I. PUBLIC BIDDING
A. Project Specifications
Once the construction drawings and specifications are prepared, the project architect or engineer usually places an advertisement with the Dodge Reports or other publications to alert potential bidders so that they might pick up a copy of the plans and specifications and submit bids to perform the work. The project specifications contain an “invitation to bidders” which establishes the legal framework upon which the bidder submits its bid. The municipal owner, as financial security, will require the bidder to submit a bid bond. Should the low bidder refuse to accept the award of the contract, the surety on the bid bond is liable for the difference between the bidder’s bid and the next lowest bid up to the penal sum of the bond. The bidder remains responsible for any shortfall. In addition, after the bidder returns the executed contract, it will be required to submit a performance bond and labor and material payment bond to the municipality (State Finance Law ¬ß137). The performance bond acts as security for the public owner in the event the contractor fails to complete its work. In such an event, the surety has various options and may hire a contractor to complete the work left undone by the defaulting contractor. If the contractor is not sufficiently progressing its work, the owner may default the contractor. Determining whether or not to default a contractor is a very difficult decision for any municipal owner and should only be taken with the advice of counsel and careful consideration of the economic implications.
The labor and material payment bond acts as financial security for entities that furnish labor and material to the project. A public owner should be alert to payment bond claims being made as it may be a symptom that the contractor is not timely paying its subcontractors and suppliers. Payment bond claims also may work to reduce the protection the owner is afforded by the performance bond as most labor and material payment bonds and performance bonds have a joint penal sum so that if the surety pays a payment bond claimant the penal sum of the performance bond is reduced so that less protection is available for the owner to secure the completion of the project should the contractor default.
B. Competitive Bidding Statutes
Municipal owners, with certain exceptions, must award contracts to the lowest responsible bidder. Public bidding in New York is governed, by and large, by General Municipal Law ¬ß103. The General Municipal Law requires that the public owner award the contract to the lowest responsible bidder. In order to be the lowest responsible bidder, however, the bidder’s bid must be responsive. In other words, the bid must provide a price quote for every item for which the owner solicited a bid. If a bidder fails to submit a bid for a particular item of work, the bidder’s bid should be deemed “non-responsive” by the municipality. As a non-responsive bidder, the bidder should not be awarded the contract. A contract that is awarded in non-compliance with General Municipal Law √Ǭß103 is void so that the contractor would be performing its work at the risk of not having an enforceable legal right to be paid; the municipality would have the risk of the next lowest responsible bidder seeking court intervention to review the conduct of the municipality in awarding the contract. The next lowest bidder would, no doubt, ask the court to issue a temporary restraining order preventing the work from proceeding until meaningful court review could occur.
A municipality may set forth in its request for bids, certain minimum experience requirements for bidders on public contracts. For example, for a roofing project, the municipality may require bidders to demonstrate that they have “in the last five (5) consecutive years prior to the bid opening, successfully completed in a timely fashion at least two (2) roofing projects similar in type and scope to the work required under the contract bid upon, which projects must be completed and be in service for a minimum of two (2) full years prior to the bid opening. See, P&C Giampilis Construction Corp. v. William J. Diamond, et al., 619 N.Y.S.2d 271 (A.D., 1st Dept., 1994). In Giampilis, the Court held that the City of New York was not only entitled to reject the low bid since the low bidder failed to meet the experience requirements, it further determined that the municipality had a rational basis for rejecting the low bid, even though the principals of the corporate low bidder could demonstrate the requisite experience (i.e., the bid documents required the corporate bidder to have the requisite experience). The courts of this state have repeatedly upheld the rejection by municipal agencies of competitive bids, without any further investigation other than a review of the bid documents, based on non-responsiveness, where the bids failed to “comply with the literal requirements of the bid specifications”. See LeCesse Bros. Contracting, Inc. v. The Town Board of the Town of Williamson, 62 A.D.2d 28, 31, 403 N.Y.S.2d , 950, Affirmed 46 N.Y. 960, 415 N.Y.S.2d 413 (1978); A.I. Smith of Long Island v. The City of Long Beach, 158 A.D.2d 454, 551 N.Y.S.2d 48 [wherein the court upheld the City’s rejection of a bid for failure to include a “detailed declaration of the bidders qualifications” including the firm’s experience.] See also In re: Kaelber, 281 A.D. 980, 120 N.Y.S.2nd 556 (A.D., 2 Dept., 1953) and W.J. Gaskell, Inc. v. William J. Maslanka, Mayor of the Village of Garden City, 33 Misc.2d 88 225 N.Y.S.2d 94 (Nassau Co., 1962).
However, a public agency can go too far. In the Matter of Construction Contractors Association of the Hudson Valley, Inc., et al. v. Board of Trustees, Orange County Community College, et al., 192 A.D.2d 265, 600 N.Y.S.2d 953 (2nd Dept., 1993), the Court held that a requirement in the bid specifications for restoration work on a historic building located at Orange County Community College violated public bidding statutes because it was too restrictive and unreasonably limited the potential pool of bidders. The requirement was that the contractor must have successfully completed two restoration projects on buildings listed on the National Register of Historic Places within the previous five years. While the Court held that the successful completion of similar projects is a reasonable requirement, there was no evidence before the Court that buildings registered on the National Register of Historic Places presented restoration problems unlike those of other historical buildings which are not so listed. Therefore, the Court concluded that such a flat requirement does not pass muster under General Municipal Law §103.
A “responsible” bidder is one that does not have a record that would bare on their honesty, trustworthiness or their ability to complete the project, including the requisite experience for the particular type of work involved. In determining whether or not a bidder is the lowest responsible bidder, the municipal entity is vested with a certain measure of discretion. Should the bidder not receive the award of a contract to which it felt itself entitled, the bidder would then have to bring a special court proceeding under Article 78 of New York’s Civil Practice Law and Rules, seeking judicial review pursuant to which the court would determine whether the public entity “abused its discretion” or acted in an “arbitrary” or “capricious” manner. The standard of review of an agency’s decision to award or deny a contract is whether there is a rational basis to support that determination, and the burden of proving that there is no rational basis for the decision is on the contractor. (See Matter of Schiavone Construction Co. v. LaRocca, 117 A.D.2d 440, 444, 503 N.Y.S.2d 196, Lv. denied 68 N.Y.2d 610, 508 N.Y.S.2d 1026, (1986).
The courts have also recognized, however, that when a low bidder has its bid rejected with the inevitable implication of non-responsibility, its “commercial good name, reputation, honor, or integrity” is at stake. See LaCorte Electrical Construction and Maintenance, Inc. v. County of Rensselaer, 80 N.Y.2d 232, 590 N.Y.S.2d 26 (Court of Appeals of New York, 1992) citing Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, and Wisconsin v. Constantineau, 400 U.S. 433, 91 S. Ct. 507. While safeguards of reasonable notice and timely opportunity to be heard become operative in such circumstances, the public fisc and process must also be weighed in light of the additional expense of a more costly contract flowing from the rejection of the lowest bid. In considering the required and appropriate remedies for failure to afford necessary protections, courts are not blind to the need that governmental agencies be able to conduct business in an efficient and effective manner and to the potentially crippling effect that might result from the imposition of stringent due process requirements with respect to all government actions adverse to unsuccessful bidders on Government contracts. See, LaCorte Electrical Construction and Maintenance, Inc. v. County of Rensselaer, supra. While a low bidder does not acquire a property right in a contract, it has been held that a low bidder does have a “liberty” interest which includes the right to contract. See LaCorte Electrical Construction and Maintenance, Inc. v. County of Rensselaer, supra. As a result, there are certain minimal due process requirements which the municipality must meet when making a determination that a contractor is not a “responsible bidder”. Giving the bidder notice of a municipality’s concern over its responsibility and the reasons for that concern, and affording the bidder the opportunity to rebut the charges both in writing and at informal hearings have been determined to meet the minimal due process requirements, especially in light of the availability of court review pursuant to CPLR Article 78. See Matter of Schiavone Construction Co. v. LaRocca., supra. It is important to note that in reaching a determination of non-responsibility, it is not necessary for the municipality or agency to have an evidentiary hearing, as long as there is an opportunity for the low bidder to be heard whether at a meeting or in the form of written submissions. See Tully Construction Co., Inc. v. Hevesi, 214 A.D.2d 465, 625 N.Y.S.2d 531 (A.D., 1st Dept., 1995).
The owner, in determining which bidder is the lowest responsible bidder, should check the bidders references to make sure that the bidder is “responsible”. The owner should also review the bid with the bidder to make sure that the bidder has a complete understanding of the scope of work to be performed.
Municipal owners should also be wary of prime contractors acting as brokers and not actually performing any work activities themselves. In order to guard against this risk, the contract should have a limitation on the dollar value that can be subcontracted. Certain public entities also establish Minority and Women owned Business Enterprise (“MBE” and “WBE”) goals that are typically met by subcontracting certain aspects of work.
Upon determination of the apparent lowest responsive and responsible bidder and prior to award, the municipality or agency may elect to open negotiations with the selected bidder in an effort to improve the bid to the municipality or agency with respect to the price only. In Matter of Fischbach & Moore v. New York City Trataros. Auth., 79 A.D.2d 14, 435 N.Y.S.2d 984,(2nd Dept., 1981) lv. denied 53 N.Y.2d 604, 439 N.Y.S.2d 1028 (N.Y., 1981), the court held that once the bidding process fairly produces a lowest responsible bidder, there is no supervening interest or policy consideration which precludes a municipality or agency from negotiating and obtaining a post bid, pre-award price concession from that very same bidder. However, the court cautioned that a municipality may not “engage in post-bid negotiations through which a contractor other than the low bidder may become the low bidder, or coerce a low bidder to making unfair and unwarranted concessions through the threat of rejecting all bids. In the event the apparent lowest responsive and responsible bidder declines to negotiate, the municipality may elect to either award the contract to the apparent lowest responsive and responsible bidder or may, upon reasonable grounds, reject all bids in accordance with General Municipal Law √Ǭß103. See also, Acme Bus Corp. v. Board of Education of the Roosevelt Union Free School District, 91 N.Y.2d 51, 666 N.Y.S.2d 996 (1997).
It is important to recognize that the laws requiring competitive bidding were designed to benefit tax payers rather than corporate bidders, and, thus should be “construed and administered with sole reference to the public interest”. See, Acme Bus Corp. v. Board of Education of Roosevelt Union Free School District, supra. In Matter of New York State Ch., Inc., Associated Gen. Contrs. V. New York State Thruway Auth., 88 N.Y.2d 56, 643 N.Y.S.2d 480, 666 N.E.2d 185, the New York Court of Appeals declared that there are:
“two central purposes of New York’s competitive bidding statutes, both falling under the rubric of promoting the public interest: (1) protection of the public fisc by obtaining the best work at the lowest possible price; and (2) prevention of favoritism, improvidence, fraud and corruption in the awarding of public contracts.”
In Acme Bus Corp. v. Board of Education of Roosevelt Union Free School District, supra, the court stated that these separate goals are not incompatible. Favoritism or irregularity in the bidding process may ostensibly produce monetary savings, but the use of such means to meet that singular end is still unsustainable because the complete public interest is ultimately promoted by fostering honest competition. The spectral appearance, however, of impropriety is insufficient proof to disturb a board’s determination under the competitive bidding statutes. An unsuccessful bidder has the burden to demonstrate “actual” impropriety, unfair dealing or some other violation of statutory requirements when challenging an award of a public contract. See Matter of Conduit & Found. Corp. v. Metropolitan Transp. Auth., 66 N.Y.2d 144, 495 N.Y.S.2d 340 (N.Y.,1985).
A public owner issues an award of contract to the bidder it deems to be the lowest responsible bidder and then issues a “Notice of Award” and ultimately a “Notice to Proceed” when the work is ready to commence. Upon the bidder’s receipt of the Notice of Award, the bidder will be required to return the executed contract and forward the appropriate bonds and insurance certificates. After the owner receives and reviews the executed contract and makes sure that the necessary bonds and insurances have been provided, the owner will then issue a Notice to Proceed directing the bidder, now contractor, to start work.
C. Bid Mistakes
On occasion, a bidder may submit a bid that is disproportionately low when compared with with the owner’s estimate of the costs, or the bids submitted by other bidders. In such a case, the owner may be on notice that the bidder made a mistake. The bidder may also realize that it made a mistake and seek to withdraw its bid. The owner when faced with deciding whether or not to permit a bidder to withdraw its bid, must act with a high degree of caution as the municipality, bidder and its surety as well as the next lowest bidder all have a financial stake in the decision. In order for a municipal owner to legally accept the withdrawal of a bid based on a mistake, it must first receive a notice from the bidder within three days of the bid opening requesting the withdrawal of its bid. General Municipal Law √Ǭß103 (11)(a), states as follows:
11. Bid mistakes; public projects. (a) In all contracts governed by this section, where a unilateral error or mistake is discovered in a bid, such bid may be withdrawn after a showing of the following: (1) the mistake is known or made known to the awarding officer, board or agency prior to the awarding of the contract or within three days after the opening of the bid, whichever period is shorter; and (2) the price bid was based on an error of such magnitude that enforcement would be unconscionable; and (3) the bid was submitted in good faith and the bidder submits credible evidence that the mistake was a clerical error as opposed to a judgment error; and (4) the error in the bid is actually due to an unintentional and substantial arithmetic error or an unintentional omission of a substantial quantity of work, labor, material, goods or services made directly in the compilation of the bid, which unintentional arithmetic error or unintentional omission can be clearly shown by objective evidence drawn from inspection of the original work paper, documents, or materials used in the preparation of the bid sought to be withdrawn; and (5) it is possible to place the public agency, board, officer, or subdivision in status quo ante.
Upon the owner’s receipt of such a letter from a bidder, the owner should carefully review the supporting documentation to make sure that the error was a clerical error and not an error in judgment. An error in judgment is not a sufficient basis for accepting the withdrawal of a bid.
For example, an agency’s refusal to permit a contractor to withdraw its bid was found not to be arbitrary or capricious where shortly after the bid was accepted, the contractor notified the agency that it had made an error, but delayed three months before requesting to be released from its bid. Gilston Elec. Contracting Corp. v. Popolizio 169 A.D.2d 583, 564 N.Y.S.2d 435 (1st Dept., 1991). In Balaban-Gordon Co. v. Brighton Sewer Dist. No. 2, 67 Misc.2d 76, 323 N.Y.S.2d 724 (Sup. Ct., 1971), the court held that where a contractor prepared a bid for general construction for a sewage treatment plant, and also a bid for the plumbing and equipment for such plants, and in doing so, misinterpreted the specifications and erroneously omitted certain items that had to be furnished under the general construction contract computations it made in preparing its bid for such contract and instead included these items in computations it made in preparing its bid for the plumbing contract, and contractor gave sewer district notice of mistake the day after bids were opened, the district could not properly retain advantage of the contractor’s mistake, and fair dealing required that contractor be relieved of its bid.
II CONTRACT PERFORMANCE AND CLAIMS
A. Role of Project Architect as Owner’s Representative
After the award of the contract and Notice to Proceed is issued, the architect or consulting engineer will typically act as the owner’s representative during the course of construction. The owner’s representative will coordinate the kick-off meeting and schedule weekly progress meetings or such other meetings as are necessary to monitor the work performed by the contractors. The owner’s representative does not insure the quality of the work, but instead acts as the owner’s eyes and ears to make sure that the work is being performed in accordance with the contract specifications.
The main role served by the owner’s representative is to certify what payments are properly due and owing the contractors. Contractors typically submit requisitions for payment on a monthly basis whereupon the owner’s representative reviews the requisition with the contractor at the project site to determine what percentage of completion was achieved by the contractor. The contract is typically divided into items of work so that the contractor submits a “schedule of values” for each item of work. After the owner issues a Notice of Award, the owner’s representative and the bidder will agree upon what values should be attributed to each item of work and a schedule of values is prepared.
Some contracts are awarded on a lump sum basis while others are on a unit price basis depending on the nature of the work involved. Regardless of the manner in which the contractor is to be compensated, the owner’s representative will monitor the level of completion and certify what payments are due.
B. Interpretation of Contract
The owner’s representative, during construction, typically acts as the first interpreter of contractual disputes so that if a contractor submits a request for a change order seeking additional money for certain work, the owner’s representative will review the plans and specifications and make a recommendation to the owner as to whether or not a change order should be issued. Owners should be careful to document any disagreements it may have with its architect concerning whether or not any item of given work is additional work, because the contractor could, in a subsequent lawsuit, claim that the architect was not exhibiting independent professional judgment or that the owner and the architect conspired to deprive the contractor of its working capital.
C. Presentation of Claims
The owner’s representative, in addition to making various determinations as to whether or not a contractor is entitled to be issued a change order for additional work, must also determine whether a contractor should be granted an extension of time to perform any additional work or in order to compensate the contractor for unanticipated delays it encountered in performing its work. The owner should be careful in this area and should seek legal counsel as disclaimers may or may not protect the owner depending on the circumstances. Early resolution of a contractor’s claim will, in the long run, limit the owner’s costs.
Certain disclaimers and other legal clauses can protect a municipality from liability depending on the circumstances. For example, to avoid responsibility for incorrect or incomplete information, bid documents often include disclaimer clauses, which generally require the contractor to investigate the project site and determine the risks associated with building the project. The owner also typically disclaims responsibility for the information it provides and states that such information is provided for estimating purposes only. An effective disclaimer prevents the contractor from claiming that it reasonably relied on the accuracy of certain bid information and requires the contractor to make its own investigations.
Disclaimer clauses, however, are strictly construed against owners. Changed conditions clauses are also often used in municipal contracts. Such a clause provides for procedures for identifying changed conditions and modifying the contract if additional work is necessary due to unanticipated conditions. An example of such a clause follows:
Viewing of Site and Consideration of Other Sources of Information (b) Changed Conditions – Should the contractor encounter during the progress of the work, subsurface conditions at the site materially deferring from any shown on the Contract Drawings or indicated in the specifications or such subsurface conditions as could not reasonably have been anticipated by the contractor and were not anticipated by the City, which conditions will materially effect the cost of the work to be done on the contract, the attention of the Commissioner must be called immediately to such conditions before they are disturbed. The Commissioner shall thereupon promptly investigate the conditions. If he finds [a changed condition]. . . the contract may be modified . . .(Andrew Catapano Co. v. City of New York, 116 Misc.2d 163, 455 N.Y.S.2d 144 (S. Ct., 1980).
A common exculpatory clause found in municipal contracts is what is known as the “No Damage for Delay” clause. Such a clause attempts to excuse an owner from contractual liability for monetary damages due to delays caused by itself, its architect and/or engineer and other entities under its employ. While “no damage for delay” clauses are generally valid and enforceable in New York, the courts have carved out certain exceptions. See Corinno Civetta Construction Corp. v. City of New York, 67 N.Y.2d 297, 502 N.Y.S.2d 681 (NY Ct. of Appeals, 1986). Generally, even with such a clause, the contractor may recover damages for: (1) delays caused by the contractee’s bad faith or its willful, malicious, or grossly negligent conduct; (2) uncontemplated delays; (3) delays so unreasonable that they constitute an intentional abandonment of the contract by the contractee; and (4) delays resulting from the contractee’s breach of a fundamental obligation of the contract. See Corinno Civetta Construction Corp. v. City of New York, supra.
In a recent case, the Supreme Court of the State of New York, Appellate Division, Third Department, held that a contractor on a school renovation project was entitled to recover delay damages against the school district even though the public contract contained a “no damage for delay” clause. See, Clifford R. Gray, Inc. v. City School District of Albany, 2000 N.Y. Slip Op. 10376, 2000 WL 1742731. The Court found that: (i) the evidence was sufficient to support a determination that the delays were uncontemplated; and (ii) the school district was responsible for the breach of fundamental contractual obligations, permitting the contractor to recover its delay damages despite the contract’s exculpatory clause.
Contract clauses conta
