ASA Documents Updated To Fight Bid Shopping

The American Subcontractors Association this month released a new version of its Subcontractor Bid Proposal form, incorporating Consensus Docs 750 Standard Form of Agreement Between Constructor and Subcontractor, in ASA's continuing effort to thwart general contractor shopping of subcontractor and supplier bids on construction projects. ASA's new bid submission form has added the following language to the subcontractor proposal:

"Subcontractor has devoted time, money and resources toward preparing this bid in exchange for Customer's express agreement that the parties shall have a binding contract consistent with the terms of this bid proposal and Customer unconditionally and irrevocably accepts this bid proposal if it 

(A) in any way uses or relies on the bid proposal or information therein to prepare "Customer's bid" for the project at issue and Customer is awarded a contract for the work; or

(B) divulges the bid or any information therein to others competing with Subcontractor for the work."

This language is designed to deter general contractors and construction managers from shopping subcontractor bids to competitors after a contract has been awarded to the general on the general's bid  which includes the subcontractor's pricing. Bid shopping is sometimes used by unscrupulous builders to increase their profits by squeezing subcontractor pricing after award of a contract based on subcontractor bids which are then undercut by competitors who never bid on the project, or who were outbid but are willing to cut their prices once the results of the bidding are known.

Construction Spending Gyrations Continue

Commerce Deartment figures released last week show construction spending in the United States down 0.1% overall, with sharp downturns in factory, hotel and power plant construction. A deep decline in federal government construction spending was partly offset by increases in state and local government construction outlays.

Residential building rose 1.8%, led by considerable gains in single family home construction.  The current pace of overall construction spending remains 32% lower than it was at the height of the housing construction boom.

Housing Boom’s Walls of Jericho

The housing boom during the first half of the last decade added over 10 million apartments, condominiums and homes to the U. S. housing stock. Now, however, just as the construction industry’s economic recovery is choking on the glut of foreclosed and unsold housing units, the prospect of any recovery for housing construction is further dampened by the tumbling of the walls of Jericho hastily erected and poorly fabricated during the overbuilt, easy money years of 2000 through 2005.

Three of Illinois’ most active home builders – Pulte, D. R. Horton and Lennar – are currently plagued by the financial fallout from a doubling of the rate of defects per new housing unit during 2000 through 2005, compared to the immediately previous six year period, according to estimates from the International Association of Certified Home Inspectors. Adding these woes to the ongoing multistate litigation over problems resulting from use of corrosive Chinese drywall products means the home building sector of the economy is facing a liability headache so tall even Superman couldn’t leap it in a single bound.

Pulte and D. R. Horton are the nation’s two largest home builders. In the third quarter, Pulte recorded a one time expense of $272.2 million – 25% of Pulte’s third quarter revenue – for increased reserves to cover losses for warranty repairs on homes built over the past 10 years. Similarly, Horton states its net liabilities for construction defect claims as of September 30, 2010, at $319.8 million, more than doubling the liability reserve Horton stated on September 30, 2003. Pulte CEO Richard J. Dugas told securities analysts that the huge increase in defects reserves “was completely unforeseen.” The housing sector issues, and corporate accounting for burgeoning liabilities, bother Towers Watson actuary Ron Kozlowski. “Their liabilities are underfunded,” Kozlowski contends. He remarks that home builders “have their heads in the sand.”

Meanwhile, 13 customers who bought new homes from Lennar in Hutto Parke, a subdivision of an old cotton plantation 30 minutes outside Austin, Texas, are suing for fractured foundations, drooping ceilings and sagging fences because, they contend, the homes were put up on unstable soil. Lennar has already settled claims by 221 of the 443 homebuyers in Hutto Parke.

In today’s liability insurance market of ever tightening claims made policy forms, little if any of these claims asserted against housing contractors will be covered by any sort of insurance, and the builders will have to dig deep into shareholder pockets to pay the resulting attorney fees and costs of litigation, as well as the customer recoveries against them. As if the housing sector didn’t have enough problems getting out of the starting blocks and running the high hurdles toward economic recovery.

At Risk Contracting Is The New Federal Standard

On stage shoulder to shoulder with his former nemesis Senator John McCain, President Obama signed a presidential memo yesterday establishing fixed price government contracts as the new federal standard, even for defense procurement. Blasting rampant waste and fraud in Iraq, Kuwait and Afghanistan under cost-plus federal contracts, as uncovered by more than 140 investigations of those dealings, the memo directs OMB chief Peter Orszag to issue guidance by July 1 for review of all government contracting and identification of wasteful and inessential contracts which can be terminated. The second deadline, September 1, is for an overhaul of all federal procurement to increase contracting oversight, reduce privatization of government functions, and reestablish fixed price competitive bids as the standard for federal procurement.

The moral is, if you are bidding on federal projects, have a sharp pencil, but know what you are doing, because the risk of loss will be on the contractor rather than on the government.

OMB Issues Recovery Contracting Guidance

Wednesday, February 18, Peter Orszag, Director of the Office of Management and Budget, issued a 60 page memorandum of guidance to all federal agencies responsible for awarding contracts, loans and grants under the stimulus legislation signed earlier this week. The memo contains many details about various government accounting processes and procedures, and how they will have to be augmented to provide the public with information regarding where all of the billions of dollars get spent.

Nevertheless, buried in the morass of detail is some key information important to construction businesses regarding where to look for projects to bid on, grants to apply for and loans which will be made available under the dozens of new and ongoing programs which will get the $149.8 billion appropriated specifically for construction by federal government agencies.

Before contracts are let for bid by federal agencies, the information about the bids will be posted here:

http://FedBizOpps.gov

Grants available under the federal programs will be listed here:

http://grants.gov/

Finally, available federal loan programs for construction projects will be listed here:

http://govloans.gov/

Your state government, and many large city government agencies will have comparable web sites up and running soon, if they do not have them already, listing the same sort of information about contracts, loans and grants in your local area. Good luck, and good hunting!