What is "Bid Shopping" and "Bid Peddling"?

John P. Ahlers

Well known and respected Seattle construction attorney John P. Ahlers has written two very helpful blogs on everything you need to know about "bid shopping" and "bid peddling."

Rather than attempt to repeat the concepts, I refer you to his to his very readable and well written blogs as noted below that not only defines these practices, but explains Washington state law (RCW 39.30.060), the Subcontractor Listing Statute that applies to all public works projects estimated to cost $1 million or more. 

A Primer on Bid Shopping in Public Contracts - Part I

• Bid Shopping Defined
• Defense to Promissory Estoppel
• Subcontractor Listing Requirement (Public Works Contracts)
• Does Listing a Subcontractor Convey Acceptance of its Bid?

A Primer on Bid Shopping in Public Contracts - Part II

• Subcontractor's Private Right of Action
• 2002 Amendments to the Subcontractor Listing Statute
• Reasons for Substitution Exempted Under the Subcontractor Listing Statute

Mike Purdy's Public Contracting Blog
© 2015 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Subcontractors List Not Required on Alternative Public Works Projects

In Washington state, the Legislature has gone on record declaring that the practice of "bid shopping" is against public policy. 

Bid shopping occurs when a contractor seeks to pressure a subcontractor to lower their price below another price the contractor has already received, since a lower overall price increases the chance of the contractor being the low bidder.

When is the Subcontractors List required?  Due to the different nature of contractor selection and bidding on what are known as alternative public works projects (those not solicited through the traditional or Design-Bid-Build method but through methods authorized in Chapter 39.10 RCW), the subcontractors list requirements of state law do not apply on alternative public works.  

What does state law require?  RCW 39.30.060 requires, for projects estimated to cost $1 million or more, that the prime bidder submit a list of subcontractors (for electrical, plumbing, and HVAC) with the bid (or within an hour of the bid submittal deadline).   Here's the relevant language:

Every invitation to bid on a prime contract that is expected to cost one million dollars or more for the construction, alteration, or repair of any public building or public work of the state or a state agency or municipality as defined under RCW 39.04.010 or an institution of higher education as defined under RCW 28B.10.016 shall require each prime contract bidder to submit as part of the bid, or within one hour after the published bid submittal time, the names of the subcontractors with whom the bidder, if awarded the contract, will subcontract for performance of the work of: HVAC (heating, ventilation, and air conditioning); plumbing as described in chapter 18.106 RCW; and electrical as described in chapter 19.28 RCW, or to name itself for the work."

Design-Build:  Under Design-Build, public agencies do not issue an "invitation to bid" as noted in the subcontractor list law cited above, but issue either a Request for Proposals or a Request for Qualifications, in which the Design-Builder is selected based on qualifications and cost or price related factors. Under legislation approved in 2013 by the Washington State Legislature, price may now be negotiated with the chosen Design-Builder once the design has progressed to a point where the price may be determined.  RCW 39.30.060, the subcontractors list law, was written to address Design-Bid-Build projects.  Under Design-Build, subcontractors are generally not even identified at the time a contractor submits their qualifications to the public agency, making submittal of the subcontractors list not possible.

GC/CM:  Like Design-Build, the GC/CM is not selected based on an "invitation to bid," but through a Request for Proposals process.  When the GC/CM is selected, subcontractors have not been identified as RCW 39.10.380 requires that the GC/CM competitively bid all subcontract work after the construction cost has been negotiated.  The subcontractors list law requires the prime contract bidder to submit the list with their bid, but with the GC/CM process, subcontractors submit bids to the GC/CM after the GC/CM has already been selected and has executed a contract with the public agency.

Job Order Contracting:  RCW 39.10.430 (6) is more explicit than the provisions for Design-Build or GC/CM and states that "the requirements of RCW 39.30.060 [subcontractors list] do not apply to requests for proposals for job order contracts."

Legislative changes:  For clarity, chapter 39.10 should be amended to explicitly exempt Design-Build and GC/CM projects from the requirements of RCW 39.30.060.  They are very different project delivery methods and the requirements for the subcontractors list simply do not apply to these methods of selection.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Is it Bid Shopping if a Contractor Substitutes for a Higher Priced Subcontractor?

Bid shopping occurs when a contractor bidding a construction project takes a subcontract bid price, and attempts to get another subcontractor to lower their bid price below the original price received by the contractor.

Anti-bid shopping law:  The purpose of Washington state law (RCW 39.30.60) is to discourage bid shopping by requiring the listing with the bid of subcontractors for HVAC, plumbing, and electrical work on projects estimated to cost $1 million or more. 

When is substitution not bid shopping?  There was recently an interesting court case in which a subcontractor (ETCO Services, LLC) named with the bid was later substituted by the contractor (Killian Construction Company).  ETCO as the substituted subcontractor filed a lawsuit seeking $1 million in damages against the Killian as the contractor.  But because ETCO had made an error in their bid by not bidding all the work, Killian eventually used a higher priced subcontractor whose price included all the work.  The court ruled that using a higher price for a new subcontractor did not constitute bid shopping.

Paul Cressman, Jr.

More details:  Seattle construction attorney Paul Cressman, Jr., from the law firm of Ahlers Cressman PLLC, recently wrote an excellent summary of this court case on the firm's blog.   

• Click here to read Mr. Cressman's comments with additional details about this case.   

• Click here to read the court decision from the 9th Circuit Court of Appeals.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Federal Legislation Introduced to Limit "Bid Shopping"

A member of Congress from New York has introduced a bill designed to reduce bid shopping on federal construction projects over $1 million.   

Naming subcontractors with the bid:  H.R. 1942 would require bidders to list each subcontractor they plan to use for $100,000 or more.  Failure to list such subcontractors would result in the bid being declared non-responsive.  The bill would also establish monetary penalties against the prime contractor for replacing a subcontractor without permission of the government.   

Subcontractors support bill: Click here for a news release from the American Subcontractors Association, Inc. with more information.

Washington state:  Washington state law (RCW 39.30.060) has a provision requiring the listing of subcontractors for electrical, plumbing, and HVAC for any public works project estimated to cost $1 million or more.  It was enacted as an anti-bid shopping law.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC http://PublicContracting.blogspot.com

My Training Schedule This Week

Wednesday, May 4:  On Wednesday, I taught 45 professionals from various public agencies on public works contracting issues in Spokane, Washington.  The topics I addressed included the following:

• Bidding and Contract Documents
• Receipt and Opening of Bids
• Bid Responsiveness and Bidder Responsibility
• Insurance, Bonds, and Retainage
• Change Orders
• Public Works Contract Close-out

The class was co-sponsored by WSDOT and the Municipal Research and Services Center.  I will be teaching the same class on May 26, 2011 in Shoreline, Washington, on September 21, 2011 in Ellensburg, Washington, and again on November 16, 2011 in Olympia, Washington.

For more information about the class and to register, visit WSDOT's website by clicking here.  Click on the link for "Purchasing, Bidding, and Contract Management for Local Agencies."

Thursday, May 5:  On Thursday, I gave two training speeches at the annual conference of the Washington Association of School Business Officials (WASBO), in Spokane, Washington.   My two topics were:

• We're Being Audited! - Tips for Managing and Surviving Audits
• What is the Davis-Bacon Act? - Complying with Federal Prevailing Wage Requirements

Each of these sessions was 50 minutes long.  There were about 40 people in the Audit class and 30 in the Prevailing Wage class.  The attendees asked great questions.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Why Are Public Works Bids Submitted at the Last Minute?

Why do contractors generally submit their bids to public agencies at the last minute?

Preventing Bid Shopping:  Contractors are receiving bids from subcontractors up until just minutes before the bid submittal deadline.  Subcontractors frequently will not provide their bid amounts to contractors until just before the deadline.  They do this in order to prevent what is known in the industry as "bid shopping" or "bid peddling."  

What is Bid Shopping?  Bid shopping is the practice where a contractor goes to a subcontractor and attempts to get them to beat other subcontractor bid prices they have already received.  Subcontractors do not want their bid shopped or undercut by other bids, and thus they wait until just before the deadline before providing their bid to contractors, making it harder to contractors to shop bids.

Last Minute Bid Preparation:  The practice of bid shopping and late submittal of subcontractor bids doesn't encourage careful development of bid prices by contractors, since they are left with precious few minutes to determine the low subcontractor bids, and whether there are any gaps in the scopes of work that have been bid.  

Bidding Errors:  It is during this last minute frenzied exercise of determining the final bid price that errors can occur.  A contractor who is the low bidder who has an error in their bid may choose to accept the contract award even with the error, or they may ask the public agency to relieve them of liability for their bid by filing a claim of error.

Subcontractors List:  The State of Washington has gone on record to state that bid shopping is against public policy and has adopted RCW 39.30.060 that requires bidders to list with their bid (or within one hour of the bid submittal deadline) the names of subcontractors (or to name themselves) who will perform the electrical, plumbing, and HVAC work.  This law applies for public works projects estimated to cost more than $1 million.

Does Your Subcontractors List Promote Responsive Bids?

Many states and local governments have a requirement that bidders name certain subcontractors on a list to be submitted with their bid.  If the Subcontractors List form is not designed and structured clearly, it can result in unnecessary non-responsive bids and higher costs.  In my experience, not completing the Subcontractors List properly is one of the most common reasons for a non-responsive bid.

Washington State Requirements:  By way of illustration, in the State of Washington, RCW 39.30.060 requires that the bidder name with their bid (or up to one hour after the bid submittal deadline) the names of their subcontractors for electrical, plumbing, and HVAC work, or to name themselves as performing such work.  The Subcontractors List requirement applies to contracts estimated to cost $1 million or more.

Checklist for Reviewing Your Form:  Review your Subcontractors List form.  Does it address the following issues, if required?

• A place for the names of subcontractors for each of the required trades
• A box for the bidder to check if they are performing the work of any of the required trades
• A box for the bidder to check if the project does not include any work in the required trades
• A place for the bidder to name the subcontractors (or themselves) for work in the required trades for any alternate or additive work

Compliance Tip for Public Agencies:  If you are a public agency, make sure that your Subcontractors List form is clear and helps bidders to submit a responsive bid.   

Compliance Tip for Contractors:  If you are a contractor, make sure you read and understand clearly the requirements of what must be included on the Subcontractors List, even if the form is not complete and clear.

Managing Mystery Subcontractors on Projects

Whether you're a public agency or a contractor, how do you keep track of what subcontractors are working on a construction project site?

Without a clear system and procedures in place, there can be increased liability for both public agencies and contractors relating to:

• Quality of performance
• Compliance with laws

Prevailing Wage Audit Risk:  For example, in Washington State, prior to the owner making payment to a contractor, the owner must have on file a Statement of Intent to Pay Prevailing Wages for the contractor and every subcontractor, regardless of tier, that worked during the month for which payment is being requested (RCW 39.12.040).  Without the approved "Intent" document, owners are subject to an audit finding by the Washington State Auditor's Office.  

4 Tracking Tools:  Here are four tools that owners and contractors can use to ensure they are aware of all subcontractors working on the site:

1. Daily Inspection Report:  Owners should require the completion of a daily inspection report by its representative on site that includes a listing of subcontractors present that day.  This is one of the most effective tools, as it doesn't rely on others to report to the owner the names of subcontractors, but collects live information from the field.  Similarly, contractors should keep daily records of subcontractors on site each day.
   
   
2. Contract Notification Requirement:  Include a provision in the contract between the owner and contractor requiring the contractor to notify the public agency of any subcontractors used, and require that such a provision be passed down into lower tier subcontracts as well.
   
   
3. Subcontractor Approval Process:  Some public agencies have established a subcontractor approval application process that provides that no subcontractor may be present on site until approved by the owner.  This helps in identifying subcontractors on site, but is not a substitute for the owner's "eyes and ears" on site keeping daily records of subcontractors working that day.
   
   
4. Listing Subcontractors with Pay Applications:  Require with each application for payment, whether to the owner from the contractor or to the contractor from subcontractors, a form identifying all subcontractors who worked during the month.  This form should be compared with the daily inspection reports of the owner to ensure that the report is complete and accurate.

Regardless of how the information is collected by the owner about what subcontractors are working on site, that information must find its way back to those responsible for ensuring that all Statements of Intent to Pay Prevailing Wages are on file prior to authorizing payment to the contractor.

Other tools?  If you use other tools to keep track of subcontractors working on projects, I'd like to hear from you.  You can either submit a comment on this blog entry (see below), or contact me by e-mail.

Do Subcontractor Listing Requirements Apply to Design-Build?

Background:  In Washington State, RCW 39.30.060 requires bidders to list subcontractors for HVAC, plumbing, and electrical work on all public works projects estimated to cost $1 million or more.  The list of such subcontractors (or the listing by the prime contractor that they will perform such work themselves) must be submitted either with the bid, or within one hour of the bid submittal deadline.

Question:  Do these requirements apply to Design-Build projects (chapter 39.10 RCW) when firms are responding to either an RFQ or RFP (the two parts of the selection process)?

Not Applicable:  It is my opinion that the subcontractor listing requirements do not apply to either an RFQ or RFP as part of a Design-Build project.  I base my opinion on the following:

1. No Invitation to Bid:  RCW 39.30.060 (1) states that the requirements for subcontractor listing applies to "every invitation to bid" estimated to cost $1 million or more.  Selection of a Design-Builder is not conducted through an "invitation to bid" but through the two step process of an RFQ followed by an RFP for short-listed finalists.
   
2. No Subcontract Bidding:  The very nature of a response to an RFQ or RFP for Design-Build is different from the process in place for responding to a bid under a Design-Bid-Build project, in which the prime contractor solicits bids as part of developing their bid for a project.  Under a Design-Build RFQ or RFP, while the proposer may engage in some discussions with subcontractors, there is no design for subcontractors to bid on, since the project hasn't been designed.  

Thus, the purpose of RCW 39.30.060, which is to prevent bid shopping from occurring on public works projects, doesn't appear to be applicable for firms responding to an RFQ or RFP for a Design-Build project.

If you have different thoughts on this subject, I would be interested in hearing your opinion.

Las Vegas Agency Rejects All Bids

On October 20,2009, the Clark County (Nevada) Commissioners took the unusual step of rejecting all four bids received on a $55 million membrane/ozonation facilities project due to bid irregularities in all of the bids.

Earlier, the county had declared the bid of McCarthy Builders as non-responsive for being submitted almost a minute and a half past the bid submittal deadline. Click here to read my previous blog entry on October 14, 2009 on the late bid submittal protest. The county received two bid protests on the project that undoubtedly contributed to their decision to reject all bids.

In rejecting all bids and choosing to re-advertise the project, the county noted the various types of irregularities in the bids. The county appears to have required a number of documentation items to be submitted with the bid, a practice that can result in non-responsive bids, as occurred in this instance.

Unless required by funding sources or specific laws, I always advise that public agencies limit what is required to be submitted with the bid. This allows bidders to concentrate on developing a competitive bid price, often a challenge in the last minute receipt of subcontractor bids and the development of a final bid price to the owner. Limiting the submissions with the bid reduces the number and type of issues that may arise that would result in a non-responsive bid.

In making a decision about whether a bid is responsive or not, the public agency should consider whether the irregularity in the bid is material or immaterial. In other words, if the irregularity would have provided a bidder with an advantage not enjoyed by other bidders, the bid must be declared non-responsive. Irregularities that do not provide one bidder with an advantage not enjoyed by others may be either accepted or rejected by the owner.

While it may exist, I didn't find anything in the Clark County record that reflected their evaluation of whether these irregularities were material or immaterial. Without reviewing the bidding documents and facts in this situation, it's hard to make the determination of whether the irregularities are material or immaterial.

The following is a summary of some of the irregularities in the bids noted by Clark County. Unless some of these items are required for submission by law, it seems to me that the county should not be requiring these with the bid submittal.

• Failure to submit a copy of the bidder's contractor license with the bid. This should be a matter of public record and something that should be validated after bid submittal and prior to award of a contract.
  
  
• Failure to submit with the bid a copy of the contractor license for subcontractors performing at least 5% of the contract amount. Also a matter of public record and something that shouldn't be submitted with the bid.
  
  
• The total bid price was not tabulated correctly. It was higher than the sum of 12 individual bid items. Most agencies have, or should have, language in the bidding documents permitting the owner to correct such mathematical errors, so it's surprising that this was cited as one of the irregularities leading to rejection of all bids.
  
  
• Use of a form outlining the qualifications of the proposed electrical subcontractor was from a different project. Requesting qualification information with the bid requires all bidders to prepare and submit, instead of only requiring this information for the successful bidder prior to award. It also can lead to non-responsive bids. In Washington State, RCW 39.04.350 provides for the establishment of supplemental bidder responsibility criteria. I always advise that agencies request this information to be submitted after the bid submittal deadline.
  
  
• An instrumentation supplier qualification form was not completely filled out.
  
  
• An expired "Certificate of Eligibility" form related to bid preference was submitted. I'm not sure what the context is for this form, but if it's not required by law or the funding source, this is an example of the type of form that should not be required to be submitted with the bid.
  
  
• The form listing subcontractors were not completely and accurately filled out and contained dollar discrepancies. Another subcontractor listing form was not the current version of the form that had been updated by an addendum. In Washington State, there is a specific law requiring the submission with the bid of a list of subcontractors who will be performing electrical, plumbling, and HVAC for projects estimated to cost $1 million or more. See RCW 39.30.060.
  

In addition to the bid of McCarthy Builders that was rejected for being submitted late, the other four bidders whose bids were rejected were: Whiting-Turner Contracting Co., PCL Civil Constructors, Inc., MMC, Inc., and Western Summit Constructors, Inc.

It's a good idea for public agencies to review their bidding documents to determine whether items are being required for submission with the bid that do not have to be submitted then, but could be submitted after the low bidder is identified. This helps streamline the bidding process for contractors and reduces the likelihood of receiving non-responsive bids.

Subcontractors List Legislation Moving Ahead

Substitute SB 5969 was approved on February 25, 2009 by the Senate Committee on Government Operations & Elections. The substitute bill represents a significant improvement from the unworkable SB 5969 (and HB 1837) that was originally introduced. Public agencies should be able to support the substitute bill.

Substitute SB 5969 would amend RCW 39.30.060 that requires public agencies to include in public works bidding documents estimated to cost $1 million or more a requirement that the bidders list the electrical, plumbing, and HVAC subcontractors, or to list themselves if they are performing the work. The statute is specifically written as an anti-bid shopping law.

Here is a summary of the changes that the Substitute SB 5969 would make, most of which relate to the relationship between the contrator and a substituted subcontractor (one who is named on the bid form but subsequently not used):

• Would eliminate the standard that substitution "in furtherance of bid shopping or bid peddling" is prohibited. The reason for deleting the language "in furtherance of bid shopping or bid peddling" goes back to a recent case in which the substituted subcontractor was not able to prove that the substitution was "in furtherance of bid shopping or bid peddling" - a very difficult standard to meet. Thus, the proposed bill would simply state that substitution, except for the reasons noted in the bill, is prohibited.
  

• Would add three new reasons for substituting a subcontractor:
  

• 1.) If the subcontractor failed to meet the subcontractor responsibility criteria of RCW 39.06.020. Actually, the bill incorrectly lists RCW 39.04.350 which is for bidder responsibility, not subcontractor responsibility which is found in RCW 39.06.020. I've been letting key individuals and legislative staff know that this needs to be corrected, and think that this change should get into a new substitute bill.
  

• 2.) "For any other reason that an arbitrator or court determines to be good cause for substitution such as, but not limited to, clerical errors or misinterpretation of the scope of the project."
  

• 3.) For a subcontractor being found in violation of prevailing wage laws in accordance with RCW 39.12.065 (3).
  

• Would add language entitling the prevailing party in a dispute between a contractor and substituted subcontractor to recover damages from the other party. The bill also provides that disputes under this law may be resolved through binding arbitration or in superior court in the county where the public work is located.

• There are also a number of stylistic and editorial changes in the bill.

Listing of Sub-tier Subcontractors Not Required

RCW 39.30.060 is the Washington State law that requires the listing of subcontractors (or the prime contractor) who will be performing the work of HVAC, plumbing, and electrical on public works projects. These firms must be named either with the bid or within one hour of the bid submittal deadline.

The law does not, however, extend to the listing of sub-tier subcontractors. RCW 39.30.060 states that the bidder must list "the names of the subcontractors with whom the bidder, if awarded the contract, will subcontract for the performance of the work" of the three trades noted above.

Because the bidder (or prime contractor) does not subcontract work to sub-tier subcontractors but only to direct subcontractors, these lower tier subcontractors are not covered by the law, and they do not need to be listed.

Bill to Expand Subcontractors List

HB 1837, currently under consideration by the Washington State Legislature, would add additional provisions to the requirement for bidders to include a subcontractors list with their bid on public works projects by amending RCW 39.30.060.

In my opinion, the bill is poorly drafted, ambiguous, and represents poor public policy. It would result in more non-responsive bids and protests on public works projects, resulting in delays and additional costs for public agencies. Especially in these difficult economic times, now is not the time to add more government regulations, especially of the type contemplated. Because the language of the bill is so unclear at some points, it is difficult to fully assess the impact of it on both contractors, subcontractors, and public agencies.

Here is a quick summary of the bill which may be accessed by clicking here:

1) In lieu of only three trades required to be listed on the subcontractors list as is the current law (HVAC, electrical, and plumbing), the bill would require that:

a) All first tier subcontractors who will perform work valued at $50,000 or more be listed.

b) All subcontractors who will perform work valued at $350,000 or more be listed. Presumably, this refers to lower tier subcontractors, but this contradicts section (7) of the legislation that restricts the application of the law to only subcontractors who will contract directly with the prime bidder.

c) "The prime contract bidder must list all subcontract work that it will perform." (Section 2 (1)). This doesn't make a lot of sense. If the prime contract bidder performs work, it is not, by definition, subcontract work.

2) Section (3) is very difficult to understand. Whatever the language is intended to accomplish, it is hard to comment on it here and it would be difficult to implement as a result. It appears to imply that the public agency should be opening subcontract bids in addition to the prime contractor's bids - something that would create havoc in the contracting community for both contractors, subcontractors, and public agencies, and bring work to a standstill. Here's what the bill states: "The public entity shall open all bids submitted by prime contract bidders, alternates, and subcontractors that are required to be listed under this section at the end of the published bid submittal time. Bids submitted by prime contract bidders and their subcontractors may not be opened separately."

3) The bill adds to the list of reasons why a prime contract bidder may not use a listed subcontractor. The additions to the list are, by and large, welcome additions, even if they are not clearly worded, and such wording will create ambiguity in implementation. Clearly, there is an intent to permit bidders to disqualify subcontractors who do not meet certain basic criteria.

a) Section 5 (g) lists one reason as "The listed subcontractor fails to meet the requirement established in RCW 39.04.350 for responsible bidders." This should be a reference instead to RCW 39.06.020 which is where subcontractor responsibility is discussed.

b) Section 5 (i) and 5 (l) both include identical language: "The listed subcontractor did not include the entire cost of the subcontract in the bid submittal."

The bill has been referred to the House State Government and Tribal Affairs Committee. At this point, no hearing has been scheduled for it.

What is Bid Shopping?

What is "bid shopping"?

It's a common practice in the construction industry in which a general contractor attempts to convince a subcontractor to lower their bid price to a figure below what the contractor says is the current low bid they have received from another subcontractor. If the subcontractor really wants the project, they may lower their bid price, even to the point of making it financially detrimental for their business.

The Washington State Legislature has gone on record opposing the practice of bid shopping. In 2002, by amending RCW 39.30.060, the Legislature stated the legislation was "intended to discourage bid shopping and bid peddling on Washington state public building and works projects."

RCW 39.30.060 (2) includes a prohibition on the practice: "Substitution of a listed subcontractor in furtherance of bid shopping or bid peddling before or after the award of the prime contract is prohibited."

The purpose of RCW 39.30.060, also known as the Subcontractors List statute, is to reduce the number of bid shopping occurrences on public works projects. It requires contractors to list the names of the subcontractors (or the prime contractor) who will be peforming work in the following three trades: Electrical, Plumbing, HVAC. The law applies to public works projects with an estimated cost of $1 million or more. Failure by the contractor bidding the public works project to provide the Subcontractors List in a timely manner as specified in the bidding documents (either with the bid or up to one hour after bid submittal deadline) renders the bid non-responsive. The Legislature has gone on record to state that failure to submit the Subcontractors List is a material irregularity in the bid that may not be waived by a public agency, and the bid of a contractor not submitting the Subcontractors List must be declared non-responsive.

There is a common misperception among some subcontractors that a contractor is required by law to award a subcontract to them if they were the low bidder. I've had conversations with subcontractors not required to be listed on the Subcontractors List who thought the contractor had to award to them. One subcontractor was the second low bidder to the contractor. When the subcontractor with the low bid went out of business, the contractor approached the second low bidder and asked them to lower their price by a substantial sum (bid shopping). They asked for a meeting to discuss the scope. No meeting ever occurred and it is likely that the contractor awarded a subcontract to the third low bidder who may have lowered their price. The subcontractor wondered if they had any recourse against the contractor. Because the subcontractor was not named on the Subcontractors List and because it was not a protected trade, the subcontractor didn't have any recourse against the contractor.

It is only with the use of the alternative public works contracting method of General Contractor/Construction Manager (GC/CM) where the contractor is required to award to the low subcontract bid. On traditional "design-bid-build" projects, the contractor may award to any subcontractor at any price. However, if they have listed the subcontractor on the Subcontractors List as a firm they intend to use (whether they were the low bidder or not) and then attempt to substitutee that named subcontractor later for a reason not listed in RCW 39.30.060, then the substituted subcontractor "is entitled to recover monetary damages from the prime contract bidder...but not from the public entity." The burden of proof rests with the substituted subcontractor to demonstrate that bid shopping occurred.

Acceptable reasons for substitution of a subcontractor named on the Subcontractors List include the following:

• Refusal of the listed subcontractor to sign a contract with the prime contractor
• Bankruptcy or insolvency of the listed subcontractor
• Inability of the listed subcontractor to perform the requirements of the proposed contract or the project
• Inability of the listed subcontractor to obtain the necessary license, bonding, insurance, or other statutory requirements to perform the work detailed in the contract
• The listed subcontractor is barred from participating in the project as a result of a court order or summary judgment.

When Should Bids Be Opened When Subcontractors List is Required?

Under Washington State law, RCW 39.30.060, bidders must submit a subcontractors list as part of the bidding process for any project where the public agency has estimated the cost of the project at $1 million or more. The subcontractors list must include the names of the subcontractors who will perform the HVAC, plumbing, and electrical work, or for the bidder to name themselves if they will perform this work. By choice of the public agency and as described in the bidding documents, the subcontractors list may be submitted either with the bid or up to one hour after the bid submittal deadline.

Let's look at a potential scenario. If the public agency requires bids to be submitted by 2:00 p.m. on a certain day and the subcontractors list by 3:00 p.m. on the same day, the question comes up as to when the bids should be opened and read. The better practice is to receive the bids by 2:00 p.m., receive the subcontractors lists by 3:00 p.m., and then open the bids and subcontractors list at 3:00 p.m.

The problem with opening the bids at 2:00 p.m. is that it invites bidders to bid low on a project, knowing that if they believe their bid is too low they can choose to simply not submit the subcontractors list by 3:00 p.m. thus automatically rendering their bid non-responsive. State law is very clear that failure to submit the subcontractors list by the deadline results in a non-responsive bid.

Thus, to prevent bidders from potentially manipulating the bidding process and obtaining an unfair advantage over other bidders by having the choice of whether to accept the bid or not, it is better to open all bids and the subcontractors list at 3:00 p.m. (or whatever time the public agency sets - this is just the time noted in this example).