Friday, September 30, 2016

Do All Those Qualifications on Subcontractor Bids Really Mean Anything? California Appeals Court Says Yes and it is Unreasonable to Disregard Them

The plaintiff in Flinto Pacific, Inc. v. TEC Management Consultants, Inc. was a general contractor who was awarded a building project at the Diablo Valley College in Pleasant Hills, California. Two months earlier on bid day, the defendant submitted a proposal for the glass and glazing package in the amount of $1,272,090. The proposal contained qualifications that stated a deposit of 35% was required for the work, the defendant would not accept responsibility for liquidated damages, all bonds were excluded, and the bid could be withdrawn if it was not accepted within 15 days. It further stated that the bid was subject to a 3% escalation per quarter after that 15 day acceptance period. In its winning bid for the project the plaintiff carried the defendant’s number and identified it as the curtain wall and glazing subcontractor. 

On the day it was awarded the project, the plaintiff held a meeting with the defendant to discuss the upcoming project.  A few days later a letter of intent was sent to the defendant which stated the "contract award is contingent upon the following terms and conditions," which included the requirement that the defendant accept liquidated damages and agree to a complete scope of work. The next week the plaintiff sent its standard subcontract to the defendant which did not include a scope of work or price information.  Defendant reviewed the contract and alerted the plaintiff that the boilerplate language of the contract was in conflict with the qualifications in its bid, specifically the deposit, bond, and 3% escalation provisions.  Conversations regarding the contract continued into the next month with the plaintiff sending the defendant another subcontract which had not been modified to address any of the defendant’s bid qualifications. Just prior to the second subcontract being sent, the defendant notified the plaintiff that it decided not pursue the contract any further. Two more correspondence exchanges were had with the defendant stating it was within its rights to withdraw its bid per the 15 day acceptance qualification.  Ultimately, the plaintiff found a new subcontractor for the glass and glazing package.

The plaintiff filed suit against the defendant alleging promissory estoppel in the amount of the $327,000. At trial, the plaintiff stated that on a typical bid days when it is pulling together all the subcontractor bids, it generally, “disregards all terms and conditions of a subcontractor's bid except for scope of work, price, length of time the bid would remain open, and bonding.” Plaintiff’s project manager also admitted that he had not reviewed the defendant’s proposal until after it was listed in the winning bid.  The trial court ruled in favor of the defendant stating that the plaintiff’s reliance on the submitted bid without regard for the material conditions was not reasonable.  

Plaintiff appealed to the Court of Appeals of California, Second District contending that the trial court erred in ruling that the elements of promissory estoppel had not been met. 

The Court began its analysis by establishing that the four elements of promissory estoppel are “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 901; Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation Authority (2000) 23 Cal.4th 305, 310.  The Court centered its review of the case on the reasonableness element.  It found the trial court’s conclusion that, “TEC's bid contained conditions that were material to its bid price, and which if omitted, would have considerably increased the price…therefore… Flintco's reliance on the bid price alone was not reasonable.”  The Court also pointed to the trial court’s examination of the record with the defendant’s clear 35% deposit requirement, rejection of liquidated damages liability, unwillingness to provide a bond, and 15 day rejection period as “evidence [supporting] the trial court's finding that Flintco's reliance on the bid price alone while ignoring the material terms and conditions was unreasonable.”

The Court further reviewed the plaintiff’s argument that the conditions of the defendant’s qualifications to the bid are irrelevant based upon custom and practice in lump-sum contracting.  The Court pointed to the plaintiff’s cited cases and stated that, “unlike the cases Flincto [cited]…where the bids were made orally and were comprised of price only, TEC's bid was written and contained terms and conditions that were underscored and material because they affected the price. Nor does TEC claim it made a mistake in the bid. Thus, the justification in Drennan for invoking the equitable doctrine of promissory estoppel does not apply here.”

The Court affirmed the trial court’s judgment. 

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is an attorney and a Senior Consultant with Navigant’s Global Construction Practice based out of Boston, MA.  He may be contacted at 617.748.8311 or

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