Sub-trades and general contractors disagree. What should owners do?
Ontario Construction Report staff writer
Should general contractors be required to name sub-trades at bid closing time?
It’s a simple enough question, but when you explore the positions of the various industry participants, you’ll find more than one answer.
Subtrades, especially the traditional bid-centric mechanical and electrical trades that previously relied on organized bid depositories, believe “naming” should be mandatory, to prevent abuse and bid-shopping by successful general contractors.
General contractors, meanwhile, say that the bid-shopping issue is overstated, and the naming process can leave the general contractor with the worst of both worlds, especially if the “named” contractor (perhaps because it made an error in its bidding) backs out after the general contractor receives its contract award.
“The more owners we meet, the more we see who are agreeing that they want a simplified tender system,” said Clive Thurston, president of the Ontario General Contractors Association (OGCA), which opposes naming sub-trades. “Asking for too much information at close has proven to be a problem, resulting in incomplete tenders, late tenders and usually the disqualification of the low bidder.”
“Naming trades is just one part of what can complicate a tender closing and cause problems,” he said.
General contractors advocate for a two-envelope closing process, where they are first evaluated on price and – if acceptable – later on technical ability, to allow them to review sub-trades’ bids for quality and ensure the subs are qualified to do the work and haven’t made critical mistakes in their estimates.
Sub-trades have a different perspective. They are concerned if too much time is allowed to elapse in reviewing the “second envelope,” then the general contractor will be able to play games and bid shop, fattening its margins at the expense of the subs.
Obviously, this isn’t the most trusting way to do business – but it reflects the dynamic tension that has shaped the Canadian construction industry for decades. Coupled with this tension are the arcane and sometimes highly disputed aspects of Canada’s rather unique construction law system, especially the classic Ron Engineering case and more recently one involving David J. Harvey Holdings Inc. vs. Hercules Food Equipment Ltd.
In the latter case, the court ruled that the sub-trade wasn’t liable to the general contractor for reneging on its price, which the general contractor carried to the owner in its bid.
Not surprisingly, this causes fear among general contractors, who believe they could be caught in the middle between their fixed bid and higher sub-trade costs than they had budgeted.
However, no story in Canadian construction law is as simple as it seems at first sight. Don Leduc, a construction law partner at Norton Rose Fulbright Canada, cautions in a report quoted in the Ottawa Construction Association’s (OCA) Construction Comment magazine, that “anyone who interprets Hercules as a carte blanch to renege on their bids may not understand the full story.”
“Whether a subcontractor can refuse to honour a bid that has been carried by a general in its bid for the prime contract depends heavily on the unique facts of every case,” he wrote.
The Construction Comment story said Leduc does not believe Hercules is the precedent-setting decisions that some believe it to be. “Because tenders are premised on contract law, inasmuch as there are a variety of contracts, there will be a variety of tender terms. Each must be reviewed individually.”
The OCA has set out best practices for naming of sub-trades, suggesting that there is a need for “balance between the need for as simplified a bid submittal process as possible against sub-trade concerns on bid shopping.”
The association advocates that naming should be restricted to critical sub-trades, which will depend on the project and would be the owner’s responsibility to determine. “On typical building construction projects, the mechanical and electrical sub-trades are usually considered critical trades and hence are commonly requested by owners at time of tender,” the OCA says.
“If in the owner’s evaluation of the project there are three or less critical sub-trades, then the association is of the position that the sub-trades should be named at the time of bid submission.”
“If sub-trades don’t trust generals to be honest, my advice is, don’t bid them,” Thurston told the OCA magazine. “But don’t ask owners and designers to police our industry. That’s not their role. In the meantime, if everyone is serious about getting rid of bid shopping and honouring contracts, then let’s get generals and sub-trades together in a room to find a solution to these problems… for the good of the industry.”
In a further email to Ontario Construction Report, Thurston wrote: “The OGCA is always willing to work with our partners and we have made that very clear, but we do wonder why the majority of responses we see in the press and elsewhere are unfounded attacks on the integrity of GCs and the industry. Name calling and making unproven accusations is easy to do. It takes true leadership to sit down and talk face-to-face.”