Volume: 20, Issue: 12 - 06/30/2022
Correction of a bid mistake after bids have been opened and prices revealed is controversial. The financial interests of other bidders, who did not make mistakes when preparing their bids, are at stake. More fundamentally, the integrity of the competitive bidding system is unavoidably called into question.
The Mississippi Supreme Court recently addressed a situation in which the apparent low bidder acknowledged receipt of an amendment to the bid solicitation, which doubled the required quantities of rip rap and aggregate, but mistakenly used the original bid form rather than the amended bid form. The bidder said the line item totals for the items in question reflected its intended price for the increased quantities. The court had to decide whether the bid should have been disqualified or corrected and accepted as the low bid.
The other case in this issue involved a subcontract arbitration clause that called for arbitration only when the matter in question was required to be arbitrated between the prime contractor and the project owner. The prime contract included the broad “all disputes” arbitration clause of the AIA general conditions. The Nevada Supreme Court was asked if the limitation in the subcontract arbitration clause had any real meaning.
A mistaken low bid was corrected by halving the unit prices in light of the doubling of material quantities, leaving the extended line-item prices intact. The bidder had acknowledged an amendment to the solicitation doubling the quantities but failed to use the revised bid form.
Although a subcontract clause limited arbitration to disputes the prime contractor was required to arbitrate with the project owner, that limitation was rendered “nearly illusory” by the AIA prime contract document, which required binding arbitration of all disputes between the owner and contractor.
Volume: 20, Issue: 11 - 06/15/2022
The submittal, review and approval of shop drawings, usually in the early time-sensitive phase of a project, can be a cumbersome process. The contract terms typically favor the project owner. The contractor can’t proceed with the work without owner approval, but if the approved work is later deemed noncompliant, the contractor will probably be out of luck. Confusion frequently accompanies the entire process.
A federal appeals case involved a contractor’s use of design criteria more stringent than required by the contract. Government reviewers realized the contractor’s mistake but reviewed under the stricter requirements, which resulted in the rejection of numerous shop drawing submittals and weeks of delay. Who was responsible?
The second case in this issue addressed the scope of an inspection engineer’s responsibility. When proprietary equipment specified in the construction contract is delivered at the job site, is the engineer’s only obligation to confirm it is the specified product or should the engineer also consider the performance capabilities and suitability of the product?
The third case considered a contractor’s right to assert a claim against a subcontractor’s performance bond. Was the contractor required to first terminate the subcontractor for default or were there valid reasons to forego default termination of the subcontract?
A contractor was responsible for the compliance of its shop drawings with design criteria. The government had no duty to adjust its review as a result of the contractor’s use of the wrong set of criteria. The delay in shop drawing approval, caused by the resulting confusion, was not an excusable delay.
An engineer retained to perform on-site inspection had no duty to evaluate sole-source, proprietary equipment specified in the construction contract. The engineer was expected to confirm the equipment was the model specified but not required to evaluate its performance capabilities.
There were no legal impediments to a prime contractor’s termination for default of a subcontractor. Termination was a condition precedent to liability of the sub’s surety on a performance bond. The contractor’s failure to formally terminate the subcontract for default precluded recovery against the performance bond.
Volume: 20, Issue: 10 - 05/31/2022
A “claim sponsorship” agreement calls for a contractor to submit subcontractor claims to the project owner in accordance with the procedural requirements of the prime contract. The contract may or may not establish responsibility for attorney fees and other costs as well as division of any funds recovered from the owner. But there is one constant—the contractor has an implied duty to deal with the subcontractor in good faith and with fair dealing.
A prime contractor on a Nevada public works project submitted a subcontractor delay claim to the owner and then misrepresented to the sub the reason for the owner’s denial. Concurrently, unbeknownst to the subcontractor, the contractor negotiated settlement of its own delay claim, accepted payment and waived all rights to further recovery. The Nevada Supreme Court was called upon to determine whether this had been a breach of the implied covenant of good faith.
The other case in this issue involved a federal agency’s statement, in a bilateral contract modification, that it would seek additional funding to settle another outstanding claim on the project. Did that constitute a government admission that it was liable on the claim?
A prime contractor acted in bad faith when it failed to properly submit a claim to the project owner for subcontractor delay costs; misled the sub regarding the reasons for the owner’s rejection; and settled its own delay claim with the owner and waived all further delay claim rights without informing the subcontractor.
It was unclear why the government included a reference to seeking future funding for a claim expressly excluded from a settlement agreement. However, that language in the settlement agreement was not a government admission or confession of liability on the excluded claim.