A case of responsiveness and balance in a contract
By Brian Morrow
A recent case regarding the Army Corp of Engineers’ improper rejection of a low bid — Matter of W. B. Construction and Sons, Inc. (Jan. 4, 2012) — highlights important rules regarding bid responsiveness and unbalanced bids.
Government contracts — federal, state and local — may only be awarded to contractors who submit bids that are “responsive” to the material requirements of the invitation for bids (IFB). The responsiveness of a bid focuses on the mandatory requirements of the IFB and any governing statutes. Minor deviations may be waived, but material deviations may not. A deviation is “material” if it gives the bidder a competitive advantage and prevents other bidders from competing on the same footing. A materially non-responsive bid gives the bidder “two bites at the apple” because the contract can be invalidated at any time at the election of the bidder or the government.
Unbalanced bids typically result from the bidder’s discovery of apparent discrepancies between estimated unit prices.
An “unbalanced bid” is a unit price bid that contains abnormally low unit prices for some items, and abnormally high unit prices for other items. The government may reject an unbalanced bid as non-responsive because of the potential risk the unbalanced bid would not result in the lowest total cost. Unbalanced bids typically result from the bidder’s discovery of apparent discrepancies between estimated unit price quantities in the IFB and the bidder’s own estimated quantities; the bidder’s desire to “front-end load” the payment schedule; or the bidder’s mistaken bid. An unbalanced bid is not necessarily illegal, but must be analyzed to confirm it is the low bid and will not materially unbalance the payment schedule.
In a recent decision by the Comptroller General, Matter of W. B. Construction and Sons, Inc., the government’s rejection of a low bid as non-responsive, including rejection for failing to submit a price for a minor bid item and for being unbalanced, was determined to be improper.
On August 2, 2011, the U.S. Army Corps of Engineers (COE) issued an invitation for bids for the award of a fixed price, indefinite-delivery/indefinite-quantity (ID/IQ) construction contract for road and drainage work at Fort Polk, Louisiana. The term of the proposed contract was for one base year, with four additional 1-year option periods. The IFB required bidders to complete a bid schedule listing 378 separate line-items. Each line-item included a description, an estimated quantity, and a unit of purchase, in addition to blank spaces for the bidders to insert their unit prices and extended prices. The IFB required bidders to submit pricing for all the items. The 378 line-items included work such as removal of curbs and gutters, removal of trees and stumps, construction of drainage inlet structures and pavement replacement.
On September 2nd, two bids were received, including a low bid from W. B. Construction and Sons, Inc. of $8,984,611.70, and a second low bid from Tanner Heavy Equipment Company LLC of $9,291,020.50. The COE produced an independent government estimate (IGE) of $10,304,987.10. Thus, W.B.’s bid was more than $300,000 lower than Tanner’s bid, and more than $1.3 million lower than the IGE.
On September 26th, the COE rejected W.B.’s bid as non-responsive and awarded the contract to Tanner. The COE rejected W.B.’s bid for two reasons: (1) WB’s bid failed to include a unit or extended price for one line-item; and (2) WB’s bid contained unbalanced pricing, as several line-item prices were significantly higher or lower than the prices in the IGE.
On September 27th, W.B. filed a bid protest. W.B. claimed the omission of the one line-item price in its bid was a waivable minor deviation that did not make its bid non-responsive. In addition, W.B. claimed the COE failed to conduct a required risk analysis before rejecting its bid as unbalanced.
In its bid, W.B. failed to submit a price for Line Item 36 regarding removal of 21 to 50 trees from 24” to 36” diameter. However, W.B.’s bid contained prices for at least 11 other “tree removal” bid items. In addition, Line Item 36 was divisible from the contract because the COE was not obligated to perform any ID/IQ work. Further, the government’s estimated price for Line Item 36 was less than 0.07 percent of the total IGE. As a result, W.B.’s failure to include a price for Line Item 36 was determined to be a waivable, minor deviation since this line-item was divisible from the contract and the price was de minimis as to the total contract cost.
The COE also rejected W.B.’s bid as unbalanced because 92 items in W.B.’s bid were 30 to 50 percent over the IGE, and 54 items were more than 50 percent under the IGE. The COE’s initial determination that W.B.’s bid was unbalanced was found to be reasonable. However, the COE is also required to consider risks associated with unbalanced pricing, and only reject a bid where it performs an analysis that shows the unbalanced bid poses an unacceptable risk. Here, the COE did not perform any analysis. As a result, the COE’s rejection of W.B.’s bid as unbalanced was found to be improper.
In summary, W.B.’s low bid was missing a price for one line-item and determined to be unbalanced. The COE rejected W.B.’s bid on these grounds. However, that is not the end of the inquiry. Prior to rejecting a low bid as non-responsive, the government must make more than this minimal showing. The government must also show negative consequences, including that the missing price is more than a minor deviation and the unbalanced bid poses an unacceptable risk. Here, the Army Corps failed to make this second showing of negative consequences. Therefore, its rejection of W.B.’s low bid was itself determined to be unbalanced.
For contractors, this case highlights the importance of making sure that bids are responsive to all bidding requirements, or with the right showing, a public entity may reject your bid (even if it is the lowest). For public entities, this case highlights the importance of how unbalanced bids need to be rejected. Specifically, there must be a showing the bid is unbalanced and that negative consequences result.
Brian Morrow is a partner in Newmeyer & Dillion LLP, a law firm in California. He is a licensed California Civil Engineer, and specializes in the field of construction law, including road and heavy construction. Contact him at email@example.com