On May 7, 2012, the Minnesota Court of Appeals handed down its opinion in Rochon Corp. v. City of Saint Paul, Case No. A11-1271. The issues decided in that case highlight a problem that the courts frequently confront: how to handle bid errors in public, sealed-bid projects.
The City of Saint Paul advertised for bids for the development of The Lofts at Farmer's Market. When bids were opened, it appeared that Shaw-Lundquist had submitted the lowest bid---indeed, Shaw-Lundquist's $7.333 million bid was almost a million dollars lower than the next lowest bidder, whereas bidders two through four were within $600,000 of each other. Everyone in the bid room that day must have known what shortly became public knowledge: Shaw-Lundquist had made a mistake. In particular, Shaw-Lundquist had received a sub bid for a particular item of work in the amount of $688,000, but had entered that sum in its bid as $68,800. Upon discovering this error, Shaw-Lundquist notified the City of error in writing, and requested that its bid be reformed to correct this clerical error. With the correction, Shaw-Lundquist would still be the low bidder, albeit by a narrower margin. The City allowed Shaw-Lundquist to correct the error. For reasons unknown (to us, anyway), the City also allowed Shaw-Lundquist to further increase its bid by an additional $89,211. After these changes, Shaw-Lundquist was still the low bidder.
Rochon Corp., who had finished fourth in the bidding but became the second low bidder after bidders two and three were disqualified for failing to submit the required DBE paperwork, filed a declaratory relief action, challenging the City's decision to allow Shaw-Lundquist to correct its bid. The district court found that the change in Shaw-Lundquist's bid was not a material change, because Shaw-Lundquist was still low, and therefore ruled against Rochon. The Court of Appeals reversed.
Of primary importance here, the Court of Appeals made it clear that the City's decision to allow Shaw-Lundquist to correct the clerical error in its bid would, by itself, be a sufficient basis to overturn the award: "we hold that Shaw-Lundquist’s bid modification was a material change. It occurred after Shaw-Lundquist knew the next lowest bid, allowing it to make its correction fully aware of how much it could increase its bid while yet retaining its place in the ranking. This circumstance would be enough to align our holding with precedent, but we add that this change was particularly troublesome on two additional grounds that call the fairness of the process into substantial doubt. The city allowed Shaw-Lundquist to change its bid not only to fix its error but also to add another $89,211, giving it both cake and icing."
Virtually all construction industry participants would agree that allowing Shaw-Lundquist to add the mystery $89,211 was improper, and that change alone would have allowed the Court to invalidate the award without addressing the propriety of allowing contractors to correct clerical bid errors. Unfortunately, the Court threw both baby and bathwater out the window in its opinion. A number of jurisdictions have addressed the question of whether bidders should be allowed to correct clerical errors in their bids. It is fair to say that the growing trend is towards allowing the correction of such errors, although even jurisdictions that allow correction differ on how they define clerical errors (some require that the error be clear on the face of the bidding document, others allow the submission of evidence to demonstrate the error).
Those familiar with the construction industry know what happens when a contractor limps onto a project underwater from day one, and it is fair to say that neither the project nor the owner ultimately benefits from this arrangement. Those jurisdictions that continue to hold contractors to bid errors seem to be under the continuing delusion of free money: the government can make the contractor do $10,000,000 worth of work for $8,000,000. Put bluntly (and in the patois of my native Wyoming), that ain't gonna happen. Even while enlightened member of the construction community continue to explore delivery methods other than the traditional design-bid-build, it is useful to do what can be done to decrease the often adversarial tone inherent in D-B-B contracts. One solid step in that direction is to allow contractors to correct clerical errors rather than hold them to mistaken bids. Public policy is not best served by a forced project marriage, particularly where the groom lost a limb on the way into the chapel.
No comments:
Post a Comment