The risk of skipping pre-bid inspections

BY SUSAN LINDEN McGREEVY CONSTRUCTION ATTORNEY WHILE READING recent court decisions, I was reminded of an avoidable source of problems for contractors: making assumptions. The problem came up in a federal court case, Orlosky Inc. v. United States, 64 Fed. Cl. 63 (2005). Although there were other problems between Orlosky and the government, leading to more than one court decision, this particular issue

BY SUSAN LINDEN McGREEVY
CONSTRUCTION ATTORNEY

WHILE READING recent court decisions, I was reminded of an avoidable source of problems for contractors: making assumptions.

The problem came up in a federal court case, Orlosky Inc. v. United States, 64 Fed. Cl. 63 (2005). Although there were other problems between Orlosky and the government, leading to more than one court decision, this particular issue was among them.

The contractor was hired to perform electrical work for the Navy on the small island of San Nicolas in Southern California. A portion of its work was to replace part of the circuit breaker system, and it made an assumption that the breakers were all located on utility poles where they would be easy to access. After the award, the contractor came to the site and discovered that the breakers were not on poles but on pads on the ground, making it significantly more expensive to replace them.

The contractor sued, claiming that the specifications were misleading and that the conditions as actually found constituted a "differing site condition" and a breach of warranty. The government defended by referring the court to a clause in the Federal Acquisition Regulations (or, FAR), specifically §52.236-3, which requires the contractor to acknowledge that it has taken steps "reasonably necessary" to ascertain the nature and location of the work, and that any failure on the part of the contractor to do so will not shift the responsibility to the government. In addition, the solicitation contained a typical clause requiring the bidders to perform a site visit.

The court was not willing to hold the government responsible for issuing a misleading specification because it would have been obvious to anyone actually visiting the site what the conditions were — a "patent" defect in the spec and not a "latent" one. The contractor has to show that even a reasonable inspection wouldn't have disclosed the problem, a showing the contractor could not make.

This is not at all an unusual problem. Contractors frequently bid on projects without making site visits or attending pre-bid meetings. They do so at their peril, as their failure to attend gives the owner a great defense even when it issues misleading or defective written documents — particularly where the solicitation contains boilerplate clauses recommending that the contractor visit the site.

The issue goes farther than just site inspections. Pre-bid meetings are often the only forum in which a bidder can ask for clarifications. Public owners are prohibited from giving information to one bidder and not others, so they generally insist on getting all questions at the same time and then addressing them at the same time (although preferably in writing, to avoid later misunderstandings).

It is common now for invitations for bids to require attendance at mandatory pre-bid meetings to decrease the number of situations that arose in Orlosky, which, although the government eventually won in court, probably took up a good bit of time, trouble and money on the part of all when the problem was discovered.

Diligent review of form contracts, insurance requirements, bonds, technical requirements and a site visit are all more than just useful ways to spend time. By going to the effort to examine all these things well in advance, a bidder can make good use of the pre-bid meeting to raise issues that have to be raised pre-bid, such as:

  • Unrealistic insurance requirements. Everyone reading this column is aware of how volatile the insurance industry has been, particularly for firms in the plumbing business. Many owners are still using boilerplate insurance requirements that do not accurately reflect what is realistic in the marketplace.
  • Warranty requirements. I have discussed in past columns the enormous risk to contractors of agreeing to equipment warranty requirements in contracts that they can't ever get from the equipment manufacturers. The irony is that often the same owner that is requiring the all-encompassing warranty is also limiting the contractor's options to a specific manufacturer, or one of a few manufacturers, none of whom will give the demanded warranty. This leaves the contractor in the middle.
  • Impossible schedules. Everyone knows that schools have to be done by Aug. 15. But the laws of physics are still the same whether the project is put out for bid Jan. 1 or June 1, and even with overtime and double crews, some things still can't be done.

Conducting a site inspection or raising issues at pre-bid meetings won't guarantee that they will be resolved in your favor. As often as not, the owner frequently doesn't issue any clarification or addendum at all. But if you don't make the inspection, don't attend the meeting and raise the issue or do neither, you could easily find yourself in the position of Orlosky — with no one to blame but yourself.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., tel. 816/ 421- 4800, e-mail to [email protected]

TAGS: Law