The procurement of construction services by public entities is a closely regulated process as local, state, or federal laws and regulations establish the procedures that public entities must use. These seek to avoid corruption, favoritism, and other ills that may lurk behind expenditures of public funds.
Private owners and contractors on private projects are not held to the same strict laws. Instead, contracts for private projects can generally be awarded using whatever selection process the owner or contractor chooses. Even then, there are few rules that obligate a private party to award to a particular contractor. The federal district court decision in Central Masonry Corporation v. Bechtel National, Inc., 857 F. Supp. 2d 1160 (D. Colo. 2012) is a good example of the discretion afforded to private owners and contractors, even to the point of waiving bid requirements for some bidders while mandating strict compliance from others.
Central Masonry and Bechtel
As the general contractor on an industrial chemical plant project in Colorado, Bechtel solicited bids for concrete and masonry work. After receiving the bids, and rejecting some, Bechtel asked the remaining contractors to submit best and final offers by 5:00 p.m. on March 18, 2009. Central Masonry (Central) was unable to make the deadline, and, at 5:02 p.m., requested an extension of time to respond. Bechtel refused and rejected Central’s late proposal. Bechtel drew a hard line as to Central, but it was much more flexible with another bidder, Markley Construction (Markley). Markley submitted its initial bid on the wrong forms and did not include a bid bond. Bechtel waived these deficiencies and invited Markley to submit a best and final offer. Markley missed the deadline by over five hours, and the best and final offer that it submitted was incomplete. Bechtel waived these errors, too, and allowed Markley to submit its completed best and final offer package seven days later. Bechtel eventually awarded the contract to Markley.
Not surprisingly, Central was upset by this outcome. If this had been a public procurement, Central could have protested the award, argued that Markley’s bid was nonresponsive or that selection process was arbitrary. But this was a private project, so Central had to rely on tort law principles to fight Bechtel’s decision. Central sued Bechtel in federal district court alleging that Bechtel misrepresented or concealed material facts about its bidding process to mislead it.
Specifically, Central asserted that Bechtel misrepresented that the written bid instructions would govern the bidding process and that incomplete or untimely bids would not be considered. Central argued that these statements were false because Bechtel waived several of the bid requirements for Markley. As to the alleged failure to disclose, Central contended that Bechtel failed to inform it that it would waive certain requirements for selected bidders—namely, Markley.
Saved by the Instructions to Bidders
But Bechtel had a shield: the solicitation language. The Instructions to Bidders included in the solicitation package provided that:
Any proposal received after the due date and time stated in the Proposal Invitation Letter may be rejected.
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Bechtel may (i) reject any or all Proposals if such action is in the best interest of Bechtel or Government, (ii) accept other than the lowest priced Proposal, and (iii) waive informalities and minor irregularities in the Proposals received.
The Instructions also stated that verbal explanations given to bidders would not be binding on Bechtel.
Against this backdrop, the court found that the misrepresentation allegations were defeated by the leeway allowed Bechtel in its Instructions to Bidders. Bechtel may have represented verbally and in its instructions that certain requirements would have to be met in order for bids to be considered. However, the Instructions to Bidders were clear that Bechtel had the power and discretion to reject any or all proposals and waive informalities and minor irregularities in the proposals. Combined with the provision stating that Bechtel was not bound by its verbal instructions, the federal court found the facts warranted summary judgment in Bechtel’s favor.
The Central Masonry decision offers important lessons for contractors and subcontractors pursuing private construction work and private owners soliciting bids from contractors. Bechtel was able to select the concrete and masonry subcontractor of its choice, because it explicitly retained the right to waive irregularities and the discretion to reject any and all proposals. If this reservation of rights language in Bechtel’s Instructions to Bidders had been absent, Central might have been able to successfully advance its fraud and non-disclosure claims.
Owners who decide to implement a competitive solicitation process should carefully review their instructions for bidders and make sure they are properly protected. Some of this language can be found in standard form bidder instructions. For example, the AIA A701–1997, Instructions to Bidders, reserves to the owner the right to reject any or all bids (§5.2) and “to waive informalities and irregularities in a Bid received and to accept the Bid which, in the Owner’s judgment, is in the Owner’s own best interests” (§5.3.1). Failure to include protective language in the instructions might permit unsuccessful bidders to bring tort claims against an owner if they believe they were treated unfairly.
For prospective contractors and subcontractors bidding on private work,Central Masonry is not as encouraging, but it does offer some insight. First, it reiterates the importance of following the bidding instructions. Bechtel may not have needed a reason to reject Central’s bid, but Central gave Bechtel a reason to do so when it missed Bechtel’s bid submission deadline. Second, Central Masonry shows how bid instructions can be used to insulate a party from legal claims. Rejected bidders should carefully reread the bidding instructions before deciding to take legal action against a private owner or contractor. Unlike the public context, private parties can reserve for themselves the right to select the bidders of their choice, even to the point of treating bidders unequally.