Marion T. Hack | Pepper Hamilton LLP | August 1, 2016
The court’s decision allows subcontractors to place unforgiving terms in their bids and gives them an ultimate out if general contractors do not agree to those terms.
General contractors should pay attention to a recent decision from the California Court of Appeals regarding damages due to reliance on a subcontractor bid. A general contractor can usually recover damages if a subcontractor does not honor its bid price and the general contractor has relied on that price in submitting its bid to the owner. Now, the Court of Appeals has set forth significant limitations on a general contractor’s recovery for damages usually founded under the theory of promissory estoppel.
Background
In Flintco Pacific, Inc. v. TEC Management Consultants, Inc., No. B258353 (Cal. Ct. App. June 21, 2016), subcontractor TEC submitted a bid to general contractor Flintco to perform work on a public project. TEC’s bid contained a deposit term that was located prominently under the bid price as well as other nonmonetary terms. Flintco submitted its bid to the public entity using TEC’s price as a basis for its bid. Flintco was awarded the contract and, in turn, sent a subcontract to TEC that did not include the deposit or other terms that were on TEC’s bid. TEC ultimately withdrew its bid because Flintco would not honor the deposit term in its proposal, and Flintco sued for reliance damages under the theory of promissory estoppel. The trial court ruled in favor of TEC, and the Court of Appeals affirmed that decision.
The court claimed that the deposit term should have raised a “red flag” to Flintco as it was prominently located in the bid itself. The court stated that Flintco’s reliance on the bid price, while ignoring the other terms in TEC’s proposal, was unreasonable and thus Flintco could not recover damages for reliance on TEC’s bid.
Analysis
This is an unfortunate case for general contractors who have to rely on subcontractor proposals, which often are submitted at the last second, for bidding purposes. The court’s decision allows subcontractors to place unforgiving terms in their bids and gives them an ultimate out if general contractors do not agree to those terms. Bidding personnel from general contractors should note the following:
- Put your subcontractors on notice, prior to receiving bids, that non-price terms in bids will not be accepted by the general contractor at bid time.
- Scrutinize all bids for obvious and prominent terms that are unacceptable, and make an informed choice whether to accept those bids.
This a tough issue, but a little focus up front on subcontractor bids can save later grief.