{"id":891054,"date":"2016-09-30T09:52:21","date_gmt":"2016-09-30T15:52:21","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=891054"},"modified":"2016-09-30T09:52:21","modified_gmt":"2016-09-30T15:52:21","slug":"sixty-years-subcontractors-back-drivers-seat-bidding-california-construction-projects","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/sixty-years-subcontractors-back-drivers-seat-bidding-california-construction-projects\/","title":{"rendered":"After Sixty Years, Subcontractors are Back in the Driver\u2019s Seat in Bidding on California Construction Projects"},"content":{"rendered":"

William L Porter | Porter Law Group<\/a> | September 2016<\/p>\n

For almost the last sixty years, the standard for bidding on California construction projects has been governed by the landmark case of Drennan v. Star Paving<\/em> (1958) 51 Cal.2d 409; which generally states that the contractor bidding to perform work for a project owner is entitled to rely on the bids of subcontractors in formulating its own bid to do the work. Under the equitable legal doctrine of \u201cpromissory estoppel\u201d<\/em>, which serves as the foundation of the Drennan<\/em> case, even though there was no actual \u201ccontract\u201d between the contractor and subcontractor at the time of bid, the contractor was entitled to enforce the subcontractor\u2019s bid in reliance on this doctrine. For bidding purposes, promissory estoppel serves as an equitable substitute for an actual contract. The courts have, since that time, allowed promissory estoppel to act as a substitute for the contract in public bidding because, in equity, when a contractor \u201creasonably\u201d relies on a subcontractor\u2019s bid in formulating its own bid, it would be unjust to allow the subcontractor to withdraw a bid on which the contractor had relied in submitting its own successful bid.<\/p>\n

While the above standard is in general quite reasonable, what has happened in the six decades since Drennan<\/em> has led us far afield from the wisdom of that case. A look into the flurry of activity in a general contractor\u2019s office on bid day illustrates: On a typical \u201cbid day\u201d a direct contractor might receive hundreds of bids from subcontractors, each presenting a price to perform its own specialized scope of work for the project. The contractor then typically selects the lowest responsive bid for each trade and includes sums for its own costs and profits and on that basis submits a single bid to the owner to perform the entire project, including all trades, often within minutes before the deadline. Usually, the contractor has no time or inclination to look any deeper into a subcontractor\u2019s bid than the dollar figure presented by the subcontractor. A problem arises when subcontractor bids include terms other than price<\/em>. Contractors have become quite accustomed to ignoring these other terms and focusing solely on the price. Contractors have done so with assurance that the strength of the Drennan<\/em> case and the promissory estoppel<\/em> doctrine will ultimately enforce the subcontractor\u2019s bid price, often regardless of other terms presented in the bid.<\/p>\n

The tendency of the Contractor to ignore non-price terms in subcontractor bids has been reinforced by post-Drennan<\/em> legislative enactments and court decisions. Witness Public Contract Code 4107: Enacted in 1986, section 4107 authorizes a contractor to replace a listed subcontractor on a public works project when the subcontractor \u201cfails or refuses to execute a written contract for the scope of work specified in the subcontractor\u2019s bid and at the price specified in the subcontractor\u2019s bid\u201d [Public Contract Code section 4107(a)(1)]. Note that only \u201cscope\u201d and \u201cprice\u201d are specified by the statute as the governing standard in determining when a contractor can be replaced. When a subcontractor refuses to sign the contract, the contractor then simply hires another subcontractor, almost certainly at a higher price, and relying on the doctrine of promissory estoppel<\/em> and the Drennan<\/em> case, successfully sues the subcontractor who would not sign the contract for the difference in price between the subcontractor\u2019s bid and the replacement subcontractor\u2019s bid.<\/p>\n

Ignored in the equation that leads to a judgment against the subcontractor who would notsign the contract, has been the reason<\/em> that the subcontractor would not sign. One common reason is that the subcontractor\u2019s bid contained terms which are important to the subcontractor but which were ignored by the contractor who looked no further than the subcontractor bid price. These terms often include early deposits so subcontractors can purchase expensive equipment or materials to be installed, necessary worksite conditions, insurance and bonding limits, change order procedures, and other terms the subcontractor has included in its bid to protect its interests. From the perspective of the bidding subcontractor these are important terms of the subcontractor\u2019s offer. The subcontractor reasonably believes that if the contractor accepts the offer, it is obliged to accept the subcontractor\u2019s entire offer<\/em> and not just the price alone. From the perspective of the contractor, it is the fact that the subcontractor would not sign the contract which contains customary and expected provisions that is paramount. The Drennan<\/em> case and its progeny, supported by statutes like Public Contract Code 4017 and the promissory estoppel<\/em>doctrine, have always given the contractor the upper hand in the equation.<\/p>\n

Enter the 2016 case of Flintco Pacific, Inc. v. TEC Management Consultants, Inc.<\/em> (2016-Cal. App. 4th-, 2016 WL 3541694, Court of Appeal, Second Appellate District) certified for partial publication, July 19, 2016. This case presents a significant clarification, if not an erosion, of the Drennan<\/em> doctrine. In Flintco<\/em>, subcontractor TEC submitted a bid to perform glazing (window) work on a community college for the sum of $1,272,090.00. Within the bid there was a requirement that Flintco pay a 35% deposit ($445,231.50) as security so that TEC could lock in the prices with suppliers of the materials to be installed. Also included were terms that the bid could be withdrawn if not accepted within 15 days and that if not accepted or withdrawn that the price was subject to a minimum 3% escalation per quarter if the bid was held open after the 15 days. Flintco accepted the bid and informed TEC by letter that it was the lowest bidder and would be awarded the contract and also informed TEC that \u201cthe contract award is contingent upon the following terms and conditions,\u201d including (1) that TEC accept liquidated damages and retention provisions, (2) agree on a complete scope of work, and (3) provide a bond. Flintco then sent TEC a contract including these terms and additional terms. The contract did not include the provision from the TEC bid that a 35% deposit would be paid. Negotiations ensued but no agreement was reached on key issues, including the provision that TEC would provide a bond or that Flintco would pay the 35% deposit. TEC then exercised its stated option after 15 days to withdraw its bid. Flintco then hired another subcontractor to perform the work at a higher price and sued TEC on the doctrine of promissory estoppel<\/em>, citing the Drennan<\/em> case, for the $327,050.00 difference between the bid of TEC and the higher bid of the replacement subcontractor.<\/p>\n

One of the requirements to establish promissory estoppel<\/em> is that Flintco \u201creasonably rely\u201d on the bid in formulating its own bid. The Court of Appeal however noted that, Flintco management readily acknowledged that it considered only TEC\u2019s bid price<\/em> in deciding to list TEC as its glazing subcontractor. This, the court concluded, was unreasonable. It was also not reasonable for Flintco to ignore the 35% deposit requirement and other materials terms of the bid. Flintco was therefore disqualified from availing itself of the doctrine ofpromissory estoppel<\/em>. By sending TEC its contract which contained terms differing from the bid terms, Flintco was issuing a \u201ccounteroffer\u201d which TEC was free to reject. TEC rejected that counteroffer when it responded by rescinding its offer. Flintco\u2019s lawsuit against TEC for the $327,050 difference in price between the TEC bid and the replacement subcontractor bid was therefore unsuccessful at trial and in the Court of Appeal.<\/p>\n

The Flintco v. TEC<\/em> case presents an erosion of the Drennan<\/em> case and the Promissory Estoppel<\/em> doctrine for California construction bidding. Subcontractors have new hope that important conditions within their bid documents cannot be ignored at the whim of contractors. Contractors have a new responsibility to closely examine subcontractor bids for terms on which they cannot agree, and when they do not agree, to reject those bids. As a result of the Flitco v. TEC Management<\/em> case, there can be no doubt that bid days will be more hectic than ever before.<\/p>\n","protected":false},"excerpt":{"rendered":"

William L Porter | Porter Law Group | September 2016 For almost the last sixty years, the standard for bidding on California construction projects has been governed by the landmark case of Drennan v. Star Paving (1958) 51 Cal.2d 409; which generally states that the contractor bidding to perform work for a project owner is… Continue reading After Sixty Years, Subcontractors are Back in the Driver\u2019s Seat in Bidding on California Construction Projects<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14],"tags":[9817,88,9438],"class_list":["post-891054","post","type-post","status-publish","format-standard","hentry","category-construction-2","tag-bidding","tag-california","tag-promissory-estoppel-claim","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nAfter Sixty Years, Subcontractors are Back in the Driver\u2019s Seat in Bidding on California Construction Projects - 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