Volume: 16, Issue: 3 - 02/15/2018
When a publicly bid construction contract is awarded, the legal mandate is usually "low responsive, responsible bidder," sometimes expressed as "lowest and best bidder." In such a scenario, contract award should be based on the lowest bid, compliant with the terms of the solicitation, submitted by a bidder capable of completing the contract.
The sufficiency of the bidder has traditionally been a business assessment of the financial, technical, and administrative capabilities of the company. Some public project owners, however, have started adding other requirements. Read more.
A municipality was allowed to define "lowest and best bidder" to require bidders to contribute to employee health care plans and retirement programs. The amendment to the competitive bidding ordinance was not preempted by the federal ERISA law because the municipality acted in the capacity of a proprietor, not a regulator.
A project involved improvements to underground utility lines. No "building or structure" was involved. Consequently, a state statute limiting the enforceability of indemnification against a party's own negligence did not apply. An indemnification clause in a subcontract was fully enforceable.
Volume: 16, Issue: 2 - 01/31/2018
"Changed work" on a fixed-price contract can go both ways. If the project owner increases the scope of work, the contractor may be entitled to an equitable price increase. If the project owner decreases the scope of work, the owner may be entitled to a credit, a price decrease. So, what happens if the contractor devises a less expensive method for performing the work? Is the owner automatically entitled to a price credit? Read more
The government was entitled to strictly enforce a specification, regardless of its impracticalities. The government could not implicitly waive the specification by acquiescing to the contractor's deviation, and then take a price credit based on the contractor's cost savings.
An indemnification clause in a subcontract purported to indemnify the prime contractor against its own negligence. The clause violated South Carolina public policy and a state statute. It was void and unenforceable.
Volume: 16, Issue: 1 - 01/15/2018
When actual quantities of unit-priced work vary from the contractual estimated quantities, there is a cost impact on the contractor. A quantity underrun may limit the contractor’s recovery of fixed costs, reducing or eliminating any profit on the work. Conversely, a quantity overrun reduces the fixed costs per unit and may provide the contractor with a windfall on the quantity increase.
Quantity variation clauses are intended to reduce these contingencies and encourage tight bid pricing, protecting contractors against underruns and project owners against overruns. The prototypical clause is the federal Variation in Estimated Quantity clause. To the extent an actual quantity varies from an estimated quantity by more than 15%, the unit price will be adjusted, upward or downward, to reflect the cost impact of the quality underrun or overrun. Read more.
The Variation in Estimated Quantity clause applies only to quantity variations that were not reasonably predictable at the time of contract formation. It does not limit government liability for negligently prepared quantity estimates by forcing the contractor to bear the first 15% of the burden of the government’s negligence.
A contractor controlled the activities of its on-site laborers and deducted their costs on its federal tax return. The contractor could not pretend the workers were the employees of subcontractors and not employees of the contractor itself.
Volume: 15, Issue: 25 - 12/29/2017
“Pay-if-Paid” clauses in subcontracts are controversial. They shift the risk of project owner nonpayment from the prime contractor to the subcontractor. Subs contend this is unfair. They do business with the contractor. They have no agreement, and little leverage, with the project owner.
Some state supreme courts have ruled the clauses a violation of public policy, primarily because they compromise subcontractors’ mechanic’s lien and public works payment bond rights. Some state legislatures have declared them void and unenforceable, yet a majority of the states still enforce the clauses.
The Kentucky Supreme Court recently addressed the matter for the first time. The clause in question was unambiguous. It said payment by the project owner to the contractor was a condition precedent to the contractor’s obligation to pay the sub. And, the subcontractor acknowledged it was relying on the credit of the owner, not the credit of the contractor. Read more.