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10/1999 |
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Paul S. Sugar Appeared in ABC Newsletter / Baltimore Chapter It's bid day and the general contractor is frantically preparing its price to submit to the owner. A subcontractor faxes its bid to the general. The bid looks reasonable and the general incorporates it into its offer. The next day, the general contractor is advised by the owner that it is the low bidder. The general calls the sub to give the good news, but the sub says it will not perform at the price quoted because the price is too low. The general contractor insists that the subcontractor perform for that price because the contractor used it in calculating its bid to the owner. Can the general contractor enforce the subcontractor's quote? It depends. In Maryland, a general contractor might pursue an action for breach of contract. It may be more successful, however, pursuing an action for "detrimental reliance." For this, the courts employ the following four-part test: 1. Did the subcontractor make a clear and definite promise to the general contractor; 2. Did the subcontractor reasonably expect that its offer might induce the general contractor to use it in its bid; 3. Did the bid actually induce the general contractor to take some sort of reasonable action based on the bid; 4. Did the general contractor's action, based on the subcontractor's promise, damage the general in a way which can only be remedied by enforcement of the subcontractor's bid. A general contractor must prove all four of the elements in order to hold the subcontractor to its bid. First, the courts determine on a case-by-case basis whether a subcontractor's promise is clear and definite. The courts will examine, among other issues, whether the subcontractor's bid was based on all material elements necessary to form the subcontract, such as, for example, whether the subcontractor's bid was based on all of the principal elements and the planned duration of the work. Second, the subcontractor must reasonably expect that the general contractor might use its price in the bid to the owner. The subcontractor's expectation that the general contractor may rely upon its bid, however, may dissipate through time. A call from the general to the sub the day after the general is informed that it is the low bidder shows more reliance on the subcontractor's price than does a telephone call six weeks after being informed it was the low bidder. Third, in order to prevail, the general contractor must prove that it actually and reasonably relied upon the subcontractor's bid. If a subcontractor's bid is so low that a reasonably prudent general ordinarily would not rely upon it (without first confirming it), it may be inferred that the general did not, in fact, rely upon the erroneous bid. Nor will the contractor succeed if the subcontractor can show that the general engaged in bid shopping or actively encouraged the subcontractor to chop its bid. The courts consider these actions by the general as strong evidence that it did not rely on the subcontractor's bid. On the other hand, prompt notice by the general contractor to the subcontractor that it intends to use the sub on the job is weighty evidence that the general did rely on the bid. Finally, the judge must be persuaded to conclude that binding the subcontractor to its bid is necessary to prevent injustice. Since this is an equitable remedy, the general contractor must have "clean hands," there should be no bid shopping or bid chopping. In conclusion, proving detrimental reliance depends on the facts of each case, but if the general contractor can establish a yes answer to each of the four parts of the test, it can bind the subcontractor to its bid. Principal Paul S. Sugar is an attorney in the Baltimore office of Ober|Kaler's Construction Industry Group. Ober|Kaler is one of the oldest and largest firms on the east coast. It has more than 120 attorneys and offices in Maryland, Washington, DC and Virginia. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia
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