The concept of “superior knowledge” or “superior information” is unique to construction contracting. Contract law in general holds a party responsible for intentionally withholding significant information in order to mislead the other party. This is usually characterized as “fraudulent misrepresentation” or “fraudulent inducement.” With construction contracting, a project owner may be liable to a contractor for failing to disclose significant information even though the nondisclosure was not intentional or fraudulent.
The California Supreme Court recently issued an important decision on nondisclosure of superior information by public project owners. If a public project owner (1) possesses information which will affect the contractor’s bid price or performance cost; (2) knows the contractor does not possess that information; and (3) includes nothing in the contract documents which would cause the contractor to inquire about the information; then (4) the owner can be liable for nondisclosure of the information for any reason. No intent is required.
A dissenting opinion in the California case argued that public project owners, and the taxpayers, should not be exposed to liability for accidental or unintentional nondisclosure of information. The dissent said the majority’s ruling absolved contractors of any responsibility for independently investigating contract performance conditions and would foster extensive claims litigation.
From the Construction Advisor
Change order limitations are sometimes imposed on public works contracts by statute, regulation or the contract itself. The underlying policy is to protect the project budget and the integrity of the public procurement process by limiting the expansion of the contractual scope of work. A limitation typically states that if the estimated cost of a change order exceeds a certain percentage of the original contract price, the additional work must be put out to bid.
Change order limitations can lead to devious tactics, however. In a recent California case a public project owner and its construction manager tried to circumvent a ten percent limit in a site work contract in order to avoid the delay of competitive bidding. New grading work was to be added to the general building contract and the building contractor would sub the work to the site contractor.
The project owner never amended the building contract and the building contractor wouldn’t pay the site contractor for the “subcontracted” work. The owner and CM settled with the site contractor. But when the site contractor sued the building contractor, the purported subcontract was ruled an unenforceable sham.
From the Construction Advisor
A key ingredient of the competitive bidding process is transparency. Everyone has access to the required scope of work and the budget available to procure that work. Once sealed bids are opened, they become public information. When a bid is accepted for contract award, grounds for selection are stated on the record.
Transparency keeps the competitive bidding process honest. It also maintains public confidence in the integrity of the system. When procurement authorities refuse to operate in the open, it should be cause for concern.
In a recent California case, a public project owner provided a copy of the low bid to the second low bidder immediately after bid opening, enabling the second low bidder to get the low bid rejected. The low bidder asked to see the second low bidder’s submittal. The owner stalled. The low bidder was eventually provided with the documents, but only after its petition for injunctive relief had been denied. The low bidder then discovered that the second low bidder had the same problem of which it had complained regarding the low bidder. A court called this “favoritism most foul” on the part of the public project owner.
What is your experience regarding transparency in the public or private bidding process? Are decisions well documented and the documents available to all? Or, is information parsed out on a “need to know” basis? For those of you working for procurement authorities, what transparency mechanisms are in place to maintain both the appearance and substance of even competition?
From the Construction Advisor http://constructionadvisortoday.com
