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Should you File a Bid Protest?

Should you File a Bid Protest?
Pat Dickson - Sun Apr 01, 2012 @ 10:56PM
Comments: 0
You just attended a bid opening for a public works job that was going to save the next quarter. You knew you were going to win it because no one could have priced the job lower. You had all the best prices for materials from the vendors. The labor rates were fixed because prevailing wage had to be paid on the job. Transportation was going to be cheap because no other contractor on the bid list was as close to the work site as you were, and you went in at a historically low margin of 10%. You lost.

You came in second at $300,000 and the winning bidder bid only $120,000. All twelve other bidders were north of $400,000. What do you do? Should you consider filing a bid protest? The unfortunate answer is you never know. You have to look at all the pieces you can and make a sound business judgment. Below I discuss several things to consider, but this is not a conclusive list, and I will add to it over time. Also, I am taking a business approach to this issue, not a legal one.

Is this Bid Loss a Blessing?: It isn't always easy to accept defeat, and usually losing isn't a good thing in the sporting world, but this is the contracting world. Maybe a 10% margin was a bit too skinny? Go back and look at your pricing details. Were you missing anything? Have any of your material prices gone up unexpectedly? Have there been any recent increases to the prevailing wage rates you didn't anticipate? Has there been a change in your labor force that could affect how well you might perform on the job? Is the weather going to be a bit more inclement than you'd anticipated? Did any of your vendors or subcontractors back out? Have you lost the project manager who was ideal for the job? Don't forget your opportunity cost, which means look at all the alternatives to performing this work. Look at all of your ongoing projects. Has this loss given you the opportunity to put more resources towards an ongoing project that's been a thorn in your side? Also, do you have any ongoing projects with incentives for early completion?

For instance, if you have a $35,000 incentive for completing one of your other projects early and allocating the resources from this lost project offers a good chance of capturing this incentive, isn't walking away from this loss with a happy heart the right thing to do? Don't forget to look for other opportunities to bid or solicit that might yield you a greater margin via the resources you'd planned allocating towards this lost opportunity. Because defeat is sometimes a good thing, the first thing I do is look at the bid documents to see how much time I have to file a protest. If time is adequate, say one week, I usually recommend sleeping a few nights on the decision of whether to seriously consider protesting or not. 

Call the Other Bidders: Unless legally prohibited by the bid documents or applicable law, and depending on your relationship with all the other contractors on the bid list, including the lowest bidder, it can never hurt to pick up the phone and start asking around. What does everyone else think and what position are they taking? It may be the case the third lowest bidder is already filing his own protest, and he is going after the lowest bidder and you! He may have no qualms about telling you his intent and why he believes you should be thrown out. In this case, all you have to do is begin taking action to defend yourself as well as helping your opponent build his case against the lowest bidder.

For all you know, the lowest bidder will be thrown out and you'll prevail in your defense, all while the third lowest bidder gets to look like the bad guy. Also, calling the lowest bidder might not hurt, especially if you have a cordial relationship. Congratulate him and see if he tells you anything. Maybe he left a really big peice out of his bid and would love it if you filed a protest that got him kicked out of first place?

Also, don't forget the customer relations angle. In many cases one contractor is another contractor's customer. This is called subcontracting. If 30% of your work over the last 10 years has been subcontracting for this lowest bidder, you may seriously want to consider accepting your loss because winning this fight might score you points on this single project, but the long term effect is a 30% loss of revenue over the next several years.

Call the Owner/Bid Agent: Unless legally prohibited by the bid documents or applicable law, give the Owner/Bid Agent a call and ask him for his take on the bid results. For all you know, he's already talked to the lowest bidder and discovered there was confusion in the project specifications, or a multitude of other possible issues, and he's decided to throw out the entire bid, redo the specs, and rebid. You may learn the lowest bidder already asked to be thrown out and the Owner/Bid Agent agreed. Your Award Letter is already in the mail. Having your Bid Protest and the Owner's Award cross paths in the mail could make you look silly or over zealous.

Contractors Owners believe are overzealous are often less likely to receive a light handed approach throughout the project. The Owner is cautious to make you follow each and every project spec and requirement and to have your paperwork in perfect order. After all, you are the kind of guy that jumps straight into formal disputes or litigation. This brings up another point.

In most cases, the bid protest period begins upon Notice of Award, but not always. Sometimes, the protest period starts with the bid opening, which means there are cases when protests must be made based on the bids read at the bid opening, not based on the Owner's formal Notice of Award. Just remember, being a good guy is sometimes beneficial. Talk to everyone involved. Don't just start a fight without finding out who is friend and who is foe.

I've had cases where the Owner asked me to file a protest and to refrain from filing a protest. In fact, one time the Bid Agent asked me not to file a protest over an obviously eggregious error because it would bring to light a serious error he had made. He might get fired. We still had two weeks to file the protest, so I decided to wait a week and see what happened. Next thing I know, the job was being rebid. We won and ended up completing the work at an unusually high margin, and the Bid Agent was our friend and ally throughout the project.

Balance the Cost/Benefit of Protesting: Do you want to stir up a hornet's nest when your chances of winning a protest are next to none? Probably not. From experience, what I discussed above, especially in connection with opening all communication with the parties, you usually have a good idea whether your protest will be welcome or effective for getting the lowest bidder thrown out or the job rebid before you get into any of the legal detail in the first place.

However, with this said, should you decide to start building your case, start by reading the bid documents and all the laws, rules and regulations for filing a protest. How long will the process take? How long will the start of work be delayed by starting the hearing process? What are the acceptable grounds for getting a bidder thrown out? How much discretion does the Owner/Bidder's Agent have to waive any irregularities or errors?

Generally, I've seen the following issues result in a bidder being thrown out of a bid, but not always: failure to submit a bid bond, lack of a contractor's license, failure to list minority subcontractors or prove a good faith attempt to include them, failure to notify labor unions of the bid submittal or intent to bid, failure to include drawings or product specifications as required by the bid documents. Sometimes, but not always, an impossibly low bid is thrown out because it is considered "irresponsible." However, a lot of Owners don't care if a contractor will lose money. They are coming in under budget and are delighted.

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