Contractor s Obligations before Bidding

Transcription

1 Chapter Two Contractor s Obligations before Bidding Patrick M. Miller and Molly Moss 2.01 Introduction Compliance with Governmental Bidding Instructions Duty to Inquire Latent versus Patent Ambiguity Duty to Investigate Site

2 16 Model Jury Instructions: Construction Litigation, 2nd Edition Chapter 2: Contractor s Obligations before Bidding 2.01 Introduction The instructions contained in Chapter Two address some of the most common issues related to the contractor s pre-bid obligations. The issues often arise in the context of the disappointed contractor s claim for award of the contract and the successful contractor s claim for additional costs resulting from unanticipated conditions. These instructions address the contractor s compliance/noncompliance with its obligations to follow prescribed bidding instructions, to report obvious or patent ambiguities in the contract documents, and to conduct a reasonable site visit or investigation before bidding, and the effect of that compliance/noncompliance on the contractor s attempts to recover. Each instruction provides a description of the contractor s duty before addressing the relevant liability issues Compliance with Governmental Bidding Instructions In this case, the plaintiff [disappointed contractor] claims that the defendant [government entity] was required by law to award the proposed construction contract to the plaintiff because the plaintiff was the lowest responsible and responsive bidder. The defendant responds that the plaintiff s bid was not responsive because the plaintiff failed to follow the prescribed bidding instructions with regard to [explanation]. Compliance with bidding instructions is mandatory and instructions must be strictly followed in all material respects for any bid to be considered responsive. Materially deviating from the conditions set forth in the instructions is grounds for the bid to be rejected. It is the plaintiff s burden to prove that it followed the bidding instructions in all material and pertinent respects in submitting its bid.

3 Contractor's Obligations before Bidding 17 Comment In general, private owners can accept or reject construction bids in their sole discretion without exposing themselves to liability. See 1 Construction L. (MB) 2.01[1], at 2-5 (Oct. 11, 2013). In the public sector, however, under federal and state competitive-bidding laws, government entities must award construction contracts to the lowest responsive and responsible bidder. Id. 2.02[1], at 2-21, 2.02[8], at 2-43; see also Federal Acquisition Regulation, 48 C.F.R As outlined in Chapter Three, to be considered responsive, the bid must comply in all material respects with the invitation for bids. Federal Acquisition Regulation, 48 C.F.R ; 1 Construction L. (MB) 2.02[7], at 2-40, -41. If it is not responsive, the public entity must reject the bid. 1 Construction L. (MB) 2.02[7], at However, immaterial defects or variations those that result in a negligible effect on price, quantity, quality, or delivery are not fatal to the bid. Id. A bid with only immaterial defects or variations may be accepted if it is the lowest bid. As outlined in Chapter Three, the determination of which contractors qualify as responsible bidders may turn on many factors, depending on the relevant law. Some factors that are considered in determining whether a bidder is responsible are the bidder s financial resources, ability to comply with proposed schedules, performance record, ethical record, experience and skills, access to equipment and facilities, qualifications, and eligibility under applicable laws and regulations. Federal Acquisition Regulation, 48 C.F.R Duty to Inquire Latent versus Patent Ambiguity In this action, the plaintiff contractor seeks compensation for the additional cost of [performing additional work that it claims was not required in the contract, etc.] as ordered by the owner. The contractor claims that the [additional work in dispute] was not explicitly specified in the contract. The owner claims that the work was required by the contract or that any ambiguity as to whether the disputed work was required was a patent ambiguity, which should have been readily apparent to the contractor at the time

4 18 Model Jury Instructions: Construction Litigation, 2nd Edition it submitted its bid. The owner contends that because any amgibuity was patent, the contractor should have notified the owner of the patent ambiguity at the time it submitted its bid. Because the contractor did not notify the owner of the patent ambiguity, the owner contends that the contractor must perform the [disputed work] at no additional cost. There can be two types of ambiguities in contract documents: latent and patent. A latent ambiguity is an uncertainty in the contract that is not readily apparent under a reasonable interpretation of the contract. A contractor has no duty to seek clarification of a latent ambiguity before submitting its bid. If you find that the ambiguity in the contract specifications as to the work in dispute was latent, then you should find that the plaintiff contractor is entitled to the additional cost of the [additional work in dispute] so long as contractor complied with other provisions related to changes. In the case of a latent ambiguity, you may consider, in addition to the contract itself, oral, or parol, evidence of the intent of the parties. A patent ambiguity is an uncertainty in the contract that should be recognized by a reasonable interpretation of the contractual language at issue. A patent ambiguity is an ambiguity that is apparent or obvious to a reasonable contractor. A contractor does have a duty to seek clarification of a patent ambiguity in the contract documents before submitting its bid. If you find that the ambiguity in the contract specification as to the [additional work in dispute] was patent, then the plaintiff contractor is not entitled to compensation for the [disputed work]. Comment The principles set forth here logically derive from the general rule that reasonable interpretations of contractual language should govern. If a reasonable interpretation of the contract would not encompass extra work, then the contractor is entitled to payment for such work. However, if the work is reasonably specified by an overall interpretation of the contract, then the contractor should have priced the work in its bid and is obligated to perform the work without additional compensation. Obviously, a prerequisite to giving this instruction is the existence of some ambiguity. In this context, ambiguity simply means language capable of more than one reasonable interpretation. See, e.g., States Roofing Corp.

5 Contractor's Obligations before Bidding 19 v. Winter, 587 F.3d 1364, (Fed. Cir. 2009); Hoppmann Corp. v. United States, 18 Cl. Ct. 220, 225 (1989). Furthermore, there are cases recognizing that some obvious voids or glaring omissions cannot, as a matter of law, be a latent ambiguity within the meaning of this general rule. See, e.g., Interwest Constr. v. Brown, 29 F.3d 611, 615 (Fed. Cir. 1994); Westinghouse Savannah River Co. v. United States, 168 F.3d 1316 (Fed. Cir. 1998) (an ambiguity that is neither glaring nor substantial nor patently obvious cannot be a patent ambiguity). Rather, glaringly obvious ambiguities are patent and raise a duty of inquiry without consideration of the reasonableness of the contractor s interpretation. Newsom v. United States, 676 F.2d 647, 650 (Ct. Cl. 1982). The court only evaluates the reasonableness of a contractor s interpretation if the ambiguity is latent. Id. A contractor cannot claim a latent ambiguity where other portions of the contract would provide enough information to make the meaning of the term clear. See Monarch Painting Corp. v. United States, 16 Cl. Ct. 280 (1989). The distinction between latent and patent ambiguities is also relevant in the application of the parol evidence rule. Generally, use of oral evidence to show the parties understanding of contractual terms is appropriate only where there is a latent ambiguity. See, e.g., Shay v. Aldrich, 790 N.W.2d 629, 641 (Mich. 2010); Galloway Corp. v. S.B. Ballard Constr. Co., 464 S.E.2d 349 (Va. 1995) Duty to Investigate Site In this action, the contractor seeks compensation for [disputed extra work]. The owner claims that contractor should not be paid additional amounts for the [disputed extra work] because the contractor should have realized that the [disputed extra work] would be required as a result of its investigation of the site before submitting its bid. A pre-bid site visit is reasonable and required if a reasonably experienced and prudent contractor would do so in similar circumstances or if it was required by the parties contract. The proposed bidders were required in this case to examine and judge for themselves the location and character of the proposed improvements at the

6 20 Model Jury Instructions: Construction Litigation, 2nd Edition site and assume all risks as to the character and nature of the work and the labor and material required to complete the contract. The contractor was informed that the engineer s estimate [of the amount of work required] was merely a guide, that the bidder must determine for itself the correctness of the estimate, and that if the contractor accepts the estimate unchecked and unverified, the contractor does so at its peril. Bidders are expected to use normal powers of observation when conducting site inspections. Generally, however, bidders are not required to conduct independent subsurface investigation in the form of soil borings or test pits, unless specifically required by the bidding documents. If you find that the need for a contractor to perform the [disputed extra work] would have been apparent to the contractor from a reasonably conducted and required site visit before it submitted its bid to perform the work, then the contractor is not entitled to additional compensation. If, however, you find that a pre-bid site visit was not reasonably required or that the [disputed extra work] would not have been apparent to the contractor from a reasonable site visit, then the contractor is entitled to be compensated for this extra work. Comment Generally, the duty to investigate a site before bidding on a project arises as a matter of contractual provision. Typically, such a contract provision states that the contractor represents that it has conducted an investigation of the site sufficient to inform it of the conditions. A requirement in the contract for the contractor to verify dimensions or site conditions can be enforced against the contractor if the contractor fails to confirm the conditions and they turn out to vary from what was expected. See Crookham & Vessels Inc. v. Larry Moyer Trucking Inc., 699 S.W.2d 414 (Ark. Ct. App. 1985). Although the scope and depth of a prebid site visit varies with the circumstances, testimony about the reasonable industry standard is typically helpful to inform the jury s determination. See Liles Constr. Co. v. United States, 455 F.2d 527 (Ct. Cl. 1972). It is appropriate for the jury to determine what a reasonable investigation would have identified and what the scope of a reasonable investigation should have been. For example, whether a contractor s pre-bid duty to

7 Contractor's Obligations before Bidding 21 investigate the site compelled the contractor to conduct soil samples is a factual matter for the jury to determine in light of the surrounding circumstances and nature of the project. See Pinkerton & Laws Co. v. Roadway Express Inc., 650 F. Supp. 1138, 1148 (N.D. Ga. 1986). A contractor may be charged with knowledge of the conditions that a pre-bid site visit would have revealed and bears the risk of conditions that it could have discovered pursuant to a reasonable investigation. Orlosky Inc. v. United States, 64 Fed. Cl. 63, 68 (2005); Conner Bros. Constr. Co. v. United States, 65 Fed. Cl. 657, 673 (2005). In George B. Gilmore Co. v. Garrett, 582 So. 2d 387 (Miss. 1991), a builder who should have been aware of a potential subsurface problem and who neither informed the owner nor performed soil tests failed to perform in a workmanlike manner, regardless of his compliance with the plans, the customs of the trade, and Veterans Administration Standards. Here the court cited with approval Prosser and Keaton on the Law of Torts, ch. 5, 33, at 194 (5th ed. 1984): Even an entire industry, by adopting such careless methods to save time, effort or money, cannot be permitted to set its own uncontrolled standard. Id. at 395.

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