LOS ANGELES – A general contractor usually can recover damages when a subcontractor doesn’t honor his or her bid price, but the 2nd District Court of Appeals this summer set forth what is considered to be significant limitations on a general contractor’s recovery for damages that are usually founded under the theory of promissory estoppel.
In Flintco Pacific Inc. v. TEC Management Consultants Inc., the subcontractors TEC submitted a bid to general contractor Flintco for work on a public project. TEC’s bid included a deposit term located under the bid price, as well as other non-monetary terms. Flintco submitted its bid for the public project, relying on TEC’s price as a base for its bid. Even though Flintco was awarded the contract, then sent a subcontract to TEC that didn’t include the deposit or other terms, TEC withdrew its bid because Flintco didn’t honor the deposit term in its individual proposal.
That prompted Flintco to sue for reliance damages under the theory of promissory estoppel, but the trial court ruled in favor of TEC. The court of appeals confirmed that decision, noting that the deposit term should have raised a red flag to Flintco, especially since it was prominently located on the bid.
To avoid something similar happening, Marion Hack, partner with Pepper Hamilton LLP, suggests general contractors take extra measures to protect themselves.
“Put your subcontractors on notice, prior to receiving bids, that non-price terms in bids will not be accepted by the general contractor at bid time,” Hack told the Northern California Record.
Hack also said general contractors must scrupulously read all bids submitted.
“Scrutinize all bids for obvious and prominent terms that are unacceptable and make an informed choice whether to accept and rely on those bids,” she said.
While this case involves general contractors in the construction industry, Hack said it could impact businesses and contractors in other areas.
“Any industry that accepts bids from multiple vendors and then relies on those bids when submitting its own bid to an owner or buyer could be subject to this ruling,” she said. “I have not seen it apply to other industries yet, but certainly think it can under the right circumstances.”