The Potential and Perils of Colorado Public Construction Contracting
| Publication year | 1987 |
| Pages | 2131 |
1987, December, Pg. 2131. The Potential and Perils of Colorado Public Construction Contracting
Despite the current dismal state of Colorado's construction industry, the numerous public construction projects currently planned provide cause for optimism about the future. Denver is planning construction of a new airport and convention center. In addition, new legislation provides for construction of a rapid transit system, starting with a line from north Douglas County into Denver. Substantial highway projects, including E-470 and W-470, are also planned.
The magnitude of these projects will necessarily involve numerous contractors, many of whom may be relatively inexperienced with public contracting. This article provides practitioners with an introduction to public contracting and describes some of the opportunities and pitfalls of such work. This article cannot treat all issues likely to arise in state procurement. Therefore, the focus will be on some of the key issues in state construction procurement.
Much of the analysis in this article deals with general principles of Colorado public procurement and is equally applicable outside the construction arena. The topics treated include bid protests and withdrawals, bonding, the perils of contract changes, dispute resolution and potential infirmities in Denver's affirmative action set-aside program. Although various political subdivisions have adopted their own procurement rules with different nuances, the article focuses on Denver where appropriate.
Colorado, like other public entities, requires that contracts be awarded based on competitive, sealed bids.(fn1) However, provision is made for "emergency procurements" where an immediate threat to the public health or safety exists.(fn2)
Bidding on constructon projects generally is begun by issuance of an invitation for bids ("IFB"). This must include the closing date for bid submissions, all evaluation factors, delivery or performance schedules, inspection and acceptance requirements and all contract terms and conditions.(fn3) The IFB must be published in The Daily Journal and in a local newspaper of general circulation at least fourteen days before bid opening.(fn4) Similarly, in Denver, the Revised Municipal Code of the City and County of Denver ("R.M.C.D.") requires newspaper publication for Denver projects.(fn5)
Bidders should attend prebid conferences which may be held to explain the procurement requirements and to clarify ambiguities in the original specifications.(fn6) No changes in the IFB are deemed valid unless issued as supplementary general conditions and approved by a representative of the State Building Division.(fn7)
Bids must be publicly opened and awarded to the low, responsive, responsible bidder, i.e., the qualified bidder who has bid in compliance with the IFB at the lowest price and furnished required bonds or their equivalent.(fn8) To be in compliance, bidders may not change the printed state forms, including the general conditions of the contract. The public agency must evaluate the bids based only on the requirements specified in the IFB, which may include both objective and subjective criteria.(fn9) Subjective criteria include such items as inspection, testing, quality, workmanship, delivery or suitability for a particular purpose. Objective criteria include items
A public owner may cancel an IFB or any portion thereof whenever it is in its best interests to do so.(fn10) Alternatively, if all bids exceed available funds, the government may negotiate with the low bidder to bring the bid within the amount appropriated.(fn11)
Contractors must be prequalified with the State Building Division before bidding on state construction projects exceeding $500,000.(fn12) To do so, a contractor annually must file state form SC-9.1, entitled "Contractor Statement of Experience and Financial Condition," and be qualified at least two days prior to bid opening. Similarly, all bidders on highway contracts must file an experience questionnaire and a confidential financial statement with the Staff Construction Engineer at least seventeen days prior to bid opening.(fn13) For bids exceeding $500,000, contractors must include an audit and affidavit by a certified public accountant.
If the state rejects a contractor's pre-qualification, a notice of intent to deny must be provided. The contractor is then entitled to an evidentiary hearing before the State Construction Engineer, at which the contractor may be, and ordinarily should be, represented by counsel. The contractor may appeal denial of prequalification to the Chief Engineer by written notice within fourteen days of receipt of the written denial. The Chief Engineer must hold a hearing within fourteen days of the request for appeal, and the contractor should submit all information warranting reversal of the denial of prequalification.(fn14)
Several types of bonds are required in public contracting. First, bidders must provide a bid bond for their bid to be deemed responsive. Bid security of at least 5 percent of the amount of the bid in competitive sealed bidding situations over $50,000 is required.(fn15) The bid security guarantees that the bid will be maintained in effect for thirty days after the bid opening or as specified in the IFB.
Additionally, CRS § 38-26-106 requires that every contractor awarded a contract in excess of $50,000 must execute a performance and payment bond in a penal sum not less than one-half of the total contract amount. The performance bond is conditioned upon the faithful performance of the contract, as well as payment of labor and materials provided for such work. The surety is obligated up to the amount of the bond. The contractor may deposit a certified or cashier's check or bank money order in lieu of a bond so that the contractor can arrange to earn interest on the deposited funds.
Although CRS § 38-26-106 does not contain a statute of limitations for actions on performance bonds, practitioners should be aware that the Colorado courts have mandated that actions on performance bonds must be brought within six months.(fn16)
Although contractors may modify or withdraw bids before bid opening, the state will not allow changes or withdrawal after an award is made. After bid opening, but before award, minor mistakes may be waived by the principal representative. Where the intended correct bid is evident, mistakes must be corrected and the bid may not be withdrawn. This occurs where the bid documents contain typographical errors, transpositions or arithmetical errors. Otherwise, a bidder may be permitted to withdraw the low bid only if the mistake is clearly evident or the bidder submits proof which clearly and convincingly demonstrates that a mistake was made.(fn17) A mistake is clearly evident on its face if it is substantially different from other bids received.
The more vexing problem arises where a mistake is discovered after award. Generally, such mistakes may be corrected only if the chief procurement officer or the head of a purchasing agency makes a written determination that it would be "unconscionable" not to allow the mistake to be corrected or the bid withdrawn. Because of the potential consequences of such a mistake, attorneys should seek to become involved in this determination and provide all information necessary to a favorable decision.
Moreover, if a bidder discovers an error after bid opening and informs the government, which goes on to award the contract despite the reported mistake, relief may be afforded if the contractor proves by a preponderance of the evidence that: (1) the mistake relates to a material feature of the contract; (2) it occurred despite the exercise of reasonable care; and (3) the public owner can be placed in the status quo.(fn18)
To meet the reasonable care standard, the contractor must show that the bid preparation procedures were in conformity with industry standards. The status quo requirement may be met, even though the public agency may have lost the benefit of the mistaken bid, if the second lowest bid remains available. Further, the bidder may sue to rescind its bid if relief is denied or may assert this defense in an action by the state to enforce the bid or to recover on the bid bond.
In light of the high stakes involved in the decision to award a contract, bid protests by disappointed bidders have become increasingly common. Unsuccessful bidders frequently challenge awards where they suspect some impropriety or procedural error is involved. Moreover, Colorado encourages, rather than dissuades, bid protests by not providing any penalty for losing a protest. Conversely, a contractor may overturn the award and then win a subsequent solicitation. Combining little or no down-side risk with a substantial up-side benefit frequently overcomes an unsuccessful bidder's reticence to incur bid protest expenses and the public owner's enmity.
The disappointed bidder's first step is to file a protest with the state purchasing...
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