Getting the job is tough: too much optimism can cost dearly, and too little can cost the bid. When many low bids occur, shareholders may demand answers about who is responsible for the loss.
Because construction typically uses a bidding system instead of a negotiated contract, errors can be hard to fix. Leaving out the painting line item on a large office building, for example, can create a catastrophic gap in cost estimates.
Computerizing the bid process helps by preventing forgotten inputs, but people often put too much faith in a computer-generated number and skip independent checks.
Quality control for bids is essential for both estimators and executives: the estimator calculates the bid, and the executive signs the contract. When money is lost, the decision to sign the contract draws scrutiny.
Directors and officers insurance can protect executives when shareholders seek redress after a problematic contract; see For-Profit Directors and Officers (D&O) Liability Insurance — Private and Public for coverage basics and options.
Getting fired is only part of the risk — being sued for incompetence or fraud is the larger exposure. Claimants have the benefit of hindsight while the covered position must make decisions with imperfect information.
Your duties as a director or officer
- You must act in good faith and exercise prudent care in your decisions.
- You are required to be loyal to the business and avoid conflicts of interest.
- You must disclose material facts to regulators, board members, officers, creditors, bondholders, stockholders, and potential investors.
Implement a policy of redundant checks on all contracts, bids, scopes of work, payments, and routine agreements that can lull people into complacency. Routine tasks tend to hide defective work.
Spot-check bid numbers against industry averages or build that comparison into your estimating software; for an industry view that ties bidding and liability risks together, see Construction Bidding Risks, Workers' Compensation & Directors & Officers (D&O) Insurance.
If you've been in the industry awhile, compare your gut instinct to the line items in a proposal. When something doesn't make sense, stop and recheck the numbers. Treat every contract as your responsibility to avoid future claims.
If you want help reviewing coverage options or placing a policy, consider taking the next step and talk to an agent.
Frequently Asked Questions
What does directors and officers (D&O) insurance protect against?
D&O insurance helps cover defense costs and settlements when directors or officers are sued for alleged wrongful acts in managing the company.
Can a director be personally liable for a bad bid?
A director can face claims if shareholders allege negligence, breach of duty, or fraud, though liability depends on the specific facts and governance practices.
What practical steps reduce D&O exposure related to bidding?
Maintain documented review processes, require multiple checks on large bids, and ensure transparent disclosure to the board and shareholders.