?
In 1971, three petroleum engineers at Atlantic Richfield published a paper about bidding on offshore oil leases in the Gulf of Mexico. Companies were bidding on tracts nobody had drilled. Every bidder estimated the oil underneath. The estimates scattered around the true value, some high, some low. The highest bid won.
And the highest bid, almost by definition, came from the company whose geologists had overestimated the most. Winners kept losing money on the very tracts they won. The engineers called it the winner’s curse. The economist Richard Thaler brought the idea into mainstream economics in 1988, and it has held up in every setting anyone has tested it in: auctions, mergers, free-agent signings, publishing advances.
The logic is simple and uncomfortable. When several parties estimate the same unknown quantity and the most extreme estimate wins, winning is evidence that your estimate was wrong.
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Why do lowest bids fail?
Flip the auction. In procurement, the buyer picks the lowest price. So the winner is the bidder whose cost estimate was furthest below the true cost. Same mechanism, opposite direction.
The vendor who scoped the work most accurately came in mid-pack and lost. The vendor who missed a requirement, underpriced a risk, or assumed your data was clean came in lowest and won. You didn’t select the best vendor. You selected the most wrong one.
Then the vendor discovers the gap. There are three ways out, and you pay for all of them:
- Change orders. Every ambiguity in the scope becomes billable. The vendor isn’t cheating; they’re recovering a cost they never priced.
- Quality. Corners get cut where you can’t see them, because that’s where the margin has to come from.
- Disputes. Claims, delays, and lawyers, which cost more than the difference between the lowest bid and the second-lowest ever did.
The savings didn’t disappear. They moved from the contract price into the change orders.
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| A bid isn’t a price. It’s an estimate with a signature on it. And the lowest one is the estimate that missed the most. |
Who pays for the curse? The contract type decides.
A fixed-price contract puts cost risk on the seller. A cursed fixed-price vendor has two options: eat the loss, or find a way to make it yours. Most find a way.
A cost-reimbursable contract puts cost risk on the buyer. You pay the true cost anyway, but you see it coming, and the vendor has no reason to hide the gap.
Time and materials sits between the two. None of these removes the curse. They decide who discovers it, when, and how much it costs to find out.
So the right question at contract selection is not “how do we push the risk onto the vendor?” It’s “who can actually carry this risk, and what will they do when it lands?” A vendor who can’t carry it will hand it back, with interest.
How do you spot a cursed bid before you sign?
- The outlier. If one bid sits far below a cluster, the cluster is probably the market and the outlier is probably a mistake.
- A thin assumptions list. Accurate bidders write down what they assumed. Cursed bidders didn’t know they were assuming anything.
- Few or no clarification questions during the RFP window. Understanding the work generates questions.
- No risk pricing. No contingency, no exclusions, no conditions. The bid prices the plan, not the project.
- A schedule with no float. Every task starts the day the one before it ends.
- Unit rates below what the vendor’s own people cost. Somebody has to make up that difference, and it won’t be the vendor.
How do you evaluate bids without buying the curse?
- Build an independent cost estimate before you open the bids. That number is your anchor. If you let the lowest bid become the anchor, you’ve already lost.
- Score on best value, not lowest price. Weighted criteria: technical approach, past performance, demonstrated understanding of the risk, and then price.
- Interview the low bidder’s assumptions. Walk the scope line by line and ask what they priced. A confident answer to every line is a warning sign, not a comfort.
- Treat an abnormally low bid as a risk item, not a bargain. Several public procurement regimes formally require this check. Adopt it whether or not yours does.
- Choose the contract type for who can carry the risk, not for who you’d prefer to carry it.
- Write change control into the contract before the first change order arrives, because it will.
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Frequently asked questions
Is the lowest bid always the wrong choice?
No. When the scope is fully specified, the work is commodity-like, and the bids cluster tightly, price is a reasonable tiebreaker. The curse bites when the work is uncertain and the bids scatter, because then the lowest price is measuring the bidder’s error, not their efficiency.
What is an abnormally low tender?
A bid so far below the other bids, or below the buyer’s own estimate, that it can’t plausibly cover the cost of the work. Some public procurement rules require the buyer to ask the bidder to explain the price before accepting it, and allow rejection if the explanation doesn’t hold up.
Fixed-price or cost-reimbursable: which is better for the buyer?
Neither is better in general. Fixed-price fits a stable scope and a vendor who can carry the risk. Cost-reimbursable fits a scope that’s still moving, when you’d rather see the true cost than have it arrive inside change orders.
| WHERE THE NEW PMP® EXAM TESTS THIS
Procurement and contracting moved squarely into the exam’s judgment territory. Since July 9, 2026, the Business Environment domain accounts for 26% of your PMP® score, up from 8%. Expect scenario questions on source selection criteria, contract types and risk allocation, and what you do when a vendor’s bid turns out to have been wrong. Knowing the definitions won’t be enough. The exam asks what you’d do. |
| Procurement is a judgment call now. Train for it.
Contract types, source selection, estimating, and the tripled Business Environment domain are all inside our PMP® Certification Online Training Bundle: 35 contact hours, 2,400+ practice questions, and 9 realistic exams, built for the PMP® exam that launched on July 9, 2026. |
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Part 2 — Optimism Bias in Project Management: Why Your Best Business Case Is the Most Dangerous One
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