• Contractors and Subcontractors BEWARE: Ohio Court Rejects Perceived "Bid Shopping"
  • June 17, 2009 | Authors: Donald B. Leach; Michael V. Passella
  • Law Firm: Dinsmore & Shohl LLP - Columbus Office
  • Complete General Construction Co. v. Kard Welding, Inc., dba Kard Bridge Products, 2009 Ohio 1861 (Ohio App. 10 Dist.

    Overview

    On April 21, 2009, the Tenth District Court of Appeals ruled in favor of a Dayton subcontractor in a general contractor’s lawsuit asserting claims for breach of contract, promissory estoppel, and detrimental reliance.  The Court rejected the contractor’s attempted bid shopping of the structural steel contract for a construction project involving a highway on-ramp and exit for SR 315 in Columbus.  The ruling serves as a valuable guide as to how Ohio courts might treat the common practice of bid shopping during contract negotiations on public construction projects.
    Black’s Law Dictionary defines the controversial but common practice of bid shopping as a “general contractor’s effort – after being awarded a contract – to reduce its own costs by finding a subcontractor that will submit a lower bid than the one used in calculating the total contract price.”  The Court relied upon this definition in holding that the general contractor here, Complete General, did not intend to be bound to the subcontractor, Kard Welding (“Kard”), or its bid on the project.  Since Kard conditioned its bid and Complete General admittedly engaged in contract negotiations with other subcontractors regarding the structural steel contract, it never accepted Kard’s original quote, and Kard did not have to honor its original quote.

    Kard submitted its quote for the structural steel contract to Complete General on December 5, 2002.  Its original quote was “firm for 30 days,” and also provided that acceptance was conditioned upon Complete General’s assent to Kard’s standard terms and conditions.  On December 6, a discussion between representatives of Complete General and Kard confirmed the original quote, and resulted in Kard’s selection as the low bidder for Complete General’s bid.  Bids for the project were submitted on December 6, 2002, and Complete General was awarded the contract on December 19, 2002.  Complete General then attempted to impose its terms and conditions, and over the next few weeks the parties continued negotiating which terms and conditions would control.

    The negotiations lasted into early January 2003, at which point Complete General learned for the first time that Kard submitted a revised quote on December 6, 2002, increasing its price by $24,890 due to a mistake in the original quote.  Ultimately, the parties could not reach an agreement, and on January 16, 2003, Complete General executed a subcontract with PDM Bridge for $570,000, much higher than Kard’s original quote.  In March 2003, Complete General filed a complaint against Kard in the Franklin County Common Pleas Court, and following trial, a magistrate found in favor of Kard, rejecting Complete General’s argument that Kard’s original quote of December 6, 2002 was a firm offer which Complete General accepted upon submitting its bid on December 6, 2002.  Complete General appealed, and the Tenth District Court of Appeals affirmed the trial court ruling.

    No Acceptance

    The Appellate Court’s rejection of Complete General’s claims hinged on the critical fact that Complete General never accepted Kard’s original quote.  In fact, Complete General admitted that it continued to negotiate with other subcontractors for the structural steel contract after being awarded the contract with ODOT.  It also continued to negotiate the terms and conditions issue with Kard after the 30-day window for acceptance of its quote.  Thus, Kard’s original bid was a firm offer, but was never accepted by Complete General within 30 days.  The Court found that Complete General delayed acceptance of Kard’s offer in the hopes of obtaining a better offer, i.e., bid shopping, which prevented it from being able to rely upon Kard’s original quote.

    The Court also dismissed Complete General’s promissory estoppel and detrimental reliance claims, finding that although Complete General relied upon Kard’s original quote, it did not notify Kard within a reasonable time that its offer was accepted.  The Court reasoned that prompt acceptance prevents the injustice that may result where a subcontractor is obligated to perform based upon the general contractor’s incorporation of the subcontractor’s offer into its own bid, but where the general contractor is not obligated to award the project to the subcontractor.

    Lessons Learned

    In light of this recent holding, general contractors, particularly those doing business in Franklin County, Ohio, should think twice before engaging in bid shopping, as doing so may cause it to lose a low bid.  If a general contractor receives a low bid and relies upon it in submitting its bid, it must unambiguously accept the bid and notify the subcontractor of its acceptance within a reasonable time, ideally within days of being awarded the contract.

    On the other hand, subcontractors may condition their bid on agreement of contract terms.  In addition, subcontractors that submit quotes which provide that they are firm for a certain period of time must make sure that the quote is accurate.  If there is a mistake in the quote, the subcontractor must promptly notify the general contractor, and withdraw its offer prior to acceptance.  Otherwise, the subcontractor may be bound to the mistaken quote.

    Ohio Court Reinforces Strict Compliance with Contractual Notice Provisions

    Maghie & Savage, Inc. v. P.J. Dick, Inc., 2009 Ohio 2164 (Ohio App. 10 Dist.)

    Recently, the Tenth District Court of Appeals continued the trend of strict enforcement of contractual notice provisions, rejecting a subcontractor’s labor escalation claim of approximately $250,000.  The action arose out of the construction of the School of Architecture at The Ohio State University.  Construction began in June 2002, and was originally scheduled for completion in April 2004, but was not complete until August 2004.  P.J. Dick was the prime contractor for the general trades, and was responsible for scheduling all of the contractors’ work.  Maghie & Savage (“M&S”) was the drywall subcontractor to P.J. Dick.

    The subcontract contained a provision requiring M&S to provide 2 days written notice from the event or occurrence giving rise to any claim for delay, acceleration, compression, loss of efficiency, extended overhead, or any other type of damages, losses, or impacts therefrom.  If notice was not provided within 2 days, the subcontract provided for any such claim to be barred.

    Upon starting its work in January 2004, M&S encountered delays caused by weather and its predecessor trade contractor.  M&S notified P.J. Dick of its concerns in a series of letters between January 5, 2004 and March 23, 2004, pointing out that it could not warrant drywall installation performed in inadequate environmental conditions.  P.J. Dick responded by directing M&S to complete its work in accordance with the project schedule.

    On October 21, 2004, months after M&S completed its work, it notified P.J. Dick that as a result of the delays caused by weather and its predecessor trade contractor, M&S was seeking a change order for its labor escalation totaling almost $250,000.  P.J. Dick rejected M&S’s claim on the basis that it failed to provide the required notice and did not offer any proof in support of its claim.  M&S commenced suit, asserting claims for breach of contract and unjust enrichment against P.J. Dick.  At the conclusion of a 9 day trial, the jury awarded M&S damages of almost $63,000, finding that P.J. Dick waived the written notice requirement for claims.

    The trial court overturned the jury verdict, holding that M&S failed to present any evidence that it provided P.J. Dick with contractually-required written notice of its claim, and further, finding that there was no evidence in the record to support a finding that P.J. Dick waived the notice requirements.  M&S appealed the trial court decision to the Tenth District Court of Appeals.

    The Court of Appeals unanimously affirmed the trial court decision, finding that M&S failed to present written notice to P.J. Dick of its claim within 2 days from the occurrence giving rise to the delay.  Specifically, during April, May and June 2004, while M&S was allegedly experiencing labor inefficiencies and loss of productivity due to stacking of trades, M&S never provided written notice to P.J. Dick of the impact.  Further, although representatives of M&S and P.J. Dick met regularly and discussed the overall progress of the project, M&S never advised P.J. Dick about labor inefficiencies or lost productivity.  Finally, the Appellate Court agreed that M&S failed to demonstrate that P.J. Dick waived the notice requirements or that it was otherwise excused from complying with those requirements.

    This case serves as yet another reminder of the importance of faithfully following contractual notice provisions.  Failure to do so, even with the other party’s knowledge of a potential claim, will likely result in waiver of a claim for additional compensation.

    ODOT Must Timely Award Contracts

    R.B. Jergens v. ODOT, Franklin County Common Pleas Court Case No. 08 CVH 7145 and 9537.

    In a recent decision from the Franklin County Common Pleas Court, the Court rejected an attempt by ODOT to enforce a contract and recover under a contractor’s bid bond because ODOT failed to award the contract within 10 days as required in R.C. 5525.01.  ODOT’s failure to timely award the contract barred its attempted recovery under the bid bond, as the alleged contract was rendered void