Correction of a bid mistake after bid opening poses some difficult questions. If a low bid can be corrected, still leaving the bid as low, isn’t this advantageous for the project owner? The alternative is to allow withdrawal of the mistaken bid, to which the bidder would clearly be entitled, and award of the contract at a higher price to the second low bidder. But isn’t any change in a bid price after disclosure of all bid prices contrary to the fundamental principles of sealed competitive bidding?

First, let’s clarify the type of mistakes we are discussing. They are not mistakes in business judgment, inaccurate cost assumptions or misunderstandings of the contract requirements. These are not “mistakes.” They do not even entitle the bidder to withdraw its bid. A mistaken bid results from a clerical or arithmetic error; mistakes that can be documented in the bid preparation worksheets. The most common example is an error in transposing a subcontractor or supplier price onto the bid spreadsheet. That is what happened in a recent Minnesota case.

A low bidder discovered its transcription error after bid opening. The mistake
resulted in the omission of $619,200 of costs. The upward correction of the bid would still leave the bid as low. There would be no change in the order of the bidders and the public project owner would still get the lowest available price. Minnesota law, however, prohibits a change in bid price after exposure of all bid prices, protecting the integrity of the competitive bidding process. The low bidder could withdraw, but not correct. It is interesting to note that in the federal contracting arena, an upward correction of the mistaken bid would be allowed under these circumstances.

Other cases this week involved comments by an owner’s representative during an organized pre-bid site visit and a public project owner’s independent investigation into a contractor’s past performance history. The site visit comments did not conflict with or alter the contract specifications. And the project owner was not limited to information in a statewide contractor certification data base. The owner was entitled to conduct a further investigation.

The practice of “bid shopping” is the bane of a trade contractor’s existence. This occurs when a bidder on a prime contract obtains a price quotation from a trade contractor and uses that price in calculating its bid. Upon award of the prime contract, the contractor then “shops” the trade contractor’s price around, disclosing it to competitors and inviting them to beat it.

Critics of bid shopping say general contractors take unfair advantage of their economic leverage, frequently gained through public works expenditures, and harm projects by bringing in weak, low-ball performers. In the public sector, statutes have been enacted requiring more direct procurement of trade work or mandating the listing of selected trade contractors in prime contract bids.

In the absence of legislative intervention, however, there is little trade contractors can do to protect themselves. This was illustrated in a recent Florida case. A paving contractor included language in its proposal prohibiting disclosure of the price to third parties. The proposal said any such disclosure would constitute acceptance of the proposal and create a binding subcontract.

The low bidder on the public project used the paving contractor’s price in its bid, disclosed the price to a third party, and awarded the paving subcontract to a different company. The paving contractor had no recourse. The price proposal was an offer. An offeror cannot unilaterally dictate the form or manner of acceptance of its offer.

Other cases this week involved a termination for convenience settlement proposal and a city ordinance requiring bidders on public works contracts to employ local residents. The settlement proposal could not become a “claim” unless and until negotiations reached an impasse. And, the ordinance violated the Privileges and Immunities Clause of the Constitution.

Construction industry agreements have traditionally included broadly written indemnification clauses. Everyone has seen them. If anything goes wrong, if any liability is incurred, Party A will be indemnified and held harmless by Party B to the maximum extent permitted by law. Party A will be fully reimbursed, including attorney fees.

While it is easy to pass these clauses off as a bunch of “legal boilerplate,” that would be a mistake. Indemnification clauses can have devastating liability consequences. And, they are frequently imposed by a party in a superior bargaining position. They are presented as part of the “standard” terms and conditions – take it or leave it.

As a result of this problem, a number of state legislatures have enacted statutes limiting the enforceability of indemnification clauses in construction industry contracts. One such state is Florida. Contracts “between an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman, or any combination thereof … shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract.”

Recently an equipment supplier, which had not included a monetary limitation in the indemnification clause on the back side of its work order, argued that the Florida statute was intended to protect only project owners in their agreements with the listed parties. A court rejected that contention. The statute applies to agreements between or among “any combination thereof.” The supplier’s indemnification clause was unenforceable.

Other cases this week considered whether a contractor’s default was excused by impossibility of performance and whether a prime contractor accepted a subcontractor’s price quotation within a reasonable time after contract award. Performance was not impossible, as evidenced by the replacement contractor’s prompt completion of the work. And, while the contractor did not tender a subcontract form until eight weeks after contract award, the conduct of the parties may have indicated mutual assent.