Should a General Contractor Tell a Sub that its Bid is Too Low?

Should a General Contractor Tell a Sub that its Bid is Too Low?

A recent article by my pal, and occasional guest poster, Craig Martin (@craigmartin_jd) asks the question: “Does a General Contractor Have to Tell a Subcontractor that its Bid is Too Low?” In his great post on a recent Nebraska decision, [enhanced version available to lexis.com subscribers], concludes that the answer is no, so long as the subcontractor had all of the facts necessary to properly bid a job. As a construction attorney that represents all levels of the construction “food chain” and that works in the Commonwealth of Virginia where the contract is king, I see the logic and legal reasoning behind such a decision. Frankly, from a legal perspective, and absent some sort of “hiding the ball” it should be up to a subcontractor (or general contractor for that matter) to properly investigate and bid the job.

That’s the legal part of this. However, there is a second question: “Should a general contractor tell a subcontractor that its bid is too low?” This and its corollary: “Should a general contractor accept a bid it knows to be too low?” are practical questions that when answered incorrectly can cause serious headaches on a job site for everyone involved.

Even the clearest of contracts and the plainest of specifications and plans (all necessary items for a smooth project) do not always result in accurate bidding. Humans are involved in this process and therefore Murphy’s Law will often apply. Subcontractors will at times either miss something that is part of the specified scope of work or try to squeeze a margin or two to get a job. This can result in everything from a properly low bid to one that is so low that the general contractor or owner will know the job cannot be done for the amount bid.

It is this second category of bid that I am discussing here and that will likely cause problems, cost overruns and possibly litigation down the road as the construction project progresses. Even where a subcontractor signs a contract for the amount bid, it will inevitably be forced to either seek more money through change orders or possibly walk from the job to avoid further losses if the underbid is too great. Either of these results cause at best additional headaches and paperwork and at worst the need to supplement or replace the subcontractor’s work at a premium followed by back charges to the sub and calls to a lawyer to try and recoup the losses.

This is where the answer to the practical questions posed above come in. If you, as an owner or a general contractor, know that the GC or subcontractor has grossly underbid the job and that it has clearly missed something, you need to decide if the risk of accepting this low bid and suffering the possible consequences outweighs a phone call or e-mail to either decline the bid or simply point out the possible missed items.

A conversation with the subcontractor will also let you know (particularly where it’s a subcontractor that you haven’t worked with before) if that sub is one that you want on your project. In other words, is the underbid due to a lack of professionalism or a one time mistake? If the former, take the chance to avoid the problem. Absent a state rule requiring a GC to accept the lowest subcontractor bids, you can decline to work with that subcontractor. If the latter, you may be able to head off issues like those listed above through cooperation.

In short (yes, I know it’s too late), while a contract for a fixed sum is legally enforceable and it may look like a windfall when a subcontractor grossly underbids a job, from a practical perspective, dealing with the issue of such a bid on the front end can save time, headaches and attorney fees that will eat into your bottom line.

As always, I welcome your comments. Please subscribe to keep up with this and other Construction Law Musings.

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