Say What??!! When is There an Enforceable Agreement in the Subcontractor Bidding Process?

by Spilman Thomas & Battle, PLLC
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A major development and infrastructure project is announced that will provide significant work to a construction manager, general contractor (“GC”), and many subcontractors (“Sub”) across the building trades. The architect and project developer have issued the request for bids. The GC and Subs begin the difficult process of parsing up the project into manageable bites to eventually (and hopefully accurately) respond to the bid request.
 
But when in the Sub bid process does a binding agreement form? At what stage do the multitudes of proposals and counter-proposals morph into something the GC can rely on when responding to the bid request? Luckily, in many states, such as West Virginia, Virginia, North Carolina and Pennsylvania, the laws are relatively consistent and the answer is easier than expected. The general rule is this: a modified Sub bid creates a new offer that the GC must accept to create a contract.
 
Here is a breakdown of what that means in individual states:
 
Ohio
Under Ohio law, a GC’s mere use of a Sub’s quote in formulating a bid for a general contract does not constitute acceptance of the Sub’s offer[1]. For instance, when a Sub submitted a bid proposal for a subcontract by letter to the GC (who replied by letter), varying terms of original bid proposal, the GC’s reply was not an acceptance of Sub’s offer; it was a counteroffer which the Sub accepted by second correspondence.[2] A general rule is the incorporation of a Sub's bid in a general or primary contractor's bid does not create a contractual relationship between the GC and Sub on acceptance of the primary contractor’s bid by the owner. Likewise, Ohio courts have found that, on acceptance of a contractor's general bid by the owner, the Sub’s bid is simply an offer open for acceptance by the GC, rather than a binding contract between the two. No contractual rights or remedies may arise from the mere use of a Sub's bid by a GC in preparing its bid. It takes another, subsequent agreement to create a legal relationship.[3]
 
West Virginia
In West Virginia, a proposal to accept a bid upon terms varying from those offered is a rejection of the offer and puts it into negotiation, unless the party who made the original offer renews it or assents to the modification suggested.[4] If a person offers to do a definite thing and another accepts conditionally or introduces a new term into the acceptance, no agreement exists.[5] Unless an acceptance conforms exactly to the terms of the offer - if it is qualified in any particular term and such qualification is not implicit in the offer itself - then such a qualified acceptance creates no contract, but amounts to nothing more than a counter offer.[6]
 
Pennsylvania
Under Pennsylvania law, the submission of a bid to the GC does not constitute the formation of a contract, but merely constitutes an offer. However, a GC will have a cause of action[7] against a Sub - if the GC relies upon the Sub’s bid in making its own bid and the Sub subsequently withdraws its bid. Any variation in the terms of the bid constitutes a counteroffer and likely will defeat the GC’s right to relief against the Sub.[8] Similarly, a reply to an offer that adds qualifications or requires performance of conditions while claiming to accept the offer is not an acceptance but a counteroffer. A GC who informs a Sub its bid is “low” is neither indicating the Sub was the successful bidder nor creating a commitment. To actually have a contract, the acceptance must be unconditional and absolute, and so long as any condition is not agreed to by both parties, the dealings are mere negotiations and may be terminated at either time by either party.[9]

Virginia
In Virginia, no variances can exist between the terms of the offer and the acceptance.[10] An acceptance that varies from an offer is a rejection of the offer. For example, in one specific instance where the issue was whether a teaming agreement constituted a valid contract for the purchase of equipment from a Sub, the court held that because the GC knew the product may not be available when needed and there was no mutual agreement, a valid contract did not exist.[11]        
 
North Carolina
Under North Carolina law, an unaccepted offer is not a contract, and an effective acceptance must be identical to the offer.[12] A Sub’s proposal used by a GC to submit a bid does not constitute a valid contract between the GC and the Sub. In Home Elec. Co. of Lenoir, Inc. v. Hall and Underdown Heating and Air Conditioning Co., once the GC was awarded the general contract, the Sub backed out of the job.[13] The Court determined that promissory estoppel did not apply as a substitute for consideration because an unjust situation could result—where the Sub is obligated to perform, but the GC has no obligation to award the subcontract to the Sub. As the subcontract was not conditioned upon a contract award, the GC could seek lower-cost Subs for the award of the general contract. In a different case, a Sub attempted to withdraw its bid, and the GC argued the parties had formed an implied contract. The North Carolina court found that a contract did not exist because the Sub had not performed any work, the Sub had not been paid, and the GC did not contact the Sub to accept the proposal.[14]
 
Ensuring a Contract Exists
A general theme runs throughout the five states. If the request for bid and the bid submission are different, then no contract exists. If the bid terms are continually being modified by the GC and the Sub, no contract exists until both parties affirmatively agree on the terms. The application of promissory estoppel varies state by state, but a simple confirmation email accepting the terms of the other party goes a long way toward avoiding litigation.

[1] Complete General Construction Co. v. Kard Welding Inc., 182 Ohio App. 3d 119 (2009).

[2] Youngstown Steel Erecting Co., Inc. v. Mac Donald Engineering Co.. 154 F. Supp. 337 (1957).

[3] Weimerskirch v . Patriot Services Corp.. 2012 WL 1068888 (No. 3:11cv00302. N.D. Ohio March 29, 2012.)

[4] Bowers v. The Kanawha Valley Products Co., 100 W.Va. 278 (1925).

[5] Cobb v. Dunlevie, 63 W. Va. 398 (1908).

[6] Hoffstot v. Dickenson. 71 F.Supp. 897 (S.D.W.V. 1947).

[7] Based on promissory estoppel.

[8] Neshaminy Constructors, Inc. v. Concrete Building Systems, Inc. 2007 WL 2728870 (No. 06-1489 E.D. Pa. Sept. 18, 2007.)

[9] Alexanian v. Fidelity–Philadelphia Trust Co.. 152 Pa.Super. 23 (1943).

[10] Measell v. Baruch, 152 Va. 460 (1929).

[11] The Court held that under Virginia law, promissory estoppel is not a recognized cause of action. W.J. Schafer Assocs., Inc. v. Cordant, Inc., 254 Va. 514 (1997).

[12] Rucker v. Sanders, 182 N.C. 607 (1921).

[13] 86 N.C.App. 540 (1987).

[14] Lomax Constr., Inc. v. Triad Sheet Metal & Mech., Inc., 212 N.C.App. 692 (1987) (unpublished).
 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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