There may be some contractors out there that purposely submit bids they know are too low in the hopes of making it up on change orders, but I have never met one of them. Nonetheless, in a recent case, a whistle blower brought a false-claims case on a bid that was alleged to be purposely too low. The court referred to this bid as a “deflated bid,” a term I had not heard before.
In U.S. ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321 (D.C. Cir. 2005), the Corps’ bid solicitation for construction of a dam in San Bernardino County, Calif., included 150 unit priced work items, with a quantity estimate for each bid item. Similar to highway construction bids, the bidders submitted a unit price for each bid item and calculated the final price accordingly. Odebrecht submitted a bid of almost $168 million—about $29 million below the second lowest bid and nearly $36 million below the Corps’ estimated $203,771,540 cost (without profit). Certainly those differences contributed to the allegation that Odebrecht’s bid was purposely too low.
After opening the bids in July 1993, the second-lowest bidder commenced a series of bid protests to prevent the Corps from awarding the contract to Odebrecht. The bid protests were resolved and on March 29, 1994, the Corps awarded the contract to Odebrecht and it soon began construction. During performance of the work, Odebrecht requested a number of “equitable adjustments.” Ultimately, the government paid Odebrecht over $100 million above the original contract price of $268 million. The amount of additional payment was a second suspicion.
Under the False Claims Act qui tam provisions, any party may bring suit in the name of the U.S. for violations of the Act. In 1999, the U.S., through its relator Alva Bettis, filed a lawsuit claiming Odebrecht had fraudulently induced the Corps to award it the disputed contract by submitting an intentionally undervalued bid and making other false representations, with the intention of subsequently obtaining upward modifications to the contract price.
The District Court disagreed and granted summary judgment for Odebrecht, stating “a mere showing that Odebrecht fraudulently induced the Corps to enter into the contract by submitting a low bid intending to seek additional monies, and that Odebrecht obtained monies above and beyond the contract price” was not sufficient to establish a false claim. According to the court, as to the second element, “there must be a claim for money to which the contractor is not legitimately entitled.”
The Appellate Court found in favor of Odebrecht by looking at the factual evidence rather than the District Court’s legal conclusion.
Bettis asserted that Odebrecht’s bid was fraudulent because it had not done quantity take-offs by reaffirming its bid and by falsely claiming to make some cost-saving measures during construction that justified its significantly lower bid. The court found that even though it is a standard industry practice, Odebrecht did not make any false representations by submitting its bid without first performing quantity take-offs. All Odebrecht represented was its intent to perform the work according to the terms of the solicitation at the bid price.
The Appellate Court found that Odebrecht’s reaffirmation of its bid was nothing more than restating its commitment to be bound to the bid and contract terms. It did not represent that Odebrecht would not seek equitable adjustments for delays incurred in the bid protest. According to the Appellate Court, the fact that Odebrecht submitted requests for equitable adjustments did not demonstrate that Odebrecht no longer intended to be bound to its bid unit prices.
Lastly, the court found no fraud in Odebrecht’s failure to use the cost-saving measures it suggested it planned to use.
This case does not stand for the principle that in all cases a purposely low bid would not be a false claim. To be a false claim, the government or a qui tam plaintiff would have to show the contractor not only submitted a purposely low bid, but also that the contractor did not intend to perform the contract at its bid price. If changes occur that would have been made regardless of bid price, the government or a whistle blower will have a difficult time making a case.
Parvin’s new firm is The Parvin Law Firm, Dallas.
