Engineering News-Record had an interesting editorial commenting on the bid protests on the New Orleans airport. The article analogized bid protests to video reviews at a football game — they cause delays, but more often than not, they provide a clearer picture of what occurred. The same can be said of bid legitimate protests.
Bid protests allow for a review of the decision making process. In the New Orleans airport situation, two members of the board selecting the builder for the project incorrectly completed the voting forms. The contractor that was not selected protested the award and the process was reviewed. Once it was discovered that two board members improperly completed their ballots, the award was rescinded and the project was again. Now the board must again review the bids and select the winning bid.
In my experience, bid protests can shed important light on a decision and reveal errors in the process. Of course, every losing bidder should not protest a bid. But, if a review of the outcome reveals a failure to follow the proper process, a protest should be considered.
Perhaps another football analogy is appropriate when considering a bid protest. Much as the head coach only gets so many protests during the game, a contractor should seriously reflect on whether to challenge a bid. Before throwing out the red flag, a contractor should have had the bid process reviewed by experienced counsel and have concrete evidence on which to support its challenge. Although a contractor will not be charged a time out, an unsuccessful bid protest can be a time consuming process and impact your credibility with an agency from which future work may be obtained.
Take Away: Bid protests are a tremendous tool to challenge the award of a project. But, a bid protest should only be pursued when problems with the underlying process can be established through witnesses and documentary evidence.
Nothing puts your record keeping practices under a microscope like litigation. Every piece of paper that you created or kept on a project may be reviewed and analyzed. And, every decision to throw away a document will be assessed to figure out why you didn’t keep it. The best way to ensure you have the necessary documents to support your claim is to have a written document retention policy.
Do you have a written document retention policy?
A great place to start in creating a document retention system is to have a written policy. Consider the documents that you know you need on each project and list them in the policy. Simply stating that the project manager must maintain the fully executed contract, all requests for change orders, all correspondence relating to change orders, and fully executed change orders, can go a long way to maintaining consistent documentation on each project.
Do you have a designated employee to maintain the file?
Have you taken the time to figure out who is the best employee to keep the file on each project? Does it change project to project? Taking the time to figure out who will be responsible for the maintaining the file on the project will avoid finger pointing during the project and afterwards when documents cannot be found.
How are you keeping documents?
Given the proliferation of e-mails, it may make sense to keep an electronic file of all documents. Decide how your company is going to maintain the file, paper or electronic.
Train Your Employees on the Policy.
You must train your employees on your document retention policy. Your policy will only be effective if your employees know how to use it and they all consistently use it. Your file management system will turn into a nightmare if you have a few employees keeping their own file on the project. Everyone has to know who is responsible for keeping the documents and which documents should be kept.
Take Away: The time to adopt and implement a document retention system is before you need to rely on it. Take a look at your company’s document retention practices and adopt a policy that will ensure you can support your claim.
On July 31, President Obama issued yet another Executive Order to crack down on “federal contractors who put workers’ safety and hard-earned pay at risk.” The new Executive Order, called Fair Pay and Safe Workplaces, will require federal contractors to report certain labor law violations from the previous three years when submitting a bid on projects. It also prevents the use of arbitration agreements to resolve employment discrimination claims. These are significant changes that will impact the way contractors do business with the government.
Which Contracts Are Covered?
The new reporting requirements will apply to any procurement contract or subcontract in excess of $500,000. The “no-arbitration” requirements will apply to contractor and subcontracts in excess of $1,000,000.
What Are the Reporting Requirements?
When submitting a bid, contractors will be required to report labor law violations resulting from administrative merits determinations, arbitral awards and civil judgments based on employment and labor laws. Contractors will also have to report twice a year during the pendency of the contract. A few of the employment and labor laws are:
- Fair Labor Standards Act
- National Labor Relations Act
- Davis-Bacon Act
- Title VII
- Americans with Disabilities Act
- Age Discrimination in Employment Act
What Happens to Existing Arbitration Agreements?
Contractors submitting bids must agree that claims arising under Title VII or any tort related to sexual assault or harassment will not arbitrated unless the employee agrees after the complaint is lodged. The arbitration prohibition does not apply to existing arbitration agreements unless the employer has retained the discretion to unilaterally modify the agreements. The anti-arbitration requirement does not apply to collective bargaining agreements.
When Does the Executive Order Take Effect?
The Executive Order will not go into effect until after the Federal Acquisition Regulatory (FAR) Council issues implementing regulations, which are not expected until 2016.
Clients often times present problems with a project and explain the need to be compensated for the problems experienced. But, having a consistent theory for recovery and evidence that supports that theory is always paramount to recovery.
I was reminded of this perhaps obvious corollary when reviewing an Armed Services Board of Contract Appeals decision. The appeal involved a $35 million request for additional compensation based on differing site conditions, so not an insignificant claim.
The contractor claimed that it relied on the government’s geotechnical information to its detriment. But, the Board rejected the claim because the project was a design/build project and the contract specifically stated that geotechnical information was the contractor’s responsibility. More damaging to the contractor’s claims was the testimony from its own consultant that the contractor disregarded the consultant’s warnings and advice, including the consultant’s warning that its bid was too low. Perhaps the death knell to the contractor’s claim was testimony that it submitted the low bid because it wanted its foot in the door in the Middle East to secure other business.
As damaging was the contractor’s own expert’s testimony that the site condition reports contained conflicting information and lacked the data a prudent geological engineer would require in order to reach reasonable conclusions. The evidence also revealed that the contractor never visited the site, never requested a ground investigation and never hired geotechnical professionals to assess its proposed construction methods until after problems on site occurred.
Clearly the contractor had problems on this project, but even its own evidence, through the testimony of its consultants and experts, undermined its claim that it was harmed by relying on the government’s geotechnical reports.
Take Away: Having a theory of recovery is one step in the process to recovery. But, having evidence that will support that theory of recovery is as, if not more, important.
Most construction contracts contain a “no damage for delay” clause that generally prevents a contractor from demanding compensation for a late starting or otherwise delayed project. But, if the owner or is representative actively interferes with the project, a contractor may still recover damages for delays.
The recent case of C & C Plumbing and Heating v. Williams County, out of North Dakota found the owner liable for delays even though the contract contained a no damage for delay clause. The contract in that case provided:
17.2.2 The Contractor acknowledges and accepts the prospects of such delays, interferences and interruptions to the progress of the Project and to the Work as are inherent in the construction industry. The Contractor represents that they have included compensation for such delays, interferences and interruptions in the Contract Sum.
17.2.4 The Contractor shall not be entitled to additional compensation or damages due to delays, interferences or interruptions to the Work or the Project, but shall be entitled only to an appropriate extension of time in accord with the General Conditions of the Contract for Construction.
Even though the contract specifically provided that the contractor could not recover additional compensation or damages because of delays, the court awarded damages to the contractor because the owner’s construction manager actively interfered with the project. But, the court made clear that this is no easy defense to prove. To prevail on this defense, a contractor must show that an owner committed a willful act that unreasonably interfered with performance of the contract, but was more than a simple mistake, error in judgment or lack of complete diligence.
In this case, the construction manager rejected the steel erector’s plan for construction and insisted that the steel erector put up steel wherever it could to demonstrate to the owner that progress was being made. The court found that the construction manager’s conduct actively interfered with the project and caused compensable delays.
Take Away: Despite no damage for delay clauses being generally enforceable, if the owner actively interferes with your work, you may still recover delay damages.
A Massachusetts trial court recently ruled that a Construction Manager at Risk could not sue the owner for design defects even thought the owner provided the plans and specifications for the project. This ruling is a substantial shift from the Spearin doctrine which has historically made the party providing the plans responsible for any shortcomings or problems with the plans.
In the case of Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, the Massachusetts Department of Mental Health engaged Gilbane Building Company as the Construction Manager at Risk. Gilbane subcontracted the electrical work to Coghlin Electrical Contractors. Coghlin Electrical experienced problems on the job and sued Gilbane, alleging that Gilbane mismanaged the project, including design changes to walls and ceilings throughout the structure. Gilbane then filed a third-party action against the owner, asserting that the owner is responsible for any damages caused by design changes and design errors. The owner responded claiming that the Construction Manager at Risk contract, including a broad indemnity clause, made Gilbane responsible for any damages sought by Coghlin Electrical.
The court agreed with the owner, finding that the Construction Manager at Risk contract made Gilbane responsible for Coghlin Electrical’s claim. The court quoted a few section from the 59 page contract:
- The CM shall review, on a continuous basis, development drawings, specifications and other design documents. The design reviews shall be performed with a group of architects and engineers, who are either employees or independent consultants under contract with the CM. . . . The CM shall review the design documents for clarity, consistency, constructability, maintainability/operability and coordination among the trades . . .
- The CM shall indemnify the owner against all claims, damages, losses and expenses . . . arising or resulting from: labor performed or furnished . . . regardless of whether or not such claims, damages, losses and/or expenses, are caused in whole or in part by the actions or inactions of a party indemnified hereunder.
In ruling for the owner, the court found it significant that this was not a typical design-bid-build project, but was rather an “alternative delivery method.” The Construction Manager at Risk project delivery method allows a public entity to benefit from the Construction Manager at Risk’s expertise during the design phase of the project. The Construction Manager at Risk, in essence, takes on additional duties and responsibilities for the project, which may subject a Construction Manager at Risk to additional financial exposure. This material change in the role of a Construction Manager makes the Construction Manager at Risk responsible for design deficiencies.
Take Away: If you are serving as Construction Manager at Risk, the contract may expose you to more liability than simple cost overruns. The contract may also make you responsible for any problems with the plans and specifications.
Fellow blogger Chris Cheatham posted an interesting article on his The Electronic Claim blog about ways a contractor may profit from the labor shortage. The blog is based on an article, 5 Ways to Profit from the 2014 Labor Shortage, published by McGraw Hill-Dodge. An important takeaway deals with how subcontractors are responding to the greater need for their services and whether they are profiting from this change in the marketplace.
As the article notes, the need for competent subcontractors is rising, but the number of competent subcontractors is not. This may present a situation where a subcontractor can get back to selling the experience and expertise that they bring to the table instead of striving for the lowest bid for the job.
The article further notes that subcontractors in high demand trades may also be able to increase margins on the job. Of course, bids will still have to be in line with competition, but if a subcontractor has a track record of successfully completing projects, a general contractor may be more inclined to use that subcontractor, even though the bid is higher than some of the lesser known competitors.
At the end of the day, the article reemphasizes the old adage, do good work and you will get more work. But, the marketplace and labor shortage may also present opportunities to increase margins on projects, making your work more profitable.
We have all seen this situation before. The bids come in, the lowest is taken, and lo and behold, the subcontractor finds out that it cannot perform for the amount listed in the bid. When this happens, the subcontractor may take the position that the general contractor should have told the subcontractor that their bid was too low. The case of Fidelity And Deposit Co of Maryland v Casey Industrial Inc. shows that it is be very difficult for the subcontractor to show that the general contractor should have told the subcontractor that its bid was too low.
In this case, Fidelity And Deposit Co of Maryland v Casey Industrial Inc. to supply and install piping for a power plant. Topps Mechanical estimated that it would need 10,000 linear feet to complete the job. In actuality, 35,000 linear feet were required to complete the job, resulting in a cost overrun of $4 million. Topps bonding company assisted in getting the job completed and litigation ensued.
Topps, through its surety, claimed that Casey Industrial breached an implied duty of good faith and that Casey Industrial had superior knowledge such that it should have told Topps that its bid was too low. The superior knowledge doctrine is an exception to the general rule that contractors in a firm, fixed price contract assume the risk of increased performance costs.
The superior knowledge doctrine typically applies to those situations where:
- the contractor takes on a project without vital knowledge of a fact that impacts performance costs or duration;
- the owner is aware that contractor has no knowledge of this fact;
- any contract specifications supplied misled the contractor or did not put it on notice to inquire; and
- the owner failed to provide the relevant information.
The court found that Topps was fully informed of all relevant aspects of the project and Casey Industrial had no obligation to disclose the quantity of piping that would be needed for completion of the project. The court commented that the contract even cautioned that:
”Topps must satisfy themselves as to the amount of pipe and fittings required to complete this system.”
And, Topps employees even testified that they did not believe that Casey Industrial was “holding out” on them and not giving Topps all the information needed for an accurate bid.
Take away: A general contractor does not have a duty to tell the subcontractor that its bid is too low where the subcontractor has been given all information necessary to submit an accurate bid.
I had the pleasure of presenting to the Omaha chapter of the National Association of the Remodeling Industry (NARI) last week on steps they could take to ensure that they get paid for their work.
The majority of our discussion dealt with construction contracts and clauses that should be included in their construction contracts. The clauses that I recommended included:
- Identification of contract document
- Detailed scope of work
- Dealing with concealed conditions
- Payment terms
- Dispute Resolution
- Change orders
I appreciate the opportunity to present and I thought we had a great discussion about how the NARI members could improve their construction contracts. If you’d like a copy of my presentation, including sample construction clauses, please let me know.
My friend and construction attorney, Chris Hill, raises a great point in his blog, Construction Law Musings, this week. He addresses the two questions you should always ask when pursuing construction litigation. The first, “Can you win the case and get a judgment?” The second, and as important, “Can you collect on that judgment?”
I invite you to check out Chris’s post Think Twice About Heading to Court with a Construction Claim.