Federal District Court In Tennessee Holds Prime Contractor Has No Duty To Subcontractor To Verify Bid Pricing

Mactec, Inc. v. Bechtel Jacobs Co., LLC and Demco, Inc. v. Mactec, Inc
2007 U.S. Dist. LEXIS 60377 (E.D. Tenn. August 16, 2007)

The United States District Court for the Eastern District of Tennessee held that a private contractor had no duty to verify the pricing of a bid received from a subcontractor.

Defendant Bechtel Jacobs, LLC (“Bechtel Jacobs”) entered into a contract with the United States Department of Energy’s Oak Ridge Operations to demolish and dispose of several radioactively contaminated buildings in the main area of the K-25 Gaseous Diffusion Plant. Bechtel Jacobs issued a request for proposal inviting proposals from subcontractors to demolish and dispose of several radioactively contaminated buildings from the main plant. In response, Plaintiff MACTEC submitted a proposal in the amount of $3.99 million, which was later adjusted to a final contract price of $5.36 million. Bechtel Jacobs internal estimate for the cost of the project was $8.20 million. The next lowest proposal was $8.44 million. Bechtel Jacobs did not inform MACTEC that its proposal was significantly lower than Bechtel Jacobs internal estimate and significantly lower than the next lowest bidder. Bechtel Jacobs awarded MACTEC the subcontract.

Among other counts in MACTEC’s complaint against Bechtel Jacobs, MACTEC contends that Bechtel Jacobs breached its duty to verify the bid. Bechtel Jacobs moved for summary judgment seeking to have the count dismissed. MACTEC contended that the Federal Acquisition Regulation (FAR) required uniform procedures for all acquisitions which imposed a duty on Bechtel Jacobs to verify MACTEC’s bid. The Court found however, that Bechtel Jacobs was a private entity, not a federal agency, and thus Bechtel Jacobs was not subject to the provisions of the FAR. Moreover, the contract that Bechtel Jacobs signed with the government did not require Bechtel Jacobs to follow the FAR procedures for awarding subcontracts. Finally, the Court found that even if the FAR was applicable to Bechtel Jacobs, the provision relied on by MACTEC would be inapplicable. FAR 14.407-1, which MACTEC relied on, governs the award of contracts by sealed bidding. Bechtel Jacobs did not utilize a sealed bidding process where award is governed by price alone, but instead solicited both technical proposals and prices. Accordingly, the Court granted Bechtel Jacobs motion and dismissed MACTEC’s count for breach of the duty to verify its bid.

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