EMPIRE MASONRY CORP. vs. TOWN OF FRANKLIN & another. [Note 1]

KASS, J. Upon report by a single justice of this court we are to consider two questions: (1) whether in connection with public construction under G. L. c. 149, Sections 44A-44H, an awarding authority is bound by the substitution procedure described in G. L. c. 149, Section 44F(4)(c), if a low sub-bidder withdraws its sub-bid after execution of the general contract;

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and (2) whether, under Section 44F(4)(c), a general contractor must obtain executed subcontracts for the subtrades on a job prior to execution of the general contract. When the low filed sub-bidder falls away, the substitution procedure requires the general contractor to look to the next lowest eligible sub-bidder in the trade concerned, and so on up the line until a sub-bidder in that trade signs up. In this case the town of Franklin ("the town") is the awarding authority, John T. Callahan & Sons, Inc. ("Callahan"), is the general contractor, Rascicot Masonry ("Rascicot") is the sub-bidder who filed the lowest masonry sub-bid, and Empire Masonry Corp. ("Empire") is the next lowest masonry sub-bidder, who would be entitled to the masonry subcontract if the substitution procedure is applicable. [Note 2]

We add such details of the history of the controversy as are necessary to consider the questions presented. Callahan was the low bidder with a bid of $2,190,000 to build a police station for the town. Filed sub-bids were opened June 26, 1989. Rascicot's low bid on the masonry component of the job was $595,000. [Note 3] Empire was second lowest with a bid of $661,000. The town conditionally awarded the general contract to Callahan on July 20, 1989, subject to appropriation. In mid-August, the town voted the appropriation for the work and on September 5, 1989, executed a general contract with Callahan. The general contractor now called for signed contracts from its designated sub-bidders. [Note 4] By letter dated September 7, 1989, Rascicot informed Callahan that "[d]ue to financial circumstances we are unable to commence this project . . . [and] must regretfully withdraw our bid. . . ."

Empire insisted that it was thereupon entitled to the masonry subcontract. Callahan was entirely willing to have Empire do the work, provided that the town adjusted the contract

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price to reflect Empire's higher price. The town took the position that it had a contract for a fixed price with Callahan and it was Callahan's problem to find a masonry subcontractor who would match Rascicot's price. On September 26, 1989, Empire brought an action for a declaratory judgment that it was entitled to the subcontract as matter of right under the statutory scheme and for an order restraining masonry work on the Franklin police station job by anybody else. After a Superior Court judge denied injunctive relief, Empire sought review before a single justice of this court under G. L. c. 231, Section 118. A laudably pragmatic stopgap solution was arrived at. Empire was to proceed with the masonry work. The town paid $66,000 (the amount by which Empire's bid exceeded Rascicot's lowest bid) into an escrow account, pending decision of the disputed questions, which the single justice referred to a full panel. If we were to decide that the town was bound by the substitution procedure, the escrow fund would be disbursed to Empire in proportion to so much of the masonry work on the job as had been completed; were we to determine otherwise, the escrow fund was to be disbursed to the town. Callahan would then bear the incremental cost.

We conclude that the substitution procedure prescribed by Section 44F(4)(c) may apply after execution of a general contract for a public construction job and that it applied in this case. To set the context we summarize how the public bidding system prescribed by G. L. c. 149, Sections 44A-44H, works. All citations to statutory provisions are to sections found in G. L. c. 149 (1988 ed.). The public agency undertaking the construction project, the awarding authority, provides each general contractor and subcontractor who so requests a set of plans and specifications for the project. Section 44B(1). At least four days [Note 5] before the opening of general bids (Section 44F[3]), sealed sub-bids must be filed with the awarding authority, accompanied by bid deposits equal to five percent of the amount of the sub-bid. Sections 44B(2) and 44F(3). Sub-bidders

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may restrict use of their sub-bids to specified bidders on the general contract (general bidders). Section 44F(2). The awarding authority is to open the sub-bids forthwith. Section 44F(3).

Within two days, after weeding out all the formally defective bids, the awarding authority sends out a list of the eligible sub-bidders (and their sub-bids) to every person who had requested a set of plans and specifications. Section 44F(3). General bidders must choose from among these listed sub-bidders in preparing their bids, ibid., and, like the sub-bidders, they must include a five percent bid deposit with their bid forms. Section 44B(2).

Within five days of the opening of the general bids, the awarding authority rejects nonconforming bids (Section 44E[3]) and returns all the general bid deposits, except those of the three lowest responsible and eligible general bidders. Section 44B(3). Likewise, the bid deposits of all sub-bidders except those of sub-bidders named by the three lowest responsible and eligible general bids and those of the three lowest responsible and eligible sub-bidders for each trade must be returned within five days of the opening of general bids. Section 44B(4). If Federal approval of the contract is not involved, the awarding authority is to award the general contract to the lowest eligible and responsible general bidder within thirty days of the opening of the general bids. Section 44A(3).

The selected general bidder then has five days in which to execute a contract with the awarding authority in accordance with the general bid and to furnish performance, labor and materials bonds in the sum of the contract price. Section 44E(2). The bid deposits of the three lowest general bidders are returned upon execution and delivery of the general contract. Section 44B(3). If the selected general bidder fails to execute the contract and furnish the bonds, the awarding authority keeps the bid deposit as liquidated damages (Section 44B[3]) and awards the contract to the next lowest responsible and eligible general bidder. Section 44A(3).

Once selected, the general bidder must "promptly" confer with the awarding authority on the question of sub-bidders. Section 44E(2). The awarding authority is entitled to replace any

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sub-bidder named in the general bid with a sub-bidder from the prepared list, provided the selected general bidder does not object to that sub-bidder's ability and standing. Ibid. There is no statutorily prescribed time within which the selected general bidder must award subcontracts to sub-bidders. The sub-bid form, however, requires that, within five days after presentation of the subcontract by the selected general bidder, the selected sub-bidder must execute a subcontract with the general bidder, "in accordance with the terms of [the] sub-bid, and contingent upon the execution of the general contract, and, if requested so to do in the general bid by the general bidder," furnish a performance and payment bond for the full subcontract price. Section 44F(2).

That brings us to the substitution procedure contained in Section 44F(4)(c) which this case requires us to construe and apply. Section 44F(4)(c) provides that, if the selected sub-bidder fails to execute the subcontract, "contingent upon the execution of the general contract," and to post the appropriate bonds, within five days after presentation of the subcontract, the general bidder and the awarding authority must award the subcontract to the next lowest responsible and eligible sub-bidder on the list to whose standing and ability the contractor has no objection. The general contract price is "adjusted," i.e., increased, by the difference between the second lowest and the lowest sub-bid. The subcontractor who has declined to sign up forfeits his or her bid deposit to the awarding authority. Section 44B(4). [Note 6]

An illustration under this labyrinthine (and mind-numbing) statute may help to demonstrate that substitution of a sub-bidder may occur before or after execution of the general contract. Consider the following scenario. The general contract

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is awarded on a day we establish as day one. [Note 7] One would expect that a general contract is presented to the selected general bidder on the same day as the award. Under Section 44E(2), the selected general bidder then has five days after presentation to execute the general contract, i.e., by day six. To continue with our illustration, after consulting with the awarding authority immediately after contract award on day one, the selected general bidder awards the masonry subcontract to sub-bidder A (the lowest masonry sub-bidder) on day two. Under Section 44F(2), sub-bidder A has until day seven to execute the masonry subcontract. Sub-bidder A fails to sign up before day seven. The subcontract, by operation of Section 44F(4)(c), is, therefore, awarded to sub-bidder B, the second lowest masonry sub-bidder, at B's price. The general contract price is increased by the amount B's price exceeds A's. Section 44F(4)(c). As the reader will notice, the selected bidder in the example acted very promptly after award of the general contract to sign up sub-bidder A. Nonetheless, the time allowed sub-bidder A to execute the subcontract -- five days after presentation -- is such that the substitution procedure will inevitably be triggered after execution of the general contract. In fact, the substitution procedure can be triggered before execution of the general contract only if the contractor executes a subcontract prior to being awarded the contract, or if the subcontractor bows out before the five days to sign the subcontract have expired. [Note 8]

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Apart from the forty-seven day gap between the selection of the general contractor and execution of the general contract, the facts of the instant case are parallel to those posited in the illustration. Callahan and the town executed the general contract on September 5. By statute, the town could rightfully retain Rascicot's sub-bid deposit until September 10. Callahan presented the masonry subcontract to Rascicot no earlier than September 2, and apparently on September 5. See note 4, supra. Rascicot, therefore, had until September 10 to execute a subcontract with Callahan. Rascicot pulled out on September 7.

We are of opinion that the statute raised no bar to the application of Section 44F(4)(c) at that point, because of the prior execution of the general contract. Section 44F(4)(c) "specifically provides the proper route to follow where, as here, there is a failure by the selected sub-bidder to execute a subcontract." Paul Sardella Constr. Co. v. Braintree Hous. Authy., 371 Mass. 235, 241 (1976). See also Paul Sardella Constr. Co. v. Braintree Hous. Authy., 3 Mass. App. Ct. 326, 330 (1975). [Note 9] That route led to substitution of the next masonry sub-bidder up the line. The only time criterion for substitution prescribed by Section 44F(4)(c) is that five days must have elapsed after presentation of the subcontract by the general bidder to the lowest sub-bidder before that sub-bidder is deemed to have dropped out.

Step-by-step application of the language of Section 44F(4)(c) points to invocation of the substitution procedure before or after execution of the general contract. Statutory construction

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begins with the well-worn maxim that we apply the plain words of the statute. See Nationwide Mut. Ins. Co. v. Commissioner of Ins., 397 Mass. 416, 420 (1986); Martin v. Rent Control Bd. of Cambridge, 19 Mass. App. Ct. 745, 747 (1985). The conclusion that the substitution process applies after execution of the general contract finds support in several other provisions of c. 149. Section 44F, subsection (3), 1st par., provides that "the general contract executed on the basis of such general bid shall [not] be invalid or rejected because of the invalidity of such sub-bid . . .; but there shall be substitution of sub-bidders and adjustment of contract price as if paragraph (c) of section forty-four F(4) were applicable." If the statute contemplates postexecution substitution of sub-bidders in that context, there is no reason to suppose that substitution is prohibited in another -- and similar -- context. Section 44B(4) allows certain bid deposits of sub-bidders to be held for five days after execution of the general contract. We may infer from that provision a legislative assumption that all subcontracts will not necessarily have been buttoned up on the date the general contract is executed.

What are we to make, then, of the phrase "contingent upon execution of the general contract" which appears in Section 44F(4)(c)? Considering the position of the phrase in a fifteen-line sentence and the language we have mentioned in the statute which contemplates postexecution substitution of sub-bids, we take the phrase to authorize the execution of subcontracts contingent upon the contractor executing the general contract. Enabling general bidders and sub-bidders to do so has considerable utility. It binds the subcontractor and the subcontractor's bonding company when the general contract comes into legal existence, and it may avoid just the sort of shortfall which developed when, as here, the lowest subcontractor in a particular trade fell away. Read in this manner, the statute effectuates its apparent design of substituting for a lapsed lowest bidder the next-to-the-lowest bidder and of confining the subcontractors to those who have participated in the public sub-bidding procedure. See Interstate Engr. Corp. v. Fitchburg, 367 Mass. 751, 757-758

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(1975). At this juncture it is appropriate to wheel up equally trusty canons of statutory construction: to consider the whole system of which the statute is a part, Pereira v. New England LNG Co., 364 Mass. 109, 115 (1973); "to best effectuate the legislative intent, viewing the statute as a whole," Tedford v. Massachusetts Hous. Fin. Agency, 390 Mass. 688, 696 (1984); to give the statute a reasonable construction, School Comm. of Greenfield v. Greenfield Educ. Assn., 385 Mass. 70, 79-80 (1982); to consider the main object of the statute, Newbury St. Assoc. v. Assessors of Boston, 386 Mass. 513, 515 (1982); and to harmonize the troublesome passage, Risk Mgmt. Foundation of the Harvard Med. Insts., Inc. v. Commissioner of Ins., 407 Mass. 498, 503 (1990).

We are not persuaded by the town's argument that application of the substitution procedure unreasonably exposes awarding authorities to unexpected increases in the cost of the project. As we observed in note 8, supra, one way in which an awarding authority can avoid that risk is to require the successful bidder to execute subcontracts (for trades as to which sub-bids were filed) before execution of the general contract. An awarding authority may also diminish its exposure by retaining bid deposits as long as Section 44B(4) permits. Had the town done so in this case it would have had Rascicot's $29,750 bid deposit to set against the $66,000 by which Empire's bid exceeded Rascicot's. Finally, we do not think the town's reliance on JJ Assocs. v. Fall River Hous. Authy., 19 Mass. App. Ct. 45, 48-51 (1984), is at all cogent. That case dealt with the right of the public authority to require substitution of a lower sub-bid at a time when the general contract itself was still contingent because it was subject to approval by the United States Department of Housing and Urban Development.

Returning to the questions posed by the single justice, we answer that: (1) the general contractor and the town are bound to apply the substitution procedure prescribed in Section 44F(4)(c), notwithstanding the prior execution of the general contract; and (2) a general contractor is not required by

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Section 44F(4)(c) to obtain executed subcontracts (with the sub-bidders the contractor intends to use) prior to the execution of the general contract.

The town and Callahan shall execute a change order increasing the general contract price by $66,000, and the escrow funds shall be disbursed in accordance with the order of the single justice and the stipulation of the parties dated November 14, 1989.

So ordered.