IT IS INDEED the rare contractor who has never transposed a number or made another dumb mistake in the course of preparing a bid. The rush of bid day almost guarantees it. For public projects, this can mean forfeiture of a bid bond.
For private projects, it may result in actual damages if the contractor to whom a price was given relied “to his detriment” on the bid, if the owner has to go to the next low bidder. How a contractor goes about documenting, giving notice and taking steps to withdraw its bid may mean the difference between coming out clean and losing a lot of money. How the owner/general contractor handles the situation can change the outcome too.
A recent California court decision points out what facts an outcome can turn on.
The Compton United School District issued an Invitation for Bids for a school modernization project, and Universal Construction Maintenance Integration Co. submitted the low bid of $1,001,000.
When the bids were opened, Universal was found to be 25% — $262,000 — lower than the next bid. This sent Universal back to its bid sheets, where it found that it had made a $300,000 mistake: It listed its electrical work as $33,500 on the bid re-cap sheet instead of as $335,000. Three days after bid opening, Universal wrote a letter pointing out its clerical error and asking to be allowed to withdraw its bid.
Two months later, the school district’s lawyer sent Universal a letter rejecting Universal’s attempt to withdraw its bid and made demand on Universal’s bond for the difference between Universal’s price and the second low bidder — $262,000. It awarded the contract to another bidder and a lawsuit followed shortly, where Universal argued that it followed all state law requirements for withdrawing a bid, and the school district argued that it did not.
The trial judge, and the court of appeals, found that Universal had not been detailed enough in its withdrawal notice. They still ruled, however, in favor of Universal, both finding that the school district erred by never formally offering the contract to Universal. Instead, after getting Universal’s letter, the school district merely took Universal’s name off the list of the three lowest bidders to be considered.
“Merely declaring someone to be the low bidder does not, in school construction proposals, mean that the bidder will be awarded the contract. The school district may find that the lowest bidder is not responsible, or that acceptance of the lowest bid is not in the best interest of the state.” Compton Unified School District v. Universal Construction Maintenance Integration Co. Inc. California Ct. App., Div.2 (5/3/02) 2002 WL 849970. “By failing to award a contract to Universal as the lowest bidder, ... [the school district] forfeited its right to recover Universal’s security ... .”
The court found that this was not just some meaningless formality that the school district hadn’t gone through. Universal showed at trial that it would have performed rather than forfeit its bid bond, but it was never given the chance. The school district tried to argue that, even if its technical legal language hadn’t been met, the bid bond was very broad and would give the school district the right to call on it in any case. The court found the bid bond — prepared by the school district — to be “incomprehensible” and “unintelligible” and of no help in any analysis and, in any case, the surety can’t be liable if its principal is not liable.
The lessons to be learned here are, first, that Universal should have been more diligent in making sure that the notice of error it submitted was detailed enough to comply with the law. Had the school district acted correctly, it could have held Universal to its bid and cost Universal a lot of money. But the second lesson is that every contractor should carefully scrutinize how the owner acts in these situations too. Unless it has experienced construction counsel (and many school districts have counsel who specialize in municipal law or education, not construction), it is just as likely to make a mistake as anyone else.
Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., tel. 816/421-4800, e-mail to [email protected]