This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its August 2003 decision in Granite Construction Company of California v. Department of Transportation, the Florida Division of Administrative Hearings upheld a contract award to a low bidder, notwithstanding discrepancies in that bidder’s project volume estimates. The case dealt with a tendering process for a construction contract to widen three miles of Interstate 4 in Hillsborough County, Florida. The pre-bid cost estimate for the federally funded project was $148.5 million, which included an optional noise wall component. The low bid was $149,898,506.15 and the next lowest bid came in a close second at $149,959,420.22.
During the pre-bid question-and-answer process, it became apparent that the Department of Transportation had underestimated the volume of work required for the optional noise wall, which was around two and half times the 1,453 m2 shown in the bid documents. While it could have corrected this inaccuracy by way of addendum, the Court explained that the Department chose not to do so:
According to Juanita Moore, the Department’s contract administrator in Tallahassee for the Project, it would have only taken “a few hours” to do an addendum to change the estimated quantity for the noise wall under such circumstances. The decision not to issue an addendum to correct the estimated quantity for the noise wall was made by Ms. Driskell alone. She based her decision on a number of factors, including the fact that the noise wall was a stand-alone item that was not structurally related to the remainder of the Project and that it might be deleted from the Project; the fact that the noise wall was not a “major item of work;” her estimate that the projected cost overrun would be less than $1,000,000, which is less than one percent of the total contract price; and her concern that the plans would need to be revised or that it would take too long to get an addendum approved.
As the Court noted, in hindsight, this proved to be the wrong decision since the price difference between the bids came within the margin of error created by the incorrect volume estimate:
In hindsight, Ms. Driskell clearly made the wrong decision by not changing the estimated quantity for the noise wall because her concerns about the time it would take for an addendum and need for revisions to the plans were unfounded, she underestimated cost overrun that the error would cause by approximately $500,000, and it turned out that the ultimate award of the contract hinges on that pay item. Nevertheless, Ms. Driskell’s decision not to seek an addendum to correct the estimated quantity for the noise wall was not arbitrary or illogical at the time that it was made.
The Court ultimately determined that the low bid was not materially unbalanced and was therefore capable of acceptance. The Court also found that the second lowest bidder knew that it should bid based on the underestimate in the official bid document, rather than on the accurate volume estimate. The legal challenge was therefore dismissed.
While the resulting lawsuit against the Department was ultimately unsuccessful, this case illustrates the potential unfairness that can arise when bidders are submitting their pricing based on different volume assumptions. Purchasing institutions that rely on inaccurate volume estimates in their solicitation documents do so at their peril since, in the right circumstances, this can undermine the validity of a contract award. Furthermore, even in situations where legal challenges are unsuccessful, winning a lawsuit is no substitute for avoiding a lawsuit in the first place.
