Contrary to many contractors’ assumptions, a subcontractor’s bid to a general contractor is not binding in and of itself — even if the general contractor relies upon it in formulating its bid to the project owner. Instead, the bid is merely an offer, which the general contractor must act to accept if it wishes to form an enforceable contract.
In short, there are no special rules of contract law applicable to construction bidding; the ordinary rules of offer and acceptance still apply. An example comes from a case handled by MeyerGoergen on a subcontractor’s behalf, where the court permanently dismissed the general contractor’s action for nearly $150,000.00 in alleged losses.
A general contractor bidding for a construction project received a bid from our client subcontractor after the job was listed at the Builders’ Exchange. The general used that, the lowest bid, in presenting its total bid package to the owner. But importantly, the general never communicated to the sub that it had accepted its bid. This is actually common practice, since the general does not wish to bind itself to the sub until it is sure it has the job.
After several weeks, the general sent the sub a letter which purported to award the subcontract. But the letter also made reference to a detailed contract form enclosed with the letter, and the letter instructed that the sub had to sign and return the new contract form before work could begin. The contract form contained numerous paragraphs setting forth additional rights in favor of general and obligations owed by the sub, which had never been previously discussed.
Well established contract law holds that a communication which purports to accept a prior offer, but which insists upon new or additional terms to the deal, is not actually an acceptance but a counter offer. A counter offer is treated as the rejection of the prior offer and the concomitant presentation of a new offer. Accordingly, we argued for the sub that the letter and contract, viewed together, constituted a counter offer. The court agreed, and because the general could show no indication that its counter offer had ever been accepted, its case was dismissed.
General contractors typically do send form contracts, drafted heavily to their advantage, when “accepting” subcontractors’ bids on large commercial projects. The lesson here is that a subcontractor who reviews the contractor’s form and does not like what he sees may be free to walk away from the project with impunity. Similarly, if a contractor has already accepted a sub’s bid, it may be deemed in breach of contract if it refuses to allow a sub to proceed with work unless the sub renegotiates the deal by signing the form the contractor had its lawyer draft.
In short, strong arm tactics aside, the law in this area is not made by contractor practice. The law is firmly established, and the courts will enforce the time-honored rules when disputes arise.
Attorneys:
Bernie Meyer
Scott Simmons
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