CE719

Construction Contracts

Bidding - II
Public Sector
PUBLIC BIDDING STATUTES

• In Public sector the requirements of central, state and local

bidding statutes and resulting regulations makes outcome of
bidding process predictable compared to Private sector
• The purpose of public bidding statutes are:
1. To protect public funds
2. To protect and ensure a continuation of free enterprise system
• Public bidding statutes-stringently written and enforced to
ensure honesty
• Violating rules leads to both civil and criminal liability
 CONSTRUCTION CONTRACT
PROCUREMENT POLICY
• Sufficient advertising time between first advertisement of
bid and bid opening so that prospective bidders know about
project and have sufficient opportunity to prepare bids

• Bidding documents -sufficiently clear & detailed to assure

free and open competition- assures that each bid received
represents a price rendered by each individual bidder to
construct the identical project
CONSTRUCTION CONTRACT
PROCUREMENT POLICY
• Public bid opening & a public reading of all bids at the date,
time and a place stated in bid advertisement-every person
present hears bid prices tendered by various bidders-
contents of all bids become public knowledge & may be
examined by any person with legitimate interest

• Contract-awarded to lowest responsive and responsible

bidder whose bid is in the best interest of the government

• All bids may be rejected when rejection is in the best

interest of the government/public
PUBLIC OWNER’S ACTION AFTER BIDS
ARE RECIEVED
• Material Improprieties: It can be anything that is not
proper in either the bidding documents or bidding process
 Bribery, bid rigging, offering private clarification of bid
document to selected bidders
 Also includes unfair or improper resolution of errors or
ambiguities in bidding documents or in bids received that make
it impossible to be certain that each bid is for exactly the same
intended work
Public Owners actions
PUBLIC OWNER’S ACTION AFTER BIDS
ARE RECIEVED
• Factual determination of low bid
• The public owner must make certain that the bids
received include no arithmetic mistakes or discrepancies
• Unit price usually govern over written price extensions
• Price written in words would govern over those written
in figures
• Alternate bids will be considered in making the factual
determination for the low bid, if bid documents provide
for alternate bids and includes the rules for evaluating
alternates
• Low bid determination cannot be made on a basis
different from that indicated in the bid documents
PUBLIC OWNER’S ACTION AFTER BIDS
ARE RECIEVED
• Responsive and Responsible bidder
• Responsive: one who has filled out & signed the bid
forms in accordance with the bidding instructions and
submitted an unqualified bid in full conformance with
the requirements of the bid documents. There may be
no additions or alterations of any kind
• Responsible: one who possesses sufficient financial
resources to undertake the project and, in addition, has
the necessary experience and a track record indicating
the ability to execute work successfully
• Both bid responsiveness and bidder responsibility must
be conclusively demonstrated to Public owner’s
satisfaction prior to award of contract
PUBLIC OWNER’S ACTION AFTER BIDS
ARE RECIEVED
• Rejection of late bids
• Bids received after the time specified in bid documents
are normally rejected
• Exception in case of lateness due to circumstances
totally beyond bidder’s control
• The acceptance of late bid should not prejudice the
position of other bidders whose bids were submitted
within time limit
• In spite of occasional exceptions, bidders should assume
that late bids will be rejected
PUBLIC OWNER’S ACTION AFTER BIDS
ARE RECIEVED
• Rejection of all bids
• Public owner may reject all bids upon a determination
that rejection is in the public interest
• Once bids are rejected, they remain rejected
Bid Irregularities
BID IRREGULARITIES/INFORMALITIES

• Errors or ambiguities in bids are known as bid irregularities

or informalities
• Major and Minor Irregularity/Informality
• Refers to bidder responsiveness
• A major irregularity means one that has an important
effect on the terms of the bid
• A minor irregularity is of less significance
• A bid containing a major irregularity is required to be
rejected, whereas a minor irregularity can be waived by
the owner
BID IRREGULARITIES/INFORMALITIES

• Rules for determining Major or Minor irregularities

• If irregularity or informality could reasonably relieve the
bidder of contractual obligations then it should be
deemed major
• Example: Submittal of unsigned bid
• Minor irregularity can be lower bidder’s failure to
acknowledge receipt of bid amendment extending
contract performance time, etc.
BUILDER’S PROPERTY RIGHT TO THE
CONTRACT
• Usually lowest responsive and responsible bidder is
awarded the contract
• No property right to the potential construction contractor
established by the mere fact that a bidder is a low bidder
• Only when public owner decides to award contract can the
lowest responsive & responsible bidder be thought to have
a property right to the contract
What happens when the bidders
feel that the authorities have not
done a good job in procurement?
 BID PROTESTS
• Bid protests are formal objections filed by a bidder to some
aspect of the bidding process
• Status to file bid protests
• Generally this right is vested in any potential bidder when
protest is lodged prior to bid opening
• Similarly any actual bidder has status to file a bid protest
after bid opening
• Timeliness
• Timeliness of the protest affects its chance of success
• Protests regarding terms & conditions should be made
before rather than after bid opening
• Protests regarding award of contract to be made as soon as
possible after bid opening and/or owner’s declared
intention to make award
BID PROTESTS

• Protest to whom?
• Administrative bodies overseeing particular office of
public owner who is taking bids. These bodies
investigate and intervene if protest is meritorious
• Directed to court of law having jurisdiction in the locality
• Simultaneously directed to both Administrative body
and courts
• Typically the court’s decision will succeed
 BID PROTESTS
• What can be gained by a bid protest?
• Successful protests depend on both timing and nature of
protest
• Protests concerning terms & conditions of bid documents
results in injunction issued by court or administration action on
part of public owner that prevents bids from being taken until
objectionable terms are changed
• Protests concerning awarding of contract results in injunctive
or administration action to prevent public owner from
awarding contract or to compel cancellation of original award
and re-award of contract
• Sometimes due to time required to resolve issue “Paper
Victory” can be gained or, at best, a recovery of costs of bid
preparation and submittal
REJECTION OF ALL BIDS IN THE PUBLIC
INTEREST
• A public owner has the right to reject all bids. However this
right is not absolute
• The limitations are:
• May be rejected only after a formal determination or
finding that such rejection is in public interest.
Determination must be based on reasonably compelling
grounds and not arbitrary
• If public owner rejects all bids and cannot justify
determination that rejection is in public interest, the bid
rejection is subject to court challenge and reversal
Mistakes in bids
FIRM BID RULE

• Public owners are subject to many restrictions in the

advertising of bids, bidding and contract process. Similarly,
these same procurement rules impose an important
requirement on bidders called firm bid rule
• Under this rule, the submitted bid is understood and required
to be firm
• The price is fixed, not subject to negotiation and the bidder is
legally bound to perform the contract when awarded
according to the stated terms and conditions
• Public owner also require that bid security be provided
DOCTRINE OF MISTAKE

• What happens when a low bidder makes a mistake and

submits a bid with a price lower than intended?
• Under the doctrine of mistake, the bidder may be relieved of the
duty to perform the contract and, in certain circumstances may be
allowed to correct the bid and still be awarded the contract
• Several logical reasons underlie this concept:
• One party to contract should not be permitted to profit
unconscionably because of a mistake of the other party
• A bid containing a mistake does not represent the intent of the bidder
and a contract on such a bid cannot represent meeting of minds
• The contract that is withdrawn under this is said to be a
rescinded contract
 GENERALIZED RULES FOR
WITHDRAWAL
• The following six separate tests for withdrawing a bid must be met
by a bidder who has made a mistake in the bid
• Claimed error must be ‘material’, i.e., must be significantly
different in total amount
• Evidence in the form bid preparation documents to substantiate
claim
• Mistake must be clerical in nature not a mistake in judgment
• Owner would unconscionably profit from the bid
• Position of owner must not be compromised except for ‘loss of
bargain’, notice to be brought at the earliest
• Mistake not as a result of failure to perform some legal duty or
from culpable negligence
PROOF OF MISTAKE

• Proof of mistake is required before the bidder and bidder’s

surety are released from the obligations of the bid
• The burden of proof is on the bidder and the proof must be
clear
• The best evidence to prove a mistake is the written bid
preparation “papers”
DUTY TO VERIFY A LOW BID

• Some public owners have a duty to verify the low bid when
a mistake is suspected. The main points in connection with
this duty are:
• Seek verification of low bid when a mistake is (or should
have been) suspected
• Fact that low bid is substantially lower than next lowest
is reason enough to verify
• Owner to direct bidders attention to a specific area of bid
is a mistake is discovered/suspected
DUTY TO VERIFY A LOW BID

• Possible outcomes on Mistake Verification

• If lowest bidder is willing to waive his right to relief,
bidder is still awarded contract
• Bidder allowed to correct mistake and contract reformed,
provided it doesn’t alter order of bidders
• Contract reformation is possible even after contract is
entered into. Reformed contract total can’t be higher than
next higher bid