Source: https://www.nhconstructionlaw.com/blog/archives/07-2014
Timestamp: 2019-04-25 11:58:46+00:00

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The legal rules surrounding the bid process are driven by considerations of fairness -- to other bidders, to the awarding authority, and to a contractor who makes a mistake in his bid. Often these considerations are in tension. In some circumstances the law comes down on the side of a low bidder's right to withdraw a bid and decline a contract based on an honest mistake.
Courts are not blind to the realities of the bidding process and the opportunities for inadvertent error. “Contractors do not work under ideal conditions in the rush to meet the deadline for submitting bids and equity recognizes that honest, sincere men, even in the exercise of ordinary care, under such pressure can make mistakes of such a fundamental character that enforcement of the apparently resulting agreement would be unconscionable. In such a situation, if the parties may still be placed in statu quo, equitable relief will be granted.” Kenneth E. Curran, Inc. v. State, 106 N.H. 558, 561 (1965).
Elaborating on the third factor, the Court stated that “it is only when negligence of a contractor resulting in a mistake in submitting his bid amounts to such carelessness or lack of good faith in calculation as to violate a positive duty in making up a bid, taking into consideration the nature of the transaction and position of the offeree, that equitable relief will be denied.” The defective calculator case is a rarity, but it points up the operative principle: arithmetic and clerical errors, such as writing down sub-bids incorrectly or failing to enter the number intended on a spread sheet, are precisely the types of mistakes that courts are likely to excuse. A misreading of specs or a failure to gauge a measurable quantity in a take-off, by contrast, would be unlikely to qualify.
The practical lesson of the Curran case is that relief from a unilateral mistake in a bid is more likely to be granted (1) the sooner notice is given to the awarding authority (before contracts are signed and other bidders are off to other projects), (2) the less the negligence of the bidder (clerical and arithmetic errors rather than inattention to plans and specs), and (3) the greater the disparity between the erring bid and the second low bid (such that the awarding authority knows or should know that a mistake has likely been made).
It is noteworthy that the remedy for unilateral mistake in a bid is rescission rather than reformation, i.e., withdrawal of the bid rather than award of the contract followed by a modification of the contract price to correct the bid error. This is the teaching of Midway Excavators, Inc. v. Chandler, 128 N.H. 654, 658 (1986), where a contractor “which chose not to exercise its option to rescind the bid and re-attain its bid bond, cannot now seek to reform the bid, and therefore the contract.” My personal view is that this is too harsh a rule when the correction of an arithmetic error would still keep the low bidder’s bid below the next lowest bid. But I don’t wear the black robe.
When a contractor takes on the responsibility to obtain permits and comply with governmental requirements in constructing a project, it also takes on the risk that those permits and requirements will be more onerous than anticipated. No matter how experienced a contractor is at estimating, sequencing and planning a job, the unforeseen may leave it without a remedy when things don’t go as expected.
Bell/Heery assumed, based on its earlier experience with the New Hampshire Department of Environmental Services, that it would be able to perform “cut and fill” operations in a single step, moving earth from the high area of the site to the low area to level the terrain. That proved to be wishful thinking. DES conditioned its Alteration of Terrain permit on disturbing a maximum of forty acres at any given time, and then imposed a number of multi-step requirements which, according to the contractor, “caused excessive re-handling and handling of materials, increased equipment and manpower needs, caused problematic stockpile management, required additional import materials, increased costs for erosion control measures, added temporary stabilization areas, required temporary stockpile stabilization, required additional areas of restoration and rework and necessitated work during unanticipated winter weather conditions.” Bell/Heery sought an adjustment of over $7 million as compensation for these unanticipated burdens.
The federal Court of Claims would have none of it, and the appellate court likewise rejected the claim, finding that the burden of obtaining and complying with state and local permits for the project was on the contractor. Moreover, the court ruled that no equitable adjustment was due because the federal government did not control the actions of the state environmental agency, and had no duty to intervene on the contractor’s behalf.
Although the case was decided under federal law, don’t expect a different rule under New Hampshire law. Our Supreme Court has stated that “One who by contract or agreement binds himself to an obligation possible to perform must perform it, and he will not be excused from performance because of unforeseen difficulties.” Town of Bedford v. Brooks, 121 N.H. 262, 266 (1981). Unlike a post-execution change in the law, misgauging at bid time how an existing set of regulations will be applied by the regulator “is not a case where an unforeseen situation has arisen since the execution of the agreement,” Colebrook Water Company v. Parsons, 88 N.H. 217, 219 (1936).
Faced with contract language similar to Bell/Heery’s – such as AIA A201 § 3.7.2 (“The Contractor shall comply with and give notices required by applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities applicable to performance of the Work”) – a wise contractor will confirm his understanding of the applicable regulatory requirements, preferably in writing, with the agency involved before finalizing his bid. Even if the agency is noncommittal on a proposed construction methodology, valuable insight can be gained in the dialogue, and the risks can be better quantified.
Most large and complex commercial projects today are marked by numerous changes in the original scope of work, as issues are discovered during the course of construction, or as owners change their minds mid-stream. What starts out as a defined scope of work for a defined price on a defined schedule ends up getting altered on all three fronts. The owner wants the flexibility to change course, yet not be ambushed by a price for the change that busts the budget or by unacceptable delays in project completion.
Despite mechanisms built into the contract for pricing the change later (agreed-upon unit prices; time and materials plus a mark-up for overhead and profit; etc.), a CCD presents some risk for the contractor. If the CCD requires a significant reduction in scope, the contractor who was counting on the full scope of work must now scramble to fill a sudden hole in his schedule in order to make up for lost revenue. If the CCD requires a significant expansion in scope, the contractor may have other projects on his schedule that will now suffer. But the biggest risk is one of profitability of the new work. Precisely because the price is not agreed upon up front, the control that the contractor enjoyed at the bid stage and at the contracting stage is gone; his compensation for a portion of the work will now be determined by a third party (generally the project Architect) who will scrutinize his measurements – measurements that must now be carefully logged and documented by the contractor (for free!) as to units/yards/linear feet, as to man hours, as to materials used. The documentation headache that he hoped to avoid by entering into a fixed-price rather than a cost-plus arrangement has just started pounding. And if the Architect isn’t satisfied and asks for more detail, payment that should have been received this month is delayed until next month – a potential cash flow problem for the contractor.
Notwithstanding issuance of a CCD, if the change desired by the owner is a “cardinal change” the contractor can decline. Cardinal changes are those that either drastically increase scope (say, tripling the amount of work) or call for a different type of work (say, changing the framing from wood to steel). Some recognition of this principle is built into the A201 General Conditions, which limit Construction Change Directives to work “within the general scope of the Contract.” The distinction is between tweaking a project, and asking for what amounts to an entirely different project. As one court has put it, "There is no exact formula for determining the point at which a single change or a series of changes must be considered to go beyond the scope of the contract and necessarily in breach of it. Each case must be analyzed on its own facts and in light of its own circumstances, giving just consideration to the magnitude and quality of the changes ordered and their cumulative effect upon the project as a whole." Wunderlich Contracting Co. v. United States, 351 F.2d 956, 964, 966 (Ct. Cl. 1965). And without a bright line test for when a change is cardinal, the contractor is at risk in declining a CCD and walking away from a project. Allied Materials & Equip. Co., Inc. v. United States, 215 Ct.Cl. 406, 569 F.2d 562, 564 (1978) ("Undoubtedly, the cautious contractor might often proceed under the revised contract because of doubt whether he could invoke the cardinal change doctrine.").

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