Promissory Estoppel and Public Works Bid Disputes in California. Sooo You’re Telling Me There’s a Chance!

Dumb and Dumber

Lloyd: What do you think the chances are of a guy like you and girl like me ending up together?

Mary: Well Lloyd, that’s difficult to say. We really don’t . . .

Lloyd: Hit me with it! Just give it to me straight! I came a long way just to see you Mary, just . . . the least you can do is level with me. What are my chances?

Mary: Not good.

Lloyd: You mean, not good like one out of a hundred?

Mary: I’d say more like one out of a million.

Lloyd: Sooo you’re telling me there’s a chance. Yeah!

Sometimes we hear what we want to hear (or just ignore what the other person is saying). Sometimes this can lead to broken hearts. And, at other times . . . to empty pocketbooks . . .

Flintco Pacific, Inc. v. TEC Management Consultants, Inc.

In Flintco Pacific, Inc. v. TEC Management Consultants, Inc., Case No. B258353, California Court of Appeals for the Second District (July 19, 2016), held that a general contractor cannot sue a subcontractor on the ground that it relied on a subcontractor’s bid price while ignoring material terms and conditions of that bid.

In May 2011, subcontractor TEC Management Consultants, Inc. (“TEC”) submitted a bid to general contractor Flintco Pacific, Inc. (“Flintco”) to perform glazing work on a public works project in Pleasant Hill, California.

TEC’s bid was for $1,272,960. However, the bid contained several conditions:

  1. immediately below the bid price, it stated: “A DEPOSIT of 35 % IS REQUIRED FOR THIS WORK“;
  2. the bid provided that it could be withdrawn if not accepted with 15 days; and
  3. the bid provided that it was “subject to a minimum 3% escalation, per quarter, after [the] 15 days acceptance period.”

Flintco included TEC’s bid in its bid to the Contra Costa Community College District and listed TEC as the curtain wall and glazing subcontractor, presumably pursuant to California’s Subletting and Subcontracting Fair Practices Act, which requires the listing of subcontractors whose sub-bids are in excess of 0.5% of the prime contractors total bid, or $10,000, whichever is greater.

Flintco was determined to be the lowest responsible bidder and, in July 2011, Flintco sent a “letter of intent” to TEC indicating Flintco’s “intent to issue a Subcontract Agreement to TEC.” The letter stated that the “contract award is contingent upon the following terms and conditions” including: (1) that TEC agree to  liquidated damages and retention provisions; and (2) agree on a complete scope of work. Flintco later sent TEC a blank form of its standard-form subcontract which did not name TEC, identify a scope of work, or list a price.

Upon receipt of the contract, TEC’s Chief Executive Officer called Flintco’s Project Manager to explain that the parties had “some major differences that we need to discuss,” including provisions in the contract which would require TEC to provide a bond, that the scope of work discussed exceeded the permissible work which could be performed under Flintco’s contractor’s license, that the contract included a liquidated damages provision, and that it did not acknowledge TEC’s 35% deposit requirement contained in its bid. TEC also noted that the 15 day period in which its bid was open had expired.

Negotiations continued over the next month but were unsuccessful. Finally, on August 23, 2011, TEC sent Flintco a letter advising that it would not pursue the contract. In response, Flintco informed TEC that Flintco “cannot relieve TEC of their obligation to perform,” and TEC responded in turn that Flintco’s ability to accept its bid had expired. Thereafter, Flintco found a new subcontractor and sued TEC for $327,050 in a single cause of action for promissory estoppel.

Following trial, the trial court ruled in favor of TEC. The trial court found that Flintco had failed to satisfy an element of its claim for promissory estoppel, namely, that its reliance on TEC’s promise (i.e., TEC’s bid) was reasonable. Flintco’s reliance was not reasonable held the court because, while Flintco relied on TEC’s bid price, it ignored other material conditions of TEC’s bid. The trial court further found that Flintco’s standard-form subcontract was a counteroffer giving TEC the right to withdraw its bid.

Flintco appealed.

The Court of Appeals Decision

On appeal, the Court of Appeals noted that “[a] general contractor may recover damages incurred as a result of its reasonable reliance on a subcontractor’s mistaken bid under the theory of promissory estoppel” and further that:

This principle is applicable to a proposed subcontractor (promisor) who makes a bid (and with it an implied subsidiary promise to keep the bid open for a reasonable time after the awarding of the general contract) to a general contractor (promissee) who in turn bids on a construction contract with a third person in reliance upon the subcontractor’s bid (and subsidiary promise) and is the successful bidder.

The Court of Appeals explained that the elements of a claim for promissory estoppel claim are:

  1. A promise clear and unambiguous in its terms;
  2. Reliance by the party to whom the promise is made;
  3. The reliance is both reasonable and foreseeable; and
  4. The party asserting promissory estoppel must be injured by its reliance.

Here, however, held the Court of Appeals, the trial court’s finding that Flintco’s reliance was not reasonable was supported by the fact that:

  1. TEC’s 35% deposit requirement was underscored and written in all capital letters directly beneath the bid price and was necessary to lock in TEC’s supplier costs;
  2. TEC would not accept liability for liquidated damages;
  3. TEC’s bid contained an exclusion for bonds; and
  4. TEC’s bid included a 3% per quarter escalation provision if its bid was not accepted within 15 days.

Furthermore, held the Court of Appeals, Flintco’s letter of intent, which was expressly made “contingent upon the following terms and conditions” that conflicted with TEC’s bid, along with Flintco’s standard-form contract, which varied materially from the terms of TEC’s bid, constituted a rejection of TEC’s bid and counteroffer which terminated Flintco’s power to accept TEC’s original bidder.

Conclusion

Flintco is clearly a win for public works subcontractors. However, for public works general contractors, who literally have just minutes to gather sub-bids, select among those sub-bids, and submit their own bid to a public entity, Flintco creates potential problems. While the Subletting and Subcontracting Fair Practices Act permits a general contractor to substitute a listed subcontractor, doing so takes time, and public entities who themselves are subject to the state’s competitive biddings laws are not required to increase the price of the contract awarded.

Flintco also creates another battle-of-the-forms battleground, where subcontractors will include favorable provisions in their bids, causing general contractors to include language in their bid requests that no additional terms other than price terms will be accepted by the general contractor (or even providing that a subcontractor, by submitting a bid, is agreeing to the general contractor’s general terms and conditions), causing subcontractors in turn to include provisions in their bids providing that the terms of the subcontractor’s bid shall control over any contrary provisions in a general contractor’s bid request. And so the contractual armament race goes on.

 

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