INTERSTATE ENGINEERING CORP. vs. CITY OF FITCHBURG & others. [Note 1]

TAURO, C.J. The plaintiff appeals from a final decree which declared valid a subbid for certain mechanical work, which had been filed with the defendant city of Fitchburg by the defendant Limbach Company (Limbach).

The judge made findings of fact, which are not challenged. In the early part of 1973, the city invited general bids and subbids for the construction of a wastewater treatment facility. As authorized by G. L. c. 149, Section 44C (as amended through St. 1970, c. 497), the city established interior piping work as a separate category of work for the receipt of subbids. [Note 2] Although certain exterior

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piping was included in the project, no subbids were requested for that work. Therefore, that exterior work was to be done as part of the work covered solely by the bid of the general contractor.

On May 9, 1973, various subbids were submitted for the interior piping work. [Note 3] The plaintiff's bid in the

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amount of $3,038,000 was the lowest. Limbach submitted the second lowest bid, in an amount which was $86,000 higher than the bid of the plaintiff.

On May 15, 1973, the day before bids from general contractors were due, a representative of Limbach told the president of the defendant Westcott Construction Corporation (Westcott), a company planning to submit a general bid, that Limbach was working on a price for the exterior piping work. The president of Westcott advised Limbach that he was interested in the combined price for the interior and exterior piping work. On the morning of May 16, 1973, before the general bids were filed, Limbach quoted to Westcott a price of $76,000 for the exterior piping work and stated that the combined price for all piping work would be $3,200,000. Westcott and Limbach clearly understood that as a condition to the availability of a price of $76,000 for the exterior piping work, Westcott would have to list Limbach as the subcontractor to do the interior piping work. They also understood that Limbach was willing to do the interior work for the bid price of $3,124,000 in any event. Before bids were opened, the plaintiff quoted to Westcott a price of $305,350 for the exterior piping work.

Westcott submitted a general bid to the city, listing Limbach as its selected subbidder for the interior piping work, at Limbach's filed subbid price. In arriving at its total bid for the general contract Westcott took into account Limbach's proposed price of $76,000 for the exterior piping work. Westcott entered into separate subcontracts with Limbach for the interior and exterior piping work at the prices previously advanced by Limbach. [Note 4] Westcott's bid was the lowest, and the city awarded the contract to Westcott.

The plaintiff protested to the city Westcott's inclusion of Limbach. However, Westcott rejected the city's

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request to substitute the plaintiff for Limbach as the subcontractor for the interior piping work. See G. L. c. 149, Section 44F (as amended through St. 1961, c. 604, Section 5), and G. L. c. 149, Section 44I (2) (as amended through St. 1967, c. 884). After a hearing on the Plaintiff's request, the Department of Labor and Industries ruled on June 6, 1973, that there had been "no violation of the Fair Competitive Bid Law on the facts as presented." This bill for declaratory relief was filed on July 25, 1973.

The judge did not find, and had no evidence from which he could find, the precise amount by which Limbach's bid of $76,000 for the exterior piping work was below the reasonable cost of doing that work. He did find, however, that "the estimated cost of the exterior piping work on the sewer treatment plant would substantially exceed $76,000." We conclude, as we may, that Limbach bid the exterior piping work well below cost as an inducement to Westcott to select it as the subcontractor for the interior piping work. [Note 5] The judge also found that the award of the two subcontracts to Limbach resulted in an over-all saving to the city of approximately $143,000 compared to the price at which the plaintiff would have done the same work.

The judge entered a final decree after hearing, declaring that the Limbach bid was valid, that Limbach entered into two separate, valid contracts with Westcott, and that the plaintiff had no right to the subcontract for the interior piping work. The plaintiff appealed. We granted the plaintiff's request for direct appellate review. [Note 6]

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The plaintiff argues that the city, as the awarding authority, was obligated to reject Limbach's subbid because (1) that subbid was "conditional" and (2) the arrangement between Limbach and Westcott constituted in effect, if not in fact, an unlawful variance of Limbach's filed subbid. In support of its first contention, the plaintiff points to the language of G. L. c. 149, Section 44H (as amended through St. 1965, c. 836, Sections 4, 5, 6), which provides that the awarding authority "shall reject every sub-bid which is . . . conditional." In support of its second argument, the plaintiff relies on the provision in Section 44H that condemns any variance from a filed subbid and on its view of the legislative purpose for the public bidding requirements of G. L. c. 149, Sections 44A-44L.

We agree with the plaintiff's second argument and hold that the arrangement between Limbach and Westcott constituted an unlawful variance in Limbach's filed subbid. Accordingly, we do not decide whether the arrangement rendered the filed subbid "conditional."

1. We deal here with the competitive bidding statute, G. L. c. 149, Sections 44A-44L. The statute provides that certain public contracts "shall be awarded to the lowest responsible and eligible general bidder on the basis of competitive bids in accordance with the procedure set forth . . . sections forty-four B to forty-four L." G. L. c. 149, Section 44A (as amended through St. 1967, c. 899). General contractors must select their subcontractors for so called Item 2 [Note 7] work from a list of subbidders circulated to

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all prospective general contractors by the awarding authority [Note 8] after the opening of sealed, filed subbids. G. L. c. 149, Section 44H. [Note 9] Each subbidder is "bound" to every general bidder "not excluded" from the use of its subbid by the terms of the subbid. G. L. c. 149, Section 44H. The statute specifically provides that "any variance from such sub-bid communicated to a general bidder shall be of no effect." G. L. c. 149, Section 44H. "[I]n matters of substance there must be strict compliance with the requirements" of G. L. c. 149, Sections 44A-44L. Chick's Constr. Co. Inc. v. Wachusett Regional High Sch. Dist. Sch. Comm. 343 Mass. 38, 41 (1961). Accord, Poorvu Constr. Co. Inc. v. Nelson Elec. Co. Inc. 335 Mass. 545, 552 (1957).

We construe G. L. c. 149, Sections 44A-44L, as we must, in the light of the legislative objectives which were served by its enactment so as to effectuate the purpose of the framers. See Morse v. Boston, 253 Mass. 247, 252 (1925); Commissioner of Corps. & Taxn. v. Assessors of Boston, 324 Mass. 32, 36 (1949); Pacella v. Metropolitan Dist. Commn. 339 Mass. 338, 342 (1959). We discern two fundamental, complementary legislative objectives underlying the competitive bidding statute. First, the statute enables the public contracting authority to obtain the lowest price for its work that competition among responsible contractors can secure. [Note 10] By binding subbidders

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(see G. L. c. 149, Section 44H) and general contractors (see G. L. c. 149, Section 44A) to their original filed bids, the statute encourages them to file their lowest profitable bid in the first instance. A subbidder who hopes to win a portion of a contract cannot expect to modify his subbid in the future to meet competition. Second, the statute establishes an honest and open procedure for competition for public contracts and, in so doing, places all general contractors and subbidders on an equal footing in the competition to gain the contract. [Note 11] The statutory procedure facilitates the elimination of favoritism and corruption as factors in the awarding of public contracts and emphasizes the part which efficient, low-cost operation should play in winning public contracts. See Morse v. Boston, 253 Mass. 247, 252 (1925); Burt v. Municipal Council of Taunton, 272 Mass. 130, 133 (1930); Sweezey v. Mayor of Malden, 273 Mass. 536, 540 (1931). [Note 12] See generally Pacella v. Metropolitan Dist. Commn. 339 Mass. 338, 342 (1959).

The provision of G. L. c. 149, Section 44H, which condemns a variance from the terms of a filed subbid is a keystone in this statutory scheme. The provision prohibits any change in the terms of the filed subbid. Through such prohibition, it fosters competition among subbidders at the time of the initial filing and helps assure that no general contractor will receive an advantage over its competitors. In construing an earlier version of the

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current statute, [Note 13] we observed, "The recorded subbids, as filed, must be strictly adhered to, and cannot be varied. A subbid once filed by a subcontractor must have an identical meaning for all general contractors. After the time for filing has expired, a subbid is not subject to change, and is, of course, beyond modification by private, confidential, or secret communication between the subcontractor and the general contractor" (emphasis supplied). Gifford v. Commissioner of Pub. Health, 328 Mass. 608, 615 (1952). See Poorvu Constr. Co. Inc. v. Nelson Elec. Co. Inc. 335 Mass. 545, 552 (1957).

With the above described statutory purposes in mind, we hold that the arrangement between Limbach and Westcott constitutes an unlawful variance in the terms of Limbach's subbid. When a subbidder such as Limbach offers to perform a portion of the general contractor's Item 1 work on a project at a price which is substantially below the estimated cost of performance and conditions that performance on acceptance of its subbid for a portion of the Item 2 work on the same project, the subbidder has, in reality, varied the terms of its subbid. Such an arrangement is the effective equivalent of a variance in the specific terms of the filed subbid. Since the general contractor must perform all Item 1 tasks, an offer of below-cost performance for one of those tasks immediately reduces the general contractor's estimate of over-all cost for Item 1 performance and lowers the price at which it may profitably perform the entire contract. The bid for the entire contract submitted by the general contractor may be lowered correspondingly. Simultaneously, the subbid on which the below-cost offer is conditioned becomes more attractive. In the instant case, Limbach's offer to install exterior piping (an Item 1 task) for $76,000 reduced the effective price to Westcott of Limbach's interior piping subbid (Item 2) below the

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stated $3,124,000 figure in the filed subbid. To match Limbach's package offer (subbid plus conditional offer), a competitor would have had to submit a subbid priced considerably [Note 14] below Limbach's filed subbid. Though Limbach has not retreated from the stated price of its subbid and Westcott has listed the subbid as filed, Limbach has altered the effective terms of its subbid.

Were we to hold such an effective variance lawful, opportunities for circumvention of the statute and subversion of the statutory purposes would be legion. Subbidders could file subbids with an extra margin of profit without fear of losing the contract to competitors. They could rely upon subsequent bargaining with prospective general contractors to modify the effective terms of an uncompetitive subbid. Thus, public authorities could no longer be assured of receiving the optimum low subbids for projects, and general contractors would no longer know that they stood on an equal footing with other general contractors. [Note 15] Unscrupulous general contractors and subbidders would have manifold opportunities to pressure other bidders desirous of securing the job. We cannot countenance this result and believe the statutory scheme requires that we proscribe such machinations. [Note 16]

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Limbach urges that any holding that there has been a variance of its subbid would "lead the law into . . . a quagmire." It raises the specter of multiple litigation by disappointed subbidders and seeks to cast doubt on the ability of courts to fashion limitations for this holding. [Note 17] However, possible difficulties of this sort are speculative and cannot determine the outcome of this case. In the instant case, the plaintiff has proved that Limbach offered to perform Westcott's Item 1 work substantially below cost, that Limbach conditioned its offer on acceptance of its subbid for Item 2 work on the same project, that Westcott accepted the offer as conditioned, and that Westcott listed Limbach as its subcontractor for such Item 2 work. We hold such proof sufficient. Subsequent cases will depend on the plaintiff's ability to prove that the effective equivalent of a variance in the subbid has been made.

2. Having found a variance in the subbid, we must follow the statutory command that variances are to "be of no effect." G. L. c. 149, Section 44H. Limbach argues in its brief that the language of the statute suggests that only the variance and not the subbid shall be nullified if the court finds an unlawful variance in a subbid. We do not today decide that this is the proper construction. We believe that, in the instant case, we need only render the variance of "no effect" by invalidating Limbach's subbid.

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Failure to invalidate the subbid would give Limbach the benefit of its arrangement with Westcott and, thus, would give "effect" to the variance which, we infer, [Note 18] induced acceptance of the high Limbach subbid.

3. The plaintiff asks that we declare that it has a right to the subcontract once Limbach's subbid is declared invalid. This we decline to do. "A subbidder has no right to insist that his subbid, however low, be accepted by a general contractor." East Side Constr. Co. Inc. v. Adams, 329 Mass. 347, 354 (1952). Accord, Rudolph v. City Manager of Cambridge, 341 Mass. 31, 39 (1960). It is not clear from the record that the plaintiff is acceptable to Westcott. See Rudolph v. City Manager of Cambridge, supra, at 38. In any event, the statute (G. L. c. 149, Sections 44H and 44I) provides procedures for substitution of another subbidder after a subbid has been rejected. We believe such procedures, which involve consultation between the selected general bidder and the contracting public authority, must be followed.

The interlocutory decree is reversed. The final decree is reversed. A judgment is to be entered declaring invalid Limbach's subbid for the interior piping work of the Fitchburg wastewater treatment facility. The judgment will be in conformity with this opinion in all other respects.

So ordered.

WILKINS, J. (dissenting, with whom Braucher, J., joins). I believe that the court's decision extends public regulation of subbidding practices for public buildings beyond the range intended by the Legislature, increases the cost of public buildings, and unreasonably burdens awarding authorities.

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The problem in this case is that an apparent unfairness to the plaintiff in the conduct of the general contractor and the selected subbidder has inspired a judicial extension of the public bidding law beyond its plain limits. Neither the language of the statute nor its legislative history shows any intention to regulate relationships between general contractors and subbidders with respect to nonfiled categories of work. All parties agree that a general contractor may contract with others to do work covered by its general bid. They further agree that a general contractor may make such contracts with persons who have been selected, or might be selected, by the general contractor as subbidders on work requiring a filed subbid. Most importantly, while our bidding statutes have required the selection of the lowest responsible general bidder, they have not required the selection or use of the lowest responsible subbidder. See East Side Constr. Co. Inc. v. Adams, 329 Mass. 347, 353-355 (1952); Rudolph v. City Manager of Cambridge, 341 Mass. 31, 39 (1960).

A general contractor is free to select a subbider who is not the lowest, at the risk of elevating its own bid and losing the general contract. The statute focuses on the lowest over-all general bid, and if it is made lower by an arrangement between the general contractor and a subbider such as exists here, that legislative purpose is encouraged. Although reduction in the over-all price to the awarding authority does not justify a violation of a bidding regulation (Chick's Constr. Co. Inc. v. Wachusett Regional High Sch. Dist. Sch. Comm. 343 Mass. 38, 42 [1961]), the achievement of a lower cost to the awarding authority, and hence to the taxpayers, is a legislative purpose which properly may be considered in construing the object of the statute.

The court's opinion treats the arrangement between Westcott and Limbach as a variance from the terms of the filed subbid. The filed subbid was not varied in any respect. Even if the separate arrangement concerning

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the outside work were treated as a variance of the filed subbid, Section 44H provides that any variance or modification of a filed subbid is to "be of no effect." The subbid as filed survives; the variance does not. The court's opinion, however, gives force to the asserted variance and invalidates the subbid. That result is plainly contrary to the language of the statute.

By extending regulation to nonfiled subbids, the court opens for scrutiny all conduct between a general contractor and a subbidder from the time of the filing of subbids until the selection of a subbidder. This decision makes any concession by a subbidder, intended or inadvertent, which benefits a general contractor a ground for invalidation of a filed subbid.

Furthermore, the burden of compliance by awarding authorities with the bidding statutes is increased greatly by the court's decision. The public interest would be served better by giving greater latitude to awarding authorities, allowing for the possibility that negotiation such as occurred here may save funds for the taxpayers of the Commonwealth. Moreover, an aggrieved subbidder could seek immediate relief directly against anyone whose conduct was unlawful. See, e.g., G. L. c. 93A, Sections 2, 3, and 11.

If the Legislature wishes to proscribe an arrangement such as was made between Limbach and Westcott, in order to enhance the integrity of the subbidding process, it may do so. I find no indication that it has done so under existing legislation. I would affirm the decree.