Marion T. Hack, Partner
Flintco Pacific, Inc. v. TEC Management Consultants, Inc., 2016 Cal. App. LEXIS 594 (Cal. App. 2d Dist. June 21, 2016)
There was an important California decision published on July 19, 2016 (decided June 21, 2016) regarding damages due to reliance on a subcontractor bid of which all General Contractors should be aware. A general contractor can usually recover damages if a subcontractor does not honor its bid price; which price the general has relied upon in submitting its bid to the owner. The Court of Appeals has set forth significant limitations on a general contractor’s recovery for damages usually founded under the theory of promissory estoppel.
In Flintco Pacific, subcontractor TEC submitted a bid to general Flintco, to perform work on a public project. TEC’s bid contained a deposit term which was located prominently under the bid price as well as other nonmonetary terms. Flintco submitted its bid to the public entity using TEC’s price as a basis for its bid. Flintco was awarded the contract and in turn sent a subcontract to TEC that did not include the deposit or other terms that were on TEC’s bid. TEC ultimately withdrew its bid because Flintco would not honor the deposit term in its proposal and Flintco sued for reliance damages under the theory of promissory estoppel. The trial court ruled in favor of TEC and the Court of Appeals affirmed that decision.
The Court ruled that the deposit term should have raised a “red flag” to Flintco as it was prominently located in the bid itself. The Court stated that Flintco’s reliance on the bid price while ignoring the other terms in the TEC’s proposal was unreasonable and thus Flintco could not recover damages for reliance on TEC’s bid.
This is an unfortunate case for general contractors who have to rely on subcontractor proposals, often which are submitted at the last second, for bidding purposes. This allows subcontractors to place unforgiving conditions in their bids and gives them an ultimate out if those terms are not agreed to. General contractors should:
- Put subcontractors on notice, prior to receiving bids, that non-price terms in bids will not be accepted by the general contractor at bid time.
- Scrutinize all bids for obvious and prominent terms that are unacceptable and make an informed choice whether to use those bids.
This a tough issue but a little focus up front on subcontractor bids can save later grief.
To view the full text of the court’s decision, courtesy of Lexis ®, click here.