The Worst Abuse of MWBEs and DBEs (and it’s legal!)—Part 1

It happens all the time. The prime contractor of your dreams asks you, yes, you, your small subcontracting company, to give them a proposal, which they will then include as part of their bid for a major public works contract. So, excitedly, you spend hour upon hour, as a team of one (maybe two), pouring over the plans and specifications, doing take-offs and getting quotes for materials, to arrive at the subcontract price, knowing that the prime contractor is probably talking to other subcontractors just like you — bid shopping, as it’s called. Well, maybe the other subcontractors aren’t exactly like you, it may be hard to find other certified MWBEs and DBEs that do this type of work.

“You are the most competitive and we want to use you. You’re hired” the prime contractor calls and says, finally. “Plus, I like you. We’ll include your proposal in our bid package and hope for the best, fingers crossed.”

The hopeful subcontractor waits and waits, and waits and waits, until she gets busy with other work and forgets about the bid, then eventually she assumes that this prime contractor of her dreams lost the bid, even with the strength of her certified MWBE or DBE status and the ability that that gives the prime contractor to meet participation goals and thus make his bid even more attractive to procurement officers.

Then, about a year later, she picks up the newspaper and splashed across the front page is a photo of the prime contractor cutting a ribbon in celebration of the completion of the big bridge project. The very bridge project for which you were supposed to be a subcontractor. His big cheesy grin infuriates you. But isn’t your subcontract proposal a binding contract between you and the prime? Don’t you have contractual rights and remedies? Legal recourse? Can you sue that SOB?

The answer to these questions, generally, in a situation like this, is “no.” A prime contractor has no legal obligation to honor a subcontracting proposal even after he included that proposal in his bid. This holds true even if the prime tells the subcontractor that she’s hired (as in our example above), because usually prime contractors specify in writing that they will not be bound by oral promises until a subcontract is signed. On the other hand, the subcontractor, in her proposal, usually presents, as she must, all of the essential terms of a valid contract that would be binding on her, namely, the price, scope of work, and time of performance. And the prime contractor will say that he relied upon those terms.

But it gets even worse. If the reverse were true—if the prime contractor in our example above had called upon our subcontractor to perform in accordance with her proposal, and she said,

“eh, well, thank but no thanks, you never sent me a written subcontract to sign and it’s been a long time since I heard from you and I’ve had other, bigger opportunities pop up and I just don’t have the resources available right now to devote to this.”

If she had said something like that, guess what? Courts wouldn’t let the subcontractor off the hook. She would be forced to honor her bid and perform, or risk being sued for breach of contract. Courts see the subcontractor’s bid as a promise binding on the subcontractor. But not vice-a-versa. The prime contractor is not bound to a subcontract with the subcontractor or otherwise legally obligated to use her as a subcontractor even though her proposal was part of the prime’s bid.

The injustice! Totally unfair, unjust, right?

It’s worth repeating: the subcontractor’s bid proposal is binding on the subcontractor once the prime contractor accepts the proposal and includes it in his bid for award of the prime contract. But it doesn’t work both ways. A subcontractor’s proposal binds the subcontractor but not the prime contractor. How is this possible? How is that legal? The reasons are based on highly technical aspects of contract law that frankly don’t make a lot of sense.

Now, what makes matters even worse for MWBEs and DBEs, is that prime contractors get an additional and very valuable benefit by including your subcontract proposal, because it makes their bid more attractive to procurement officers who are desperate to satisfy participation goals. So, prime contractors have a huge incentive to solicit subcontracting proposals from MWBEs and DBEs that perhaps they have no intention for ultimately hiring and using.

If you’re a subcontractor, don’t despair. Possible solutions to this predicament, which represents a terrible injustice, will be addressed in our next article.