A three-month-old price can have a severe economic impact on contractors.
CONTRACTORS, subcontractors and suppliers routinely give quotes and bids that are not going to be accepted or rejected on the spot. If the bid is from a supplier or subcontractor, everyone knows that the bid then will be combined with other bids and presented to an owner.
Whether a sealed, publicly opened bid letting or a less formal negotiation, it will be some time after a bid is prepared and submitted before the successful contractor is officially selected. If there is a problem with the bid or negotiation (such as a protest or a lawsuit), it could be a long time.
Given the fluctuation in material pricing -- and even material availability -- that has plagued the construction industry recently, being held to a three-month-old price when a supplier has just slapped a 25% surcharge on its products can have a severe economic impact on contractors and vendors. The question of how long a commitment has to be binding has greater significance than ever.
So, how long is a quote valid? How long can the bidder be on the hook to honor it? For once, some pretty clear legal principles answer those and related questions.
If it is public work, is there a statute or regulation stating how long an owner has to select a contractor? If so, that will override anything else and will certainly bind the party that submitted the bid to the public entity.
Is there a provision in the solicitation for bids stating how long bids must be open? If a solicitation for bids says that the bids must be kept open for 30, 60 or 90 days, then anyone submitting a bid has agreed to that term. If the bidder then refuses to honor the bid, its bid bond may be called on and/or, in some cases, the bidder may also be sued for the difference in price for going to the next low bidder.
Are terms in the owner's documents binding on subs that quote to generals? This is a little harder to generalize here. If the sub or vendor says in the bid or quote that it will comply with all the terms of the solicitation, then it will be bound to hold its bid open. Even if there is no representation one way or the other about this issue, most courts will find that the sub has to keep its bid open for a "reasonable" period of time and, where it can be proven that the sub knew or should have known that 60 days was the norm, it can be held to that time anyway.
What if a general contractor agrees to extend its quote? Is that binding on the sub or supplier? If a general contractor agrees to extend its quote to an owner for a time longer than what was in the bid documents, the general rule is that this extension would not be binding on subs and suppliers. More than one general contractor has found itself between the proverbial rock and hard place by giving such an extension without first locking in all subs and suppliers. Theoretically, I guess that a GC could put language in its acknowledgment of a quote that it reserves the right to extend the quotes unilaterally, but I question whether that would be enforceable unless it was limited in time in some way (such as by saying, "for up to 30 additional days"). An open-ended extension probably would be said to be "without consideration."
What about conflicting terms in the quote? An offeror always has the right to qualify its offer, and one very typical way is to limit the length of time that the bid will remain effective. Of course, the result of doing this may be to cause the bid to be rejected, but that is one of those "risk management" decisions that businesspeople have to struggle with every day. An expiration date on a bid would also allow the receiving party to go to another offeror after the expiration date without any further obligation to the first offeror.
One alternative for a subcontractor or supplier quoting to a general contractor might be to include with the bid a qualification that if the bid was not accepted within X number of days (tied to any owner's solicitation terms, I hope), the offeror reserves the right to pass through any price increases it receives from its suppliers. This is certainly a reasonable and limited qualification that might make the increase more palatable.
Please note that this would not work for a party bidding to a public entity on a sealed-bid basis as it would be varying from the strict terms of the IFB and may result in the bid being disqualified.
The most important point for the reader to take away from this column is the need to pay attention to terms in solicitations, offers and acknowledgements that require bids to be kept open, so that there are no unpleasant surprises later.