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Joseph C. Kovars Michael A. Schollaert Appeared in The Construction Lawyer The construction bidding process is often chaotic, full of pressure and drama. Many subcontractor and supplier bids arrive at a contractor's office minutes before the contractor must assemble and submit its bid. The contractor frequently must make quick decisions, based on limited facts, on whether to incorporate these sub-bids into its overall bid. After the bid opening, the contractor who submitted the lowest bid catches its breath and starts assembling a team to work on the project. A subcontractor may be pressured, (due to an overbooked schedule, a bid mistake or rapidly escalating prices, of which all are common occurrences in the current construction marketplace), to try to walk away from or modify its bid. On the other hand, the winning contractor is tempted, once the award is in hand, to either squeeze potential subcontractors to lower their prices or to replace them with others who dangle lower bids before the contractor's eyes. Big dollars are often at stake. Under what circumstances is a subcontractor held to its bid? When is a subcontractor let off the hook? Are there any situations in which the contractor must award the job to the subcontractor per its bid, or is it just a one-way street? The doctrine of promissory estoppel provides answers to these riddles. Evolution of the Doctrine Traditional Principles of Contract Law To be valid, the acceptance must occur before the offer is withdrawn and there must be a "meeting of minds" on the scope, quantity, price, and other essential terms of the contract.2 Prior to acceptance of the offer, however, there are no binding obligations between the parties. Many in the industry are surprised to learn that a contractor's reliance on the subcontractor's bid by incorporating it into the overall bid, or by listing it in its bid papers to the owner, does not constitute legal acceptance of the bid. Similarly, it imposes no obligation on the contractor to accept the subcontractor's bid. At the same time, a subcontractor ordinarily may withdraw its bid prior to acceptance. As a result, traditional principles of contract law at times have led to inequitable results in construction bidding. For example, a contractor may be awarded a contract. The owner's acceptance of the offer creates a binding contract obligating the contractor to perform at the as-bid price. If a subcontractor refuses to perform the work within the scope of its bid, the contractor then must re-procure the work at a price inevitably greater than the original bid. As a result, the contractor is saddled with the increased cost of re-procuring the work without even having broken ground on the project. In such a situation, common law principles of contract afford a contractor no relief against a subcontractor. Courts Create an Equitable Remedy Promissory estoppel is an equitable cause of action that arises under circumstances where it would be unfair to let the offeror walk away from its bid. In the construction bidding context, promissory estoppel fills the gap where a contractor intends to accept the subcontractor's bid, but the bid is withdrawn by the subcontractor before acceptance. The contractor's reasonable reliance on the subcontractor's bid justifies holding the subcontractor to its bid for a reasonable amount of time. The underlying effect of the doctrine is to make the subcontractor's bid "firm" (incapable of being withdrawn) for a reasonable period of time so that the contractor may accept the bid.4 If the subcontractor refuses to perform the work proposed in its initial bid, the general contractor is entitled to damages equal to the difference between the amount paid to the replacement subcontractor and the amount of the reneging subcontractor's bid. As a whole, the doctrine has the "practical effect of encouraging subcontractors to be cautious when formulating their bids . . . and satisfies the needs of the modern construction industry."5 Moreover, where the doctrine is properly applied, the truly responsible party generally bears the costs of the withdrawn or unperformed bid. As one court described it, promissory estoppel is "an attempt by the courts to keep remedies abreast of increased normal consciousness of honesty and fair representations in all business dealings."6 Early Case Law Finally, the court intimated that the doctrine of promissory estoppel should only be applied in the narrow context of charitable pledges.10 James Baird is the most oft-cited case for the principle that promissory estoppel does not make a subcontractor's bid irrevocable even though the contractor may have relied upon it in submitting its bid to the owner. As discussed below, however, courts following James Baird are clearly in the minority today. Drennan v. Star Paving Co.11 is the seminal case to apply the doctrine of promissory estoppel to a construction bidding dispute. In Drennan, the contractor received a telephone bid from the subcontractor, and the contractor included it in its overall bid for the project. The next day, the subcontractor informed the contractor it made a mistake in submitting its bid and could not perform the work for the quoted price. Because the owner accepted the contractor's bid, the contractor was required to perform the work at its original bid price — which included the subcontractor's erroneous bid. After the subcontractor refused to perform, the contractor re-procured the work at a higher cost. In turn, the contractor sued the subcontractor for the difference in cost. Ultimately, the court found that the subcontractor's bid contained an implied, subsidiary promise not to revoke the bid for a reasonable amount of time.12 In support of its position, California's Supreme Court stated: When [contractor] used [subcontractor]'s offer in computing his own bid, he bound himself to perform in reliance on [subcontractor]'s terms. . . . [Subcontractor] had reason not only to expect [contractor] to rely on its bid but to want him to. Clearly [subcontractor] had a stake in [contractor]'s reliance on its bid. Given this interest and the fact that [contractor] is bound by his own bid, it is only fair that [contractor] should have at least an opportunity to accept [subcontractor]'s bid after the general contract has been awarded to him.13 Despite the lack of a contract between the parties, the subcontractor's bid nonetheless was enforceable because of the contractor's reasonable and detrimental reliance on it.14 Elements of the doctrine Clear and definite offer The bid must offer to perform work and not represent a mere estimate. "Advertisements, price quotations, and price lists generally do not constitute offers but are instead usually considered requests for offers or invitations to negotiate."18 In determining whether a bid constitutes an offer or merely an estimate, courts will look to how the subcontractor disseminated its bid,19 whether the subcontractor reviewed the plans and specifications prior to submitting its bid,20 the completeness of the terms of the bid,21 how the bid was procured or received,22 and whether an inquiry was made with a contractor prior to submitting the bid.23 The bid must also be sufficiently clear and definite. It should clearly define the price and scope of work to be performed, but need not specify every contractual term contemplated by the parties.24 "[T]he doctrine of promissory estoppel does not impose the requirement that the promise giving rise to the cause of action must be so comprehensive in scope as to meet the requirements of an offer that would ripen into a contract if accepted by the promisee."25 Because bids generally are based upon the plans and specifications, they also should comply with such documents to constitute a clear and definite offer. Any ambiguities within the bid itself or variance from the bidding documents may preclude reliance on the doctrine. For example, in Camosy, Inc. v. River Steel, Inc.,26 the subcontractor's bid stated it would "furnish and erect" structural steel for the project. On the very same page, the subcontractor listed the erection of structural steel as an exclusion from the scope of the bid. Due to the patent contradiction on the face of the bid, the court found that it was ambiguous and affirmed a directed verdict against the contractor.27 In contrast, in Pickus Construction and Equipment v. American Overhead Door, 28 the subcontractor sought to withdraw its bid because it assumed it could provide a cheaper door of lesser quality than that required by the specifications. If forced to supply the specified door, the subcontractor was exposed to substantial losses on the contract. In defense of an action based upon promissory estoppel, the subcontractor argued that its bid was ambiguous both because it did not identify the manufacturer of the door and because it listed fewer doors than specified. Finding in favor of the contractor, the court held that because the specifications required a particular type of door, the offer was clear and definite despite its failure to name the door's brand.29 The judge also found that the subcontractor's failure to list the correct number of doors did not render the bid ambiguous — the subcontractor simply proposed to furnish two less doors than required.30 Reasonable expectation of reliance Courts readily admit evidence of course of dealing and industry customs to prove reasonable expectation of reliance.32 Moreover, communication of a contractor's intent to rely on a subcontractor's bid or the issuance of a letter of intent provides direct evidence of such knowledge. In Citiroof Corp. v. Tech Contracting Co., the Maryland Court of Special Appeal held that this element may dissipate over time.33 The longer a contractor waits to inform a subcontractor that it intends to use or accept its bid, the less a subcontractor anticipates that its bid is outstanding and liable to be accepted by the contractor.34 Actual, reasonable reliance As discussed in more detail below, the reasonableness of the contractor's reliance is evaluated frequently in reference to a contractor's bad behavior. Injustice Whether or not injustice can be avoided only through enforcement of the promise is perhaps the most elusive and undefined element of a promissory estoppel claim. As a result, courts are given broad discretion. Section 139 of the Restatement (Second) of Contracts lists the following factors: the availability and adequacy of other remedies; the definite and substantial character of the action or forbearance in relation to the remedy sought; the extent to which the action or forbearance corroborates the unfulfilled promise or bid; the reasonableness of the action or forbearance; and the extent to which the action or forbearance was foreseeable by the promisor.41 Unlike the other elements, whether injustice may be avoided generally is a policy question to be decided by the court, rather than a factual matter to be decided by the trier of fact.42 Bad Contractor Behavior Lets Sub Off the Hook (Limitations on the Doctrine) Because promissory estoppel is an equitable doctrine, courts have imposed certain limitations to prohibit its application where the contractor's conduct renders it unfair to hold the subcontractor to its bid. Recovery may be denied on a number of grounds, including that the contractor did not rely on the bid,43 the contractor failed to accept the offer within a reasonable amount of time,44 or the contractor rejected the bid by a counteroffer.45 Generally, a contractor will lose its case unless it shows that "injustice can only be avoided through enforcement of the promise."46 These limitations have been adopted primarily to protect the courts from rewarding inequitable conduct. Parties without "clean hands" cannot rely upon the doctrine. In Drennan, for instance, the court stated that, "[i]t bears worth noting that a general contractor is not free to delay acceptance after being awarded the general contract in hopes of getting a better offer. Nor can he reopen bargaining with the subcontractor and at the same time claim a continuing right to accept the initial offer."47 The court essentially conditioned the doctrine upon the absence of bad behavior. Bid Shopping and Bid Chopping Bid chopping occurs when a contractor attempts to pressure or coerce a subcontractor that already submitted a bid to lower its bid to be awarded the contract.52 To establish evidence of bid chopping, one must generally show that the contractor attempted to negotiate a lower price from the bidder and, in doing so, threatened to award the subcontract to a different bidder if it refused to lower its price.53 Similarly, evidence that a contractor engaged in bid chopping obviates its ability to hold a subcontractor to its original bid.54 Courts find that such practices demonstrate a lack of reliance on bid, or act as a rejection of the bid and submission of a counter offer. Either way, the bad behavior yields an unsuccessful result. Snatching Up an Unreasonably Low Bid A contractor, however, is not entitled to rely upon a bid if it knew or should have known the bid price was erroneous.56 In other words, if an unusual price disparity exists between two bids or a bid otherwise alerts a reasonably prudent contractor to the likelihood of a bid error, the contractor is not entitled to rely upon the low bid.57 As stated in Drennan, "[a]s between the subcontractor who made the bid and the general contractor who reasonably relied on it, the loss resulting from the mistake should fall on the party who caused it."58 But the devil is in the details. Because of various factors involved in estimating work, there is no defined threshold to determine when a contractor should have been aware of a bid mistake. A bid disparity of ten percent is not likely to be sufficient evidence that a party knew or should have know of a mistake in the bid;59 by contrast, a bid disparity of fifty percent likely would be sufficient to put a party on notice that something is wrong.60 Courts will consider carefully the facts to determine whether the contractor knew or should have known the bid was erroneous and therefore had no right to rely on it. While it is not the responsibility of the contractor to verify the accuracy of each subcontractor's bid,61 contractors are best served by contacting any subcontractor whose bid may be erroneous. A subcontractor's confirmation of its bid via telephone justifies the contractor's reliance.62 Unless evidence suggests that the contractor purposely relied upon a bid it believed to be erroneous — a difficult matter to prove — the subcontractor will be held responsible for damages resulting from its mistake. Unreasonable Terms of Acceptance Terms will be held unreasonable if they were not contemplated by the parties when the bid was prepared and submitted65 or are nonstandard provisions that would ordinarily require assent at the time an offer is made.66 Therefore, if a contractor attempts to impose terms materially different from the understanding between the parties at the time of the bid, the contractor will be precluded from relying on the doctrine of promissory estoppel.67 The doctrine of promissory estoppel presupposes that the bid is based upon certain, defined expectations, and that the contractor is only entitled to rely upon the terms set forth in the bid and/or contemplated by the parties at bid time. Courts, however, are quick to point out that subcontractors often use the defense of onerous contractual terms as a pretext for refusing to perform the work.68 Accordingly, if a contractor is able to demonstrate that the subcontractor was aware of the provisions at the time it submitted the bid or that the terms were standard, they might be held reasonable and recovery granted. Consequently, if a project has a strict time schedule or other requirements that absolutely must be agreed to in a subcontract, a contractor is best served by disclosing such information prior to submission of the bid or risk losing a promissory estoppel claim.69 Though some courts will treat onerous contractual terms as a counteroffer prohibiting the formation of a bilateral contract,70 such an undertaking does not, by itself, remove the situation from the doctrine of promissory estoppel.71 For instance, a court may hold that the inclusion of such terms is a collateral matter permitting the subcontractor to reject inclusion of the disputed terms.72 The subcontractor, however, would remain bound to the terms of its original bid.73 The parties must keep in mind that the bidding documents are drafted for purposes of the relationship between the owner and the contractor. Of course, there will be terms of the deal between the contractor and the subcontractor not addressed by the bidding documents. Whether or not the inclusion of a contractual term or provision renders reliance unreasonable, acts as a counteroffer, or otherwise prevents reliance on the doctrine of promissory estoppel must be established by taking into consideration industry standards and any other facts probative of determining whether each term or provision was within the contemplation of the parties at the time of contracting. Modern Permutations Contractor Recovery of Lost Profits Bidder Recovery Under Promissory Estoppel For instance, promissory estoppel may permit a bidding party to recover damages if the owner or contractor promises to award the contract to the lowest responsible bidder, the bidding party relies upon that promise in submitting its bid, and the owner or contractor improperly refuses to grant the low bidder the contract.77 While seemingly available in both a public or private context, it is the rare situation where the private party commits in advance to award to the low bidder. In the public context, procurement statutes and/or regulations generally provide a greater avenue of relief. Regardless, disappointed bidders have sought to recover several types of damages: bid preparation costs; bid protest costs; and lost profits. Holding that a claimant is only entitled to those damages it incurred as a result of its justifiable reliance, a majority of the courts limit recovery to the costs incurred in preparing the bid.78 With that said, if an owner demonstrates bad faith in refusing to award a contract as promised, the bidder may be entitled to its lost profits for the underlying contract.79 Many states have statutory provisions providing recovery of bid preparation costs in public works contracts.80 In the private sector, by contrast, a subcontractor's bid preparation costs may not yield sufficient damages to justify litigation.81 Conditional Contracts In AROK Construction Co. v. Indian Construction Services,84 the contractor attempted to convince the subcontractor, AROK, to reduce its subcontract bid prior to submission of the overall bid. AROK agreed to reduce its bid by $129,000 in exchange for the contractor's promise that it would award the subcontract to AROK if it became the successful prime contractor. After being awarded prime contract, the contractor sought further reduction of AROK's bid. AROK refused and the contractor awarded the job to another subcontractor. As a result, AROK sued for breach of contract and promissory estoppel. The court found that the contractor's statement was a conditional promise that constituted acceptance of AROK's bid.85 Consideration existed because the contractor bargained for a lower bid price and AROK bargained for the promise of the contract award.86 Although the same facts may be used to support a claim based upon the doctrine of promissory estoppel, subcontractors may be better served by basing the claim upon the breach of a conditional contract.87 As discussed in more detail below, damages awarded on the basis of promissory estoppel may "be limited as justice requires."88 Therefore, under promissory estoppel, the court may limit the damages to those actually suffered as a result of its reliance on the contractor's promise; whereas, in a breach of contract action, the subcontractor would be entitled to the full range of contractual remedies. U.C.C. Firm Offer Rule Damages The damages available under a promissory estoppel claim are typically limited to the difference between the amount paid to the replacement subcontractor and the amount of the reneging subcontractor's original bid. In other words, a promissory estoppel claimant is limited to restitution or the damages resulting directly from its reliance on the withdrawn bid. As with all contractual damages, the claimant always has a duty to mitigate. Meaning, the contractor must try to re-procure or self-perform the work at the lowest price available. In addition, Section 90 of the Restatement (Second) of Contracts states that the remedy imposed in a promissory estoppel action may be modified as justice requires.93 The same factors which bear on whether a claimant is entitled to recovery under promissory estoppel also bear on the extent to which it may recover.94 Accordingly, relief may be limited to restitution or other limited means of recovery bearing directly upon the extent to which contractor relied, rather than the terms of the bid.95 This provision affords court broad discretion in fashioning remedies based upon the doctrine, but it fails to provide any further direction for its application. Legal Impediments to Enforcement Statute of Frauds Courts permitting an action based upon promissory estoppel for oral bids often cite the Restatement (Second) of Contracts as support for their decision.100 Section 139 states, "[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise."101 In essence, promissory estoppel is generally recognized as an exception to the statute of frauds.102 It is important to note, however, that not all jurisdictions recognize promissory estoppel as a valid exception to the statute of frauds.103 Present State of the Law In 2005, the Pennsylvania Superior Court also rejected, the doctrine of promissory estoppel in construction bidding. Instead, the court chose to apply traditional principles of offer and acceptance.107 The court, however, may have left the door open if faced with a different factual circumstance.108 The Virginia Supreme Court also has explicitly rejected promissory estoppel as a cause of action.109 In addition, a number of other opinions from various jurisdictions have been cited for the proposition that an action for promissory estoppel will not lie in a construction bidding dispute.110 It is unclear, however, whether these cases truly adopt a wholesale rejection of the doctrine. Otherwise, promissory estoppel is a relatively established doctrine seemingly invoked on a more regular basis as a result of its general acceptance in the courts and the construction industry. In Louisiana, a civil code jurisdiction, the legislature adopted a statute embracing the doctrine.111 Practical Advice Both contractors and subcontractors may better define their relationship. If an oral communication takes place, the party should follow it up through a letter, e-mail, or other writing setting forth the substance of the communication. In addition, both parties should attempt to communicate fully all facts upon which their actions are based. To protect itself from the unwanted enforcement of a bid, a subcontractor may make its bid contingent upon acceptance of terms specified, such as acceptance of a standardized American Institute of Architects contract. Alternatively, the subcontractor can object to the inclusion of certain terms or clauses. Moreover, a contractor can make its bid contingent upon a particular method or manner of construction or may state that its bid is valid for a specified period of time. If a subcontractor has not evaluated all of the contract documents necessary to prepare a comprehensive bid, or otherwise does not intend its bid to constitute an offer, the subcontractor should expressly notify the contractor to prevent reliance on a mere price quote or an incomplete bid. If a subcontractor realizes it made a mistake in its bid, it should inform the contractor of the mistake as early as possible. Depending on the circumstances, the contractor may not have submitted its bid to the owner, or the contractor otherwise may be entitled to revise or rescind its bid. In short, subcontractors may attempt to limit their exposure. A contractor, on the other hand, may strengthen its position in the event a subcontractor fails to honor its bid. Contractors can set forth terms in the invitation to bid and condition submission of all bids upon assent to them. For instance, the invitation may include a standard contract or require all bids to remain open for specified period of time. If a contractor is required to obtain certain contractual terms or is bound by a defined construction schedule, that information should be disclosed in the bid documents and the contractor should require assent to those conditions. If it is the contractor's practice to receive oral bids, it should log those bids on a standard form containing detailed information. In addition, the contractor should request written confirmation of the bid or do so itself in a writing to the subcontractor. If a contractor is suspicious of a bid for any reason, whether it is too low or the contractor is unsure of the scope of the bid, it should call the subcontractor to verify the bid and follow-up that conversation in writing. Although it is not necessarily required, the contractor should inform the subcontractor of the reason for its concerns, i.e. if the bid was disproportionately low compared to other bids within the trade, so that a subcontractor is fully aware of any potential mistakes and can minimize the likelihood of additional problems. Before contract award, sending the subcontractor a letter of intent or an acceptance conditioned on receipt of the award, helps keep the contractor's hands clean. Once awarded the job, the contractor should formally accept subcontractor bids as soon as it is able. The acceptance must be consistent with terms of the bid, however, or the contractor otherwise runs the risk of its acceptance being found to constitute a counteroffer. In the event a subcontractor refuses to honor its bid, the contractor should take steps to mitigate its damages by re-procuring the work at the lowest cost. As with other actions, such efforts should be carefully documented by the contractor. Three final points: First, good communication is often the key to avoiding construction disputes. In the area of subcontractor bidding, good communication may prevent a subcontractor bid problem from developing into a promissory estoppel claim. Second, while a contractor with the contract award in hand may be able to hold the subcontractor to its bid, the contractor must resist the temptation to bid shop, bid chop or otherwise behave badly. Third, each promissory estoppel case is fact driven and the outcome may be difficult to predict. The finder of fact, judge or jury, will rely heavily on the relative clean hands of the parties. Endnotes 1 See, e.g., Electro-Lab of Aiken, Inc. v. Sharp Constr. Co. of Sumter, Inc., 593 S.E.2d 170, 173 (S.C. Ct. App. 2004); AROK Constr. Co. v. Indian Constr. Servs., 848 P.2d 870, 873 (Ariz. Ct. App. 1993) (“It is settled law that the bidding process alone does not create a contract.”); Elec. Constr. & Maint. Co. v. Maeda Pac. Corp., 764 F.2d 619, 621 (9th Cir.1985); Finney Co. v. Monarch Constr. Co., 670 S.W.2d 857, 859 (Ky.1984); Holman Erection Co. v. Orville E. Madsen & Sons, Inc., 330 N.W.2d 693, 696 (Minn.1983); Mitchell v. Siqueiros, 582 P.2d 1074, 1077 (Idaho 1978); K.L. House Constr. Co. v. Watson, 508 P.2d 592, 593 (N.M.1973); Corbin Dykes Elec. Co. v. Burr, 500 P.2d 632, 634 (Ariz. Ct. App.1972); Neptune Gunite Co. v. Monroe Enters., Inc., 40 Cal.Rptr. 367, 371 (Cal. Ct. App. 1964); Merritt-Chapman & Scott Corp. v. Gunderson Bros. Eng’g Corp., 305 F.2d 659, 663 (9th Cir.1962); Milone & Tucci, Inc. v. Bona Fide Builders, Inc., 301 P.2d 759, 763 (Wash. 1956); Williams v. Favret, 161 F.2d 822, 824 (5th Cir.1947). 2 “Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.” RESTATEMENT (SECOND) OF CONTRACTS § 50 (1981). 3 RESTATEMENT (SECOND) OF CONTRACTS § 90 (1981). “Estoppel prevents a person from showing the truth contrary to a representation of fact made by him after another has relied on the representation.” Id. at cmt. a. 4 Haselden-Langley Constructors, Inc. v. D.E. Farr & Assoc., Inc., 676 P.2d 709, 711 (Colo. Ct. App. 1983). 5 Alaska Bussell Elec. Co. v. Vern Hickel Constr. Co., 688 P.2d 576, 580 (Alaska 1984). 6 Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267, 273-74 (Wisc. 1965) (quoting Peoples Nat’l Bank of Little Rock v. Linebarger Constr. Co., 240 S.W.2d 12, 16 (Ark. 1951)). 7 64 F.2d 344 (2d Cir. 1933). 8 Id. at 345. 9 Id. at 346 (“But an offer for an exchange is not meant to become a promise until a consideration has been received, either a counter-promise or whatever else is stipulated. To extend it would be to hold the offeror regardless of the stipulated condition of his offer.”). 10 Id. 11 333 P.2d 757 (Cal. 1958). 12 Id. at 761. 13 Id. at 760. 14 Id. at 761. 15 RESTATEMENT (SECOND) OF CONTRACTS § 90. 16 Doll v. Grand Union Co., 925 F.2d 1363, 1372 (11th Cir. 1991). 17 Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc., 674 A.2d 521, 533 (Md. 1996). 18 I&R Mech., Inc. v. Hazelton Mfg. Co., 817 N.E.2d 799, 802 (Mass. App. Ct. 2004). 19 Courts will look to see whether subcontractor faxed out a bid willy-nilly or whether it targeted certain contractors whom it knew were bidding on the project. See id. at 803; Cannavino & Shea, Inc. v. Water Works Supply Corp., 280 N.E.2d 147, 148-49 (Mass. 1972). 20 Compare I&R, 817 N.E.2d at 803 (finding a bid did not constitute an offer where subcontractor never reviewed the specifications) with Loranger Constr. Corp. v. E.F. Hauserman Co., 384 N.E.2d 176, 178 (Mass. 1978) (finding the bid did constitute an offer where bid was submitted after consulting documents received from the architect). 21 I&R, 817 N.E.2d at 804. 22 Foley Co. v. Warren Eng’g, Inc., 804 F.Supp. 1540, 1546 (N.D. Ga. 1992) (finding that a bid was not a definite offer where subcontractor was called “out of the blue” to provide pricing for a contract without the assistance of plans or specifications). 23 Id. 24 Preload Tech., Inc. v. A.B.&J. Constr. Co., Inc., 696 F.2d 1080, 1089-90 (5th Cir. 1983) (“We cannot say that as a matter of law the bid was too incomplete or too indefinite to be considered final. Nor does the fact that the parties apparently contemplated execution of a formal subcontract following acceptance of the bid necessarily render the bid not final.”). 25 Hawkins Constr. Co. v. Reiman Corp., 511 N.W.2d 113, 117 (Neb. 1994). 26 624 N.E.2d 894 (Ill. App. Ct. 1993). 27 Id. at 898-99. 28 761 N.E.2d 356 (Ill. App. Ct. 2001). 29 Id. at 362. 30 Id. at 361. 31 See e.g., Drennan, 333 P.2d at 760. 32 See E.A. Coronis Assocs. v. M. Gordon Constr. Co., 216 A.2d 246, 253 (N.J. Super. Ct. App. Div. 1966). 33 860 A.2d 425, 432 (Md. App. 2004). 34 Id. 35 Hawkins, 511 N.W.2d at 117. 36 Pavel, 674 A.2d at 533. 37 See Lahr Constr. Corp. v. J. Kozel & Sons, Inc., 640 N.Y.S.2d 957, 960 (N.Y. Sup. Ct. 1996) (stating that evidence that a contractor used some other subcontractor’s bid would, itself, be sufficient to defeat a promissory estoppel claim on the grounds that the contractor did not reasonably rely). 38 Haselden-Langley, 676 P.2d at 711 (stating that lack of reliance may be demonstrated by the failure to reply promptly after the award of the general contract). 39 See Pickus Const. and Equip. v. American Overhead Door, 761 N.E.2d 356, 363-64 (Ill. App. Ct. 2001) (finding no evidence to support contractor’s assertion that contractors routinely ignore sunset provisions in subcontractors’ bids). 40 See Diede Constr., Inc. v. Monterey Mech. Co., 22 Cal. Rptr. 3d 763, 770 (Cal. Ct. App. 2004) (“[I]njustice can be avoided only by enforcement of the bid whenever the general contractor acting in good faith is unable to do the work called for in the bid of the prospective contractor (or to get the work done by another subcontractor) for a price at or below the price bid by the prospective subcontractor.”) (citation omitted). 41 RESTATEMENT (SECOND) OF CONTRACTS § 139 (1981). 42 Seater Constr. Co., Inc. v. Rausen Plumbing, Inc., 619 N.W.2d 293, 297 (Wisc. 2000). 43 Lahr, 640 N.Y.S.2d at 957. 44 Haselden-Langley, 676 P.2d at 711 (stating that evidence that the contractor continued to bargain with the subcontractor demonstrates a lack of reliance). 45 Hedden v. Lupinsky, 176 A.2d 406, 612-13 (Pa. 1962). 46 Preload, 696 F.2d at 1089; Lahr, 640 N.Y.S.2d at 961. 47 Drennan, 333 P.2d at 760. 48 See, e.g. id.; Debron, 493 F.2d at 358; Constructors Supply Co. v. Bostrom Sheet Metal Works, Inc., 190 N.W.2d 71, 76-77 (Minn. 1971) 49 In Preload Tech., Inc., the court defined bid shopping as “a general contractor’s seeking of bids from subcontractors other than the one whose bid amount the contractor used in calculating its own bid, and often involves the general’s informing the other subcontractors of the amount of the low bid and inviting them to undercut it.” 696 F.2d at 1089. 50 Arthur L. Corbin, CORBIN ON CONTRACTS, § 2.31, at 292 (Rev. ed. Perillo, 1993). 51 Due to the inefficiencies and inequities resulting from the practice of bid shopping some states have passed laws or regulations to curb such practices. For instance, in 1921, New York passed “Wicks Law” mandating that all public construction projects valued at over $50,000 must be awarded through four separate prime contracts: (1) electric; (2) plumbing; (3) heating ventilation and air conditioning; and (4) general trades. N.Y. STATE FIN. LAW § 135 (2004). One rationale behind Wicks Law was that it would help eliminate the practice of subcontractor bid shopping. Although the efficiency of the laws has been repeatedly called into question, the four prime contract arrangement unquestionably reduces occurrences of bid shopping. As an alternative statutory method to control bid shopping, the Massachusetts state legislature passed a law which requires “filed sub-bids.” MASS. GEN. LAWS ch. 149A, § 8 (2004); MASS. GEN. LAWS ch. 149, § 44 (2004). In short, the public awarding authority accepts bids directly from the subcontractors. Under the “filed sub-bids” law, the bid process has several phases. First, the project is advertised to subcontractors, and subcontractors submit bids to public authority. The public authority, in turn, compiles the bids and provides the bids to the prime contractors bidding on the project. Prime contractors then submit their overall bids to the public authority and are required to list the subcontractors they intend to use. Once the prime contractor submits its bid, it must select the listed subcontractor to perform then work at the price included in the subcontractor’s filed bid. In addition to New York and Massachusetts, at least seven other states have some form of legislation aimed at reducing or eliminating the practice of bid shopping: Arkansas, California, Connecticut, Delaware, Florida, New Mexico and North Carolina. 52 In Preload Tech., Inc., the court defined bid chopping as “a general contractor’s attempt to negotiate a lower price than the bid from the subcontractor whose bid figure the general employed in calculating its own bid, frequently by threatening to subcontract the work to a third party.” Id. 53 Sipco Servs. Marine, Inc. v. Wyatt Field Serv. Co., 857 S.W.2d 602, 606 (Tex. Ct. App. 1993). 54 See, e.g., Debron, 493 F.2d at 358 (stating that a contractor may not “attempt to reopen bargaining with the subcontractor.”); Preload, 696 F.2d at 1089. 55 Jenkins and Boller Co. v. Schmidt Iron Works, Inc., 344 N.E.2d 275, 278 (Ill. App. Ct. 1976). 56 Pickus, 761 N.E.2d at 362. 57 Citiroof, 860 A.2d at 433. 58 Drennan, 333 P.2d at 761. 59 See Constructors Supply, 190 N.W.2d at 77 (finding that a bid disparity of 10-11% was insufficient evidence to demonstrate the plaintiff was aware of a bid error). 60 See S.N. Nielson Co. v. Nat’l Heat and Power Co., Inc., 337 N.E.2d 387, 390 (Ill. App. Ct. 1975) (finding that the contractor knew or should have known of the existence of a bid error where the price disparity approached 50%). 61 Citiroof, 860 A.2d at 433-34. 62 See Pickus, 761 N.E.2d at 363 (stating that the subcontractor’s assurances that the bid was accurate and would be honored were sufficient to dispel any notion that the bid was erroneous); B.D. Holt Co. v. OCE, Inc., 971 S.W.2d 618, 621 (Tex. App. 1998). 63 See Drennan, 333 P.2d at 760. 64 Crook v. Mortenson-Neal, 727 P.2d 297, 301 (Alaska 1986). 65 Hawkins, 511 N.W.2d at 117-18. 66 Id.; Mead Assoc., Inc. v. Scottsbluff Sash & Door Co., 856 P.2d 40, 42 (1993). 67 Hawkins, 511 N.W.2d at 117 (finding reliance to be unreasonable where the proposed subcontract agreement attempted to require the subcontractor to carry five times the amount of umbrella liability insurance than was typically required in the industry, require the subcontractor to submit shop drawings within two weeks, and consent to a “no damages for delay” clause); Lichtenberg Constr. & Dev. Co. v. Paul W. Wilson, Inc., No. C-000811, 2001 WL 1141236 (Ohio Ct. App. Sept. 28, 2001) (“[A] subcontractor is bound to its bid to a general contractor if the general contractor relied on that bid, was awarded a general contract, and notified the subcontractor within a reasonable time that the subcontractor’s bid was accepted. But if the general contractor then proposes a subcontract with terms that the subcontractor should not reasonably have expected when the subcontractor made the bid, then the subcontractor will not be obligated to honor the bid.” (quoting Lichtenberg Constr. & Dev. Co. v. Paul W. Wilson, Inc., Hamilton App. No. C-990533 (Mar. 10, 2001) (unreported)); Haselden-Langley, 676 P.2d at 711 (stating that an attempt to accept the bid on terms different from the original bid demonstrates a lack of reliance). 68 See SKB Indus., Inc. v. Insite, 551 S.E.2d 380, 383 (Ga. Ct. App. 2001) (finding evidence that the contractor “refused to perform because it realized it had mistakenly bid too low on portions of the landscaping work.”); Hawkins, 511 N.W.2d at 118 (finding that the true reason the subcontractor refused to perform the work was because it realized its bid contained a calculation error). 69 See Lichtenberg, 2001 WL 1121236, at *2 (stating that the bid would have been held irrevocable if the contractor would have included the time schedule for performance of the work in the bidding specifications). 70 The Restatement (Second) of Contracts defines a counteroffer as “a reply to an offer which purports to accept it but is conditional upon the offeror’s assent to terms additional to or differed from those offered.” RESTATEMENT (SECOND) OF CONTRACTS § 60 (1981). Consequently, if a contractor offers a subcontract with terms materially different from those contained in the contract documents or discussed by the parties, no bilateral contract may be formed. This, however, does not necessarily preclude reliance of the doctrine of promissory estoppel. 71 Litterio, 319 F.2d at 739 (finding the submission of a subcontract with materially different terms was a counteroffer but did “not dispose of the separate question of promissory estoppel.”). 72 Mead, 856 P.2d at 42. 73 Id. 74 453 N.E.2d 726 (Ill. App. Ct. 1983). 75 Id. at 728 (holding that award of a contract is not a precondition to recovery under the doctrine of promissory estoppel). 76 See generally, Ritchie Paving, Inc. v. City of Deerfield, Kansas, 67 P.3d 843 (Kan. 2003) (“Once injunctive relief is no longer available, the lowest responsible bidder who is wrongfully denied a public contract has a cause of action for monetary damages against the public entity.”); Kajima/Ray Wilson v. Los Angeles Count Metro. Transp. Auth., 1 P.3d 63 (Cal. 2000) (permitting recovery against a municipality where the procurement statute required the owner to award the contract to the lowest responsible bidder); Marbucco Corp. v. Suffolk Constr., 165 F.3d 103 (1st Cir. 1999) (permitting an action by a subcontractor against a contractor who promised to award the contract to the lowest bidder). 77 Kajima/Ray, 1 P.3d at 68-69 (“If [the contractor’s bid] is the lowest, and it is a responsible bidder, but the contract is awarded to a higher bidder, the elements of a promissory estoppel cause of action appear to be established.”). 78 Marbucco, 165 F.3d at 104. 79 Id. at 105 (“[B]id preparation costs are the ‘ordinary’ remedy for a promissory estoppel claim, leaving lost profits for exceptional cases where bad faith (or something akin to bad faith) is proven.”). Marbucco further relies on the Section 90 of the Restatement (Second) of Contracts to support its position that lost profits are recoverable. RESTATEMENT (SECOND) OF CONTRACTS § 90, cmt. d, illus. 8 & 9. In Kajima/Ray, the court reversed the lower court’s grant of lost profits to the contractor because of the inherent uncertainties in the competitive bid process, uncertainties in the performance of a construction project, and the court’s ability to limit the remedies available under promissory estoppel “as justice requires.” Kajima/Ray, 1 P.3d at 68-69. 80 The majority of jurisdictions have statutory provisions permitting recovery of bid preparation and/or bid protests costs. See Kajima/Ray, 1 P.3d at 71-72 & n.5. 81 Under most circumstances short of bad faith, the costs of prosecuting a promissory estoppel action by a subcontractor against a contractor would likely exceed the amount of its bid preparation costs. 82 “A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.” RESTATEMENT (SECOND) OF CONTRACTS § 224 (1981). 83 Ripsom v. Beaver Blacktop, Inc., 1988 WL 32071, * 10 (Del. Super. Apr. 6, 1988) (“I am satisfied that a reasonable juror could find that [the contractor] bargained for [the subcontractor’s] promise of performance by promising in return to award it the contract. Additionally, I am satisfied that a reasonable juror could find that [the subcontractor’s] return promise was reasonably induced by [the contractor’s] offer or promise.”). 84 848 P.2d 870 (Ct. App. Div. 1973). 85 Id. at 875. 86 Id. 87 Id. at 878-89. 88 RESTATEMENT (SECOND) OF CONTRACTS § 90. 89 U.C.C. § 2-205 (2004). If the bid does not specifically state its intent to be held open, the U.C.C. firm offer rule will not apply. E.A. Coronis, 216 A.2d at 249. 90 U.C.C. § 2-205. 91 Id. 92 The U.C.C. defines goods as “all things . . . which are moveable at the time of identification to the contract for sale.” U.C.C. § 2-105(1). If the underlying dispute involves both the sale of goods and services, i.e. a “mixed contract”, most courts apply the predominant purpose test to determine whether the sale was truly for goods or services. In short, the court examines the sale to determine the primary or predominant purposes of the sale and categorize the sale accordingly. Other jurisdictions follow the “gravaman of the action” test to determine whether the complaints alleged focus upon the supply of goods or furnishing of services and categorize the sale accordingly. See generally A&A Mech., Inc. v. Thermal Equip. Sales, Inc., 998 S.W.2d 505, 511 (Ky. Ct. App. 1999) (finding a signed bid sheet quoting materials for a specific project was a firm offer to supply the materials at the quoted price for the duration of the bidding period). 93 RESTATEMENT (SECOND) OF CONTRACTS § 90. 94 Id. at cmt. d. 95 Id. 96 This category is usually set forth in Section 2-201 of the Uniform Commercial Code rather than the state statute of frauds. 97 Contracts need only be physically capable of being fully performed within one year. Thacker v. Peak, 800 F. Supp. 372, 383 (S.D.W. Va. 1992) (“[I]t is only necessary that the contract be capable, by reasonable construction, of full performance by one side within a year in order to remove it from the statute of frauds.”). 98 The statute of frauds varies from state to state; therefore, should an issue arise involving the statute of frauds, it would be prudent to review and analyze the applicable statute. 99 At a minimum, the writing must be signed by the party against whom enforcement is sought and state with reasonable certainty: (a) the subject matter of the contract; (b) the identity of both contracting parties; and (c) the essential terms of the unperformed promise. RESTATEMENT (SECOND) OF CONTRACTS § 131 (1981). 100 See Allen M. Campbell Co. v. Virginia Metal Indus., Inc., 708 F.2d 930, 933-34 (4th Cir. 1983). 101 RESTATEMENT (SECOND) OF CONTRACTS § 139. 102 SKB Indus., 551 S.E.2d at 384 (“Assuming, without deciding, that the statute of frauds is applicable, its basic purpose is to prevent fraud. It does not operate to prevent the use of the equitable principle of promissory estoppel to enforce a promise which was expected to and did induce detrimental reliance.”). 103 Virginia Metal, 708 F.2d at 932 (stating that there is a split of authority as to whether promissory estoppel is an exception to the statute of frauds). For example, the opinion states that the following jurisdictions recognize promissory estoppel as an exception to the statute of frauds: Arkansas, Illinois, Iowa, Kansas, and North Dakota. Id. at 932-33. To the contrary, the following jurisdictions do not recognize promissory estoppel as a valid exception: New York, Washington, Mississippi, Kentucky, Nebraska, and Arizona. Id. 104 Pavel, 342 Md. at 146 n.1. 105 Home Elec. Co. of Lenoir, Inc. v. Hall and Underdown Heating and Air Conditioning Co., 358 S.E.2d 539, 545 (N.C. App. 1987). North Carolina does permit application of the doctrine in defensive situations where there has been an intended abandonment of an existing right by the promisee. Id. at 543. 106 Id. at 545. 107 Lobar, Inc. v. Lycoming Masonry Co., 876 A.2d 997, 1001-02 (Pa. Super. Ct. 2005) (“Defendant’s liability to Plaintiff can be established by contract law. Either there was a contract or there was not a contract. The resolution of this issue depended on whether Plaintiff accepted Defendant’s offer or whether it made a counter offer.”). 108 See id. 109 W.J. Schafer Assoc., Inc. v. Cordant, Inc., 493 S.E.2d 512, 521 (Va. 1997) (“Today, however, we hold that promissory estoppel is not a cognizable cause of action in the Commonwealth, and we decline to create such a cause of action.”). 110 Loranger, 384 N.E.2d at 179 n.1 (citing cases). In Loranger, the court cites the following cases that fail to permit an action for promissory estoppel in the construction bidding context: James Baird Co. v. Gimbel Bros., 64 F.2d 344, 346 (2d Cir. 1933); Tatsch v. Hamilton-Erickson Mfg. Co., 418 P.2d 187 (N.M. 1966). Id. In addition, Florida refused to recognize the doctrine in Southeastern Sales & Serv. Co. v. T.T. Watson Co., 172 So.2d 239, 241-42 (Fla. Dist. Ct. App. 1965). 111 LA. CIV. CODE ANN. art. 1967 (1987). The code states: “A party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying. Recovery may be limited to the expenses incurred or the damages suffered as a result of the promisee’s reliance on the promise. Reliance on a gratuitous promise made without required formalities is not reasonable.” Id.; see Percy J. Matherne Contractor, Inc. v. Grinnell Fire Protection Sys., 915 F.Supp. 818, 824-25 (M.D. La. 1995) (applying LA. CIV. CODE ANN. art. 1967 to enforce a subcontractor’s bid). |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia
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