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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 97 - 03/03/2011

Disqualifying Litigious Bidders

Public project owners have long complained that certain contractors are “overly litigious” or even “claim mongers.” Now they are fighting back. There is a growing trend where public entities investigate a low bidder’s claim history and use that history to disqualify the low bidder as nonresponsible. And the courts are allowing this.

Recently the low bidder on an Ohio school project was viewed with disfavor by the school district. Several years earlier the bidder had pursued a successful claim against the district. The district said the bidder was not responsible, citing a variety of factors. There was little question, however, that the district was motivated by the prior claim experience.

The bidder complained it had recovered 90 percent of the demanded amount; its claim had not been frivolous. And rejection of the low bid would cost the taxpayers an additional $109,000. But to no avail. The school district had discretion to disqualify the low bidder as nonresponsible.

This raises some troubling questions. If a prior claim is grounds for disqualification, isn’t there a danger that vindictiveness and retaliation will trump the fairness and cost savings provided by the competitive bidding system? Also, public construction contracts allocate risk between the parties. In so doing, they confer rights and responsibilities. Won’t this trend have a chilling effect on the ability of contractors to enforce their contractual rights? I welcome your comments.

Featured in Next Week’s Construction Claims Advisor:

  • Agency Personnel Costs Included in Liquidated Damages Rate
  • Fast-Track Project Proceeded Without Written Contract
  • Engineer Protected by Language in Construction Contract

 

Comments


Bruce, I think it depends. Being an architect, we've seen several instances of contractors low-bidding with what was a thinly veiled intention of change-ordering the project for every bolt that wasn't specified in an attempt to re-balance their fee to the levels consistent with the rest of the bids. Shouldn't the history of firms like that be taken into account? Also, as an architect, we've seen projects that had to accept a low bid, no matter what, with personnel who clearly were not qualified to do the work. Our workload was substantially increased, yet owners are reluctant to pay us for the increased amount of time working with a sub-standard contractor entails. Shouldn't that be taken into consideration though? I agree that the situation you described can be abused, but is there any proof in the situation above that the claim alone was the reason? Otherwise, it sounds like you're advocating for taking the low-bid, no questions asked. Not a position I could possibly defend.

 

Bruce, in Georgia school work most counties are pre-qualifying there bidders. This seems to take care of this problem on the front end.

 

As a contractor, I see the issue slightly differently than the last response. AE firms fee's have been reduced over the years, as such the quality of their documents have declined. With that said most hard bid projects are bound to have some percentage of change orders. Contractors, in order to be competitive cannot make assumptions or corrections that add money to a project. Maybe these owners will run out of contractors to do their work, or the fee's will go up.

 

Over the past 5-6 years, Engineers and Architects have to work with low ball budgets and frankly turn out plans and specs that are so defective they are ambiguious from the start.
Of course the Owner thinks he has paid the Engineer/Architect to protect him and the Contractor depended on the plans and specs to bid the project and naturally, there is a conflict.
Our company does about $70 million per year and performs about 75-80 different projects. 
We see the contractors who are afraid to challenge the Owner or Designers when plans and specs are defective are no longer around. They are broke!
For a municipality to disqualify a Contractor for filing a claim that is reasonable, is like a Dictator getting rid of his opponents. That should be fought with all the legislative muscle and public opinion muscle one can muster.

 

From the architect's point of view, there are certainly contractors that are known to repeatedly make claims in cases where the design intent is abundantly clear, but take advantage of minor inconsistencies in the documents. In addition, the competition for work has prompted more than one contractor to "Go in low and make it up in change orders". No matter how small the percentage of contractors who fit this description, it affects the perception of all contractors and, therefore, owners have taken steps to protect themselves from the unnecessary costs associated with addressing unwarranted claims.

 

From the contractor's point of view, architects as a result of increased competition have negotiated fees that do not address providing properly detailed drawings. As a result, some less qualified architects provide drawings that represent "pictures" of what the construction should look like, but do not provide sufficient details to properly bid the documents. These architects improperly rely on the AIA contract wording that the drawings need only provide "design intent" with the understanding that the contractor should be able to "fill in the blanks".

It starts with the Owner, though. Owners must be educated to understand the obligations of the design professional under the contract and realistic associated costs with providing those services. Owners who understand and demand an appropriate level of service for reasonable fees encourage qualified firms and act as an agent of "natural selection" to limit firms that do not meet their professional obligation.

In the same way, public owners have a right to protect the public from unscrupulous and irresponsible bidders and have resorted to a variety of methods to restrict competition to eliminate frivilously litigious contractors such as prequalification and qualification base selection methods like CM/GC. They have not always accepted their responsibility for creating the environment by not recognizing that the level of competition for work forces contractors to eliminate contigencies to cover the "little extras" that may not be spelled out in the contract that Owners have up to now taken for granted.

Unfortunately like anything else, the process may be abused. Owners should not be allowed to punitively restrict, as a personal vendetta, contractors who have successfully submitted reasonable claims. Nor should they be allowed to re-establish the "Good Ol' Boy" method of contracting.

The rights and responsibilities of owners, architects and contractors are a dynamic that is evolving every day with the introduction of new concepts like Integrated Project Delivery. In our society, it falls to the judicial process to decide where to draw the line. Therefore, the construction community will need to maintain vigilance over the processes of government in order to maintain the checks and balances of the design and construction process.

As an owner, architect, and former building contractor with substantial public work experience, I recognize the issue from both sides. A contractor has the right to expect clear documentation of the qualitative, quantitative and design intent. But owners and architects also have a right to rely on a builder's construction, trade and management expertise....for the benefit of the project.

 

I have encountered many public bid contractors who clearly were out to game the system. The public deserves some means of protection from predatory construction practices. A public agency shouldn't be able to deny a bid because of one bad claim experience, but the totality of a bidder's claim history should be an accessible public record, and should be an allowable factor in considering public bids.

I agree that if the only factor considered regarding the claim was that it was settled at 90% of face value, then the low bidder was treated unfairly. We all know that a 90% settlement is pretty much a slam dunk the contractor was right and the owner wrong.

 

On the other hand, chances are there was more to the story. This is the part we don't know and would need more information to say for sure if this was a bad decision for everyone.

I think it points to an area that everyone should think about and that is the technical review process that typically asks the bidder for his entire claims history and what exactly, is the criteria used to evaluate that claim history. In my experience as an Owner's Agent, we don't hold one or two claims against a contractor, or even a couple dozen if the construction firm is very large with offices all over the country, but ... you can distinguish when a contractor is claimed oriented when he has a lot of claims in his local market as a percentage of his work.

I have encountered many drawings on publicly funded projects that were for the most part symbol plans.

 

An earlier comment stated that contractors were taking advantage of "minor inconsistencies". One man's minor inconsistency is another man's profit and overhead. It seems that these days many "design professionals" expect the contractors to be responsible for the vetting of their documents.

If an owner wishes a contractor to take into account their "design intent"; then perhaps another method of award than publicly bid plan/spec is appropriate.

As for the original article, if the contractor in question was awarded 90% of their claim... well to me it is fairly obvious who was at fault.

Bruce,

 

I agree with your concerns, and with many of the responses presented above, but would like to provide a little different perspective upon which to view this issue.

One would think that after watching litigious, i.e. "seemingly unethical or unscrupulous," contractors perform very poorly on thousands of contracts over more than 35 years for a major Federal contracting agency, that I would argue against your concerns for contractor rights. But that's not the case, as I have finally realized that facility owners hold all of the contracting controls, therefore, if owners are performing satisfactorily, there should be no place in facilities contracting where litigious contractors can make a profit .

Facility owners have: 1) continuous access to their facilities to know what needs to be done; 2) control of engineering investigations and design; 3) control of development of contract documents; and 4) control of contract administration, so why can't facility owners achieve the desired contract results?

How is it ethical for facility owners to fail to perform the required preparatory and administration, due to lack of funding or any other reasons, but blame contract failure on "unethical" contractors? Isn't at least one of the intents of preparing written contract documents to convert potential ethical issues into contract issues?

Many facility owners are continuing to "muddle through" competitive bidding, using it improperly and ineffectively, but always with unpredictable results. Competitive bidding automatically incentivizes the contractor to work against the owner, therefore, this incentive, and numerous others that might be inherent in the contract documents or otherwise created during administration, must be effectively neutralized throughout the contract term. This takes complete contract documents, commitment to those documents, and fair, proactive administration, characteristics that are always missing from the failed contracts that I am aware of.

Selecting contractors by competitive bidding is likely to remain the selection method of choice of many owners for many years, but its effectiveness will be controlled by facility owners, not by contractors. Contractors will only do what they are incentivized to do, be it good or bad.

Provide the right contracting environment and that elusive "level playing field" will develop, where consistent, satisfactory contractors are encouraged to bid and all others are discouraged, i.e. self-excluded due to the requirements to perform.

Certainly this is a very interesting topic. I think owners should consider that if they force contractors into essentially a "one strike and you're out" position then contractors may be less willing to negotiate when they do have claims.

 

Low-ball bids are very risky for contractors. Having worked in this industry for 27 years, I have not met many contractors who enjoy claims. The cost of consultants and attorneys (not to mention the threat of a "False Claim") make claims an expensive proposition.

Yes, there are exceptions, but we shouldn't toss out every contractor who has filed a claim.

Filing frivolous claims is generally too time consuming and too costly for the benefit received. Therefore, from a contractors perspective, the reason for most claims is not to use the claims process as a profit center, but because of incomplete plans & specifications and failure of the Owner to provide the contractor with a clear right of way.

 

In forty years of contracting the only times I have considered filing a claim is when the project we bid for is not the project we ended up building; and the Owner refused to recognize the impacts of the changes to us.

A certain percentage of the design engineers and the public agencies that hire them effectively refuse to recognize that they too can make mistakes or do a poor job. To penalize any contractor for standing up for his contractural rights by asking for his claim history as a prequalification factor is just wrong!

As a public work contractor I see architects cutting out the engineering or trying to self perfom the duty to cut their cost which leaves numerous errors for contractors to deal with. We will deal with their errors for a price. Does that make me a crook or did the owner hire a poor architect.
This is the same for engineers who cut out the architect (wrong door frame sizes ,wrong window sizes etc.. Every renovation project that says "field verify" is a given that the designer never visited the site or never verified any dimensons. Tell me how could someone expect to recieve competitive bids with so much assumption.
In my 30yrs 2nd generation +58 yrs I have never seen an architect or engineer come forward with their "errors or ommissions insurance" to protect the owner. Contractors don't cary this insurance nor do the owners.
I have been paid numerous change orders for what was really an error by the designer. How many designers are scrutinized the same why contractors are? 
As far as prequalifacations are concerned ,that is a front for picking the contractor they desire even though it would cost the tax payers more. 
Also what about the rash of REBIDS ? Another why to pick the contractor they desire "buddy buddy network". What needs to be done here is if a project is not awarded then the owner should not be able to rebid for 1 yr.
The problem starts with the failure of proper review prior to letting projects out for bid. Most schools and municipalities don't thourghly review the plans and specs.
Any ways who is designated as the professional? Never the contractor.

 

 

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