Monday, August 27, 2012

Specification-Compliance on Public Bid Projects, Part 2.

As discussed in my previous post, it is imperative for companies bidding on public projects to comply with specifications. If they do not, their customers or suppliers will hold them accountable for any oversight. Even if they do comply with specifications, business relationships or a customer's buying power (monopsony power) may cause a careful company to eat the cost of someone else's oversight.

In order for a careful company to cover itself, there are a few things the company should always do on public projects. In many cases, these would come in handy on private projects. First, never simply state that you are specification-compliant. Instead, state exactly the drawings and specifications on which your bid is based. It might get tedious, but to note exactly from which sources you get your bill of material or services can go a long way in protecting yourself in the event of later conflict. It is also prudent to date the drawings and specifications. Sometimes, these can change as a project proceeds.

When an oversight occurs and material or services are omitted from a bid, positively stating that you were only shown X number of drawings and specifications may exonerate you. Of course, if you have all of the specifications, then it is your responsibility to examine all pertinent documents to determine what the requirements are. But if you are in an industry where you typically do not receive everything, it would be prudent to note just what you are receiving. If you do, it puts the onus on either your customer or supplier who did have full access to the specifications.

Second, any time you get approval for a deviation, note it, and to whom you talked. If you can, get it in writing. On public projects, addenda are typically issued that may provide for this. Third, be redundant. Even if something is implicit in an industry, not everyone will see it that way. Again, it may be tedious and time-consuming, but you should not assume something is implied in your bid. You may have a page of notes or exceptions, but it can save you a lot in the long run.

Thursday, August 16, 2012

Introduction to Specification-Compliance in Public Bids Submission.

Most businesspeople are familiar with the process of public bid submission. It is common in most industries. Whether it is in the private or public sector, the company or governmental entity will publish specifications with their requirements for the project. Events in the distribution chain can get Machiavellian. It is not uncommon for companies to award bonuses to project managers who come in underbudget. As a result, not all the requisite information is always transmitted to parties who need it. When it is, or when requirements change or are subject to a differing interpretation from the engineer on the project or the ultimate customer, somebody is left paying the bill.

In today's economic and business climate, public bid projects are increasingly competitive. In the Midwestern United States, such opportunities are not terribly plentiful. On public bid projects, the engineers are the arbiters. Specifications will say a certain thing, but the engineers (in conjunction with the ultimate customers) are the ones who end up determining whether to enforce provisions of a specification. When conflicts arise, the contractors, vendors and other suppliers act as lawyers, arguing for or against the verbiage of a particular provision in the specification. As mentioned, in some cases, not all parties will have received the pertinent specifications. On many large projects, requirements will be found throughout the specifications. This can involve thousands of pages, so it is not too difficult to see why certain requirements are not always met, omitted, or missed completely.

On large projects, mistakes and omissions can bankrupt a company. That is why compliance with specifications is so important. Public jobs are so competitive that if a company does not supply one of their vendors with the specification, the result will be a more competitive price for them to give their customers in the distribution chain. When a conflict over the goods or services to be supplied ensues, everyone is pointing fingers at another party, expecting them to foot the bill. Thus, a company must be vigilant in making sure that their company is protected from unscrupulous and unreasonable customers or suppliers.

Using the legal process is anathema to most small businesses, because resorting to it is like using the nuclear bomb. In one particular situation you may get your way, but you have damaged business relationships and may have cost yourself much more in the long run. If you use the legal process you will almost certainly not be doing business with the party against whom you are using the legal process. In many cases, word-of-mouth makes others in your industry wary of doing business with you, because the fear is that you will take them to court. Of course, there is also the possibility that this word-of-mouth is actual defamation or business interference, in which case you can take further action. It may even go so far as to be a violation of antitrust or competition law.

Industries have developed ways of dealing with these situations without resorting to the legal system. Surely, individual businesses differ. Some companies use their buying power to bully other companies. Some use a cost-benefit analysis and acquiesce in a situation when it appears likely that they will be able to make more money in the long run by extending goodwill to a company who may actually have made the mistake or omission. In my next post, I will discuss tips and pointers for companies to use in dealing with specification-compliance on public bid projects.

Tuesday, August 7, 2012

Introduction to Electronic Commerce.

Some people may believe that a contract is not valid unless signed by hand. "Signed," according to the UCC, "includes using any symbol executed or adopted with present intention to adopt or accept a writing." [1] This includes online contracting, whereby an individual can agree to purchase goods via email or another electronic method. This happens in situations where goods are needed quickly. Sometimes one merchant ships goods to another merchant based on a good faith belief that the other party will pay according to the terms of a given email exchange.

For instance, let's say A Seller deals in widgets. B Buyer needs widgets tomorrow, and sends a high priority email to A asking to ship them immediately. B Buyer may not have time to get a purchase order requisition through his company's purchasing department in time to receive the widgets when B needs them. So, A must rely on B's good faith in entering the online contract with no purchase order or handwritten signature. B's intent is surely to enter a contract, because the characters in his email to A indicate his intention to adopt or accept the terms of A's overnight shipment of widgets to B.

Now, if B were a scoundrel, and wanted to evade any terms of A's good faith shipment without a handwritten signature or formal purchase order, B would not be able to do so. Laws authenticating electronic signatures are ubiquitous in the United States. B would be bound by the terms of the online agreement.

Another example might be the situation where B sends another high priority email to A requesting widgets immediately, and A provides the terms of the transaction, but includes no mention of how long the price is valid. Three months and one day later, B sends a purchase order to A for standard delivery at the price sent over three months earlier. What then? Well, the UCC provides that the price quote would be valid for a "reasonable time," but not to exceed three months. [2] Of course, A could honor the quote if the price has not changed, or has changed a small amount. This would be of A's own volition, however, and not what the law provides.

Generally, the determination of reasonableness of time is a jury question. [3] It depends on the nature, purpose, and circumstances of the action. [4] The court and factfinder would likely look to the express terms of the agreement, as well as what is called "course of performance," "course of dealing," or "usage of trade." [5] A "course of performance" is conduct and behavior of parties to a particular transaction if the parties have an agreement involving repeated occasions for performance by a party, and the other party does not object to the performance of the performing party, or acquiesces to it without objection." [6] A "course of dealing" is conduct and behavior of parties with regard to comparable business transactions before entering the subject agreement. [7] "Usage of trade" is probably the easiest concept to grasp of the three. It is "any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect" to the subject transaction. [8]

Express terms prevail over the three others. [9] Course of performance prevails over course of dealing, because it deals more directly with the conduct and behavior of the two or more parties in their prior business dealings with each other. [10] Course of dealing prevails over usage of trade because it deals directly with the conduct and the behavior of the two or more parties in business dealings, but not with each other. [11] Usage of trade is more consistent with industry or geographic standards that each party assumes the other to implicitly implement into their agreement without having to discuss them. Following these guidelines, the factfinder, or jury, would then determine the duration of "reasonable time," in a particular situation.

[1] UCC 1-201(b)(37).
[2] UCC 2-205.
[3] St. Ansgar Mills, Inc. v. Streit, 613 N.W. 2d  289, 295 (Iowa 2000).
[4] UCC 1-205(a).
[5] UCC 2-202(a).
[6] UCC 1-303(a).
[7] UCC 1-303(b).
[8] UCC 1-303(c).
[9] UCC 1-303(e)(1).
[10] UCC 1-303(e)(2).
[11] UCC 1-303(e)(3)