Lowball unit price comes back to bite contractor

A contractor bid a price of one penny per cubic yard to excavate rock from a town site as part of a larger contract with the town of Avon. That price, however, was based on the town’s estimate of rock to be removed which turned out to be unreasonably low. The actual amount of rock to be removed was 250% higher than the town’s bid documents. The one-penny price was a loss leader based on a line item in the invitation for bid (IFB) and made the bidder’s overall price more attractive. The case is Celco Construction Corp. v. Town of Avon (Superior Court, appealed to Mass. Appeals Court, 2015).

When it became apparent that there was much more rock than represented, the contractor sought assurances, and received them from the town’s water superintendent, that the situation would be “dealt with” once the additional rock had been removed and the total extra quantity was known. Based on this assurance, the contractor continued to work and completed the contract. When the contractor later sought $190 per cubic yard for removing the additional rock, the town refused to pay and ultimately litigation ensued.

The contractor sought payment based on: (1) changed site conditions (the actual amount of work was two and one half times the amount in the town’s IFB); (2) the principle that the contractor should be paid the reasonable value of the extra work performed; and (3) the superintendent’s promises to fairly address the issue later. The Superior Court judge and the Appeals Court found in favor of the town:

Changed Conditions

  • Massachusetts G.L.c. 30, section 39N is designed to protect contractors from unknown and unforeseen conditions. The Appeals Court held that this does not protect contractors from an increased amount of a known condition which causes financial hardship because of a low unit price. Had the contractor been able to provide evidence that the additional rock was different in a significant way or that the cost to extract the additional rock was greater by reason of the increased amount or any other concealed condition, the contractor likely would have been entitled to additional compensation. However, in this case, the actual subsurface or latent physical conditions encountered at the site did not differ substantially or materially from those shown in the bid documents. The court stated that the purpose of the statutory protection is to remove unknown risks from the competitive bidding process. Based on the facts of this case, even dramatically increased volume, where pricing is based on unit pricing, is not considered an unknown risk covered by the statute according to the court’s ruling.

Superintendent’s promises can’t increase the unit price or amend the contract

The court noted that no evidence had been introduced indicating that the town’s water superintendent had the authority to renegotiate the contact and therefore his statements did not have the effect of increasing the unit price for rock removal. Furthermore, even if the town official had the authority to enter into contracts, he could not independently amend the terms of the contractor’s contract because its terms had been set pursuant to a “statutorily prescribed public bidding process.”

Key takeaways from this case

• In order to be considered a “changed condition” the nature or character of the concealed subsurface condition must be materially different than the known condition. Unit prices generally will not be altered based on an increased volume of the item to which the unit price applies.

• Be mindful of the risks when relying on estimates in bid documents. If offering special pricing on a particular element or component, specifically condition the pricing on the volume/character in the description of the element in the bid document and state that the price will change if volumes or conditions change.

• Do not rely on oral statements from project officials with respect to critical items. Understand that a modification of any material term must be made pursuant to the bid documents and the underlying statutes. Take time to become familiar with the relevant bid documents or statutes or have experienced counsel assist you. Identify specific or unique risk issues to counsel when preparing bids or responses to requests for proposals (RFPs).

• Government entities should carefully review the details of low bid pricing and consider declaring bids with unreasonably low line item bids as unresponsive. While it may be tempting to take the position that the contractor will be held to his low price, the reality is that, when faced with management criticism, work stoppage and legal fees, it may be more expedient for the government entity to liberally construe “changed conditions” and find a way to compensate the contractor for improperly bid line items. To Avon’s credit, it stuck to its guns, albeit after cajoling the contractor into finishing the work.

The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.

Resources/References:
Celco Construction Corp. v. Town of Avon, lawyers Weekly No. 11-01915
Perini Corp. v. United States, 381 F.2d 403 (1967)
Baltazar Contractors, Inc. v. Town of Lunenburg, 65 Mass.App.Ct. 718 (2006)
Park Drive Towing, Inc. v. City of Revere, 442 Mass. 80 (2004)
Glynn v. City of Gloucester, 9 Mass. App. Ct. 454 (1980)
M.G.L.c. 30, sec. 39M

MBA
Boston Bar Assosiation