Construction File: Trade Contractors in Post Bid Negotiations and Trade Agreements
The prospect of a major construction job generally initiates a cascade of invitations to bid from the owner, to general contractors, to subcontractors, to suppliers and other participants. The invitations generate a corresponding flow of bids upwards along the same food chain. Each compliant bid submitted along that food chain creates a bid contract between the party seeking bids and the bidder which, generates corresponding obligations as expressly and impliedly set out in the bid documents. Perhaps the most significant duty arising under bid contract is that a general contractor will, subject to the express terms of the bid contract, be obligated to enter into a construction contract with the subcontractors it carries in the bid it submits to the owner, if the owner accepts that bid.
Competition is meant to replace negotiation in the bid process. However, after the close of a bid call it is common for an owner to begin negotiations with the general contractor who submitted the lowest compliant bid in order to determine if cost savings can be obtained. If the owner attempts to enter into negotiations with the lowest bidding general contractor after the close of bids, there is an issue as to whether that general contractor remains bound to the owner on its bid, and whether the subcontractors carried by the general contractor in its bid to the owner are bound to the general contractor to enter into construction contracts.
The first place to look to consider the permissible scope of post-closing negotiations is in the bid documents constituting the bid contract between the owner and general contractor. If the bid documents do not permit post-closing negotiation, negotiations after the close of bids may result in the termination of the bid process, including the obligation on the general contractor to enter into construction contracts with the carried subcontractors. The bid documents may expressly provide for post-bid negotiations and / or modifications of the bid submitted. However, even if such negotiations are permissible, the courts will examine the substance of the negotiations in order to determine what has occurred, and whether it is permissible.
If, on the one hand, the negotiations are a request by the owner, and an agreement by the owner, to the modification of a general contractor’s bid within a clause in the bid documents which permits such a modification, the general contractor’s bid would continue in effect, as modified, and would not result in the release of the general contractor’s obligation to enter into construction contracts with the carried subcontractors. If, on the other hand, the negotiations are characterized as a rejection by the owner of the general contractor’s bid and the making by the owner of a counter-offer to the general contractor, the bid process is terminated, along with the general contractor’s obligation to enter into construction contracts with the carried subcontractors.
As the bid contracts between the general contractor and the carried subcontractors remain valid until the general contractor’s bid is rejected or accepted by the owner, the termination of the bid process between the owner and general contractor also has the result of releasing the carried subcontractors from an obligation to enter into construction contracts with the general contractor. Accordingly, if the owner and general contractor want to maintain the carried subcontractors’ obligation to enter into construction contracts, they must be careful to ensure that their negotiations are permissible under the bid contract between owner and general contractor and do not amount to a rejection by the owner of the general contractor’s bid and thereby the termination of the bid process and the making of a counter-offer by the owner.
Above Information provided by Jenkins Marzban Logan LLP, Suite 900, 808 Nelson Street, Vancouver, BC (604.681.6564). Trade Agreements and Trade Contractors
The above noted process for post bid negotiations may have some implications as it relates to Trade Agreements such as AIT or TILMA. If a bid process is cancelled due to negotiations then this may mean it becomes a new procurement solicitation which requires an entire new public process. Where Construction Management is the method of procuring trade contractor pricing then each package of work, which meets the thresholds within a Trade Agreement, must be publicly bid. Hence, cancelling a bid to begin negotiations with a trade contractor may create a new procurement solicitation.