Archive for the ‘Bidding’ Category

When Bidder on Public Project Defrauds the State, Louisiana 1st Circuit Refuses the State Any Remedies

On October 19, 2010 Author By Scott Wolfe Jr

In my view, the Louisiana First Circuit just rendered a very poor decision.   The decision was written by Judge William J. Kline (serving pro tempore) in the matter State of Louisiana v. Infinity Surety Agency, LLC, et al, 2010 CA 0123, Louisiana First Circuit Court of Appeal (Rendered September 10, 2010).

In Louisiana, when a successful bidder to a public works project fails to execute the contract within the specified time frame, the State has a right to retain the bid bond as liquidated damages.

So, what happens when the successful bidder represents that it could provide an acceptable performance…but through an unauthorized surety?    In such a case, the successful bidder is awarded the contract, but cannot proceed with work within the required time frame because of a failure to bond the project pursuant to the La. R.S. 38:2219 requirements.

A case last month out of the Louisiana First Circuit addressed this question, concluding that the State was not entitled to liquidated damages.

The reason?

Since the purported surety was unauthorized, the bid itself did not meet the statutory requirements of the Public Works Act.   The bid, in other words, was non-responsive and should have been rejected by the State.

What if the bidder made a misrepresentation – an outright fraudulent misrepresentation – that the surety had authority to bond the project and would in fact bond it?   The First Circuit says it doesn’t matter:

Although the State also argues that [the contractor and surety] should not be allowed to escape paying the penalty by its alleged fraud, there is no ambiguity in the statute.   The bid did not meet the requirements of the statute and is null and void.  When a law is clear and unambiguous and its application does not lead to absurd consequences, the law should be applied as written.

Doesn’t this remedy seem harsh, or maybe an absurd consequence?   After all, the contractor and surety defrauded the state intentionally….while the State was just guilty of an oversight, or was duped.   The First Circuit says this:

Admittedly, this conclusion seems harsh because in circumstances of this sort, when there are two breaches of statutory responsibility, one breach could be intentional and the other an oversight…Had the State rejected the bid up front, however, there would have been no delay in awarding the contract to the lowest responsible bidder.

I think the Court might have made a mistake here.   This explanation for the “harsh” conclusion is lacking of any good logic, acknowledging two breaches of statutory authority, but failing to acknowledge that maybe the State couldn’t have rejected the bid upfront…because it was lied to.

In this decision, the First Circuit has chosen to read one statutory mandate as more important than the other.  Namely, the First Circuit reads the duty of the State to reject non-conforming bids literally and without sympathy, but merely glazes over any statutory and legal requirement that the contractor and surety not commit a fraud on the State.

Further, the First Circuit ignores clear language elsewhere in the Public Works Act:  that if the bidder is awarded the contract, and does not perform, it forfeits its bid bond.   Here, clearly, the bidder was awarded the contract, and did not perform.   The conclusion that the bid might have been unresponsive because of a mistake in the bid or outright fraud, doesn’t change the facts:  the bidder won, and could not perform.

What about the State’s tort claim against the contractor and surety for the misrepresentations?  Surely, the tort claim would have merit – or at least be deserving of a trial….

Not so, said the First Circuit.   “The alleged tort claim should never have arisen,” it concludes, because the bid should have been rejected.

Posted in:     Bidding, Louisiana, State & Federal Contracting  /  Tags: , , , , ,   /   2 Comments

Budgets, Changes Orders and A Green Building Project

On July 31, 2009 Author By Scott Wolfe Jr

If you were to survey green building critics, it’s safe to guess most will argue that the cost to build green do not outweigh the benefits.

Indeed, many have suggested that the cost of building green (especially gaining LEED certification) is significantly higher than building to ordinary standards.   Others argue that LEED certification can be achieved through an everyday budget.

Regardless of where you fall on this issue, everyone should agree that green building projects have certain specifications, and bidding contractors must project the construction costs responsibly.

And so, one of the most challenging components of a constructing a green building may be the process of bidding it.

Since green building work is just starting to take hold in the construction industry, many contractors and subcontractors are working on little-to-no experience on green projects.   And sometimes the data behind green building techniques and products are thin (see greenwashing).

On Wolfe Law Group’s Construction Law Monitor, we published a 2-part article on the Bidding Process and Change Orders:   Bidding Errors and Change Orders: Avoiding a Nightmare [Part One and Part Two].

How do we suggest you avoid Bidding Error nightmares?   Spend time with the Contract Documents pre-bid.

With green building projects, this is more true than usual.

When preparing your green bid, here are some example thoughts that should be considered:

  • If the project is being certified with LEED or another standard, who will be responsible for the submittal process?   Who will be responsible for monitoring the construction process?
  • Contact vendors who will be providing the project’s materials, and review the data they have to back-up their performance and environmental claims.   It would be a pity to plan on using one product, and being forced to later use a more expensive substitute.   See this article on how to shop for green building materials.
  • If the builder is anticipating a tax credit, do you understand the requirements to qualify for the credit?   Will this increase your construction costs?

A successful green building project starts where successful ordinary projects begin:  during the bidding and contracting period.

Whether your green building project will increase costs, or not, understand the green building expenses associated with your project, and avoid bidding errors and change order nightmares.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Green Building Law Blog.

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The Bidding Process 3 – The Owner’s Perspective

On February 7, 2008 Author By Scott Wolfe Jr


Owners facing a new construction venture must inevitably depend upon the expertise of others involved in the project, regardless of their own level of sophistication. Architects, engineers, contractors, suppliers, and tradesmen all contribute to the efficient design and build of every project. The owner’s reliance upon their collective mastery, skill, and cost-effectiveness is understood by everyone.

Today, owners try to compensate for this dependence at the outset by minimizing risk of an unethical, inefficient, or insolvent project participant through the bidding process. Over the past twenty years, a variety of approaches have evolved to minimize risk and maximize return for the owner – giving owners alternatives to the traditional design-bid-build approach.

Four Project Approaches

Design-Bid-Build

Bidding of construction projects has traditionally occurred using the design-bid-build method, and most government contracts across the country continue to use this method. Here, the owner begins by choosing an architect to create, design, and prepare the construction documents, i.e., the plans and specifications. The architect chooses any engineers, surveyors, or other professionals that he may need to complete his task.

Once the architect has completed the construction documents, and the owner has approved them, they are released for bidding. Bids are then placed by general contractors, who have used their own expertise to gather bids from subcontractors and suppliers, as needed, to formulate their estimates for the total cost of the construction. The general contractor’s fee will be included in the bid cost.

The owner then chooses among the bids. There is no real ability of the owner to insure their accuracy, other than to compare the bids and reject out of hand any bid that suspiciously deviates from the pack.

Most of the participants (the general contractor, the subcontractors, and the suppliers) assume that the owner will choose the lowest bid on the table. Therefore, general contractors tally their bids to keep the total as small as possible. Low-balling does happen.

In theory, this method keeps the construction project cost-effective and gives the owner the best price. Design-bid-build, however, also keeps the owner at arm’s length through much of the bidding process, which is often to his detriment.

Quality is often foregone in order to keep costs down; bid-shopping may occur with the owner facing cost increases as the actual project progresses — the low bid not being a realistic bid; and project participants willing to work for small profit margins in order to get the work may be so close to folding that they may not be able to finish the project, leaving the owner in the lurch.

Design-Build

In response to problems generated by the traditional design-bid-build method, owners sometimes choose to combine the roles of general contractor and architect. Here, the owner works with an architectural firm to first design the project and produce its plans and specifications.

The owner, however, does not enter into a bidding selection process for a general contractor. The same firm that generated the plans and specifications proceeds to undertake their actual implementation. Now acting as general contractor, the same firm oversees construction, undertaking its own bidding process to select suppliers and subcontractors, as needed.

Having the same entity responsible for the design also being responsible for the actual construction of the project is much more cost effective for the owner. Additionally, this method keeps the owner more involved in the process, since the owner’s wishes in the initial creation of the design are better understood and more readily implemented by the architect. This leads to less change orders and ROIs during building, and usually results in an easier and faster completion of the project.

Construction Manager – General Contractor

Owners can also choose to combine the role of general contractor with that of a project coordinator, usually under the title of Construction Manager. The owner hires the Construction Manager (CM) while the architect is still formulating the plans and specifications, giving the CM authority to work directly with the architect during the design process.

Owners who choose an experienced CM can avoid many design problems by having this savvy construction expert review construction documents as they are being completed. A good CM can foresee potential design crises before they happen. CMs are also adept at offering cost-cutting suggestions during design that can save the owner money.

Once the construction documents are in final, the CM accepts bids from subcontractors, suppliers, and the like. Afterwards, the CM oversees the finalization of the project, acting as a general contractor, and reporting directly to the owner.

Negotiated Contract

The negotiation approach is similar to the traditional Design-Bid-Build method because the owner does hire an architect to undertake the design, and there is a separate general contractor responsible for the actual completion of the project.

However, this approach allows the owner to choose both the general contractor and architect at project inception. The general contractor works hand in hand with the architect as the design is being completed. After the plans and specifications are finalized, construction costs are negotiated by the general contractor through bids from subcontractors, suppliers, and the like.

Here, the owner avoids the inefficiencies of a general contractor’s bid by never seeking general contractor bids. The owner chooses both his design professional and his construction professional on his own chosen criteria (e.g., past experience, public reputation, etc.) and hopefully keeps close to the project price that would have been obtained in the traditional bidding process by (1) overseeing costs through his ability to approve or disapprove the design details during the creation phase; and (2) having the contractor working during design curtails the need for change orders, RFIs, and other delays during the actual build.

Louisiana Example – the John James Audubon Bridge

The State of Louisiana is an example of an owner seeking an alternative to the traditional design-bid-build process. When the decision was made to build a bridge to span the Mississippi River between the West Feliciana and Pointe Coupee parishes, the state legislature opted for the design-build approach. (Specific legislation was necessary to approve this alternative, since Louisiana law still requires that standard government construction be undertaken by the traditional design-bid-build method.) Today, Louisiana Associated General Contractors Inc. acts as both designer and builder of what will be the longest cable-stayed bridge in North America, as it undertakes both the role of architect doing the design and as general contractor overseeing the construction of the John James Audubon project.

Other Owner Bidding Concerns
Choosing the bidding method and corresponding building process is one of the owner’s paramount concerns, regardless of the size of the project. Small residential add-ons carry the same costs concerns as large public projects; there is simply a difference of scale.

The underlying concern of every owner is exactly the same. Every owner’s goal is getting a finished project that mirrors the one envisioned at the start, and doing it as cost-efficiently as possible.

Bid Well

The bidding process introduces the project to the construction professionals that will ultimately be finalizing the project. Owners can not only help themselves, but everyone else involved, by the following:

1. knowing what they want — owners should have a clear concept of what the final, built project will be: they should have a visualization of the final result in mind before bidding begins;

2. giving lots of detail to the bidders — for example, criteria can be included in an Instruction for Bidders document that every bidder can review and consider; and

3. making sure that financing is secure before commitments are made — owners should never play “payment games” with the construction professionals because of tight money.

Beware the Temptingly Low Bid

Owners focused upon the bottom line can be their own worst enemies. By looking the other way when an unusually low bid arrives, and accepting that bid without investigation, an owner invites cost overruns and design disputes during the construction phase. If it sounds too good to be true, it probably is.

Owners in this situation may well point the finger at an unethical or incompetent contractor whose estimates were faulty and whose bid was unacceptably off the mark. Owners here should be aware that a penny saved is a pound foolish — by accepting that bid, and entering into a legal agreement with the contractor, the owner may have to bear the cost overruns and delay damages.

Every owner should investigate the bid before it is chosen. This investigation should include a review of the following, at a minimum, all of which should be heavily documented:

1. the bidder’s financial statements to insure solvency;
2. the level of experience for the personnel being used;
3. the bidder’s past experience for this type of project; and
4. the bidder’s reputation in the community (get references).

Beware the Temptation to Change the Design

Owners begin the construction process by deciding upon a design. However simple or complex the project may be, once the plans and specifications have been finalized, they take on a different level of respect. Project participants rely upon those finalized construction documents to mirror the final result, and any change that is made to the design reflected in them means a change in cost.

Sometimes, that change may save money. However, it is a common war story among contractors of owners wanting what they believed to be minor changes – moving a window, changing a door’s location – which ultimately resulted in major expenditures in both time and money.

A smart owner is committed to the final design when those construction documents are released for bid, or for build, depending upon the approach he or she has undertaken. Bidding is the tallying of costs, and once that total has been reached, the less change made to it, the better for all concerned.

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The Bidding Process 2 – The General Contractor’s Perspective

On December 6, 2007 Author By Scott Wolfe Jr

General contractors succeed or fail, for the most part, because of their ability to master the bidding process. Not only do they bid for projects themselves, they also accept bids from subcontractors and suppliers. In sum, no one understands the bidding process better than a general contractor of several years standing.

For a general contractor, the first question must always be whether or not it’s worth the trouble to bid a project. Contractors recognize that in today’s marketplace, owners are swayed by the lowest bid because keeping construction costs down is their primary concern. There is tremendous pressure upon the contractor to crunch numbers and squeeze the profit margin in order to bring that low bid to the table. Can they make a decent profit on the project, if they decide to bid?

General contractors also know that it’s all too easy for unscrupulous individuals to label themselves a “contractor,” and that owners tend to be so fixated on the bottom line that they fail to consider the nuances of construction expertise. To many owners, one general contractor is just like another — a mistaken belief that may well come back to harm them. Do the owners understand the importance of investigating the reputation and character of the contractor, should he decide to bid?

Finally, owners are constantly trying to find ways to cut costs during the construction process. Innovative construction methods are evolving, which are much more equitable to all involved in finalizing a construction project. For example, the General Contractor/Construction Manager method allows the general contractor to give input during the design phase and to set a flat fee for the project after he’s won the bid.

Owners are slow to implement these alternative methods, however, and the traditional design-bid-build process remains the industry standard. Will this owner be a problem through out the project, with change orders and cost questions, should the contractor submit a winning bid?

The General Contractor’s Practical Concerns in the Bidding Process

When faced with any new opportunity, a general contractor has to evaluate a wide variety of factors before and during the bidding process. These include:

1. Evaluation of Current Responsibilities

A successful general contractor runs an ongoing business. Staff members have jobs to do, and there are commitments to be met. Construction projects are already in process that must be completed, and the time and expense of compiling a bid for a new project cannot take away from current business obligations. Successful contractors must pass on some opportunities because resources simply are not available to do the bid, much less undertake the project.

2. Evaluation of the Bidding Opportunity

Not every invitation to bid comes with realistic expectations, from a contractor’s point of view. Owners are sometimes unduly optimistic in their ability to get financing for the project. Sometimes, owners are not as willing to proceed with the project once bidding reveals the true expenses involved in its completion. Before bidding, savvy contractors investigate and politely decline invitations to bid that offer an opportunity to expend time and money on a bidding process with little likelihood of an actual, feasible project award.

3. Evaluation of the Project

First, the general contractor will consider the physical location of the project. Any construction site that is too far from the contractor’s main office is simply not worth the effort. A general contractor cannot control a construction site that is located too far away. Different contractors will define this range of opportunity differently, of course. Large, national firms simply place regional offices near new, big projects in order to solve the logistical management problems. Smaller firms may limit themselves to certain counties, or regions.

Second, the general contractor will consider the type of construction that is involved in the project. Certain types of construction projects are handled by specialists who are not only used to dealing with their particular physical needs, but also with the layers of legalities they entail. It is not cost-effective for a general contractor to bid for a project outside his area of expertise.

Accordingly, hospitals, schools, and colleges are all projects usually constructed by general contractors specializing in these types of construction. Similarly, shopping malls, residential housing, and storage warehouses are usually built by contractors with experience in this type of project.

Third, the general contractor will consider the architect involved with the project. The general contractor, of course, is dependent upon the plans and specifications provided by the architect. However, he is also dependent upon the fairness and efficiency of the architect during the administration of the contract. An architect, together with his engineers, may have a great reputation for design but an unacceptable ability to smoothly administer a project. Conversely, an architect’s reputation may be for faulty designs requiring lots of changes during the course of construction. It may not be worth the contractor’s time and effort to compile a bid on a project that is tied to an unacceptable architectural firm.

4. Evaluation of the Bidding Competition

General contractors will also consider the number of bidders on a project, as well as their identity. Owners love to get as many bids as possible; however, contractors opine that a high number of bids means many of the bids are not necessarily accurate. Contractors also want access to the bid list, so they can identify the competition. General contractors will know which bidders are notorious for bid shopping and may choose not to bid against them – it will be a waste of time. They will also know if a bidder has such efficiencies of scale that they can offer a bid which cannot be beat. General contractors do not want to expend staff time and expense money in compiling bids that are doomed from the start to be unsuccessful.

5. Evaluation of the Bidding Procedure

Finally, general contractors need to know that the actual procedure for accepting, analyzing, and awarding bids is fair. General contractors expect all bids to be treated the same, and for all bidders to get the same information. Every bidder should be identified on a bidders’ list. All documents and other information necessary for bidding should be made available at the same time, and all bids should be due at the same time, on the same day.

General contractors should be given enough time to prepare proper bids. Their questions should be answered promptly, and those answers — with any addenda — should be shared with all bidders on the bidders’ list.

After the bids are opened, each bidder should get a summary of all the bids. The unsuccessful bidders should receive prompt refunds of their deposits.


Standardization of the Bidding Process

In order to standardize the bidding process across the industry, the American Institute of Architects (“AIA”) has created forms and instruction documents to help in the process. These include “Instructions to Bidders” (AIA Form A701-1997) and “Recommended Guide for Competitive Bidding Procedures and Contract Awards for Building Construction” (AIA Form A501- 1995).

An Alternative Bidding Method: The GC-CM Approach

In the General Contractor-Construction Manager approach, the general contractor’s entry into the process comes much earlier than the traditional design-bid-build method. During the design phase, the general contractor provides input into the design itself, using his knowledge of construction realities t
o improve the quality of p
lans and specifications before breaking ground.

Under GC-CM, request for proposals identify the preference for a GC-CM approach. General contractors submit bids accordingly: pre-construction services are bid, along with a construction fee and general conditions. A contractor is chosen at this juncture: the winning contractor bid is accepted before there are final construction documents. He becomes both general contractor (GM) and construction manager (CM) of the project.

After design and development are complete, and actual design documents are at least 50% finalized, the GC-CM gives a maximum construction price for the project. While the GC-CM undertakes the risk of cost overruns by this price commitment, the risk has theoretically minimized by the GC-CM’s involvement and contribution during the design process.

Current Developments

In addition to the continuing development of alternative construction methods, an option to the AIA documentation has been provided in 2007 by ConsensusDocs.Org. How well these implementations are incorporated into industry practice, however, will depend upon a great variety of regional factors. The circumstances in which general contractors do business across this country are far from uniform.

Louisiana Contractors – The Bidding Process, Post-Katrina

While many in the industry point only to Katrina, Louisiana was really hit by three near-simultaneous, separate disasters in what came to be a perfect storm for its construction industry. The devastation of Hurricane Katrina, and its aftermath, combined with the failure of the levee system in several Louisiana parishes as well as the city of New Orleans, and was joined shortly thereafter by the onslaught of Hurricane Rita in southwestern Louisiana. As a result, for contractors in particular, the construction industry in Louisiana would never be the same.

Federal legislation was in place that purported to protect Louisiana contractors. Particularly important was the Stafford Act, which provides that firms from the disaster area are to be used whenever possible for such things as debris removal and rebuilding, so the local businesses can survive and the local economy can be protected. Another important federal law impacting the post-Katrina construction industry was the Miller Act, which prohibits subcontractors, suppliers, and laborers who have not been paid from placing a lien upon certain, defined work.

In reality, the bidding process was held on a national scale and overseen by federal agencies dispersing federal monies. National companies won most of the bidding wars, with Louisiana construction industry piecing together deals here and there, trying to keep creditors happy and payroll current with the Miller Act preventing them for placing liens in the all-too-often situation of federal Katrina projects’ slow-pay. Many of Louisiana’s smaller contractors, subcontractors, and craftsman were businesses that have not survived, or are still in the process of repositioning themselves in a very different marketplace.

Washington State Contractors – Innovators in the Public Bidding Process

Washington State has been a national leader in adopting alternatives to the design-bid-build construction methods. In 1991, the State Legislature authorized the use of general contractor/construction manager method in the construction of state prisons. The alternative method was successful, and the GC-CM method was thereafter extended by the Legislature to the University of Washington and Washington State University, as well as communities of a certain population size (cities, 150,000+ pop.; counties, 450,000+ pop.; ports, 500,000+ pop.).

In 2002, legislation was passed to allow the GC-CM method for state school districts in projects exceeding $5,000,000, initially testing the method with 10 projects. Seattle Public Schools joined early, with three of its high schools (Roosevelt, Cleveland, Nathan Hale) using the GC-CM method.

Today, Washington State remains a leader in industry innovation. The success seen in the state, in both its public and private sectors, has encouraged continued creativity in finding solutions to construction issues nationwide.

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The Bidding Process 1 – The Subcontractor’s Perspective

On November 3, 2007 Author By Scott Wolfe Jr
Today, general contractors face less and less time within which to form and submit their proposals. Today’s negotiations are often by cell phone; CAD drawings are sent as online attachments; deadlines and details are sent by e-mail. Preparing a proposal for an owner was always complicated; these days, it can be chaotic.

Subcontractors, accordingly, must act with even greater speed to get their bids to the contractor. It’s commonplace for subcontractor and supplier bids to reach the general contractor’s offices minutes under the wire: the general contractor furiously chooses between bids, and finalizes a proposal just in the nick of time.

And in the midst of all this scrambling, risk is being analyzed, assessed, and undertaken. The construction business is all about risk: profit is made in correctly assessing the risks of unknown future complications against estimated time and money expenditures. Figure your risk right, and you make money. Calculate risk wrong, and you can go bankrupt.

When is the bid a contract?

Submitting a bid does not create a legally-binding contract. It merely creates an “offer” under the law — which must be “accepted” by the contractor and accompanied by his promise of payment (“consideration”) before any contract is formed.

Before the offer’s acceptance, the bid can be freely withdrawn by the subcontractor — even if the general contractor relied upon the numbers in that offer to form his proposal, or overall bid. Of course, until the bid has been accepted and accompanied by a promise of payment, the contractor is free to choose a competitor — he’s not contractually bound by the bid, either.

What if there are errors in the bid?

Subcontractors sometimes submit bids that are wrong. Perhaps there are time errors, and the bid conflicts with previous commitments. The numbers may be inaccurate: anything from math errors to sudden changes in supply costs can impact the precision of a bid.

If these errors are substantial enough, the subcontractor may have no choice but to advise the general contractor that the bid is withdrawn. If this occurs prior to acceptance, then no contract has been formed. Even if the general contractor relied on the bid, the subcontractor is contractually in the clear.

However, if there has been acceptance and a contract has been formed, then the subcontractor will technically be breaching a legal agreement. Here, legal negotiations should occur to extricate the subcontractor as quickly and as smoothly as possible from the unworkable situation.

What about Bid Shopping?

After the project has been landed, the winning general contractor will begin to corral his crew. It is at this point that the subcontractor faces the possibility of a general contractor asking that his price be lowered, or face losing the job to a competing subcontractor who offers to do the work for a lower price.

Why do this? Maybe the general contractor lowballed his offer just to get the job, and is trying to create a profit after he’s got the deal. Maybe he just wants to get as much money as he can. Maybe a better offer hit his desk minutes after the deadline, and it’s a better choice for the project. Maybe the alternative sub is his brother-in-law. There can be many reasons for this to happen.

This is known as “bid shopping.” It is frowned upon within the industry as being unethical, and it has been held to be illegal under both state and federal law. It also occurs all the time, nationwide, and has been a standard practice in the industry for many years.

In bid shopping, the subcontractor is forced to lower his price or lose the job. There can be a third option: to seek legal redress.

Federal Law

As early as 1938, Congress was trying to deal with bid shopping in federal projects. A congressional law was passed to require subcontractors to be identified in “bid lists” by general contractors; however, President Franklin Roosevelt vetoed the legislation because of the untenable amount of agency supervision needed to make sure the law was followed.

Today, Congress is still trying to curtail bid shopping in public contracts. The Construction Quality Assurance Act of 2007 is a bill currently pending before Congress. On October 25, 2007, it was referred to the House Subcommittee Government Management, Organization & Procurement for further review. However, as of October 30th, WashingtonWatch reported that 67% were against the law’s enactment, and only 33% were for it. Prior versions of this legislation dating back seven years have failed to make it into law.

State Law

Many states have passed laws forbidding bid shopping in public contracts. Washington State, for example, has passed legislation (Wash.Stat. 39.30.060) which includes the following language:

Washington

Substitution of a listed subcontractor in furtherance of bid shopping or bid peddling before or after the award of the prime contract is prohibited and the originally listed subcontractor is entitled to recover monetary damages from the prime contract bidder who executed a contract with the public entity and the substituted subcontractor but not from the public entity inviting the bid. It is the original subcontractor’s burden to prove by a preponderance of the evidence that bid shopping or bid peddling occurred.

Louisiana

Louisiana has passed legislation to curtail bid shopping, as well. However, Louisiana law codifies what many other states have made available to subcontractors through their common law. This is the application of the equitable doctrine of “promissory estoppel” to the situation to prevent the general contractor from being unduly enriched at the subcontractor’s expense by the bid shopping practice.

The Louisiana statute (La.Civ.Code art.1967) provides:

A party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying. Recovery may be limited to the expenses incurred or the damages suffered as a result of the promisee’s reliance on the promise. Reliance on a gratuitous promise made without required formalities is not reasonable.

Other States

In other states, while there may not be actual statutes forbidding bid shopping in private and public contracts, their courts have fashioned a remedy through the promissory estoppel doctrine as well as basic contract law.

Industry Realities

Legal avenues do exist for subcontractors to fight against bid shopping. However, the realities of the marketplace discourage their use. Construction involves a close-knit community: subcontractors build a reputation in the area that must be maintained, and challenging a general contractor does not make for good future relations with other contractors, general or sub. No one wants to work with a troublemaker.

Furthermore, in many communities, there are relatively few general contractors. Many general, or prime, contractors specialize in a certain type of project (hospitals, schools, etc.) and are national enterprises. Subcontractors working in these specialty areas cannot afford to offend these powerhouses with threats of litigation.

Still, hiring a lawyer to assess the situation and analyze the legal possibilities can be well worth the subcontractor’s time, especially if the bid shopping threatens the loss of a major project. A law firm specializing in construction matters may be able to find a creative compromise that provides the subcontractor relief in the short term without risking his long term success.

For more information:

Washington Watch
http://www.washingtonwatch.com/bills/show/110_HR_3854.html

The Construction Quality Assurance Act of 2007 (read the entirety of the proposed legislation here):
http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.3854

Percy J. Matherne Contractor, Inc. v. Grinnell Fire Protection Systems, 915 F.Supp. 818, 824-25 (M.D. La. 1995) (applying La.Civ.Code art. 1967 to subcontractor bidding situation).

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