A contract is created by an offer, an acceptance, and exchange of consideration.  Offers are generally freely revocable prior to acceptance, unless supported by special consideration.  In the construction context, a general contractor’s proposal (offer) is generally not accepted (the contract is not awarded) until sometime after bids are opened, but its proposal is based on its subcontractors’ bids.  If a subcontractor were to revoke its bid in the period of time between when the bids are opened and the prime contract is awarded, the general contractor could be severely prejudiced.  Accordingly, when submitting bids on projects, a general contractor finds itself on the horns of a dilemma.  Its proposal is open until the contract is awarded, but if a subcontractor revokes its bid prior to award, it would be left to re-procure the subcontract work (generally at a higher cost) with no recourse against the subcontractor who withdrew its bid.

To avoid this injustice, the courts established the doctrine of “promissory estoppel,” under which general contractors receive limited protection if they uses the subcontractor’s bid to compute its own proposal to the owner.

  1. 1.                  The Promissory Estoppel Doctrine

The rule of promissory estoppel prevents the subcontractor from withdrawing its bid for a limited time, allowing the general contractor time to convey acceptance and form the contract.  The requirements for an action based on promissory estoppel are as follows:  (1) A promise (subcontractor bid); (2) to which the subcontractor should reasonably expect to cause the general contractor to change its position; (3) which does cause the general contractor to change its position; (4) justifiably relying upon the promise in such a manner that; (5) in justice can be avoided only by enforcing the promise.

In the construction bidding process, subcontractors submit bids to the general contractor knowing that the general contractor cannot accept the bid immediately, but must first incorporate it into its proposal to the owner.  The general contractor then incorporates the subcontractor’s bid into its proposal in reliance that the subcontractor will perform as promised if it is the successful bidder.  Where the subcontractor later attempts to revoke or change its bid, the elements of promissory estoppel are thus satisfied, and an action based on the subcontractor’s original bid is appropriate.

The promissory estoppel doctrine protects only the general contractor.  Although a subcontractor is bound once the general contractor uses the subcontractor’s bid, the general contractor has the choice of reopening negotiations with other subcontractors afterward.  This allows the general contractor to use the low bid as leverage to deflate bids from other subcontractors (i.e. “bid shopping”), and encourages other subcontractors to undercut the low bidder (i.e. “bid peddling”) after the owner awards the prime contract to the general contractor.  Aimed at stopping this type of behavior in public contracts, Washington adopted the Subcontractor Listing Statute.

  1. 2.                  Case Law Applying the Promissory Estoppel Doctrine

The Washington Court of Appeals recognized that promissory estoppel applies to a subcontractor’s bid.  In Ferrer v. Taft Structurals, Inc., a general contractor solicited bids from various subcontractors to formulate its bid for a construction project owned by the City of Seattle.[i]  The general contractor incorporated a subcontractor’s bid into its own bid to the City.  Later, the general contractor was awarded the project and notified the subcontractor.  The subcontractor performed, but insisted that it was due more money than its original bid.  The general contractor refused to pay any additional money over and above the subcontractor’s bid.  The trial court found that the subcontractor’s initial bid (the bid that was used by the general contractor in compiling its bid to the City) was relied upon by the general contractor, but was never formally accepted because it was never reduced to writing.  The general contractor appealed, arguing that the subcontractor’s initial bid constituted an irrevocable offer for a reasonable time and that the general contractor’s subsequent letting of the subcontract to the subcontractor constituted adequate acceptance.  The Court of Appeals agreed with the general contractor, holding that a subcontractor’s bid upon which the general contractor has relied is deemed irrevocable for a reasonable of time pursuant to the doctrine of promissory estoppel.

Similarly, in Arrango Construction Co. v. Success Roofing, Inc., a subcontractor discovered a mistake in its bid price after its bid has been incorporated into the general contractor’s proposal to the owner, but before the general contractor was awarded the project.[ii]  The subcontractor argued that its bid to the general contractor was conditioned upon written confirmation.  Because the subcontractor’s bid was never confirmed in writing, it asserted that there was no subcontract.  The Court of Appeals recognized that construction bidding is treated as a “unique category” because construction bidding deadlines make the drafting of written agreements impossible.  General contractors must, nevertheless, rely on bids of subcontractors.  The Court held that as a matter of law, “a subcontractor’s bid is considered an irrevocable offer until the award of the prime contract; then, the general contractor’s acceptance of the bid results in a bilateral contract.”

[i] 21 Wn. App 832, 587 P.2d 177 (1978).

[ii] 46 Wn. App 314, 730 P.2d, 720 (1986).

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