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(A
revised version of this article will appear in The Construction
Lawyer, Volume 24, No. 2, Spring 2003, published by
the American Bar Association's Forum on the Construction
Industry.)
By
John W. Ralls
Thelen Reid Brown Raysman & Steiner LLP
An
Iowa county solicited bids for a highway project. A few
days before the bid submission deadline, one of the bidders,
HCI, discovered a mistake in the bid form regarding the
quantity of asphalt required for the project. HCI informed
the county engineer. The county engineer agreed there was
a mistake but declined to issue an addendum, believing the
information would not reach bidders in time. HCI and one
other bidder caught the error and placed nominal dollar
figures on the asphalt line item to compensate for the mistake.
HCI was the low bidder.
The
County Board approved HCI's bid and sent a letter to HCI
informing it of the award. After the board's approval and
letter, the county engineer recalculated the bids, having
corrected for the asphalt quantity mistake and discovered
that HCI no longer was the low bidder. The county rebid
the project. HCI submitted another bid but was not low.
The county awarded the job to the low bidder.
HCI
sued the county for breach of contract, seeking to recover
costs incurred in preparing to perform the work and lost
profits. After a bench trial, the trial court ruled in favor
of the county on the ground that there was no binding agreement.
The Court of Appeals affirmed. The Iowa Supreme Court reversed.
Horsfield Construction, Inc. v. Dubuque County, 653
N.W.2d 563 (Iowa 2002).
The
county relied on Iowa Code §314.1, which provides,
"All [public] contracts shall be in writing and shall
be secured by a bond for the faithful performance thereof
as provided by law." The county argued that until the
formal contract had been executed, the county had the power
to revoke the award.
The
Supreme Court rejected the county's argument, holding that
the writing required by Iowa Code §314.1 does not have
to be a single, integrated document. A series of documents,
the totality of which contain all material terms of the
agreement, will suffice.
The
Supreme Court concluded that the bid and the board's unconditional
approval resulted in a binding contract. The court noted
that the bid was specific with respect to start date, number
of working days and price. "The record shows that the
parties would not be agreeing to any new terms or conditions
upon signing a formal contract…. In short, the 'contract'
document that was to follow was a mere formality and redundant
to HCI's bid and the Board's… approval."
The
court found further support for this conclusion in the notice
to bidders, which required a deposit of $40,000 as a guarantee
that the winning bidder would execute a formal contract.
The court found that this provision supported our conclusion
that the parties reached a binding contract when the Board
approved HCI's bid.
"[W]hen
the Board rescinded its acceptance of HCI's bid, it in effect
breached the County's agreement with HCI by anticipatory
breach…. In these circumstances, the non-breaching
party may consider the contract breached and sue immediately,
as HCI did in this case."
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-369-7210 or at jralls@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2003 Thelen Reid Brown Raysman & Steiner LLP
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