Federal District Court in PA Holds Contractor’s Use of Subcontractor’s Conditional Bid Proposal in its Bid to Owner Insufficient to Form Enforceable Contract

Neshaminy Constructors, Inc. v. Concrete Building Systems, Inc.
2007 U.S. Dist. LEXIS 69197, Civil Action No. 06-1489 (E.D. Pa. 2007)

The United States District Court for the Eastern District of Pennsylvania conducted a bench trial in which the primary question was whether a contract had been formed between a contractor and subcontractor in connection with a project for which the contractor submitted a bid proposal utilizing, in part, the subcontractor’s bid proposal for calculating the total price for the work. Relying on Pennsylvania common law, the Eastern District held that use of a subcontractor’s bid, by a general contractor in the submission of its own bid to the owner, in and of itself is not sufficient to create a binding contract.

Neshaminy Constructors, Inc. (“Contractor”) sought bid proposals from Concrete Building Systems, Inc. (“Subcontractor”) in connection with a project owned by the Southeastern Pennsylvania Transportation Authority (“SEPTA”) for which Contractor intended to submit a bid proposal to serve as general contractor. Subcontractor submitted a bid proposal (“Proposal”) to Contractor which included a number of contingencies. Among the contingencies were that the Proposal was void if not accepted within 30 days and the Proposal was subject to the availability of Subcontractor’s facilities. Specifically, Subcontractor advised that in order for it to be able to work on this Project, it was necessary for it to commence production of the materials in June. Therefore, Contractor knew that should the SEPTA contract be awarded late, and thus production not capable of commencing in June, that it would need to locate another subcontractor.

In submitting its bid proposal to SEPTA, Contractor utilized $5,500,000 as the amount related to the work Subcontractor was to perform even though Subcontractor’s revised proposal was $5,600,000. Contractor was the only bidder on the Project, yet SEPTA did not award the contract until the end of May, well after the originally expected award date. In the meantime, Contractor requested Subcontractor to provide a revised proposal and cost breakdown for just shop drawing work. Subcontractor refused to provide this information because it would not just do shop drawing work. When the contract was finally awarded to Contractor, Subcontractor was unable to perform work on the Project because it had since committed itself to another Project. Upon learning that Subcontractor would not be performing work on the Project, Contractor retained the services of another subcontractor at a higher price than what Subcontractor had previously quoted. Due to the increase in its projected costs, Contractor sued Subcontractor under theories of breach of contract and promissory estoppel to recoup the difference in the cost.

In rendering its opinion, the Eastern District first rejected Contractor’s argument that the Uniform Commercial Code (“UCC”) applied. The Court recognized that Pennsylvania courts consistently stated that construction contracts were not sales contracts governed by the UCC. Examining industry practices and common law contract principles, the Eastern District concluded that there was no contract formed between Contractor and Subcontractor. Under Pennsylvania common law, a contract is formed when there is (1) an offer; (2) an acceptance; and (3) consideration. Relying on Bilt-Rite Contractors, Inc. v. Patriot Roofing, Inc., 1999 U.S. Dist. LEXIS 2459, *4 (E.D. Pa. Mar. 4, 1999), the Court upheld the principle that an acceptance must be for the identical terms of an offer and any deviation therefrom will constitute a rejection of the offer and becomes a counteroffer. Applying this basic contract principle to the situation at hand, the Court explained that the bid proposal was an offer which needed to be accepted and did not automatically create a binding contract just because the proposal was utilized by Contractor in its bid to the Owner. The Court further explained that Contractor’s informing Subcontractor that Contractor was the lowest bidder, without more, was not sufficient to create a binding contract.

Of particular interest is the Court’s conclusion that Subcontractor’s acceptance of another job prior to the expiration of the Proposal was not a breach of any promise to Contractor. The Court explained that because Contractor actually made a counteroffer in the form of differing costs, time frame and scope, prior to Subcontractor’s acceptance of the other job, the Proposal was merely an offer by Subcontractor, and the counteroffer served as a rejection of the terms of the Proposal. Consequently, the expiration date of the Proposal no longer had any relevance.

The Eastern District further held that the doctrine of promissory estoppel did not apply in the case at hand. Because a determination in this matter could be made on the basic common law principles of offer and acceptance, Contractor was not entitled to rely on promissory estoppel as an alternate theory of recovery. The Court further stated that even if it could apply promissory estoppel to the case, Contractor would be unsuccessful in such a claim since it was unreasonable for Contractor to rely on Subcontractor’s Proposal given the nature of the contingencies contained therein.

The Eastern District’s ruling confirms for contractors that by soliciting bids from subcontractors for inclusion in an overall bid to an owner they are not automatically bound to a contract with the subcontractors. Rather, an express acceptance of the offer contained in a subcontractor’s bid proposal, without deviation, must be made by the contractor in order to create an enforceable contract, or the contractor’s reliance upon the proposal for purposes of promissory estoppel must be reasonable and consistent with any qualifications in the proposal. Further, if there is a period of time during which the original proposal will remain open, any counteroffer by contractors will be deemed a rejection of the original proposal and render the expiration period inconsequential. contractors must be alert to qualifications in subcontractor proposals.

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