November 24, 2008
Author: Ryan Beaver
Organization: Smith, Currie, & Hancock LLP
A general contractor’s first goal for any construction project is to submit a successful bid that will secure the contract while allowing the contractor to make a reasonable profit. In pursuit of that goal, virtually every general contractor solicits quotes or bids from subcontractors for portions of the labor and materials in order to determine the cost of completing the project. In industry practice, the numbers provided by the subcontractors generally are considered firm offers, binding a subcontractor to the terms contained therein if its bid is selected. This allows general contractors to rely on the subcontractors’ bids to create an overall bid for the entirety of the project with some measure of security with regard to the numbers they are relying on. A recent decision by the 3rd Circuit Court of Appeals, however, demonstrates clearly that the industry practice of considering a subcontractor’s bid to be a firm offer can be overridden and invalidated by the terms contained within the terms and conditions of the subcontractor’s bid. Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247 (3rd Cir. 2007).
In Fletcher-Harlee, the general contractor solicited bids for a project, and stipulated that all subcontractors must agree to be accountable for the prices and proposals submitted. In response to Fletcher-Harlee’s solicitation, Pote Concrete submitted a written price quotation for supplying concrete to the job. Pote’s price quotation, however, did not comply with Fletcher-Harlee’s requirements and explicitly stated on its face that it was for informational purposes only, did not constitute a firm offer and should not be relied upon.
Despite the express provisions of Pote’s price quotation, Fletcher-Harlee elected to rely on Pote’s numbers in preparing its bid and subsequently was awarded the contract. When Fletcher-Harlee approached Pote to put Pote’s numbers into a formal contract, however, Pote increased its price for the work. Consequently, Fletcher-Harlee used a different concrete subcontractor at an additional cost of $200,000. Fletcher-Harlee then filed claim against Pote for breach of contract and promissory estoppel to recover the damages incurred as a result of Pote’s failure to adhere to the terms of its price quotation. The U.S. District Court for the District of New Jersey held that Fletcher-Harlee was not entitled to recover under either theory and dismissed all of its claims against Pote.
In upholding the district court’s decision the 3rd Circuit held that the express terms of the document submitted by Pote supersede the industry practice of considering all bids to be firm offers. The plain language of Pote’s price quotation stated that it was not a firm offer, and the terms of the document are given greater weight than the tradition of industry custom. Accordingly, the bid submitted by Pote was deemed to not be a firm offer, which means that it could not give rise to a breach of contract claim.
Further, the dismissal of Fletcher-Harlee’s claim that Pote should be bound by the terms of its price quotation based on the theory of promissory estoppel was also upheld by the 3rd Circuit. The theory of promissory estoppel states that a defendant may be bound to the terms of a promise made to the plaintiff if the plaintiff reasonably relies on the defendant’s promise and is harmed as a result. In this case, Pote explicitly stated that its price quotation should not be relied on and was for informational purposes only. The 3rd Circuit held that Fletcher-Harlee reliance was not reasonable since its reliance was in direct conflict with the terms contained within Pote’s price quote. Since Fletcher-Harlee’s reliance on Pote’s contract was unreasonable the 3rd Circuit held that the district court was correct in dismissing the claim.
The scope of this decision is quite narrow since it only deals with bids or price quotations containing express provisions stating that it is not a firm offer and should not be relied upon. However, the potential consequences of this decision for contractors are quite far-reaching. As a result of this decision, contractors must be aware that the industry practice of treating each bid as a firm offer can be overridden by the terms and conditions contained within the bid itself. Therefore, the contractor must be diligent in examining not just the numbers contained within the bid submitted by its subcontractors, but also the terms and conditions placed on those numbers by the terms contained within the bid itself.
Ryan L. Beaver
Member of the State Bars of North Carolina and South Carolina