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Where a subcontractor submitted a glazing work bid to a general contractor to be considered and used in the general contractor’s bid to construct a new building for a college, it contained numerous terms and conditions that the general contractor (GC) rejected when it attempted to award a subcontract based on materially different terms. When the parties failed to negotiate their differences to reach an acceptable subcontract, the subcontract withdrew its offer. The general contractor then subcontracted with a different glazing firm and filed suit on the basis of promissory estoppel, to recover the difference in the subcontract prices.   The trial court determined that the general contractor did not act reasonably in relying upon the subcontract bid, and that the terms and conditions that the general contractor sent to the subcontractor constituted a “counteroffer” that the subcontractor had the right to reject. This was affirmed on appeal. Flintco Pacific, Inc. v. TEC Management Consultants, Inc., 1 Cal. App. 5th 727, 205, Cal. Rptr. 3d 21 (2016).

The TEC bid that was submitted on May 17 to the GC stated a fixed amount bid price, under which was typed in all capital letters; “A DEPOSIT OF 35% IS REQUIRED FOR THIS WORK.” Other conditions included in the TEC bid were that the bid could be withdrawn if not accepted within 15 days and that the proposed price was “subject to a minimum 3% escalation, per quarter, after 15 days acceptance period.” On July 5, the GC sent a “letter of intent” to TEC stating its “intent to issue a Subcontract Agreement to TEC” The letter stated that the “contract award is contingent upon the following terms and conditions,” including (1) a requirement that TEX accept liquidated damages and retention provisions, and (2) agree on a complete scope of work. On July 14, the GC sent TEC a standard-form contract that was a sample template but not an actual contract since it was not filled out with the names of the parties, the scope of work, and the price.

Upon receipt of the letter of intent and draft contract, TEC called the GC to say there were “some major differences that we need to discuss,” including TEC would not accept newly imposed bonding requirements, the liquidated damages requirements, and would not accept the contract without the 35% deposit requirement. There were back and forth discussions between the GC and TEC, but eventually TEC refused to accept the contract on the terms being demanded by the GC.

The GC explained that it believed it could enforce the award of the contract on the terms it desired without regard for the fact that the terms and conditions offered by TEC differed materially. According to the GC, “Conflicts between bid conditions and contracts are normally resolved and specific terms and conditions are negotiated only after the project contract is awarded…. Specific terms and conditions in a subcontractor’s bid are not relevant to the scope of work, are typically boilerplate and conflict with [GC’s] sub and prime contracts. Thus on bid day, [GC] disregards terms and conditions of a subcontractor’s bid except for scope of work, price, length of time the bid would remain open, and bonding. The stated ‘purpose of reviewing the terms and conditions in a subcontractor’s bid prior to the bid deadline is to find ‘red flags.’ The issue … is whether ‘we are going to be fighting about something.’ The GC’s project manager said it was fair to say that an unusual term of condition might escape his attention because of the cursory nature of his review of bids on bid day.”

The trial court ruled in favor of the subcontract bidder because it found the GC “did not satisfy every element of promissory estoppel.” Specifically, “Its reliance on TEC’s bid price only, without regard to material conditions that related directly to TEC’s bid price, was not reasonable.”

 

Comment: This case addresses the very first aspect of what is commonly known as the battle of the forms when a question later arises as to whether a general contractor’s terms and conditions or the terms and conditions proposed by a subcontractor apply. Here, the court determined that there was no obligation to commit to the subcontract because the general contractor essentially rejected the contract proposal of the subcontractor and merely made a counter-offer, which the subcontract bidder rejected – as was his right. It is interesting to note the explanation by the general contractor concerning why it believed it could rely upon the subcontract bidders number without even studying the terms and conditions proposed by the subcontractor.   As explained by the general contractor, in the heat of last minute bid day calculations, it is probably doubtful that a general contractor can actually evaluate much in the subcontract offers other than their prices and a few of the most material terms. The court here is not stating as a broad based matter that a general contractor is required to review and analyze the entirety of the terms and conditions before it can reasonably rely on the subcontract bid, but it is saying that it will be a case-by-case analysis of whether the terms and conditions were so significant that a general contractor could not reasonably have accepted the bid with the expectation that the subcontractor would subsequently accept counter-offered terms that materially differed. This could be tricky to figure out and lead to a lot of litigation if subcontractors decided more often not to honor their bids and use the offer/counter-offer argument as their way out of the anticipated deal.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 19, No. 1 (January 2017).

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