Unpublished 9th Circuit Court of Appeals Decision Provides That Hiring A Subcontractor To Perform Work At A Higher Cost Than Original Subcontractor Listed On Bid Does Not Constitute Bid Shopping

In September 2010, Central Washington University sought bids for demolition of an existing building and construction of a new residential hall.[i] Killian Construction Company (“Killian”) was a prime bidder, and listed ETCO Services, LLC, (“ETCO”) as a subcontractor.  ETCO provided a $5,052,000 bid to Killian to perform the plumbing work on the project, and Killian mistakenly assumed that ETCO’s bid was for the entire mechanical scope, including HVAC and controls, and listed ETCO for the entire mechanical scope of work.  It turned out that ETCO’s price was $448,000 lower than the $5,500,000 price of JRT Mechanical (“JRT”) for the entire mechanical scope of work.  JRT was listed by almost every other prime bidder.

Killian’s mistake was discovered shortly after its bid was submitted, and Killian labored to determine what its correct course of action should be.  ETCO initially indicated it would provide a revised price for the entire mechanical scope of work the Monday following the week in which the bid was submitted.  It eventually submitted, about one month later, a revised price, which was in excess of $7,000,000.  Killian ultimately subcontracted with JRT for the entire mechanical scope of work for $5,446,000, which was $54,000 lower than JRT’s original bid price.

ETCO sued Killian pursuant to RCW 39.30.060, Washington’s Subcontractor Listing Statute, contending that Killian’s actions constituted bid shopping, and sought over $1,000,000 in damages.  Killian moved for summary judgment dismissing ETCO’s claims, and its motion was granted. ETCO appealed to the 9th Circuit Court of Appeals.

The 9th Circuit Court of Appeals found that Killian’s actions did not constitute bid shopping and affirmed the trial court’s decision.  It noted that ETCO admitted that Killian had made a mistake, and but for that mistake, ETCO would not have been listed.  The court relied upon a Washington State Attorney General’s opinion’s definition of bid shopping:

“The [final legislative report] describes a form “bid shopping” in which a contractor obtains quotes from subcontractors that are used in preparation of the contractor’s bid on the public works project.  Then, after having been awarded the bid, the general contractor would either substitute another subcontractor who would be willing to do the work for less money (thus benefitting directly from the savings), but would use the threat of changing subcontractors to force the original subcontractor to reduce its price.”

1994 Op. Att’y Gen. 14, at 4 n. 2.

The court noted that ETCO presented no evidence that Killian received any benefit from its mistake, or that Killian substituted JRT for ETCO in order to complete the work for less money because Killian had to pay roughly $400,000 more to subcontract with JRT than it would have paid based on ETCO’s bid.  Ultimately, the court held that Killian did not engage in bid shopping when it subcontracted with JRT at a higher price than the price listed for the mechanical work with ETCO on its subcontractor listing form submitted with its bid.

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[i] ETCO Services, LLC v. Killian Construction Co., 9th Circuit Court of Appeals Decision D.C. No. 2:11-CV-00042-LRS (Unpublished Opinion June 11, 2013)