Selected Topics Drawn from Mike Purdy's Public Contracting Blog: When Can a Public Agency Reject Bids?

This is the first in a series of blog posts in which we draw on topics raised in Mike Purdy’s Public Contracting Blog, discuss his conclusions, and augment his topics with information hopefully helpful to our readers.

Contrary to popular perception, this firm represents not only construction contractors, subcontractors, and suppliers, but we also have a significant number of owner, architect, and engineer clients.  When we have questions about how to best approach public contracting procedures and need practical, first-hand advice as to how things are done “on the job from public owners’ perspective,” Mike Purdy is an invaluable resource.  Mike spent 30 years as a contract manager for public owners (the City of Seattle, the Seattle Housing Authority, and concluding at the University of Washington).  That experience has given Mike an extensive background in all aspects of public contracting and procurement.  Mike Purdy’s Public Contracting Blog is an excellent resource for government contracting and procurement questions.  We have worked with Mike on a number of projects and found him to be an informed and congenial team-player who brings a wealth of experience to the table.  He knows how to get a public project funded, designed, bid, and built by utilizing a variety of delivery methods from hard bid, GC/CM, design-build, and various other forms of alternative public works delivery methods.

On April 8, 2013, Mike posed the question “When Can a Public Agency Reject All Bids.”  Here is Mike’s discussion of the topic and our comment:

  1. 1.                  Background

Contractors spend significant resources to prepare their public works bids.  Oftentimes a project bid may cost the contractor in excess of $100,000 and many weeks of time to assemble a bid estimate.  Therefore, a public works owner should realize that when contractors’ bids are precipitously rejected and the project simply let out for rebid, there is a significant cost to the construction community, as well as the public.  The cost of unsuccessful bids and rebids are ultimately included in the next bid or the contractor’s price to perform the contract.  The more rebids there are, the more costs are incorporated into the bids.  The only way the contractor can recover its bidding costs is to be awarded the contract.  If the contractor is not awarded the contract on this project, those bidding costs are ultimately incorporated into the contractor’s overhead for the next project it bids.

There is a second consideration in rebidding projects:  once the low bidder’s price is made public, all other bidders, and even construction companies that did not bid the project, become aware of the low bid price.  During the rebid, other contractors may decide to enter the bid process and will now have a target bid (the low bid on the first bid to shoot for).  Reckless contractors have been known to “rebid” a job without preparing a bid estimate simply based on the unsuccessful rejected low bidder’s price.  That practice turns the bidding process into an “auction,” again at significant cost to the taxpaying public.  When a contractor is the successful bidder on a rebid and performs the job without even having prepared an estimate, it is an inevitable recipe for failure.  That contractor may end up having to seek recovery, submit questionable claims, and/or change orders during the course of the project, imposing a tax on the government.

  1. 2.                  Mike’s Blog 

Valid reasons to reject all bids:  The following is a list of some of the reasons why an agency might choose to reject all bids:

  • All bids are above the amount of money available for the project.
  • The low bid is within budget but is non-responsive, and the other bids are above the amount available in the budget.
  • There is a bid protest based on mistakes or ambiguities in the specifications and drawings.
  • The low bid is materially unbalanced to the potential detriment of the agency, and the agency realizes that the bid documents are unclear about quantities or how the work will be performed.

Invalid reasons to reject all bids:  The following is a list of some less than good reasons for rejecting all bids (and for bidding in the first place):

  • The agency did not perform an estimate of the construction cost and was just using the bid process to get estimates from contractors.  In many cases, preparing an estimate is required prior to bidding, and is always a good practice.  Bidding should not be used as a cost estimating procedure.
  • The agency always intended to perform the work with their own crews if bid prices came in above a certain amount.  Again, the bidding process should not be used as a cost estimating procedure.

Comment:  Regrettably, there is no law in the state of Washington governing, inhibiting, or otherwise putting any restriction on a public works owner from rejecting all bids for virtually any reason.  Were public owners to follow Mike’s recommendations concerning valid and invalid reasons to reject all bids, there would likely be agreement among contractors.  The unfettered rejection of contractors’ bids has a significant cost to the construction community and taxpayers.  Thus, there have been a number of attempts, both in Washington and other jurisdictions, to pass legislation that would codify when the public works owner may properly reject all bids and place some restrictions on rejecting the bids for the invalid reasons that Mike cites in his blog.  This is a topic that comes up in every legislative session, but to date, no bill has been passed.  Placing reasonable restrictions on the owner’s right to reject all bids will be beneficial to owners, contractors, and taxpayers. Perhaps it is time to have that discussion again.

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