When it comes to risk-taking for contractors, aside from the risks associated with the actual physical labor, the greatest risk a contractor undertakes is providing its bid to perform the intended work.
A contractor’s bid is its quote to perform a specific task, trade, or project. A contractor should therefore take care in insuring that there are very specific or objective criteria defining the “scope of work” upon which the bid is based. The following is a discussion of the risks, liabilities, and entitlements of contractors with respect to mistakes in the bidding process.
CONTRACTUAL PRECEPTS OF CONTRACTOR BIDS
In most instances, a bid by a contractor to perform construction services is, by its very nature, an “offer” in the legal sense in that it usually contains a specific price quote to perform a specific scope of work. Normally, if an offer is not otherwise revoked, it must be accepted by the offeree before a legal obligation can be binding. However, contrary to this general rule, contractor bidding carries with it many exceptions and nuances of which contractors and legal practitioners should be aware.
- Private Work/Doctrine of Promissory Estoppel
Probably the largest area of dispute in private works which surrounds this issue of bids and their contractual precepts is the area of subcontractor bids to general contractors. Although a bid is generally nothing more than an offer which may be revoked prior to acceptance, in California it has long been held that a subcontractor’s bid to a general contractor may be held irrevocable where the general contractor has relied upon such bid to its detriment.
The California Supreme Court in Drennan v. Star Paving Company (1958) 51 Cal.2d 409, held that although bidding on private works is not regulated by any specific statutory scheme as in public works, other basic legal principles are at work which should prevent a subcontractor from withdrawing its bid to a general contractor under the doctrine of promissory estoppel. This conclusion is enforced, absent extraordinary circumstances, even where the subcontractor’s bid contains a mistake or error.
The normal circumstances for application of such a conclusion follow a general contractor’s use of a subcontractor’s bid in its proposal to an owner which is subsequently accepted or is binding upon the general contractor.
It should be noted that the conclusion in the Star Paving Company case, is not without exception. Where, a prime contractor has actual knowledge or some reason to know that a subcontractor’s bid contains an error, then the equitable doctrine of promissory estoppel would not apply and, absent actual acceptance prior to revocation, a subcontractor could avoid the errors of his bid. Brunzell v. G.J. Weisbrod (1955) 134 Cal.App.2d 278.
However, the area of a general contractor’s imputed knowledge because it should have known of a mistake in a subcontractor’s bid is very gray and the benefit will probably be given to the general contractor absent other factors. See Norcross v. Winters (1962) 209 Cal.App.2d 207.
- Public Works Statutory Bidding Obligations
As mentioned above, the bidding process on public works differs substantially from normal contractual precepts of offers and acceptance. This is because on public projects there are statutory and bidding procedures which impose responsibilities and liabilities on general contractors and subcontractors who are bidding to public owners. Many of these statutory procedures are now embodied in the California Public Contract Code.
Under the competitive bidding statutes for public works, bids of contractors are considered irrevocable offers. M.F. Kemper Construction v. City of Los Angeles (1951) 37 Cal.2d 696.
Thus, again, although the public owner may not have yet formally accepted the bid, in public projects a contractor is bound to its bid pending the owner’s decision whether to accept the lowest responsible bid. City of Susanville v. Lee C. Hess Company (1955) 45 Cal.2d 684. Accordingly, during the period of time that an owner is reviewing a general contractor’s bid on a public work, the general contractor is bound to the owner to perform the project for the amount of its bid. Menefee v. County of Fresno (1985) 163 Cal.App.3d 1175.
Consequently, subcontractors can expect that their bids to a general contractor bidding on a public work will be similarly bound against them to the extent that the general contractor becomes the successful lowest responsible bidder to the owner.
However, this general rule is not without exceptions where certain specific factors can be shown and the contractor has procedurally acted diligently. For example, pursuant to California Public Contract Code Section 5101, et seq., a contractor may be relieved of its bid where the mistake is of the type and character to which the statute describes and written notice was given to the public entity within five days after the opening of the bid.
Generally speaking, the type of mistake which may be relieved under Public Contract Code Section 5100, et seq. involves mistakes which can be construed as “clerical mistakes” rather than mistakes in judgment or negligence on the part of the contractor providing its bid. White v. Berrenda Mesa Water District (1970) 7 Cal.App.3d 894.
A separate relief from error of a general contractor’s bid with respect to the listing of subcontractors is set forth in Public Contract Code Section 4107.5.
CORRECTION OF BIDS AFTER AWARD OR ACCEPTANCE
With respect to errors or mistakes discovered after the award or acceptance of the bid of a contractor, in most instances the law in California does not differ substantially from pre-award or pre-acceptance instances. However, there may be exceptions where the bid was obtained either through fraud or mistake. Architects and Contractors Estimating Service, Inc. v. Smith (1985) 164 Cal.App.3d 1001.
For all of the above reason, great caution should be used in developing, pricing and communicating bids for prospective construction projects.
Disclaimer: This is not intended to be giving any specific legal advice and the reader may not rely upon the comments therein and should seek specific legal advice from counsel applicable to your specific facts.