The bidding process can be hectic for contractors and subcontractors. In order to win the bid for a project, a contractor must be able to rely on the bids that subcontractors have provided. If a subcontractor backs out of their bid, this could spell serious issues for a project. When that happens, a contractor must scramble to find a replacement while keeping the cost of the project down. When costs increase due to unreliable bids, lawsuits can arise. However, when a subcontractor cannot perform work because of the actions of the contractor, subcontractors can rest easy – at least in California. Following a recent case, Flintco Pacific, Inc. v. TEC Management Consultants, a subcontractor is off the hook because the contractor failed to honor the subcontractor’s bid conditions.
The Facts
Flintco, the contractor, accepted a bid from TEC, the subcontractor, to perform glazing work on a project for the Contra Costa Community College District in Pleasant Hills, CA. Flintco ended up winning the bid on the project, and began notifying the winning contractors. It quickly became clear, though, that Flintco had paid no attention to TEC’s bid before including it in the winning bid for the project. Several conditions applied to TEC’s bid for the glazing work, none of which were read or considered by Flintco. Flintco proceeded to send TEC the standard from contract that Flintco provides its subcontractors. Upon receipt, TEC notified Flintco that many of the terms to the contract were in conflict with the subcontractor’s bid conditions. Notably, they disagreed on whether a bond would be provided by the subcontractor, the scope of work, a liquidated damages clause, and most importantly, TEC’s requirement of a 35% deposit.
After several weeks, TEC and Flintco were unable to come to an agreement and TEC withdrew its bid. Flintco then provided TEC with another subcontract, which also did not comply with the subcontractor’s bid conditions. TEC notified Flintco that the bid had expired, according to its conditions. Flintco then hired a new subcontractor to complete the work and sued TEC for extra costs associated with the replacement.
According to Flintco, bid conditions are negotiated only after a contract has been awarded. For efficiency purposes, Flintco claimed that on bid day only price, scope, and time frame are considered, and bonding considerations are considered. Due to the limited scrutiny placed on each bid received, Flintco did not notice the 35% deposit, one of the key conditions on the bid despite TEC’s best efforts – the 35% deposit requirement was bolded, underlined, and listed directly below the price.
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The Case
Under the theory of promissory estoppel, Flintco sued TEC for the difference in the price of TEC’s bid and the price of using a replacement subcontractor. Basically, Flintco alleged that it had relied on TEC’s bid to its own detriment, and that TEC should be liable for the extra costs incurred. Neither the court nor the appellate court found this to be the case. In order for a promissory estoppel claim to prevail in California, four elements must be present:
- A clear unambiguous promise
- Reliance by the party receiving the promise
- The reliance is both reasonable and foreseeable
- The party asserting promissory estoppel must be injured by the reliance
The trial court found that while TEC did provide a promise and that Flintco relied on that promise, the reliance was unreasonable due to the conditions on the face of the bid. That Flintco did not read the bids is no excuse for disregarding the conditions upon which TEC provided the price of its work. Had the conditions on TEC’s bid not been included, the price would have been considerably raised. The trial court determined that because of the other discrepancies between TEC and Flintco’s subcontracts, Flintco only considered the price when qualifying bids. Considering only price, the court found, was unreasonable. Finding no issue with the lower court’s ruling, the appellate court affirmed the decision.
Takeaway
Disputes arise at all levels of a construction project. Because of the unique structure of the construction payment chain, there are plenty of opportunities for an issue to come up. While we normally handle the payment issues that come on the back end, particularly mechanics liens and bond claims, a subcontractor’s bid conditions often serve as the first place a project can go wrong. Whether the dispute occurs at the onset or further down the line, placing an emphasis on clear communication at the start of a project is the best way to avoid payment disputes and promote fairness in construction. Unfortunately for TEC, clear communication can only take place when the other party actually reads that communication.
For more on California lien law, we have more considerations on the blog as well as our California Lien Law FAQs.
