I just had a 2500 sq ft two-story wood house painted in Hawaii. Built on a hill, with four verandas. Cleaned, scraped, etc., two coats of paint. First guy quoted me $20K, second guy $8.5K Had a third guy who quoted $8K. I took the $8.5K, and two days in the guy told me he couldn't do it for that, and needed $12.5K as house was bigger and more difficult than he realized. So, I agreed.
My recommendation is do not underbid. I think HCD's approach makes sense.