- California Court of Appeal Confirms the Power of Subcontractors' Bid Conditions
- November 14, 2016 | Author: Daniel F. McLennon
- Law Firm: Smith, Currie & Hancock LLP - San Francisco Office
General contractor Flintco Pacific, Inc. (“Flintco”) bid to construct a new building at Diablo Valley College (“DVC”) in Pleasant Hills, California. TEC Management Consultants, Inc. (“TEC”) submitted a written bid to Flintco to perform glazing work for $1,272,090. TEC’s bid contained several pre-conditions that Flintco’s subcontract with TEC would have to meet, otherwise TEC retained the right to withdraw its bid. DVC awarded the job to Flintco, and Flintco sent to TEC a letter of intent to enter a subcontract with TEC. However, Flintco’s attached subcontract failed to include any of TEC’s conditions, and Flintco refused to include them after TEC requested that they be added to the subcontract. TEC therefor refused to enter Flintco’s subcontract.
Flintco obtained a replacement glazing contractor and sued TEC for approximately $325,000 in extra costs, claiming that Flintco had reasonably relied on TEC’s bid and that TEC should be estopped from withdrawing the bid. The trial court and court of appeal disagreed with Flintco, holding that Flintco was not reasonable in disregarding TEC’s bid conditions. TEC was within its rights to withdraw its bid. The Court’s opinion may be found here: Flintco Pacific, Inc. v. TEC Management Consultants, Inc.
Contractor Disregards Subcontractor’s Bid Conditions at its Peril
TEC’s bid stated:
- immediately below the bid price: "A DEPOSIT OF 35 % IS REQUIRED FOR THIS WORK"
- the bid could be withdrawn if not accepted within 15 days
- the proposed price was "subject to a minimum 3% escalation, per quarter, after 15 days’ acceptance period"
- TEC would not provide a bond
- TEC would not agree to liquidated damages provisions
Flintco testified at trial that due to the chaos of bid day, Flintco disregards all terms and conditions of a subcontractor's bid except for scope of work, price, length of time the bid would remain open, and bonding. The Trial Court determined that Flintco’s practice was not reasonable in this case because TEC's bid contained conditions that were material to its bid price, and which if omitted, would have considerably increased the price. TEC highlighted the 35 percent deposit requirement by writing it in all capital letters directly below the bid price and underscoring it.
Moreover, Flintco's letter of intent, which was expressly made "contingent upon the following terms and conditions" that conflicted with TEC's offer, along with Flintco's standardform subcontract, which as the trial court found, varied materially from the terms of TEC's bid, constituted a rejection of TEC's bid and a counteroffer, and terminated Flintco's power to accept TEC's original bid.
The Trial Court is given much leeway in determining claims where the Trial Court is asked to provide an equitable result. The Court of Appeal could reverse only where the opposite conclusion is the only one that reasonably could be drawn from the evidence. Here the Court of Appeal found the evidence supported the Trial Court’s ruling, so the Court of Appeal was bound to affirm the Trial Court’s decision.
It is conceivable that a different Trial Court on similar facts might find for the general contractor. General contractors might enhance their position by establishing in the bid documents that a subcontractor’s bid conditions will not be considered, the subcontractor will be expected to sign the general contractor’s standard form subcontract, the general contractor will rely on the subcontractor’s price and scope, only, and that subcontractor’s submitting a bid agrees to these conditions.
As an interesting aside, Flintco could have fared much worse than simply paying extra for TEC’s scope of work. Flintco had listed TEC within the meaning of Public Contract Code section 4107. Unless Flintco properly substituted another subcontractor in place of TEC, TEC had a legal right to perform the contract and earn its profits on the job. Since Flintco had accepted TEC’s bid, including its conditions, TEC was entitled to have a subcontract that included those terms. Flintco’s refusal to issue such a subcontract and its refusal to allow TEC to perform the work arguably were improper and would have entitled Flintco to counter-sue Flintco for the profit TEC would have made on the job.
General contractors may protect themselves from the problem of receiving conditional bids on bid day by requiring subcontractors to submit any conditions several days before bid day, to allow the general contractor to negotiate those terms with the subcontractor and reach an understanding on terms to be included in the subcontract if the subcontractor’s bid is accepted. Subcontractors should be warned that if their bids contain any conditions not previously accepted by the general contractor, their bids will not be considered. Of course, the general contractor’s staff must be trained to reject bids that contain terms not previously accepted; otherwise, the general contractor may well be stuck with the subcontractor’s terms or suffer the same fate as Flintco.