As discussed in the last blog, there are four requirements that a contractor must demonstrate before obtaining relief from an erroneous bid. They are 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.[i]
Subcontractors must be able to show the same four elements before obtaining relief from a bid mistake.
Subcontractors unilateral mistake defenses are generally unsuccessful because general contractors have reasonably relied on the subcontractor’s bid and have substantially changed their position in reliance on that bid. Under these circumstances, Washington courts generally deny subcontractors relief from unilateral bid mistakes.[ii] Where a subcontractor makes a mistake in its bid, and even where the subcontractor provides prompt notice to the general contractor, the general contractor’s bid price is “locked in” and the general contractor has “changed its status so significantly that relief or forfeiture will work a hardship on it.” The general contractor will be able to show that it cannot merely increase its price to account for the subcontractor’s error. Thus, a relief from mistake is more difficult.
To escape liability for a mistake in bid, a subcontractor may be able to show one of the following:
1. The general contractor had reason to know of the unilateral mistake:
Where the general contractor knows, or should have known, of the mistake, the subcontractor will be provided relief from a unilateral mistake of fact.[iii] “The offeree [general contractor] who has reason to know of a unilateral mistake will not be permitted to ‘snap up’ such an offer in profit thereby.”[iv] A low bid, however, without further evidence of a mistake, is not sufficient to constitute constructive knowledge of an error justifying rescission. The cases are all over the board as to what disparity in between the low and the next low bid provide the general contractor notice that the subcontractor has made a mistake. The court in Drennan v. Star Paving[v] found that an accepting party would have no reason to know of a mistake based on a bid disparity, since the high and low bids on paving contracts usually varied as much as sixty percent.
In another case, Heifetz Metal Crafts, Inc. v. Peter Kiewit Sons’ Co.,[vi] a low bidder’s offer to do subcontracting work for $99,500 was $52,000 less than the next lowest bid (52% lower). The court denied Heifetz’s (subcontractor) request for rescission, and granted Kiewit’s (general contractor) counterclaim for $50,000. Even though Heifetz’s bid was 52% less than estimates submitted by its closest competitor, the court determined, since Kiewit had no familiarity with estimating the particular type of work, it was not unreasonable for Kiewit to assume that such bids would be relied upon, particularly after verification from Heifetz’s president. Despite the disparity, Heifetz was held to its bid. In other cases involving bid mistakes from other jurisdictions, disparity between the low and next low bids of 20-50% have been found not to be so obviously erroneous as to preclude enforcement of bids. However the general contractor’s reliance on a subcontractor’s bid was deemed unreasonable where the bid was 300% lower than the next bid.[vii]
2. Failure to reach a “meeting of the minds”
One Washington case suggests that a possible defense for a subcontractor in a bid mistake situation is that the parties never reached a “meeting of the minds” on the essential elements of the contract. In Lakeside Pump v. Austin Constr. Co., 89 Wn.2d 839, 845-46, 576 P.2d 392 (1978) a pump supplier was granted relief from a mistake in an oral telephone bid where the court found that the parties had not agreed on the scope of the work.
3. Effect of Bid Shopping on Subcontractor Mistakes
One of the elements that a general contractor must demonstrate in holding a subcontractor accountable when the subcontractor makes a mistake in its bid is that the general contractor relied on the subcontractor’s bid estimate in the general contractor’s bid proposal to the owner.
In an unreported Puget Sound area case, a subcontractor made a mistake in its bid and sought relief from the general contractor. The general contractor insisted that the subcontractor perform the mistake notwithstanding. The subcontractor refused. The general contractor engaged another subcontractor to perform the work and the general contractor filed a lawsuit. During the discovery process, the subcontractor learned that the general contractor, after bids were opened, instead of immediately awarding the contract to the mistaken subcontractor bidder, “shopped” the subcontract market. The general contractor solicited other subcontractor prices in an effort to obtain an even lower price than the mistaken subcontractor’s bid proposal. The subcontractor’s lawyers were able to convince the trial judge that the general contractor, who had shopped the subcontract market after bids were open, did not “rely” on the subcontractor’s price. The judge ruled that the mistaken subcontractor was relieved from its erroneous bid.
Generally, subcontractors’ unilateral mistake defenses are unsuccessful. However, there are ways that a subcontractor can escape liability for a mistake in its bid. In the next part to this blog, we will explore the difference in relief from mistake in state public works contracting versus federal public works.
[i] See Puget Sound Painters v. State, 45 Wn.2d 819, 822-823, 278 P.2d 302 (1954)
[ii] Ferrer v. Taft Structurals, 21 Wn. App 832, 587 P.2d 177 (1978).
[iii] Snap-On Tools Corp. v. Roberts, 35 Wn. App 32, 33, 665 P.2d 417 (1983).
[iv] Clover Park Sch. Dist. #400 v. Consol. Dairy Products Co., 15 Wn.App 429, 434-35, 550 P.2d 47, rev. denied, 87 Wn.2d 1010 (1976)
[v] Drennan v. Star Paving, 51 Cal.2d 409, 333 P.2d 757 (1958).
[vi] Heifetz Metal Crafts, Inc. v. Peter Kiewit Sons’ Co., 264 F.2d 435, 437-38 (8th Cir. 1959).
[vii] Tolboe Constr. v. Staker Paving & Constr. Co., 682 P.2d 843, 847 (Utah 1984).