BusinessReport.com

For a contractor, making a bid on a project isn’t just a matter of guessing a price, submitting your number and hoping for the best.

“I would like the average consumer out there to realize how much time and effort goes into bidding a job,” says Billy Ward, president of the Capital Region Builders Association. When estimating his price to build a house, Ward breaks out 43 different elements of construction. The estimating process can take anywhere from several hours to several days, he says.

Which is why “price-checkers” can be so annoying. That’s Ward’s expression for when a potential customer advertises for bids, not because they’re really looking for competitive bids, but because they want to see if the price already offered by their preferred contractor is a good deal. Ward says his solution has always been to sit down with the potential customer and talk through the project at length. After 28 years in the business, he can spot a price-checker pretty easily.

There’s nothing illegal about price-checking. For publicly owned projects, a qualified contractor who offers the low bid but doesn’t get the job can often get compensation through the court system. With private projects, the owner is generally assumed to have the right to reject any and all bids. A local attorney argues that, in some cases, a disappointed bidder may have the right to seek relief even on private projects.

Trippe Hawthorne, an attorney with Kean Miller whose practice areas include construction law, puts forth the following hypothetical situation: Ollie, a commercial contractor, receives an advertisement for bids. Reviewing the ad, she notices that it looks more like an advertisement for a public project than a private one. The owner, Bob, agrees to only reject bids where allowed by the state’s public bid law, while asking that bidders put up a bid bond, which is typical for a public project but not a private one. So all indications are that Bob is committed to a competitive bid process, and Ollie invests time, energy and resources preparing and submitting a bid.

On the appointed day, the bids are opened and Ollie is the low bidder. So she starts firming up her arrangements with suppliers and subcontractors and begins making plans to do the work, passing up the chance to bid on other projects in the meantime. But regrettably for her, Bob signs a contract with another contractor, and Ollie is out of luck. Under the current legal framework where private owners are presumed to have the right to reject any bid, it would be difficult to convince a judge that Ollie is entitled to anything, Hawthorne argues.

Hawthorne concedes that private owners rarely work that way, but he believes many private institutions, such as hospitals and private universities, might be headed in that direction. In such cases, the person hiring the contractor is responsible to another entity such as a board of directors who want to know that the bid process is competitive and free of cronyism. Handling the process like it’s a public project is a way to do that. But bidders will be less likely to put their best foot forward if they don’t think the Bobs of the world will face consequences if they renege on their promise of a competitive bid process. They may see such an advertisement as simply a well-disguised price check, as Bob’s was.

Hawthorne argues that the courts should recognize that Ollie was a party to a “contract to contract” with Bob, not unlike a real estate purchase agreement, which Bob breached when he hired Ollie’s competitor. Bob’s advertisement should be construed as an offer, and Ollie’s bid as an acceptance of that offer that can only be rejected for cause. Under that approach, Ollie could be entitled to damages.

Mike Hunt, an attorney with Phelps Dunbar who has represented contractors, subcontractors, designers and owners in disputes, says the approach detailed by Hawthorne is unlikely to catch on.

“Nobody looks at the public bid process as the best way to achieve a good project,” Hunt says. “Private contractors and owners like to have flexibility.”

Sometimes, a low bid is just a mistake. And often the qualities an owner is looking for go well beyond price and are hard to spell out in an advertisement, Hunt says. If forced to go with the low bidder, the owner could find himself with a contractor who’s not right for the job.

“It would be great if we didn’t have to be an estimating service sometimes,” says David Michaleski, a construction manager with Merit Electrical who works out of Baton Rouge. Merit does electrical contracting, instrumentation and other technical work for various industries. He concedes that his company does end up making price-check bids at times, and says it would be nice if there was a system everyone could agree on that would eliminate price checks, but he wouldn’t expect private owners to give up that leverage.

Many owners have certain favored contractors who they prefer to work with. Luckily, there’s plenty of work to go around on the Gulf Coast, and a company like Merit can be selective on what they bid, Michaleski says. If a certain owner has a long history with a competitor, Merit might focus its efforts somewhere else.