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« EPA’s New Renovation, Repair & Painting Rule Draws Mixed Reviews | Main | DBIA Unveils 'BIM and Design-Build Project Delivery' Document »

07/21/2011

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Very interesting question. Often the contractor will seek to buy down the job after award of the contract. Has anyone seen a case where that voids the sub's quote?

We deal primarily in the federal contract sector. There is a disturbing trend for prime contractors to use a sub's price to bid or propose on the solicitation, and tell that sub during the process they are the low proposer on that piece of work and they are including their price in the bid or proposal. After award the prime contractor then shops around for a lower price and tries to negotiate the supposed low sub qouter down to a lower price. There are others times the prime claims they shaved a certain percentage off the price before they submitted and now they want the sub to meet that reduction. These statements are suspect as a scam as there is no way the sub knows the true extent of such games. What is the case law on these two scenarios?

All depends on circumstances. In a public job where law requires the prime to use a listed subcontractor,the sub should be held to the bid. Private job where no such law exists, maybe not.

This can be an issue with both public and private bids. If the subcontractor does not have access to the contract before the bid I believe that if the contract language is unacceptable to the subcontractor he should be given an out. After all no-one should be forced into an unfair contract.
I have seen some extremely onerous contracts in my day and I have walked from jobs because I could not obligate my company to the terms. If a contractor will not consent to using a standardized subcontract such as a AIA contract then that should be a huge red flag for any subcontractor.

From my experiences, it seems that these issues only arise when a reputable subcontractor wants to not honor their bid. The subcontractors known for taking shortcuts, in all aspects of their business are always allowed to withdraw penalty free, because the Prime Contractor is glad to not have to use them. The problem is that those non-reputable subcontractors prices are being used to drive the prices down for everyone else.

The solution is to not issue proposals/quotes any longer. Start issuing "estimates" only and state on the estimate that the user takes the risk of using the estimate. If you are a reputable subcontractor with a decent track record, the Prime Contractors will not be concerned and if they are, then do not give them estimates any longer. A reliable estimate is an extremely valuable item for a Prime Contractor and it is a service subcontractors have been providing for free. And in that 1 in 1000 chance you do make a large mistake, issuing an "estimate" instead of a "proposal/quote" will help limit your liability.

Ask for a bid bond.

There are General Contractor's who frequently shop Subcontractor quotes or try to force a lower price. When this is the case, it is the Subcontractor's choice if they choose to play along. Generally speaking, most GC's and Subs know who these companies are, yet the Subs continue to bid them the exact same quote as the GC that respects the quote and does not shop numbers, thus proliferating the trend.

Subcontractors should be bound to the same rules as the gc; these are all enumerated in the specifications and advertisement to bids. Subs play just as many of these, in my opinion, unethical games as the gc.

Our terms and conditions on every proposal give us an out for clerical errors, scheduling conflicts, and the prime contractor's mandatory acceptance of our addendum to their contract, which clarifies language relating to liability, payment terms, stop work provisions, and how long they hold retainage. We've never been threatened with legal action for walking away, but we have walked away when our terms were not met. It's our business, not theirs.

I am surprised not to see any comments about the expiration date on the quote. We typically indicate in the quote that it expires in 30 days. I have yet to see a contract come in in less than 30 days after the bid. Isn't this enough to get out?
Most contractors do not provide their contract to the subs at bid time. I do think that you can also get out if the terms of the contract are one sided and not fare and the contractor does not want to accept modifications.

I remember the days when GC's were taught that if a number was a certain percentage less then everyone else, the ethical thing to do was to contact the sub and ask them to review their numbers. Then and only then if the sub comes back and claims their number is good, they should be held to it. However, it is on the GC to make sure they bring it to the subs attention. When did ethics go out the window?

Coming from the side of a large GC, it is the responsibility of both parties. If a GC is soliciting bids from subcontractors, make the attempt to educate the sub on special conditions, get a "scope of work" letter from the sub prior to bidding, review the proposal with the subcontractor before relying on the bid, and realize that the subcontractor is YOUR subcontractor going into a project.

As far a the subcontractor is concerned, work with the GC on preparing your bid. They know what they are looking for as far of scopes of work, ask the questions and bid apples to apples with your competitor. No reliable GC is trying to put people out of business, they want to be covered and competitive. It all comes down to working together. If a project goes bad, both parties end up in the same courtroom.

It is often difficult to know if your price is being shopped to other subs. One reason is that it is difficult to find out what the other bids were, unless you were one of the higher bids. Often when we are low bidder the GC does not want to tell us what the other bids were, and you don't know you are low until they tell you. As for the subcontract - beware. You have the right to change the terms of the subcontract - most of them are absolutely written to benefit the GC. It is a negotiable agreement and if the GC won't budge, maybe you are better off walking away. Be informed, some trade associations provide subcontract seminars with an attorney.

On the binding character of a sub's price quote used by the later successful gc, that's been recognized for decades - traditionally, under the doctrine of promissory estoppel. In reality, it's the sub's quote being treated as an offer, with the gc's foreseeable detrimental reliance on it as consideration, and if the gc then seasonably accepts, there's a contract. If the sub's quote/offer failed to express its desired non-price terms (and beyond just scope limits), it has itself to blame for - in the end -a court deciding what were mutually intended as reasonable terms. (Though, many arguably would be those in the owner-gc contract documents, which typically flow down to the sub anyway.) The sub also would have itself to blame for instead not adding a disclaimer to its quote. By the same token, if the gc starts pulling the sub's chain post-award - instead of giving an unqualified acceptance, that's at best a counteroffer-getting the sub off the hook. Finally, if the sub and gc proceed to perform without having nailed down all the terms, they've still got a deal - on the terms which were agreed and any other pertinent ones later found necessary and as what a court thinks they would have agreed.

I follow you VIA GFC and I love your blog!

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