Three Pitfalls in Public Contracting

10.16.2014

Contractors who do business with public entities often encounter unexpected bid and contract obligations. The process continues to change and new developments demand special consideration. This article discusses three of these issues: ambiguity in bid documents, scope creep, and notice of claims.

Ambiguity in Bid Documents

Plans and drawings routinely contain discrepancies, conflicts or ambiguities. If the parties dispute the scope of work after the bid, the court will assign to one party the damages arising from the ambiguity.

Traditionally, courts have construed ambiguities in the bid documents against the drafter and in favor of the bidder. In these cases, the court may relieve a bidding contractor of an error in the bid, grant an increase in the contract sum or time, or release the contractor from certain liability.

However, decisions in recent federal cases shift the consequences of certain ambiguities to contractors.

These courts first determine whether ambiguities in bid documents are "patent" or "latent." Patent ambiguities are those that the parties can see simply by looking at the bid documents. Latent ambiguities are those that only become apparent as construction commences. Certain courts of federal claims are holding that the burden is on contractors to inquire about patent ambiguities – if they do not, the courts interpret the ambiguity against the contractors. Certain state courts are following suit.

Regardless of the legal principles governing contract interpretation, many public entities are now incorporating these principles into their bid documents. Bidding contractors should be aware of provisions that obligate the bidders to notify owners of any ambiguities or conflicts in the bid documents, or else bear the risk of these ambiguities.

These provisions incorporating a duty to inquire are generally enforceable and can effectively bar contractors from disputing even badly drafted specifications or drawings.

Scope Creep

Even with well-planned projects, changes are routine. Public contracts have certain pitfalls in this process.

A March 2014 construction case out of the Fourth Circuit highlighted one of these pitfalls. In Carnell Construction v. Danville RHA, the Fourth Circuit interpreted a Virginia statute that required certain approvals to contract modifications. The Virginia statute required approval by the Governor or his designee for any increase to the contract sum in excess of 25 percent. The contractor alleged that the county directed it to perform extra-contractual work that exceeded 25 percent of the contract sum. The Court ruled that the contractor could only recover up to 25 percent of the contract sum because no approval of payment had been granted.

This decision can be interpreted to limit all claims on public contracts to 25 percent of the contract sum. This can lead to an unfair result where a public entity can direct a contractor to perform significant disputed work without paying the full price for this work. When directed to perform substantial disputed work, the contractor faces the decision to perform the work for a maximum of 25 percent of the contract sum, or to refuse to perform the work and face a material breach of contract.

Until this statute is clarified or changed, contractors must consider carefully the scope, whether changes may be required, and whether the public entity is able to obtain proper approvals.

Notice of Claims

Compliance with statutory and contractual claims procedures is the primary reason contractors fail to recover on their claims. In some projects, code and contractual provisions provide overlapping requirements for the timeliness, content, and manner of the required notice of claims. If the notice is not sent at the right times, with the right information, to the right person, through the right delivery system, a contractual claim may be waived. Furthermore, if an appeal of the claim or suit to enforce that claim is not timely filed, the claim can be waived. With any public contract claim, brief initial consultation with an attorney can pay huge dividends later in the project with the confidence that a claim is proceeding in the right direction.