In our house of seven children, a penny found on the ground brings laughter and excitement. You can imagine the opposite reaction when a contractor bids a penny for rock removal for a competitive bid and later discovers that there was 250% more rock than anticipated.
That’s what happened recently in Celco Construction Corp. v. Town of Avon. In its successful bid to perform work for the Town of Avon, th Contractor assigned a unit price of $0.01 to excavate each cubic yard of rock from the site. Of course, that price was substantially lower than its actual cost to remove rock, but the Contractor based its bid on the assumption that the amount of rock actually on site would be considerably less than the unverified estimate indicated in the contract bid documents. The Contractor believed its low unit price would give it a competitive advantage when compared to other bidders who bid more closely to the actual cost.
When the amount of rock turned out to exceed the estimate by more than 1,500 cubic yards, the Contractor sought an “equitable adjustment” in the contract price to recover its increased costs for rock removal. The Town rejected the Contractor’s request and the trial court found in favor of the Town. The appellate court affirmed the trial court’s decision.
Quantity versus Quality. The Contractor based its request for equitable adjustment based entirely upon the increased quantity, rather than the nature of the rock encountered. This was an important distinction for the court when reviewing the differing site conditions claim:
Celco submitted no evidence suggesting that the character of the rock discovered on site was different, or that the actual unit cost to remove it was greater, by reason of the increased amount or any other concealed condition.
To be clear, the Contractor sought additional compensation based solely on the “additional rock” and not due to some concealed condition.
The Court’s Reasoning. Viewing the claim under Massachusetts’ differing site conditions clause, the court noted that the contract bid documents expressly denied the accuracy of the amount of rock to be encountered on the site. The figure as “solely for the purpose of allowing comparison of the submitted bids.” In other words, teh amount of rock was “indeterminate.” Since there was no proof that there was a material difference in the actual subsurface or latent physical conditions at the site to cause an increase in the cost of the work, the appellate court affirmed the trial court’s decision.
So What? This case is a good example for contractors to review when evaluating their competitive bid processes. While it may be a gamble to include a “penny bid” unit cost in your bid, make sure the risk of exposure does not outweigh the competitive bid advantage you seek. Additionally, make sure to review your applicable “differing site conditions” clause in the contract documents before you submit your bid. In order to be considered a “changed condition,” most contracts require that the nature or character of the concealed subsurface condition must be “materially different” than the known condition. As noted by Celco, unit prices generally will not be altered based solely on increased quantities.