LEGAL BY GERARD W. ITTIG
Nearly six months of effort were
involved in my client’s developing an
electrical system design that interfaced
with the GC’s overall design concepts. In
the process, countless hours were devoted
to cost estimates for labor, materials,
equipment and devices to be purchased.
Additionally, as the expected award date
got closer, my client made decisions concerning project management staffing.
It declined to bid on some other jobs
because of the potential that too much
work would overburden the company’s
resources. My client shared with the GC
its fairly complete set of electrical design
drawings, specifications and estimates,
particularly for manpower.
As it turned out, the owner gave
GC a contract. The GC then solicited a
lower bid from another EC, using my client’s designs and information, and then
subcontracted the work to that other
company. What rights did my client have
in this situation?
The GC is not bound
This may be a somewhat extreme example of a common occurrence. Whether
or not the project is design/build, you
may have participated with a GC in
assembling a competitive bid with the
expectation that you would be awarded
the subcontract should the GC get the job
from the owner. Then, the GC changes its
mind about giving you the work.
Under traditional concepts of con-
tract law, there is little hope for your
recovery of bidding costs or for lost busi-
ness opportunities—jobs you declined to
bid because of the potential for the job
you hoped to get. Generally speaking, it
is reasonable that the law, and the courts,
are not on your side.
First, when you submitted your bid,
the GC did not yet have a contract with
the owner, so your proposal cannot be
considered as forming a contract. What
you have, at best, is a promise to contract
in the future—an expectancy. Those kinds
of promises, without more, are not legally
binding. Whether you end up with a con-
tract at all depends on the unpredictable
decision of a third party: the owner.
Second, the courts look at bid preparation costs as a “cost of doing business,”
somewhat like advertising expenses. You
pay the money hoping to get the work,
but without guarantees.
Third, the courts prefer freedom of
contracting. This preference means that
a subcontractor can submit bids to multiple contractors on the same project,
and the GC can select among them. Note
that some states have laws for public contracts that vary this conclusion.
But the subcontractor is bound
Then comes the contract law concept of
promissory estoppel so that the GC is not
required to award a contract to a sub, but
the sub is required to be bound to the GC.
The idea of promissory estoppel is
simple: If a promise by one party is clear
and certain and causes another party to
rely on that promise, then the promise
may be enforceable. In contracting, this
concept binds a sub for a reasonable time
when it submits its bid to a GC.
The argument is that the GC is rely-
The sub may be released
ing on the subcontractor’s bid as part of
its proposal to the owner. If the subcon-
tractor reneges on its bid, the GC will
be harmed, presumably. This concept is
so well-settled that it has been held to
apply even when multiple subcontrac-
tors submit bids to the GC—all of them are
“estopped” from withdrawing their prom-
ises once the owner makes the award to
the GC. The GC cannot be said to have
relied on all of the bids, but the courts rea-
son that the GC is relying on the options
presented to it by the multiple proposals.
Even promissory estoppel has its limits.
In a recent case, a GC and a sub worked
together for more than a year on a
design/build proposal. Numerous iterations of design had been prepared, and
the relationship between the companies
became a close one. After the subcontractor submitted its final proposal, and
the GC presented it as part of its bid
to the owner, the owner demanded a
general price reduction for the project.
The GC, in turn, demanded that the sub
reduce its price, but the sub decided it
did not want the work at a lower price
and walked away.
The GC had to get a new sub. He then
sued the first sub for the excess costs
charged by the replacement sub. The GC
lost the case.
Promissory estoppel requires that the
sub keep its firm proposal open for a reasonable time. However, to be effective,
the proposal must be accepted as written
by the sub. Any material variation in the
GC’s acceptance of the proposal is considered a counter-offer, and therefore a
I Wanted to, But Now I Don’t
Withdrawing or being bound by a bid
AN ELECTRICAL CONTRACTOR CLIENT OF MINE came to me with a problem.
His company had been working closely with a general contractor (GC) to develop a
proposal for a large design/build project that was in the works. My client’s arrangement with the GC was not a joint venture, and there was nothing in writing between
the companies (e.g., a teaming agreement) to mark their mutual efforts. The companies had successfully worked together previously, although not on anything of this
magnitude. There was a feeling of mutual trust that the companies were looking
toward a common goal.