Wednesday, October 23, 2013

Prohibited Back Door Negotiation of Public Construction Bids

Public construction projects that are bid should be awarded to the responsible bidder with the lowest responsive bid.  Negotiation of bids is generally prohibited.

Budget:   Let's say that the low bid on a public construction project is more than the amount of money available to a public agency.  There are two inappropriate actions that agencies sometimes take when the low bid exceeds the funds available:
  • Negotiation before award:  Unless specifically authorized by law, a public agency may not negotiate a bid amount in order to bring the amount within the funds available.  State agencies (not local agencies) in the Washington state are authorized, within a limited formula, to negotiate with the low bidder according to RCW 39.04.015.
  • Negotiation after award:  Some public agencies have been tempted to award the project at the amount of the bid (even though they don't have have the funds available) and then immediately after contract execution, negotiate a deductive change order bringing the amount of the contract within the available budget.  The City of University Place (WA) did this and their action was the subject of an audit finding from the Washington State Auditor's Office.
The best strategy to manage higher than expected bid prices is to include additive bid amounts as part of the bid form as a bid protection tool. Click here to read more about additives from my blog.
Scope:  Change orders occur regularly on public construction projects because there are always unforeseen conditions that arise and no set of drawings and specifications can ever be 100% accurate and prescriptive.  However, adding significant or unrelated work during a project when the work could have been bid as a separate project, has the following risks:
  • Lack of competitive prices:  One of the purposes of public bidding is to obtain competitive prices.  Work that is added through a change order process is negotiated and may not result in the best prices for a public agency. 
  • Limiting contractor participation:  A change order for work that could have been bid as a separate project does not provide the wider contracting community with an opportunity to bid on the work.
  • Audit findings:  Auditors will frequently issue audit findings when a public agency adds unrelated work to a project, noting that it violates the intent of competitive bidding laws. Click here to read about an audit finding against the City of Bremerton (WA).  Click here to read about the out-of-scope change orders issued by Clallam County (WA) that resulted in an audit finding.
Planning ahead:  In developing bid documents, ask the following questions:
  • Scope:  Is the scope of work realistic for the funding available?
  • Additives:  Does the bid form include additives designed to ensure you have enough funding to construct the core and essential portions of the project?
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

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