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New to construction contracting and interested to received advice/options for how to proceed in the following situation.

Context: Construction contract competitively awarded using FAR 13 and FAR 15 procedures; LPTA.  Awardee submitted the lowest priced quote, lower also than the IGE.  Prior to award, the KO asked the contractor to verify and confirm that his price was valid and that the firm (and subs) could deliver the requirements under the solicitation for a FFP.  The contractor held that his price was unchanged. The contract is awarded; everyone signs and everyone is happy.

After the pre-con and about a month before performance is to begin, the contractor emails explaining that he made a mistake and realized he quoted too low.  Long story short (through many emails and calls), we learn that the prime contractor relied upon the pricing of a subcontractor whose price was very low and, come to find out, based on a misunderstanding of the specifications. The prime did not do his due diligence to question the sub or review the specs; even though he admitted receiving two other much higher quotes from other potential subs.  After award, the subcontractor pulled out and increased his price to the prime. The prime at that moment realizes that his quote was based on a misunderstanding of the specs.  The prime now claims that our specs are flawed/ambiguous and he cannot perform at the quoted price; wants the Government to mod the contract to increase the price.

A T4D is being considered.  Also looking at FAR 14.407-4 “Mistakes After Award” for some kind of guidance, but it doesn’t really apply since this was not sealed bidding and not sure if what happened can truly be classified as a “mistake”.

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T4D is appropriate.  If the contractor has indicated that it cannot or will not perform, a T4D for abandonment is appropriate.

But first, read FAR 15.508.  You might learn that 14.407-4 has something to say after all.

Do you have a performance bond?

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#1 Fan of Guest Vern Edwards, can you explain how this contract was awarded...

 

34 minutes ago, #1 Fan of Guest Vern Edwards said:

using FAR 13 and FAR 15 procedures

What does that mean?

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53 minutes ago, #1 Fan of Guest Vern Edwards said:

The prime now claims that our specs are flawed/ambiguous and he cannot perform at the quoted price; wants the Government to mod the contract to increase the price.

Let's assume that the specs are ambiguous.  If they are, the question is whether the ambiguity was latent or patent.  If the latter, the contractor has a duty to inquire abut the specs before award.  If the contractor did not, the contractor accepts the risk of not being able to perform in accordance with the ambiguous specs.

On the other hand, if the ambiguity is latent, the risk is on the government.  In this case, the contractor is entitled to an equitable adjustment under a constructive change theory.

A misreading or misunderstanding of the specs does not create an ambiguity.  Instead, the specs must have at least two reasonable interpretations.  Thus, it seems that the first step is to determine if the specs are, in fact, ambiguous.  If they are not, the contractor is likely out of luck.

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1 hour ago, PepeTheFrog said:

#1 Fan of Guest Vern Edwards, can you explain how this contract was awarded...

 

What does that mean?

Awarded on the basis of LPTA with evaluation procedures in accordance with FAR 13.106-2 and 15.101-2. 

1 hour ago, ji20874 said:

Do you have a performance bond?

No, only a form of alternate payment protection.

1 hour ago, Retreadfed said:

If the latter, the contractor has a duty to inquire abut the specs before award. 

This I believe to be true.  Instead, the contractor is only just now asking all these questions after award and after his subk realized his mistake and upped his price.

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1 hour ago, ji20874 said:

But first, read FAR 15.508.  You might learn that 14.407-4 has something to say after all.

You're right!  Thanks.

Quote

FAR 15.508 - Discovery of Mistakes.Mistakes in a contractor’s proposal that are disclosed after award shall be processed substantially in accordance with the procedures for mistakes in bids at 14.407-4.

Is failing to do your due diligence as a prime contractor a "mistake" or simply negligence?

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Negligence, IMO   But regardless, is there any evidence of a mistake by the contractor?  Evidence of the intended bid?  I don’t think the contractor made a mistake, I think it was sloppy.  A subcontractor mistake is not a contractor mistake.  Realizing after award that costs will be higher than it planned is not a mistake — it is poor planning.  The allegation of a subcontractor mistake is not actionable under 14.407-4, and might just be an excuse to cover poor planning.

Do you have a next-in-line quoter ready to do the work?

Maybe your contractor will agree to a no-cost cancellation [rescinding the contract, FAR 14.407-4(b)(1)].  It will be gracious of you to raise this with the contractor.  If the contractor says no, insist on performance. If the contractor demurs, send a cure notice. If the contractor vacillates, T4D for abandonment or failure to make progress.  

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I think that the contractor’s only basis of action would be defective specs or a latent ambiguity. However, that doesn’t look like it has any merit because the contractor or it’s sub discovered, on its own, before starting work, that it misinterpreted the specs.  It now claims on its own that the correct requirement will cost more than it thought at the time. It seems that nobody in the government has indicated to them that their interpretation was wrong. They discovered it on their own. They apparently now know the requirement.

A mistake in bid often is associated with a math error or transposing numbers. There are rules and guidelines for establishing a mistake in bid. I don’t remember them all without researching and don’t feel like doing it tonight. That’s what agency legal assistance is for.  

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On ‎7‎/‎11‎/‎2019 at 2:49 PM, ji20874 said:

 I don’t think the contractor made a mistake, I think it was sloppy.  A subcontractor mistake is not a contractor mistake.  Realizing after award that costs will be higher than it planned is not a mistake — it is poor planning.  The allegation of a subcontractor mistake is not actionable under 14.407-4, and might just be an excuse to cover poor planning.

Do you have a next-in-line quoter ready to do the work?

I am an agreement with your statement jj2084.  Unfortunately, the next in line is considerably higher in price so it's looking like back to the drawing board.

23 hours ago, joel hoffman said:

A mistake in bid often is associated with a math error or transposing numbers.

Yes, when reading through GAO cases it appears that this is the case.  Typically it seems the contractor must show evidence that what they intended to bid was not what they actually bid; which is not the case in this scenario.

A follow-up question...understanding that performance of the contract never actually began (NTP issued but no mobilization), if a no cost cancellation is accepted by the contractor, is it possible/appropriate to document the poor planning and subcontract management of the contractor in PPIRS or something?  In order to properly caution other agencies?

Thank you all for your responses so far!

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You can T4D if the contractor indicates it will not perform the work.  But if the contractor will agree to a no-cost cancellation [rescinding the contract], you will be saved all the paperwork and headache of a T4D.  So maybe it is a fair trade?  If so, maybe you don't need to punish the contractor.  Your agency comptroller can launder the contract funds so that they can be used for the re-procurement since you're still in the same fiscal year.

Regarding the next-in-line:  Its price is considerably higher than the current contract, okay, but does it compare favorably with the government estimate and/or the other competition?  If so, awarding to the second-in-line, if it will extend the validity of its offer without making other changes, might make good sense.

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Deleted. 

Unilateral mistake by contractor. 

We don’t know all of the facts or details of acquisition process used. 

Edited by joel hoffman

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Here is my view from the contractor side. Does it matter if this contractor is still the low quote after the corrected upward adjustment amount? If there was a "non competitive" difference in dollars between this contractor's quote and the next lowest quote, should the government have also told this to the contractor in the details of asking for a verification of the quoted price?    

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There is a contract.  The Government asked the contractor to validate its price before award.  There is no evidence of a mistake.

If the contractor wants out, it should beg for a no-cost cancellation [rescinding the contract].  Allowing it to raise its price to cover its poor planning and poor estimating could be seen as unfair to the integrity of the process.

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I don't know if there is a contract. Did the government offer one and was it accepted in writing? Was work performed? Was there a mistake in fact about a material specification essential to the meaning of the contract? 

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Contract was awarded according to the OP. 

Not clear how “quote” was handled other than request to verify that contractor could perform for that price. 

No performance begun. 

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I suggest stepping this back a little and consider the following.

Noting @Neil Roberts recent post the OP has not stated what the solicitation rules were.  If in fact a true RFQ package absent FAR 52.212-1, FAR 52.214-7, or 52.215-1 then it would seem that FAR 13.004 applies.  I read nothing in the thread to indicate that the contractor has verified its acceptance of the offer from the government.   If the contractor has in writing then the route of T4D, TDC, no cost termination is appropriate but if the contractor has not you then go to the next standard,  whether the contractors actions have indicated acceptance through substantial performance.  If substantial performance has not occurred then again pursuant to FAR 13.004 the governments rightful actions are withdraw, cancel or amend the governments offer and a T for whatever is not available.   I would further offer that @ji20874 has provided thoughts about integrity of the process and if an offer acceptance has not been established it will be left to the government to make a decision on withdraw, cancel, or amend as to what is the governments best interest, not integrity.

I therefore would be very careful and engage legal counsel to make sure that the acceptance standard of the governments offer is present before I would attempt to T for whatever.

As to an adverse performance evaluation in CPARS two thoughts.   One is that it is indicated that SAP was used and therefore it appears that the need is less that $250K.   Further nothing had been provided to establish that a contract has been consummated.  If not a contract there is no avenue to CPARS, if a contract there is avenue but the government would have to, through CO discretion, allow for a CPARS evaluation as it would be a construction contract less than $700K.   

As an aside I do believe that a CPARS for a T'd contract for any reason is appropriate.

 

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14 hours ago, C Culham said:

I suggest stepping this back a little and consider the following.

Noting @Neil Roberts recent post the OP has not stated what the solicitation rules were.  If in fact a true RFQ package absent FAR 52.212-1, FAR 52.214-7, or 52.215-1 then it would seem that FAR 13.004 applies.  I read nothing in the thread to indicate that the contractor has verified its acceptance of the offer from the government.   If the contractor has in writing then the route of T4D, TDC, no cost termination is appropriate but if the contractor has not you then go to the next standard,  whether the contractors actions have indicated acceptance through substantial performance.  If substantial performance has not occurred then again pursuant to FAR 13.004 the governments rightful actions are withdraw, cancel or amend the governments offer and a T for whatever is not available.   I would further offer that @ji20874 has provided thoughts about integrity of the process and if an offer acceptance has not been established it will be left to the government to make a decision on withdraw, cancel, or amend as to what is the governments best interest, not integrity.

I therefore would be very careful and engage legal counsel to make sure that the acceptance standard of the governments offer is present before I would attempt to T for whatever.

As to an adverse performance evaluation in CPARS two thoughts.   One is that it is indicated that SAP was used and therefore it appears that the need is less that $250K.   Further nothing had been provided to establish that a contract has been consummated.  If not a contract there is no avenue to CPARS, if a contract there is avenue but the government would have to, through CO discretion, allow for a CPARS evaluation as it would be a construction contract less than $700K.   

As an aside I do believe that a CPARS for a T'd contract for any reason is appropriate.

 

Yes. I agree. With a “quote”, there might not be an actual contract to cancel or terminate. 

Also, regarding the follow up question, there would be no contract to record a contractor’s performance. Same situation, if a contract exists and is “cancelled”. 

And, since the OP hasn’t provided requested clarification, this thread may be a “test” using a simulated situation. 

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On ‎7‎/‎13‎/‎2019 at 9:49 AM, Neil Roberts said:

I don't know if there is a contract. Did the government offer one and was it accepted in writing? Was work performed? Was there a mistake in fact about a material specification essential to the meaning of the contract? 

Both parties signed the SF1442. No work was performed.  The "mistake" appears to have arose from patent ambiguity in the specifications (as the subcontractor brought it up to the prime without any Government knowledge or input).

On ‎7‎/‎13‎/‎2019 at 12:28 AM, ji20874 said:

You can T4D if the contractor indicates it will not perform the work.  But if the contractor will agree to a no-cost cancellation, you will be saved all the paperwork and headache of a T4D.  So maybe it is a fair trade?  If so, maybe you don't need to punish the contractor.  Your agency comptroller can launder the contract funds so that they can be used for the re-procurement since you're still in the same fiscal year.

Regarding the next-in-line:  Its price is considerably higher than the current contract, okay, but does it compare favorably with the government estimate and/or the other competition?  If so, awarding to the second-in-line, if it will extend the validity of its offer without making other changes, might make good sense.

The contractor refuses to perform the work at the agreed upon price.  I agree with you and others that the no-cost cancellation approach would be gracious and less painful for both parties.  Regarding the next in line: the price offered is considerably higher than the IGE.

On ‎7‎/‎13‎/‎2019 at 1:43 PM, C Culham said:

If in fact a true RFQ package absent FAR 52.212-1, FAR 52.214-7, or 52.215-1 then it would seem that FAR 13.004 applies. 

C Culham, I hadn't considered this before...performance hasn't begun, but would the submission of a payment bond, certificate of insurance, and construction schedule constitute a form of written acceptance? This contract was passed off to me just after award, so inquiring to see if any other written form of acceptance was received. 

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Roughly, as an order of magnitude, how much is the contract for? 

You didn’t mention Part 36. You mentioned Part 13. Was it 13.5? 

Is there a performance bond?

EDIT: Ok you said no. “Only an Alternative form of  payment protection”. Yet you said it provided a “payment bond”.  Normally, those are sold together for the same premium. I wasn’t aware that one can purchase a payment bond separately. 

If yes, did the contractor request payment and did the government reimburse the contractor for the bond premium ?  

While noted that the quote is less than the IGE, is the quote relatively comparable with the government estimate? 

Edited by joel hoffman

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@joel hoffman the magnitude of construction was between $100,000 and $250,000.

Yes, I should have mentioned Part 36, this is for construction work procured using SAP - other than commercial.

No performance bond was required, only an alternative form of payment protection (payment bond submitted).

The awardee's quote was considerably less than the government estimate and the responsive next in line quote is considerably higher than the government estimate.

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14 minutes ago, #1 Fan of Guest Vern Edwards said:

@joel hoffman the magnitude of construction was between $100,000 and $250,000.

Yes, I should have mentioned Part 36, this is for construction work procured using SAP - other than commercial.

No performance bond was required, only an alternative form of payment protection (payment bond submitted).

The awardee's quote was considerably less than the government estimate and the responsive next in line quote is considerably higher than the government estimate.

Ok, so must be less than $150k which is the current threshold for performance bond. You don’t have any bonding to guarantee performance. 

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1 hour ago, #1 Fan of Guest Vern Edwards said:

The "mistake" appears to have arose from patent ambiguity in the specifications (as the subcontractor brought it up to the prime without any Government knowledge or input).

Government knowledge or input is not a part of the test for determining if a latent or patent defect in specs exists.  The test is whether a reasonably prudent contractor would have discovered the defect prior to contract award?  This question is a fact specific one and depends on a lot of factors such as the materiality of the defect, and the time allowed for examination of the specifications.  Latent defects typically are not discovered until after contract award when the contractor has more time to examine the specs.

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Oh the dribbling facts along with assumptions........

 

SF 1442 used - While quote and LPTA have also been described I am going guess that if the matter went to litigation the solicitation would be considered to be a request for offers and not quotes as bet the RFP block of the 1442 was checked and the contractor signed the 1442 at the offer stage.   Going to also guess 52.215-1 was in the solicitation.  All this has me conclude that the government received a firm offer which the government has accepted by making award.

On this basis the Ts and no cost are the avenues available.  That is if ambiguity as @Retreadfed has advised is not existent. 

Performance bond if held would be leverage and assist on the T4D side but since nonexistant the options are back to the Ts and no cost (and ambiguity?).

While I imagine the assist provided in this thread has been helpful in figuring out angles I highly recommend an internal agency discussion inclusive of legal counsel to chart a strategy that is in the best interest of the government and that can solve this matter at the level of the CO.

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20 hours ago, C Culham said:

Oh the dribbling facts along with assumptions........

 

SF 1442 used - While quote and LPTA have also been described I am going guess that if the matter went to litigation the solicitation would be considered to be a request for offers and not quotes as bet the RFP block of the 1442 was checked and the contractor signed the 1442 at the offer stage.   Going to also guess 52.215-1 was in the solicitation.  All this has me conclude that the government received a firm offer which the government has accepted by making award.

On this basis the Ts and no cost are the avenues available.  That is if ambiguity as @Retreadfed has advised is not existent. 

Performance bond if held would be leverage and assist on the T4D side but since nonexistant the options are back to the Ts and no cost (and ambiguity?).

While I imagine the assist provided in this thread has been helpful in figuring out angles I highly recommend an internal agency discussion inclusive of legal counsel to chart a strategy that is in the best interest of the government and that can solve this matter at the level of the CO.

Agree. Specific facts and all the details are necessary, which we don’t have. 

If the OP is in an organization that does construction contracting, there should be counsel available to advise the KO. Since the OP used the term “pre-con” for the “post award” (FAR term) conference, I’m guessing that it is, in fact, an agency performing construction contracting. 

With the little info we have nd due to the small size of the project, i would look for a no cost cancellation and start over. 

Look at your requirements to make sure they are clear. For construction, if your estimate is over the Miller Act threshold, require both performance and payment bonds. The cost is generally the same for a payment bond or for both performance and payment.

You might want to be a more specific in communicating with a proposer, quoter, whatever,  about verifying their price when it looks to be too low. Sure, they can decide to take a job at no profit or even a loss but EVERY time there was a huge difference between a low bid and the rest of the field as well as the IGE, it came back to bite us and the contractor when Contracting awarded it at a whopping, unrealistically low price. 

Thats a danger with LPTA. 

EDITED:  If your office thinks that  obtaining guotes for small construction acquisitions is a simpler process, then  tailor your solicitation so that both industry and the government know what the legal effect is and what to do with a quote. I think that there needs to be a simple process available to clarify or to bargain with industry if necessary to get it right (mutual understanding) before entering into a contract for a small project. 

In this case,  it wouldn’t be worth the effort and time to TFD and try to hold the contractor responsible for excess reprocurement costs. You do have some leverage to get the firm to agree to a cancellation or no cost TFC. 

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