7.3 Competitive Bidding Strategy, Public Works Bidding (NRS 338) & Bid Bonds

Construction Procurement & Public Bidding Systems

Public works in Nevada are paid for with public money, so NRS Chapter 338 controls how they are advertised, bid and awarded. The rules aim to protect taxpayers, prevent favoritism and bid shopping, and ensure the winning contractor is qualified.

Traditional Design-Bid-Build (DBB)

The public body's architect or engineer completes the plans and specifications, the work is advertised, and sealed bids are opened publicly.

• Advertising: A public work with an estimated cost over $100,000 may not be commenced unless it is advertised for bids in a qualified newspaper. A public body may not divide a project to avoid this (NRS 338.1385(1)).
• Qualified Bidders: The advertisement must state that bidders must be qualified under NRS 338.1379 or 338.1382.
• Award: The contract goes to the lowest responsive and responsible bidder (NRS 338.1385(5)). Bids may be rejected if the bidder is unqualified, not responsive or responsible, or offers nonconforming quality, or if rejection serves the public interest.

Key Definitions:

• Responsive Bidder: Its bid conforms in all material respects to the solicitation: forms signed, addenda acknowledged, bid security enclosed, and subcontractor lists submitted on time.
• Responsible Bidder: It has the license classification and monetary limit, finances, experience, equipment and integrity to perform.

The 5% Bidder Preference (NRS 338.1389)

On public works estimated over $250,000, a bid from a contractor that holds an NSCB certificate of eligibility for a bidding preference is treated as the "best bid" if it is not more than 5% higher than the lowest bid from a contractor without the preference. The contractor must also submit the required affidavit within 2 hours after bid opening. The NSCB issues the certificate based on a CPA affidavit about the contractor's Nevada tax payments; the Board's fee is $500 to issue and $300 to renew (NAC 624.130).

Alternative Delivery Methods

• Construction Manager at Risk (CMAR; NRS 338.169 to 338.16995): The public body selects a CMAR on qualifications and fees. The CMAR gives preconstruction services and then negotiates a guaranteed maximum price.
• Design-Build (NRS 338.1711 to 338.1727): The public body contracts with a single design-build team for both design and construction.
• Design Professionals: Architects and engineers are selected on qualifications rather than low price.

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Subcontractor Bid Leveling, Scope Sheets & Bid-Day Ethics

On a large commercial or public job, subcontracted work is often 75% to 85% of the prime contract price, so bid-day analysis of subcontractor quotes decides the outcome.

Scope Sheets and Bid Leveling

                                SUBCONTRACTOR BID LEVELING

  SCOPE ITEM                   SUB A (ACME)         SUB B (DESERT)       SUB C (SUMMIT)
  Base Bid Quote               $340,000             $355,000             $365,000
  Anchor Bolts Included?       YES                  NO (+ $5,000 plug)   YES
  Winter Heat / Hoarding?      NO (+ $12,000 plug)  YES                  YES
  Concrete Pump Truck?         YES                  YES                  NO (+ $8,000 plug)
  Cleanup & Trash Disposal?    NO (+ $3,000 plug)   YES                  YES
  -----------------------------------------------------------------------------------
  NORMALIZED LEVEL BID         $355,000             $360,000             $373,000

• Plug Numbers: When a quote excludes a required item, the estimator adds an estimated "plug" so quotes are compared on the same scope. Comparing quotes at face value causes bid-day omissions.

Bid Shopping vs. Bid Peddling

• Bid Shopping: The prime contractor discloses a low subcontractor's price to others to drive the price down. Nevada's public works listing and substitution rules are designed to stop it.
• Bid Peddling: A subcontractor approaches the prime after bid day offering to undercut the listed subcontractor.

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Subcontractor Listing (NRS 338.141)

What Goes With the Bid

• Public Body Provides a List: If the public body provides a list of portions of the work estimated to exceed 3% of its estimate, the bid names the first-tier subcontractor for each such portion.
• No List Provided: The bid names each first-tier subcontractor that will be paid more than 5% of the prime contractor's total bid.

What Is Due Within 2 Hours After Bid Opening

When bids are submitted under the 5% rule, the contractors with the three lowest bids must, within 2 hours after the bids are opened, submit a list with:

1. Each first-tier subcontractor that will be paid more than $250,000;
2. If any first-tier subcontractor will be paid $250,000 or less, each first-tier subcontractor that will be paid 1% of the total bid or $50,000, whichever is greater; and
3. The NSCB license number of each listed subcontractor.

Rules for Every List

• Description of Work: Each list must describe the work each listed subcontractor will provide.
• Prime Contractor's Own Work: The prime contractor must include its own name. If it will perform work over 1% of its bid that is not assigned to a listed subcontractor, it must describe that work or state that it will perform all work not listed.
• Missed Deadline: A list not submitted on time makes the bid not responsive. Listing a subcontractor on disqualified status has the same effect unless an acceptable replacement is provided before award.

  With the bid ............ first-tier subs paid > 5% of the bid (or > 3% items if the
                            public body supplies a list); prime lists its own name
  Within 2 hours .......... three lowest bidders: subs > $250,000, and subs at the greater
                            of 1% of bid or $50,000; license numbers for each
  Late list ............... bid deemed not responsive

Substituting a Listed Subcontractor (NRS 338.141(5))

A prime contractor may not substitute a named subcontractor unless:

• The public body objects to it, asks in writing for a change, and pays any resulting cost increase; or
• The public body approves the substitution. It must approve if the named subcontractor:
  1. after a reasonable opportunity, fails or refuses to sign a contract offered on the same general terms as all other subcontractors;
  2. files for bankruptcy or becomes insolvent;
  3. fails or refuses to perform within a reasonable time, or cannot furnish the performance and payment bonds required by NRS 339.025; or
  4. is not properly licensed for the work.

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Prevailing Wages on Public Works (NRS 338.010 – 338.090)

• Threshold: The prevailing wage law does not apply to a public work whose estimated cost is less than $100,000, and a project may not be split to get under that figure (NRS 338.080).
• Contract and Posting: Every covered contract must state the hourly and daily wage for each class of worker, and the rates must be posted on the site (NRS 338.020(1)).
• Who Sets the Rates: The Labor Commissioner determines rates by region and craft after surveying contractors in odd-numbered years. Rates are issued October 1 of that year, remain effective for 2 years, and are adjusted October 1 of even-numbered years (NRS 338.030).

$$\text{Total Prevailing Wage} = \text{Basic Hourly Rate} + \text{Fringe Benefits}$$

• Fringes: Bona fide fringe contributions count toward the rate. Otherwise the fringe portion is paid as cash wages.
• Overtime (NRS 338.020(3)): Pay 1.5 times the prevailing rate for hours over 40 in a scheduled week or over 8 in a workday, counting hours worked for the same employer on other jobs. The exception is a mutually agreed 4-day, 10-hour schedule. Covered collective bargaining agreements may provide otherwise.

Payroll Records (NRS 338.070)

• Contents: Each contractor and subcontractor keeps records for every worker: name, occupation, voluntarily reported gender and ethnicity, the state that issued the worker's driver's license or ID, and actual per diem, wages and benefits paid. A separate confidential record lists license or ID numbers.
• Monthly Filing: A copy of each month's records must reach the public body no later than 15 days after the end of the month. The records must be open to the public body's inspection.
• Penalty: Neglecting these record requirements is a misdemeanor.

Penalties and Disqualification

• Underpayment (NRS 338.060(1)): The contractor forfeits $20 to $50 per calendar day per worker paid less than the designated rate, whether by the contractor or any subcontractor.
• Records: The same daily penalty applies for willfully inaccurate monthly records. Missing reports carry penalties capped at $1,000 for the first failure and $5,000 for each later failure.
• Withholding: The public body withholds forfeitures from payments, and the prime may withhold the amounts its subcontractor caused (NRS 338.070(2)–(3)). Back wages are owed to the workers.
• Disqualification (NRS 338.017): After an administrative penalty, the Labor Commissioner may bar the contractor and its officers from public works for up to 180 days (first offense); 180 days to 3 years (second); 3 to 5 years (third); and at least 5 years (fourth or later). Federally debarred contractors are also barred.

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Apprentices on Public Works (NRS 338.01165)

A contractor or subcontractor employing workers on public works during a calendar year must use apprentices for at least:

• Possible Increase: The Labor Commissioner, with the State Apprenticeship Council, may raise each percentage by up to 2 points.
• No Program Available: No apprentice is required in a craft where the State Apprenticeship Council recognizes that no apprentices exist in that jurisdiction.
• Good-Faith Effort: Request an apprentice on the Labor Commissioner's form no earlier than 30 days before and no later than 5 days after starting work. Then repeat the request at least every 30 days while working unless an apprentice is employed. Keep documentation.
• Graduates: An apprentice who graduates while on the job still counts as an apprentice for the ratio but is paid as a journeyman.

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Bid Bonds and Bid Security

A bid bond guarantees that, if awarded the contract, the bidder will sign it and furnish the required performance and payment bonds.

                                PRINCIPAL
                           (General Contractor)
                                   ^  |
     Contractor agrees to          |  | Contractor pays premium
     indemnify surety              |  | and submits bid to obligee
                                   |  v
  SURETY ------------------------------------------------> OBLIGEE
(Bonding company)    Surety guarantees the principal      (Owner / public body)
                     will sign and furnish final bonds

• Principal: The bidder.
• Obligee: The owner or public body.
• Surety: The bonding company, authorized to do surety business in Nevada.

Amount and Forfeiture

Bid security is set by the solicitation and is commonly 5% of the bid. It may be a bid bond or another security the documents allow, such as a cashier's check. If the low bidder refuses to sign within the time allowed, the owner can usually recover its actual loss, typically the difference between the defaulting bid and the next acceptable bid, up to the bond's penal sum.

Worked Example

• Bidder 1 (low): $2,000,000, with a 5% bid bond ($100,000).
• Bidder 2: $2,075,000.

If Bidder 1 refuses to sign and the agency awards to Bidder 2, the loss is $75,000. That is below the $100,000 bond, so the liability is $75,000. If Bidder 2 had bid $2,150,000, the $150,000 difference would be capped at the $100,000 penal sum.

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Mistakes in Bids

Courts and public owners distinguish clerical or arithmetic mistakes from errors of judgment:

1. CLERICAL / ARITHMETIC MISTAKE
   - transposed numbers ($140,000 entered as $410,000)
   - spreadsheet or addition error that drops a page
   - relief possible: withdrawal without forfeiting bid security, if proven
     promptly with original worksheets and before award

2. ERROR OF BUSINESS JUDGMENT
   - wrong productivity or unit-cost assumption
   - underestimated rock or caliche excavation
   - misread a clear specification
   - no relief: sign at the bid price or risk forfeiting the security

1. Clerical or Arithmetic Mistakes

Examples are an addition error, a transposed figure ($215,000 instead of $512,000), or a subcontractor quote sheet dropped from the total. A bidder seeking relief should:

1. Give the owner prompt written notice, before award, as the bid documents require;
2. Prove the mistake with original estimating worksheets and records; and
3. Show that the error is material, so that holding the bidder to the price would be unconscionable.

Many solicitations spell out the procedure and bar a withdrawing bidder from rebidding the same work.

2. Errors of Judgment

Underestimating labor hours, assuming rock can be dug with a standard backhoe, misjudging price escalation, or under-pricing general conditions are business risks. They do not justify withdrawal. The bidder must sign at its price or face loss of its bid security.