In
a case of first impression on June 8, 2012, the Massachusetts Attorney General
Bid Unit (AG) issued a decision outlining the negotiation process an Awarding Authority/CM
must use on a CM at Risk project when it receives fewer than three trade bids, and
the lowest bid exceeds the estimated cost for a particular scope of work. In connection with fire protection trade bids
submitted to the City of Springfield (City) for its Forest Park Middle School Project
(the Project), the protestor, Cogswell Sprinkler Co., Inc. (Cogswell) argued
that the City and its CM at Risk Consigli Construction Co., Inc. (CM and Consigli)
failed to negotiate in good faith with respect to its fire protection trade bid
when they did not first negotiate an acceptable bid price with Cogswell, and
thereafter, refused to accept Cogswell’s bid which it lowered to the cost
estimate of the work contained in the City’s bid documents ($714,000).
Bidders
Cogswell and Smith Automatic Sprinkler (Smith) were the only two prequalified
fire protection trade contractors who submitted bids for the Project. Cogswell bid $768,225 while Smith bid $535,000. Smith’s bid was rejected by the City because Smith
failed to submit a verification of its compliance with the City’s Responsible
Employer Ordinance with its bid documents.
Because
only two bids were submitted, shortly after the bids were opened, Cogswell contacted
Consigli to negotiate an acceptable price for its work. Consigli responded by asking
Cogswell to submit its best and final proposal within 24 hours. Consigli also
asked the rejected bidder Smith for its best and final proposal. Cogswell then
met with the City and Consigli, and at that time, Cogswell offered to drop its
bid price to the City’s $714,000 estimate.
Relying on Smith’s newly submitted bid price Consigli informed Cogswell
that it would only accept its bid if Cogswell further reduced its price from
$714,000 to $650,000. Consigli based this
proposal on the fact that the scope of work had been reduced from that
contained in the original bid documents and a revised estimated value of the
work was now $608,000. Cogswell
contended that the revised estimate was suspect at best as it was based (at
least) in part on R.S. Means Facilities Construction Cost Data Book data. Ultimately, the parties could not reach an
agreement on price and the City and Consigli determined that they would instead
solicit additional bids for the fire protection work rather than award to
Cogswell.
This
situation is governed by M.G.L. c.149A, § 8(h) which provides in pertinent part
as follows:
“(h) Bids shall be opened publicly by the
public agency and shall be awarded to the lowest prequalified bidder; but, if
the public agency receives fewer than 3 responsive bids on any
trade contract and the lowest bid exceeds the estimated cost for the work for
which the bids are requested, the construction manager at risk firm shall
attempt to negotiate an acceptable price with the lowest prequalified bidder.
If the negotiations are unsuccessful,
the construction manager at risk firm shall terminate negotiations with the
lowest prequalified bidder and shall initiate negotiations with the trade
contractor who was the second lowest prequalified bidder. If the construction
manager is unsuccessful in negotiating an acceptable price with the lowest
prequalified bidder and second lowest prequalified bidder, the construction
manager at risk firm, on behalf of and with the consent of the public agency,
shall solicit additional bids, utilizing the procedures for selection of
subcontractors who are not trade contractors, set out in subsection (j).”
(emphasis supplied)
In
rendering its decision, the AG noted that Cogswell was the only responsive
bidder for the fire protection trade and that the City and CM (pursuant to the
above cited statute) should have commenced negotiations with Cogswell before they
reached out and obtained a new price from Smith. Additionally, by asking Cogswell for its
“best and final offer” as a first step in the negotiation process, the AG held
that the City and Consigli acted in a manner inconsistent with the idea of negotiation
which by its very nature implies some back and forth on both sides of the table. The AG also ruled that it was improper for
the City to change and reduce the scope of work post bid along with its
estimate for same and both it and its CM were bound to negotiate an acceptable
price based solely on the actual scope of work that was published and bid
on.
Finally,
because the statute itself refers to the “estimated cost of work” as the
benchmark for the negotiating process, the AG ruled that the estimate was in
fact the correct baseline for price negotiation and held that when Cogswell
informed the City and the CM that it was amenable to reducing its bid price to
the amount of the estimate contained in the contract documents ($714,000), the
City no longer had a right to negotiate and seek a lower price and Cogswell
should have been awarded the contract.
The
Forest Park Middle School bid protest decision tracks the language in the trade
contractor selection statute applicable to CM at Risk projects. It requires public agencies and their CM’s to
negotiate in good faith with the lowest prequalified bidder prior to putting
the scope of work out to bid to others and it establishes the contract estimate
as the “fair parameter” for the to-be negotiated price.
Hugh Gorman is chair of Prince Lobel Tye LLP’s
Construction Law Practice Group, which regularly represents owners, developers,
contractors, subcontractors and suppliers in all aspects of private and public
construction law. You can reach Hugh at 617 456 8093, or via email at hgorman@princelobel.com.