Chapter 3 Bidding for Construction Work

• Library: Arkansas Construction Law Manual (2016 Ed.)

Bidding for Construction Work

Jack East, III^* © 2016

3.1 ...... Scope of Chapter.......................................... 3-1

3.2 ...... Purpose of Competitive Bidding and Statutory Framework 3-2

3.3 ...... Bid Document Requirements and Bid

........... Protests....................................................... 3-6

A. ....... Is the Bid Responsive to the IFB?.................. 3-6

B. ....... Is the Bidder a Responsible Bidder?.............. 3-7

C......... Would the Best Interest of the Owner Be

........... Served by Rejection of the Bid?..................... 3-9

D. ....... Remedies and Burden of Proof..................... 3-9

E. ....... Protests by Other Bidders........................... 3-10

3.4 ...... Contractor Bid Errors and Remedies and Bid Bonds 3-12

A. ....... General Principles Governing Allegedly Defective Bids 3-13

B. ....... The Elements of a Defective Bid Claim......... 3-14

C. ........ Relief Prior to Award.................................. 3-16

D. ....... Relief After Award but Before the Work

........... Begins....................................................... 3-16

E. ....... Relief After the Work Has Begun................. 3-16

F. ........ The Paper Trail.......................................... 3-16

3.5 ...... Subcontractor Issues, Including Bid

........... Withdrawal............................................... 3-18

3.6 ...... Private Job Bidding................................... 3-20

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3.1 Scope of Chapter

This chapter covers the process of bidding for public and private construction projects. Section 3.2 describes the purpose of competitive bidding and the statutory framework for it regarding public works projects. The next section discusses issues regarding the bid documents furnished by the project owner and minimum requirements relating to them, including bid/award protests. Section 3.4 considers contractor bid errors and remedies and bid bonds. The next section addresses subcontractor issues in competitive bidding. The final section discusses private job bid issues. For a discussion of alternatives to competitive bidding and recent modifications to the statutory framework please refer to Chapter 13: Public Contracts.

3.2 Purpose of Competitive Bidding and Statutory Framework

Most public contracts involving major construction work must go through the competitive, or sealed bid, process. This mandatory requirement is not for the benefit of bidders. Its purpose is to prevent abuses such as fraud, favoritism, and the waste of public funds.¹ In the private sector competitive bidding is not mandatory, although in many cases it would be advisable to use competitive bidding to obtain the best price available, all things being equal.

Competitive, sealed bidding for state and local government contracts is generally governed by statutory requirements contained in Ark. Code Ann.² These statutes contain bidding requirements governing contracts let by the state, counties, municipalities, and other local taxing units, where the estimated cost of the work exceeds $20,000. State Highway Commission bidding requirements are found at Ark. Code Ann. §§ 27-67-206 and 207 and Arkansas State Highway and Transportation Department Standard Specification Section 102 (2014 Ed.).³ Construction projects within the jurisdiction of the Arkansas Division of Building Authority (“ABA”) are governed by Section 3 of ABA’s Rules, which are specific and which may be found at the ABA’s website.⁴ In the private sector, the requirements are usually spelled out in the Invitation for Bids (“IFB”) and Instructions to Bidders issued by the Owner.

In general, Ark. Code Ann. § 22-9-203 requires that any public improvement costing over $20,000 must be awarded on the following conditions:

(1) notice of the date bids will be received and opened must be published in relevant newspapers at specified times, usually two times with the last being not less than one week before bid opening;

(2) such public notices must contain the location of the project, a brief description of the kind or type of work, the place where bidders may acquire plans and specifications, and the date/time and place for submission of sealed bids;

(3) the amount of the required bid bond, which may be stated as a percentage; a statement that the public entity may reject any and all bids and waive informalities; and other pertinent information.

On the day the bids are opened the statute requires the public agency to “compare the bids and thereafter award the contract to the lowest responsible bidder but only if it is the opinion of the authority that the best interests of the taxing unit would be served thereby.”⁵

If all bids exceed the amount appropriated by the Legislature, a state agency is allowed to negotiate an award to the apparent low bidder but only if the low bid is within 25% of the appropriated amount.⁶ Local taxing authorities have similar authority if bidding on alternates is not required.⁷

The bid documents are allowed to specify deductive alternates in addition to a base bid, and the procedure to be followed in applying alternates is specified in Ark. Code Ann. § 22-9-203(f)(2). For projects exceeding the sum of $75,000, the public notice must include statements encouraging participation by small, minority, and women’s business enterprises.⁸

Arkansas Code Annotated § 22-9-203(i) allows public entities operating wastewater treatment facilities to award contracts for such facilities through a process commonly known as “design-build.” This process does not strictly follow competitive, sealed bid procedure.⁹ Other statutes contain prevailing minimum wage requirements,¹⁰ retainage terms required,¹¹ and performance/payment bond requirements.¹²

In general, after sealed bids are opened a bidder cannot withdraw its bid without the consent of the project owner. For example, American Institute of Architects (“AIA”) Document A701, Instructions to Bidders (1997) provides for modification or withdrawal of a bid: “A Bid may not be modified, withdrawn or canceled by the Bidder during the stipulated time period following the time and date designated for the receipt of Bids, and each Bidder so agrees in submitting his Bid.”¹³

Language to the same effect is contained in the Arkansas State Highway and Transportation Department Standard Specifications for Highway Construction (2014 Ed.).¹⁴ The IFB will provide a timeframe within which the project owner must accept a bid. If a bidder attempts to withdraw or cancel its bid after bid-opening, it and its bid bond surety run the risk of incurring a substantial liability to the project owner in the form of either the bid bond penal sum or the project owner’s actual damages resulting from the contractor’s refusal to enter into the contract.

A bid bond, or bid security, is usually required to be included in the bid package. A bid bond is a surety bond requiring the contractor and its surety to compensate the project owner in a stated, liquidated sum (usually 5% of the bid) if the bidder fails to enter into the contract after being awarded the contract. This protective measure is to compensate the owner for delay and other costs due to the failure of the bidder to enter into the contract.

3.3 Bid Document Requirements and Bid Protests

While a contractor’s bid is usually irrevocable for a defined period of time, the law and IFB give the owner the right to reject any or all bids. Rejection of all bids is usually due to budgetary considerations or problems with the plans and specifications, i.e., vague or ambiguous. Absent fraud or favoritism, the rejection of all bids by a governmental agency is a decision that usually cannot be successfully challenged in court.

Rejection of the low bid, however, with award to one other than the low bidder, may give rise to a meritorious protest by a lower bidder whose bid has been rejected. These cases should be analyzed as follows:

A. Is the Bid Responsive to the IFB?

This is a question of law and involves an analysis of the bid documents submitted. The fundamental questions in a “responsiveness” case are: (1) whether the bid is sufficiently complete for purposes of comparison with other bids and (2) whether any advantage resulted by the alleged omission or defect in the bid. For example, if the bidder has failed to sign its bid or has failed to submit adequate bid security, or has not inserted adequate bid price data, then its bid may not be responsive and may be rejected. In Arkansas State Highway and Transportation Dept. v. Adams, the apparent low bidder omitted to include unit prices and extensions for cattle gates.¹⁵ The “low” bid submitted was roughly 7.85 million dollars.¹⁶ The second lowest bid was over $112,000 higher than the low bid.¹⁷ The highest aggregate bid for the cattle gates was roughly $10,000.¹⁸ The Highway...