Bidding Mistakes in Public Contracts

By: John Schroeder

It is four o'clock on Friday afternoon and you have been working on your bid to the general contractor all day. The bid is due by five o'clock and you are finally ready to bring the numbers over from your workup sheet to the formal bidding form provided by the general contractor in his instructions to bidders. Then it happens......you fail to transfer three items from your work sheet to the formal bid. The bid is sent in and opened later. That is when you discover you are 40% lower than the next lowest bidder and you start to question your bid. You return to the office and find the three items missing from the bid. After you consider that your life or at least your job is over, what do you do?

First, you should ask someone else to recheck your bid form. After they confirm your error, review the entire bid package including any bid bond your firm posted. Your focus should be on any provisions that relate to withdrawing your bid or errors in the bid. Your next focus should be how your bid was used by the general in preparing his bid. Then you should call your construction attorney immediately. Under some circumstances you may only have five business days to notify the general or public entity of the mistake. This article will analyze what rights a subcontractor has when it has made a simple clerical error in its bid.

Most attorneys would begin their analysis with a review of Chapter 5 of the Public Contracts Code. Before you jump to the section on relief from bid mistake, pay careful attention to the definitions found at Section 5100. As it turns out, both the term "public entity" and "bid" are defined in that section of the Code. Public entity means: "the state, Regents of the University of California, a county city, and county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state." This is indeed a very broad definition that appears to include almost all commonly defined public entities. Section 5100(b) states; "'Bid' means any proposal submitted to a public entity in competitive bidding for the construction, alteration, repair, or improvement of any structure, building, road or other improvement of any kind." The key phrase for a subcontractor is submitted to a public entity. In Diede Construction, Inc. v. Monterey Mechanical Co. (2004) 125 Cal.App.4th 380, the Court held that the Relief of Bidders section of the Public Contracts Code did not apply to a subcontractor who had submitted their bid to the general contractor and not the public entity.

In Diede, the general contractor had been awarded a $12,000,000 contract from the City of Livermore to renovate the city hall. However, after the bids were opened, but before Diede the general contractor signed an agreement with the city, it was notified in writing that Monterey Mechanical, it's HVAC subcontractor, had left out roughly $300,000 out of its $1,775,000 bid to Diede. Monterey refused to perform without relief from the error and Diede had to get a replacement HVAC subcontractor and perform under the awarded contract, or forfeit its 10% bid bond to the City. Diede elected to get a replacement and sue Monterey for the difference of about $467,464.

The Court held that Diede could not seek relief from the City for the subcontractor's error in bidding because the subcontractor submitted the bid to Diede, not the City. The Court noted how unfair it would be to the general contractor to forfeit its bid bond and not be allowed to rebid the job for the error of the subcontractor. It also noted that Diede might have problems proving that the $300,000 error in a $12,000,00 total contract was material as required by section 5103(c). This again would be unfair to the general contractor. Finally, the Court noted that if the statute applied to subcontractors, it would also apply to second or successive level subcontractors and material men. Such a construction would impede the timely and efficient prosecution of public construction.

The Diede case also has lessons to be learned regarding what relief the general contractor can get from a subcontractor in a bidding error case under the doctrine of promissory estoppel. In the next article, we will analyze the doctrine of promissory estoppel and how it could be applied to the Diede matter or other cases of bidding mistakes.

John Schroeder is Of Counsel with Kring & Chung, LLP's Irvine, CA office. He can be contacted at (949) 261-7700 or jschroeder@kringandchung.com.