There is no doubt that construction projects can be rewarding for business owners and individuals alike.  Construction projects can also be particularly stressful and frustrating to the party requesting and paying for the work (the owner).  Owners often recall the ups and downs associated with the completion of a project, but the seeds for completion of a job on time and on budget are planted very early on, in the bidding phase of the project.  Construction projects can seem mysterious to owners who do not commonly undertake construction projects, but some insight can take the mystery out of the process, and highlight the importance of the process.

Construction bids that cause the most mischief are usually those based on fixed prices, and of those, the bid for the completion of an entire project (usually resulting in a lump-sum contract) is the most confusing.  Some owners presume that if a contractor makes the bid on a project, the owner can accept the bid with absolutely no possibility of any changes in the price.  This assumption is wrong. 

In general, the law will provide relief to a contractor for mistakes of fact in bidding, but not for mistakes in judgment.  The contractor’s bid may not include or accurately reflect everything that is required to be included in the project, such as when a contractor overlooks a necessary component of a project, makes a mistake in calculating the size or scope of a component of a project, or commits a similar oversight. 

Common Bid Errors

The most common errors are those one might make when planning any home improvement project: transposing numbers in calculations, simple mathematical errors, estimating size and scope and misinterpreting plans or specifications.  Other errors can be more technical, but have significant impacts. 

Although a contractor may be stuck with many types of bidding errors, a contractor is not stuck with all bid errors.  If the error is substantial (based on either percentage of the total job cost of the dollar amount of the error), the contractor can look to the law to protect it and void the bid.  In order to get that protection, however, the contractor must make immediate efforts to inform the owner, identify the error and minimize prejudice to the owner.  Hours and days matter, so the contractor must act quickly.  An owner who hopes to benefit from a simple clerical error or something of that nature will be disappointed.  Although the law generally seeks to enforce lump sum bids, gamesmanship and opportunism generally will not be rewarded.

If an error is slight, or is not identified early on by a contractor, a contractor will sometimes proceed with the job and do the best they can in light of the circumstance.  However, parties that proceed with a seriously flawed bid in the hopes of correcting things later in the job may be trading a problem in the present for a bigger problem in the future.  A contractor may not be able to cut costs enough to compensate for the bid error.

Break It Down

Another example in large construction projects relates to unit pricing.  Unit pricing is basically the process of breaking down each component task of a job, and affixing a price to that task.  This, combined with the cost of the material necessary to complete the task, is the total cost for that particular piece of work.  When this process is calculated for all the tasks on a project, an estimate for a bid emerges.

The price for completing each task is based on contracting reference materials, but the price of a task is not necessarily uniform.  Taking an extreme example, the labor cost of installing a light switch in a house atop Mount Everest would be greater than installing the same light switch in a 250 year old house in Boston or in a house under construction in suburban Atlanta. 

Accurately predicting the construction environment is obviously important.  An overly conservative approach results in a higher price and a losing bid.  A more aggressive approach might result in a lower (and winning) bid by the contractor, but an increased likelihood that the contractor will lose money on the job.  As an owner, the knee-jerk reaction to accept the lowest bid should be tempered with the practical realization that everything comes at a price.  In this case, the “price” of a bid that is oddly lower than several other bids may be a fight with the contractor at the end of the project, or extreme cost-cutting by the contractor.

Rhyme and Reason

If there are no obvious and substantial errors in the bid, what justification could a contractor have for not performing for the price agreed-to in a lump sum contract?  Two common reasons are problems with the project drawings or plans, and changes in conditions.  Unless the contractor designs the project, the contractor will be able to point the finger at that party who designed the project as the reason for deficiencies or delays in the final outcome.  This common occurrence can be avoided with the use of a “design-build” contract, but that is not always an option. 

The second justification a contractor may have for requesting additional funds on a project (even though it is lump sum contract) is a change in condition.  Whether the condition is actually changed, or whether it was foreseeable is often the source of much dispute between owner and contractor.  If there is any doubt about a condition early in the project, the parties should address it early. 

Why does the law permit a contractor to not perform for the price agreed-to in a lump sum contract?  Of course, an argument could be made that contractors should never be permitted to get out of its bid price.  While that scenario would reward the owner and punish the contractor, ultimately, subsequent owners would suffer.  If a court held a contractor to the price agreed-to in a lump sum bid, despite the fact that changed conditions were encountered on the project, contractors in subsequent cases could not trust that they would be compensated if changed conditions were encountered.  Thus, they would be wise to bid higher on all jobs to account for this.  This would cause an increase in the costs of constructions projects across the board.

Although many owners would like to benefit from a contractor’s erroneous bid, there truly is no such thing as a free lunch.  The law imposes a standard of reasonableness that accounts for forgivable human errors, and unforeseen conditions.  Although both situations might cost that particular owner more money (by being unable to exploit the advantage), ultimately all owners benefit from a system of contracting that encourages bids that accurately reflect the cost of the project, and do not incorporate unnecessary costs.