【Haichuan EPC】Who is responsible for the costs resulting from omitted items in the bid?

Thread Content

The term \"omissions in the bid\" as referred to in this article denotes situations where the employer requires the contractor to adopt a lump-sum pricing approach during the bidding process, and provides both a bill of quantities for the project and the construction drawings. However, the quantities or items listed in the bill of quantities are either less than those indicated in the construction drawings or fail to meet the requirements for delivery; such situations are collectively referred to as omissions in the bid in this article. This paper, based on practical experience, explores whether a contractor has the right to claim payment from the employer for omitted items in a bill of quantities, under circumstances where such omissions occur and a lump-sum contract price has been agreed upon. Reasons for omissions in bids: Omissions in bids are the result of a combination of various subjective and objective factors. Firstly, the insufficient depth of the design drawings leads to inaccurate quantity lists. Second, the bill of quantities prepared by the consulting company commissioned by the employer is inaccurate. Before and during the bidding process, due to the large number of participants, their differing priorities and approaches to risk management, coupled with factors such as tight deadlines and entrenched empiricism, it is very easy for omissions to occur. These omissions are not only diverse in form and complex in manifestation, but some of them are also highly concealed, making it often difficult to identify them accurately. Third, the employer is aware that the quantity list for the tender is inaccurate, yet still provides it to the bidders as a basis for bidding. Fourth, after receiving the drawings and bill of quantities provided by the tenderer, the bidder, due to limited time or capabilities, failed to identify the discrepancies between the quantities indicated in the bill of quantities and those in the construction drawings. Fifth, in an effort to win bids at low prices, bidders ignore the risk of omissions in the bill of quantities. Sixth, bidders are aware of the risk of missing items and intend to address it through \"unbalanced bidding\" or by exploiting risks related to changes later on. Core criteria for determining responsibility in case of omissions in bids 1. Primary criterion: accurate determination of the nature of the contract. Although the basic background of omitted items has been explained earlier, the differences in the nature of the contract and the pricing methodology fundamentally determine whether fees can be charged for such omitted items, whether a solution to the disputes can be found, and the specific approach to handle them. The nature of the contract is the core foundation for establishing a mechanism for allocating risk burdens, as well as a prerequisite for determining responsibilities. Taking the \"lump-sum price\" model as an example, it is necessary to clarify whether the project falls under general engineering contracting or general construction contracting, and whether the price is absolutely fixed or relatively fixed ； Even under a lump-sum contract, details such as whether unit price clauses apply and how they are applied are directly related to the fundamental issue of who is responsible for identifying any omitted costs. After determining the nature of the contract, it is necessary to further analyze the causes of the omissions, and conduct a comprehensive assessment by taking into account the process-related information as well as the ultimate consequences. 2. Key criteria: To determine the degree of fault on the part of both the employer and the contractor, it is necessary to systematically analyze the specific manifestations of omissions, as well as the relationship between the process-related information and the resulting impacts. This involves examining whether there is consistency or conflict between these elements and the nature of the contract as well as its terms of execution. Specifically, it is necessary to clarify the exact stage at which the omission occurred, the actual consequences resulting therefrom, as well as the relationship between the omission and the contractual provisions, pricing standards, and applicable laws. In the event of conflicts in the content of the documents, it is also necessary to clearly define the order and rules for interpretation, to ensure that the basis for assigning responsibilities is rigorous and traceable. Common causes of omissions include insufficient design detail in the construction drawings (such as only schematic diagrams being provided during bidding), inaccurate descriptions of the characteristics of items in the list, or confusion between the list and regulatory standards that leads to the omission of certain work steps ； When the employer’s fault (such as failure to provide survey data in a timely manner) is the primary cause, the employer shall bear the responsibility ； The contractor shall bear the losses if there is fault on their part (such as failing to carry out the obligation to review the list or failing to raise objections when missing items were known at the time of bidding). Process documents serve as the core basis for determining responsibilities; it is essential to carefully examine three types of documents: correspondence related to bidding processes, construction visas and change orders, as well as technical documents, in order to prove how each party fulfilled its obligations. At the same time, legal interpretation is conducted by considering aspects such as the hierarchical validity among various documents, whether there are any conflicting provisions, and how they should be applied. The final impact assessment must take into account both economic and timeline aspects; the economic impact relates to the extent of cost deviations and the rationality of expenses, while the timeline impact concerns project delays and subsequent claims. A collaborative analysis of the three aspects is conducted, based on the causes, content, and consequences of omissions, with a comprehensive assessment taken into account through considerations such as contract provisions, legal interpretations, and industry practices. 3. Safety net standard: Application of the principle of good faith. When the contract provisions and cause analysis are insufficient to determine responsibilities, the principle of good faith must serve as the ultimate safety net. Special attention is paid to examining whether there are any acts of dishonesty such as fraud or concealment of important information. If one party causes omissions through improper means or takes advantage of such omissions to gain unfair benefits, their degree of liability should be increased accordingly in order to maintain market fairness and order in transactions. The judicial views on liability assumption regarding the costs arising from omissions in the bidding and subsequent construction involve mainly the following three perspectives: First, it is the contractor who shall bear such costs on their own ； Second, it is to be borne by the employer ； Third, it is allocated between the contracting party and the contractor in accordance with the principle of fairness. The specific reasons for the ruling are summarized as follows: First, the cost associated with carrying out the construction work for those items that were omitted in the bid as per the contract terms shall be borne by the contractor; such costs are already included in the total bid price, and any errors in the calculation of the workload will not result in any adjustment to the price. The contractor explicitly assumes the risk of omissions in the bid as specified in the bid invitation document. Construction items omitted in the bid fall within the scope of the construction drawings, and the contractor’s failure to include a quote for such items does not constitute a reason to adjust the total contract price. The contractor shall bear full responsibility if it fails to fulfill its obligation to review the drawings during the bidding process, and later claims that there are missing items in the bill of quantities upon completion of the project. The contractor shall bear all risks related to the volume of work (including omissions and miscalculations) and price risks on its own, when submitting the total bid price based on the construction drawings. Omissions in the bid constitute a concession, and the contract price will not be adjusted. II. The employer shall bear the responsibility for knowing that the total bid price applied only to certain work quantities specified in the construction drawings, and for indicating during the execution of the contract that the items omitted from the original bid document should be included as additional items in the final settlement. The employer gives written consent to settle the payment for the items missing from the bill of quantities. A construction contract clause that stipulates no increase in costs due to any omissions or missing items in the quotation, or any underreporting or omission of the volume of work, constitutes an unreasonable transfer of all risks and responsibilities to the contractor; such a clause is invalid as it violates the mandatory provisions of ** standards, and the employer remains liable for the costs associated with work that was not included in the bid. III. The sharing of responsibility for the omissions in the bid is due to both the employer’s failure to ensure the accuracy and completeness of the quantity list, as well as the contractor’s failure to fulfill its obligations regarding the review of the drawings; therefore, both parties are at fault for these omissions. It is not possible to determine whether the omissions in the list constitute a bid discount. The omissions in the quantity list provided by the employer regarding quantities and items are beyond a reasonable level. Advice for contractors: 1. Pay close attention to the contract – this is of top priority! 2. Strengthen internal capabilities; the execution of contracts, cost control, and on-site coordination must all work in tandem in a targeted manner. The worst approach is to offer unrestrained discounts during bidding, sign contracts without any limits once awarded the contract, rush the construction process to the extreme, stop work as soon as losses are incurred, and engage in a fierce struggle with the client until the end. This is really packed with buffs!