Bid responsiveness; correction of bid deficiency, by Hugh Anderson

Issue: Bid responsiveness; correction of bid deficiency. DeSilva Gates Construction v. Department of Transportation. Court of Appeal of California (2015).

Summary: $34 million state highway contract. Under a California public bidding law that attempts to discourage bid shopping, bidders were required to submit a Subcontractor List naming subs that would provide more than 0.5% of the total bid, and indicating each sub’s specific percentage. The List could be supplemented with revised percentages within 24 hours after bid opening.

Bid shopping is the practice under which contractors will use a sub’s bid amount in the bid to the owner, then shop that price to other subs in search of a lower number. The general contractor, not the owner, reaps the savings attained by bid shopping, and the subs that agree to work for less may cut corners in performing the work. Bid shopping is generally disfavored (including by AGC), but is not illegal in most jurisdictions. A tightly controlled subcontractor listing requirement can limit bid shopping—the contractor must use the sub that was initially listed, barring a special circumstance.

In this case, DeSilva submitted the required Subcontractor List with its bid. Within 24 hours it revised the list to include a new subcontract category, for fences and gates. The owner, CalDOT, considered this to be an impermissible revision to the Subcontractor List, and rejected DeSilva’s bid as nonresponsive. DeSilva pointed out that in retrospect the new category represented less than the threshold 0.5%, and thus was above and beyond what was required, and therefore irrelevant; but to no avail.

Meanwhile the second low bidder, Papich, had failed to acknowledge Addendum 1 in its bid. CalDOT sent a letter to the second low, stating that the failure to acknowledge an addendum is material and makes the bid nonresponsive; however, CalDOT invited Papich to demonstrate through documentation that it had in fact received the Addendum, and had taken it into account in formulating its bid. Papich provided supporting documentation and received the award of contract.

The trial court ordered CalDOT to vacate its award of contract to Papich, and CalDOT appealed to the California Court of Appeal.

Decision: The Court of Appeal affirmed the lower court’s ruling that DeSilva’s bid was responsive, and should not have been rejected. Supplementing the list with the gates and fences subcontract information, well below the 0.5% threshold, was held to be not legally significant. The revision did not involve any suggestion of bid shopping. It was at most a “trivial error” in following the bid instructions, and did not render the bid nonresponsive.

As to Papich, the appellate court noted that allowing Papich to prove it had received and accounted for the addendum was unfair to other bidders. Having seen the bid numbers of other contractors, and with additional time to assess its own bid, Papich had the proverbial “two bites at the apple.” It could either choose to proceed with its bid by producing documentation about its receipt of the addendum, or it could back out of the bid without risking its bid bond, by conceding that it lacked the documentation regarding the addendum. The court held that Papich’s bid should have been rejected as nonresponsive, based on a material omission.

Comment: The project was underway, under a contract awarded to Papich, at the time of the decision. The exact consequences to the project of vacating that award, and the implications for DeSilva (damages, costs, belated award of contract) are not clear from the decision.

There are many approaches to subcontractor listing, in some cases dictated by statute. EJCDC’s Instructions to Bidders, C-­‐200, provides for subcontractor listing within five days of the bid opening. This requirement relates to establishing the qualifications of subcontractors, for the protection of the owner and the good of the project, as do the provisions of the General Conditions regarding subcontractor substitutions (C-­‐700, Paragraph 7.06); they are not intended to address the issue of bid shopping.