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When a Bid Isn't: Qualifying Language Renders Bid Unenforceable, Court Holds
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September 28, 2009
Howrey LLP
When a subcontractor refused to stand by the price in its proposal, the general contractor could not enforce the bid because the proposal stated that it was for “informational purposes only” and should not be relied on.
The general contractor, Fletcher-Harlee Corp., was preparing to bid on a building project. It solicited bids from concrete subcontractors, including Pote Concrete Contractors, Inc. Pote’s bid was the lowest, and Fletcher-Harlee used Pote’s bid price in computing its own bid to the owner. Fletcher-Harlee was the successful bidder and was awarded the contract.
Fletcher-Harlee then tried to reduce Pote’s bid to a written subcontract consistent with the price in Pote’s bid. Pote refused and raised its price. Fletcher-Harlee had to use another concrete subcontractor at a cost more than $200,000 over Pote’s bid. Fletcher-Harlee sued Pote for breach of contract and promissory estoppel. The U.S. District Court dismissed the case.
Referring to the case as “a cautionary tale of offer, acceptance [and] commercial practice,” the U.S. Court of Appeals for the 3rd Circuit affirmed. Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247 (3d Cir. 2007).
It held that Fletcher-Harlee’s solicitation of a bid from Pote and Pote’s submission of a bid did not constitute a contract. After examining the nature of the bid solicitation, the court held that it was not an “offer.” Citing to the Restatement (Second) of Contracts, the court held that “[a]n offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”
The court held that “a subcontractor would understand that submitting a bid would not ‘conclude’ the matter; rather, the general contractor would have to accept the bid to do so.” The court found that the solicitation for the bid was merely a request to submit an offer, not an offer itself.
The court then discussed whether Pote’s submission of a bid could constitute an acceptance of an offer. “Even if the Fletcher-Harlee communication were an offer, Pote’s response could be no more than a counteroffer because its terms were materially different than those in the solicitation letter.” Specifically, Fletcher Harlee’s bid solicitation stated that “bids had to be held open for 60 days and that the subcontractor would be held liable for the terms of the bid.” However, Pote’s bid stated that “its price quotation was for informational purposes only, did not constitute a ‘firm offer,’ and should not be relied on. Pote’s response further stated that Pote did not agree to be held liable for any of the terms it submitted.” Thus, the court held, Pote’s bid materially altered the bid solicitation and no offer and acceptance could have occurred.
In addition, the court found that Pote’s response to the bid solicitation could not constitute an offer itself, as the response disclaimed Pote’s intention to be bound by its terms, one of the necessary elements of an offer.
The court then turned to whether Pote could be liable under a theory of promissory estoppel – a promise made without consideration that is enforced in order to prevent injustice. The court wrote that a “key element of promissory estoppel… is reasonable reliance….” It discussed reliance in the context of industry practice and events surrounding this bid:
It is well understood in the industry that bids at both levels are “firm offers;” in other words, subcontractors submit bids expecting to be held their terms if selected. General contractors rely on subcontractors’ bids to create a single-priced package of work. A subcontractor’s subsequent refusal to honor its bid wreaks havoc on the general contractor’s bid – and can quickly turn a profitable project into a financial “black hole.”
The court also noted:
Since the advent of legal realism, building the law around commercial practice has been a goal of common law courts. It stems from principles of judicial restraint: judges recognize that the repeat players in an industry often are more capable of setting the industry’s ground rules than they are. Thus, we use relevant commercial practice to aid us in interpreting contracts.
Then, the court wrote:
As this case demonstrates, however, there is a contract-law principle more powerful than commercial practice: we interpret documents in accord with their plain language…. (“[E]xpress terms are given greater weight than… usage of trade.”)
Accordingly, the court held that Fletcher-Harlee had alleged nothing that would render its reliance on Pote’s submission reasonable.
When the text of a subcontractor’s bid, which would typically be a firm offer, specifically states that it is not one, we must follow the text.
Thus, the court held that while New Jersey courts often use industry practice to determine what is reasonable, that did not provide a basis for either a breach of contract or promissory estoppel cause of action in the face of express limiting language in the proposal. It concluded:
While Pote may have exhausted any goodwill it had by bucking industry custom, the language of the disclaimer is so plain that we have no choice but to enforce it.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
©2009 Howrey LLP
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