Fraud in a bidding process for a Construction Contract
February 22, 2017 7:49 PM   Subscribe

Our community centre is doing extensive renovations. We are going to hire a General Contractor via a bid process. We asked companies to submit material for a Pre-Qualifying round. Twenty companies submitted their materials and we are now winnowing the list from 20 down to six. We will then ask the six finalists to bid. We have not decided on the six yet. The problem is one of the prospective companies is being sued by a reputable client for fraud.

The fraud lawsuit is serious (i.e. it doesn't look like a frivolous action. The plaintiff is a large metropolitan hospital).

We are evaluating the materials for all the pre-qualifiers using a scoring system. I discovered the case of fraud through my own searching of public records. The company in question did not disclose this information in their submitted materials. My question is: Can we use the fact that they are being sued for fraud as a reason to disqualify them from being on the qualified final list of six? Or is it required that I only use the materials that each Company and apply the scoring system blindly to make that decision? I would like to be fair and transparent but at the same time we want to protect ourselves from malfeasance or contract failure.
posted by storybored to Work & Money (15 answers total) 1 user marked this as a favorite
Lawyer. Only a lawyer, your lawyer, is going to be able to answer this correctly.
posted by jferg at 8:03 PM on February 22, 2017

My first thought is that they are innocent until proven guilty.

To make an analogy to criminal law ... Just because you have been arrested, doesn't mean you have been convicted, much less even charged.

But I think your question is more about if you CAN legally use this information.
posted by intermod at 8:19 PM on February 22, 2017

In my jurisdiction requests for tender require bidders to disclose whether they are subject to any current legal action. If your documentation includes this clause, and they did not disclose, then they've submitted a non-conformant bid and you can ignore it.

So you could do that, or you could ask for legal advice, or you can do what most people would do (which isn't what I would do) and find some other reason to put them in the bottom 14 and not the top six. With a large field and a tight shortlist this wouldn't be difficult.
posted by obiwanwasabi at 8:29 PM on February 22, 2017 [8 favorites]

By soliciting bids from pre-qualified parties, you've created a contract between yourself and the other parties. You must treat all parties equally, or you risk being sued. You may not even be able to use this information. Only your lawyer can help.

Fraud is depressingly common in construction, though. A certain large power plant company had to halt sales for a few weeks as punishment for some ludicrous fraud and bid-padding in their home company. I was a consultant to a giant multinational whose CEO was euphemistically described as "an honoured guest of the government" while I worked for them, due to the multinational having paid no tax for several years.
posted by scruss at 8:38 PM on February 22, 2017 [1 favorite]

It depends on the language in your Request for Proposal / Solicitation for Bids, among other things. You should send that language to an attorney and do what they say.
posted by misterbrandt at 8:47 PM on February 22, 2017 [1 favorite]

By soliciting bids from pre-qualified parties, you've created a contract between yourself and the other parties.

A contract? Isn't it just an invitation to treat?
posted by obiwanwasabi at 9:13 PM on February 22, 2017 [3 favorites]

Echoing obiwanwasabi. I draft similar documents and we also ensure that bidders disclose. Check the language in your RFP/EOI documents. If you used a template it may have been included in the fine print.
posted by nathaole at 9:55 PM on February 22, 2017 [2 favorites]

If your RFP doesn't include such a requirement, replace the attorney responsible with a better one tout suite. It is such an utterly, utterly basic item to include that anyone who did not do so did not do their job.
posted by praemunire at 10:11 PM on February 22, 2017 [7 favorites]

My first thought is that they are innocent until proven guilty.

True, but this information is relevant to any risk analysis re awarding the contract to this bidder.
posted by russm at 10:42 PM on February 22, 2017

A contract? Isn't it just an invitation to treat?

In Canada, a formal tendering process is generally treated as a contract between the purchaser and all the compliant bidders to adhere very strictly to the terms set out in the tendering documents. Rejecting a bid for reasons not listed in the terms of tender might be considered to violate the Duty of Fairness owed to bidders.
posted by jacquilynne at 10:57 PM on February 22, 2017 [6 favorites]

The Contract A/B paradigm is fascinating - thanks!
posted by obiwanwasabi at 11:17 PM on February 22, 2017

It is correct that you essentially form a contract between offerors and the requestor. But unless the rfp specifically outlines the precise process of selecting 6 finalists you can usually use any reasons you choose for what constitutes "qualified". Only someone who has read your contract/rfp language and has knowledge of how contract law works can really answet this. It does not HAVE to be a lawyer but that would be safest.

Its also worth noting that you dont say if the knowledge of the lawsuit is personal knowledge or official on the record knowledge.... that may be a tool you can use as well.
posted by chasles at 4:47 AM on February 23, 2017

IAAL, IANYL, and I am definitely not your procurement/construction specialist lwyer. Only an attorney in your jurisdiction familiar with procurement law, as well as your bid package, can really answer this question.

(In my jurisdiction, bid packages routinely have both lawsuit disclosure requirements and NO CONTRACT IS FORMED UNTIL WE ENTER INTO A FINAL FORM OF AGREEMENT AUBMISSION OF A BID DOES NOT CREATE A CONTRACT language. Sometimes, the latter appears in all caps. It is also common to have language that failure to disclose material facts results in a DQ and possible DQ from ever bidding on anything again. The degree to which all of this language is enforceable depends on things like the facts on the ground, the language of the bid package, the governing law, the source of funds which sometimes impose restrictions, etc etc.

But yeah, as you're getting in this thread, there are significant differences in law between jurisdictions on this, and the facts you bring up suggest that you and the center would benefit from having an appropriate lawyer on call exactly for issues like this.)
posted by joyceanmachine at 5:55 AM on February 23, 2017 [1 favorite]

Long time federal procurement type here. Our counsel would ask 'what does the RFP say?' Were they required to disclose or no? We're required to search a list of suspended and debarred contractor before making award, we might have found it at that stage. We'd never award to them, we'd go to the next low. It also depends on what your scoring system says, some sort of best value calculation that accounts for price and other factors. Not disclosing pending litigation would be sufficient to throw them out of any procurement that I've been involved in provided that it was required by the RFP.
posted by fixedgear at 6:02 AM on February 23, 2017

First, in my jurisdiction, there is a difference between a bid process and an RFP. With bids, we are required to accept the lowest qualified bidder. Qualified being the operable word. With an rfp, we are not required to accept the lowest proposal, only the one that best suits our needs and that of our constituents.

Second, not sure why you are winnowing the list down from 20 to 6. Wouldn't 20 bids be better than 6? The qualifying could be done when reviewing the submitted bids.

Third, I agree with the consensus above that you need an attorney to advise you on much of this process. You did research on your own and now you are making assumptions based on that research. You assume it is not a frivolous lawsuit presumably because it is a large hospital. That may or may not be a good assumption. Do you know if the lawsuit is proceeding, has been withdrawn or settled? Have you checked the other 19 firms? I don't know about in your jurisdiction, but here in the metro NYC area, it would be rare to find a large construction firm without any lawsuits ever filed against it.

I was at a municipal bid opening on Tuesday. 6 of the 8 bidders were present and writing down the numbers for all the bidders. Part of that was to see if they would get the job, the other part was to make sure we complied with state and local laws wrt the bidding process. My point is that sometimes you cannot afford to not pay for quality advice. Have the community centre's lawyers look over the process. If you do not and you make a mistake, even a small one, it could cost you lots of time and money and delays to the project while you defend your own lawsuit against the Centre and the process.
posted by AugustWest at 6:32 AM on February 23, 2017 [3 favorites]

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