The Claims-Free Architect

Why An Architect Playing Favourites Landed Himself In Hot Water

• Season 3 • Episode 3

Share episode

What happens when a bidding process is unfair, and the lowest bidder doesn't get the job?

Being fair and transparent in the bidding process is crucial because choosing favorites or making changes at the last minute can lead to serious trouble. Even if you think you're helping, it might cause others to feel cheated and lead to lawsuits. In the end, what seems like a small decision can create big, expensive problems.

Connect with Pro-Demnity:

Thank you for listening.

In a conventional “Design–Bid–Build” project, the Design phase and the Build phase account for the lion’s share of the Architect’s work—and the architectural fees—by far. The Bid phase that connects “Design” and “Build” may appear to have little significance. But when it is mismanaged or misunderstood, its importance becomes apparent, with financial and reputational consequences.

In this story, an Architect and his client are accused of bid mishandling, when a contract is awarded to the highest bidder. The lowest bidder files a claim, alleging that the sanctity of the bidding process has been violated. We call this story “Bidding Bungle.”

WD&M of Canada is a business organization with a large membership of influential companies. As a monument to their industry, and to their own high ideals, the organization had decided to build new headquarters. To realize their aspirations in “iconic” form, they commissioned Pickens & Chu Architects.

The design and documentation went without a hitch, tender documents were prepared, and six contractors were invited to bid the job.

The award went to the highest bidder. The lowest bidder sued.

Most tender documents include a “privilege” clause, which states: “The owner is not obligated to accept the lowest or any bid.” This may seem a little off-hand—even unfair—rejecting any or all bids on a whim—especially given the amount of effort that bidders expend preparing a complicated bid and carving the costs down to the bone. Also, there is substantial case law in Canada that challenges the very validity of this clause. Do Owners and their Architects deserve to have this privilege, when it might cast doubt on the fairness of the process?

Business dealings that are unfair—or appear to be unfair—can often generate animosity at a personal level, and the lowest bidder, ACME Contracting, was incensed—a fact that was reflected in the language of the Notice of Claim. As soon as Pro-Demnity received it, the Claims Specialist thought it wise to interview the Architects as soon as possible.

Graham Pickens, the Project Architect, explained that, of the six invited bidders, only three submitted tenders were considered compliant. He had presented those three tenders to his Clients WD&M, and their lawyer, while the estimators of the three bidders waited for the results in an adjacent room. After careful analysis, Pickens concluded that ACME Builders had submitted the lowest bid. WD&M accepted this conclusion and announced the bid amounts to the three estimators, declaring ACME as the successful bidder.

The process might have ended there; however, Pickens initiated a discussion among all those present regarding suggested alternatives. He proposed that the three bidders come back in five days with separate estimates for the changes.

Pickens recalled that there had been no objection to this proposal at the time. The Owners saw an opportunity to get the prices whittled down a bit, and two of the estimators saw it as a chance to manoeuvre their bid into a winning position. Surprisingly, the third estimator, representing ACME, seemed happy to conform to the plan, possibly believing that ACME’s winning position was secure, or perhaps failing to believe that the other bidders would use this opportunity to manipulate the process to their advantage.

In any case, five days later, when the alternative quotes were submitted and the totals were recalculated, the initial lowest bidder, ACME, moved to second place, and the original highest bidder, Universal Mega Corp., moved into position as the lowest bidder. The job was awarded to Universal Mega Corp.

This raises a thorny issue. There are conflicting views regarding how to deal with the price of alternatives in evaluating bids. In one method, only the base price is used in determining the lowest bid. Any alternatives or changes are negotiated with the winning bidder, after the contract has been awarded. A second method considers both the base bid and the alternatives, when determining the tender amount, before the contract is awarded. This may seem more effective, but under certain circumstances, it can lead to a “manipulation” of the process. For this reason, the first method is normally recommended as the most transparent, hence the fairest.

In this case, for example, the two losing bidders were made aware of what price they had to beat when the original verdict was announced. They were then given an entire business week to win back the project by trimming their price through possibly undervaluing their alternatives. The bidders were never informed what alternatives were accepted and at what price.

ACME, in filing their claim, took the first position: that the “low bid,” which should be the basis for awarding a job, refers to the lowest quotation, before any negotiation of alternative prices. The low bidder should only be excluded if, prior to the submission, substantial doubts arise regarding their ability to perform. So, despite their previous agreement to the resubmission plan, ACME - now sadder but wiser - was declaring the whole process corrupt.

And they may have had a legitimate gripe. By most standards, ACME, as the lowest Bidder, should have been awarded the contract, or at least, given the chance to negotiate any savings or alternatives contemplated by the owners. Instead, they had lost the opportunity to do the work, along with their investment in the bid process, and any profit potential from the project.

But ACME wanted more. They had been treated unfairly and needed to make a point. They were seeking punitive damages to compensate for “unconscionable favoritism” in the awarding of the bid to a “friend of the architect,” not to mention the various corporate insults that had been offered as reasons for not awarding them the contract—despite their legitimate low bid.

The winning bidder Universal Mega Corp had little to say, except that they were blameless. 

The Claims Specialist had to ask himself: How credible was the Architect’s story? Would a low bidder willingly agree to such a bid re-submission process knowing that it might cost them the job? Would a court believe that it was all entirely above board? 

The story became even stickier when the Architect admitted that he was the one who had decided which alternatives to use in calculating the final price. He had neglected to point out to the Owners that by choosing clay tile here, concrete block there, this finish in the conference rooms instead of that one, he could probably have given the low position to any of the three - not forgetting that “the owner is not obligated to accept the lowest or any bid.”

It also wasn’t helpful that the Client WD&M was greatly relieved by the decision because Universal was a large company, well known to their members, while ACME was a small operation that had, it was rumoured, an iffy reputation. Universal was a more convenient choice, and probably their preferred bidder all along. Universal’s lower bid was the justification they needed. But had the “sanctity” of the bid process been compromised along the way? 

Our proposed defence of the claim absorbed another blow when Pickens admitted to having been an employee of Universal Mega Corp and an occasional consultant, as well as a personal friend of the local manager. Universal had even worked with him as cost consultants on the design of this project. 

The Architect saw no problem with any of this. He was innocent despite the evidence. He had acted honestly, without favouritism and had consulted with his Clients and their lawyer at every opportunity. He was certain that they would stand by him and vouch for his integrity.

When the interview ended, Pro-Demnity counsel agreed to contact WD&M counsel and obtain a deposition that the Architect was merely carrying out the wishes of his Client and had relied upon legal advice offered by their lawyer.It came as no surprise to the Claims Specialist when he received a distraught call from the Architect a few days later. Pickens reported that he had called each of the half-dozen WD&M committee members present at the bid opening. They all remembered that they had “relied upon his advice,” but had no clear recollection of anything else that went on. The call to the Client’s legal counsel was equally disheartening.

Had the Architect dreamed his story up? Probably not. But credibility was becoming an issue. Our defence of the Architect was going to be tricky. Did we even have a legal leg to stand on?

First there was the issue of the right to reject or accept bids at will. There is case law that seems to throw this hallowed concept into doubt. Then there was the “allowance” question: Should they be factored into the lowest price decision, or should the contract be awarded to the lowest base bid, with the alternatives negotiated later? In either case, Owners would appear to have the right to reject any item in favour of another, on a mere whim, like a shopper in a retail mall. 

And we couldn’t overlook the obvious pall of favouritism that hung over the entire process. What would happen if the evidence led to a reasonable conclusion that the contract award was a “fix” between Pickens and his pal the Contractor? ACME wanted punitive damages, and they might be awarded—but Pro-Demnity policies don’t cover such things. Furthermore, criminal charges could follow, if the matter were brought to the attention of the Crown Prosecutor.

It looked to us like an unappetizing defence position—one from which we could not come out a winner. If the trial judge agreed with the plaintiff, we could imagine a future professional landscape consisting of endless bad faith claims where bids were alleged to have been rigged. At the same time, our position was at odds with our own best interests. By defending the indefensible, we might be eroding the profession, as well as the entire construction industry. The bidding system only works if it is seen to be more-or-less fair, otherwise contractors won’t be prepared to gamble away the considerable costs of putting a bid together. 

A no-win situation stared us in the face. Ultimately, we would have to pay the freight.

When we pointed these serious issues out to the Architect - and it was not an easy conversation to have - he was deflated and angry. But he reluctantly succumbed to the reality of the situation. He still claimed total innocence, but he saw that the preponderance of evidence pointed towards liability. He agreed to do whatever Pro-Demnity recommended, as long as it got him out from under.

Through patient negotiation, Pro-Demnity counsel was able to avoid court and placate the Plaintiff with a very modest payment: the cost of the bid, legal fees reimbursed, and a little extra for face-saving - no loss of profits, punitive damages or pre-judgement interest—just enough to constitute a moral victory for ACME, with out-of-pocket going back into-pocket. 

Architects are excellent rationalizers. It’s part of the job, and it’s an important positive quality. But sometimes, the belief that one is doing something for the worthiest purpose can cloud judgment rather than clarifying it. With this in mind, there are two useful lessons to be gleaned from this story.

Lesson No. 1: In this story, the Architect, hoping to achieve the most favourable outcome, had failed to see the situation as others might see it: The architect was a friend of the initial high bidder and managed to reorganize things in such a way that his friend got the job. This perception may be far from true, but in the tendering process, any hint of favouritism is to be avoided at all costs.

Lesson No. 2: Fairness is important, but it’s sometimes more important to be more than fair. Lawyers use the phrase “Contra Proferentem,” which, as any lawyer will be happy to tell you, should be at the front of every Architect’s mind, especially when a conflict of interest may be alleged. The rule says this: when ambiguity exists in an agreement, the more favourable interpretation will never go to the person who created it. In other words, the person who slices the cake doesn’t get to choose the first piece. If it helps you to remember it, this doctrine is sometimes referred to as “interpretation against the draftsperson.” The “draftsperson” might turn out to be you.