This three-part blog is provided to give our readers an overview of how courts deal with contractor bid errors. In this blog we will discuss general contractor bid errors, in the next post we will explore subcontractor bid errors and in the third post we will discuss the different way state and federal public owners handle general contractor bid errors. In federal contracting, a bid error can be reformed as long as the low bidder is not displaced by the reformation.
Generally, the courts recognize that bidding is a hectic task and that in the final minutes of rushing to prepare a bid, a contractor may make an error in its bid:
“Contractors do not work under ideal conditions in the rush to meet the deadline for submitting bids and equity recognizes that honest, sincere men, even in the exercise of ordinary care, under such pressure can make mistakes of such fundamental character that the enforcement of the apparent resulting agreement would be unconscionable. In such a situation if the parties may still be placed in status quo, equitable relief will be granted.” Kenneth E. Curran, Inc. v. State.
For a general contractor to get relief from a mistake, the mistake must be one of fact, not judgment. Peter Kiewit Sons Co. v. Dept. of Transp. Mistake of fact results from such things as faulty addition, misplaced decimals, typographical errors, transposition of numbers and multiplication errors. The Washington Court of Appeals, however, allowed a bidder to escape an erroneous bid where the error involved an interpretation of the specifications – presumably an error in judgment. The Town of LaConner v. American Constr. Co.
The Puget Sound Painters case established the elements that a general contractor must establish to escape liability on a public works bid. In Puget Sound Painters, the general contractor submitted the low bid to re-paint the main towers at the Tacoma Narrows Bridge for the State of Washington Department of Transportation (WSDOT). The bid was accompanied by a bid bond. The contractor discovered a significant disparity between its bid and the next low bid and promptly advised WSDOT that a mistake had been made. The subcontractor (whose price had been incorporated into the general bid) had multiplied measurements by two rather than four in computing the surface area of the four legs of each tower. WSDOT refused to release the contractor from its bid bond and the contractor sued to prevent forfeiture of its bond. The requirements for obtaining relief from an erroneous bid were established as follows:
1. The mistaken party must be reasonably prompt in giving notice of its error;
2. The party receiving the bid must not have changed its status so significantly that relief or forfeiture will work a hardship on it;
3. The bidder acted in good faith; and
4. The bidder acted without gross negligence. See Puget Sound Painters at 822-23.
Notice of the mistake was provided to WSDOT the day before the State of Washington formally acted to award the contract to the contractor. The court held that the basic purpose of the bid bond was to afford protection against a change of status involving substantial damage, loss or detriment by a party soliciting bids. Since WSDOT was able to award the contract to the second bidder, and the mistake was not knowingly or willful, but instead one of gross neglect or negligence, the court held that WSDOT did not suffer a substantial detriment and therefore the bid bond could not be forfeited.
Courts are reluctant to simply allow a contractor out of a bad bid and require that the contractor satisfy the good faith element of the four-part test. This was emphasized in the case of Clover Park School District #400 where the courts stated in dictum:
“At this point we wish to parenthetically state our view that sound public policy requires us to closely scrutinize a bidder’s contention that it intended to rescind its bid on a contract with an agency of the government. It should be difficult for bidders to claim an error in computation as a basis for escaping from a bid noticeably lower than the competition’s. This is the “bad faith element” of the test quoted above.” Id.(Emphasis added).
Where the mistake involves both questions of fact and judgment, contractors can be successful in obtaining relief for bid errors. In Peter Kiewit Sons Co. v. Dept. of Transp., the court stated the law of unilateral mistake as follows:
“The courts have come to recognize that numerous mistakes, besides simple mathematical errors, can result in the contractor submitting a bid which does not embody his intent and thereby prevent a true meeting of the minds. Many mistakes involve mixed errors of fact and judgment and drawing too fine a line between the two can produce harsh and unnecessary results. The modern trend is to accord equitable relief to mistakes which render the bid incompatible with the true intent of the bidder and which can be clearly and convincingly demonstrated by objected proof.”
Under this more liberal standard, there are certain types of mistakes, such as underestimating the cost of labor and materials, which are purely judgmental and never entitle a bidder to equitable relief. Mistakes of this type are inherent business risks assumed by contractors in all bidding situations. The proof as to whether a mistake of this type has occurred is so completely within the control and power of the contractor that the public body is helpless to refute it. Id. at 430-431. Thus, in general, if the prime contractor is able to demonstrate by clear and convincing evidence that it made either a clerical error (mathematical error, typographical error, transposition of numbers, etc.) the general contractor will be accorded equitable relief (be allowed out of its contract) provided that the other elements of the test are met and most importantly that the public works owner can award the contract to the next lowest bidder. If the mistake is one of mixed judgment and an error of fact, again, the modern trend as set forth above is to excuse the contractor from its bid and relieve it from forfeiture of its bid bond provided the elements of the test are met and the contractor can demonstrate its error clearly and convincingly. Only pure errors of judgment which are inherent business risks do not permit the contractor to withdraw its bid.
Practical Advice: Bidders seeking relief from a mistake of fact in their bids (clerical errors or mixed questions of fact and judgment) must immediately place the owner on notice of the mistake (prompt notice is essential to avoid the prejudice argument) and, secondly, be prepared to demonstrate the error by use of bid estimate sheets and work papers by “clear and convincing evidence.”
The following blog will address subcontractor bid errors.