ConstructionPro Week, Volume: Construction Advisor Today - Issue: 117 - 07/21/2011

Should Subcontractors Always Be Bound to Their Pre-Bid Quotations?

A bidder on a prime contract necessarily relies on price quotations from prospective trade subcontractors. Can that bidder, if awarded the prime contract, hold those would-be subs to their prices? The financial consequences of repudiated prices can be severe. Yet no binding contract was formed prior to bid submittal.

 

The Nevada Supreme Court recently held an electrical contractor to its pre-bid price quotation. The bidder on the public works contract had clearly relied on the quote. The bid listed the electrical contractor as a sub. And the reliance had been reasonable. The bidder had repeatedly obtained assurances of the accuracy of the quote from the electrical contractor. The measure of damages was the same as for breach of contract: the amount the prime contractor paid replacement electrical contractors in excess of the price quotation incorporated into the bid.

 

There are two sides to this story, however, and subcontractors should not always be held to their pre-bid price quotations. What if the bidder, after award of the prime contract, tries to talk down the sub’s price or shops that price around to other trade contractors? Has there been actual and reasonable reliance on the part of the bidder? What if the sub is presented with a written subcontract form containing unorthodox and onerous terms? Is the sub obligated to sign whatever is placed in front of it?

 

I invite comments from each side, general contractors and trade contractors. From your perspective, what do you consider “best practices” in managing the price quotation, bid submittal, subcontract award scenario?

 

Featured in Next Week’s Construction Claims Advisor:

  • Owner Recovers under Warranty without Expert Opinion on Causation
  • Idaho High Court Addresses Workmanship and Mechanic’s Liens
  • Government Control Exception Did Not Excuse Late Delivered Proposal

 

Bruce Jervis, Editor
Construction Claims Advisor

 

Comments

Very interesting question. Often the contractor will seek to buy down the job after award of the contract. Has anyone seen a case where that voids the sub's quote?

We deal primarily in the federal contract sector. There is a disturbing trend for prime contractors to use a sub's price to bid or propose on the solicitation, and tell that sub during the process they are the low proposer on that piece of work and they are including their price in the bid or proposal. After award the prime contractor then shops around for a lower price and tries to negotiate the supposed low sub qouter down to a lower price. There are others times the prime claims they shaved a certain percentage off the price before they submitted and now they want the sub to meet that reduction. These statements are suspect as a scam as there is no way the sub knows the true extent of such games. What is the case law on these two scenarios?

 

All depends on circumstances. In a public job where law requires the prime to use a listed subcontractor,the sub should be held to the bid. Private job where no such law exists, maybe not.

 

This can be an issue with both public and private bids. If the subcontractor does not have access to the contract before the bid I believe that if the contract language is unacceptable to the subcontractor he should be given an out. After all no-one should be forced into an unfair contract. 
I have seen some extremely onerous contracts in my day and I have walked from jobs because I could not obligate my company to the terms. If a contractor will not consent to using a standardized subcontract such as a AIA contract then that should be a huge red flag for any subcontractor.

 

From my experiences, it seems that these issues only arise when a reputable subcontractor wants to not honor their bid. The subcontractors known for taking shortcuts, in all aspects of their business are always allowed to withdraw penalty free, because the Prime Contractor is glad to not have to use them. The problem is that those non-reputable subcontractors prices are being used to drive the prices down for everyone else.

 

The solution is to not issue proposals/quotes any longer. Start issuing "estimates" only and state on the estimate that the user takes the risk of using the estimate. If you are a reputable subcontractor with a decent track record, the Prime Contractors will not be concerned and if they are, then do not give them estimates any longer. A reliable estimate is an extremely valuable item for a Prime Contractor and it is a service subcontractors have been providing for free. And in that 1 in 1000 chance you do make a large mistake, issuing an "estimate" instead of a "proposal/quote" will help limit your liability.

Ask for a bid bond.

 

There are General Contractor's who frequently shop Subcontractor quotes or try to force a lower price. When this is the case, it is the Subcontractor's choice if they choose to play along. Generally speaking, most GC's and Subs know who these companies are, yet the Subs continue to bid them the exact same quote as the GC that respects the quote and does not shop numbers, thus proliferating the trend.

 

Subcontractors should be bound to the same rules as the gc; these are all enumerated in the specifications and advertisement to bids. Subs play just as many of these, in my opinion, unethical games as the gc.

 

Our terms and conditions on every proposal give us an out for clerical errors, scheduling conflicts, and the prime contractor's mandatory acceptance of our addendum to their contract, which clarifies language relating to liability, payment terms, stop work provisions, and how long they hold retainage. We've never been threatened with legal action for walking away, but we have walked away when our terms were not met. It's our business, not theirs.

 

I am surprised not to see any comments about the expiration date on the quote. We typically indicate in the quote that it expires in 30 days. I have yet to see a contract come in in less than 30 days after the bid. Isn't this enough to get out?
Most contractors do not provide their contract to the subs at bid time. I do think that you can also get out if the terms of the contract are one sided and not fare and the contractor does not want to accept modifications.

 

I remember the days when GC's were taught that if a number was a certain percentage less then everyone else, the ethical thing to do was to contact the sub and ask them to review their numbers. Then and only then if the sub comes back and claims their number is good, they should be held to it. However, it is on the GC to make sure they bring it to the subs attention. When did ethics go out the window?

 

Coming from the side of a large GC, it is the responsibility of both parties. If a GC is soliciting bids from subcontractors, make the attempt to educate the sub on special conditions, get a "scope of work" letter from the sub prior to bidding, review the proposal with the subcontractor before relying on the bid, and realize that the subcontractor is YOUR subcontractor going into a project.

 

As far a the subcontractor is concerned, work with the GC on preparing your bid. They know what they are looking for as far of scopes of work, ask the questions and bid apples to apples with your competitor. No reliable GC is trying to put people out of business, they want to be covered and competitive. It all comes down to working together. If a project goes bad, both parties end up in the same courtroom.

It is often difficult to know if your price is being shopped to other subs. One reason is that it is difficult to find out what the other bids were, unless you were one of the higher bids. Often when we are low bidder the GC does not want to tell us what the other bids were, and you don't know you are low until they tell you. As for the subcontract - beware. You have the right to change the terms of the subcontract - most of them are absolutely written to benefit the GC. It is a negotiable agreement and if the GC won't budge, maybe you are better off walking away. Be informed, some trade associations provide subcontract seminars with an attorney.

 

On the binding character of a sub's price quote used by the later successful gc, that's been recognized for decades - traditionally, under the doctrine of promissory estoppel. In reality, it's the sub's quote being treated as an offer, with the gc's foreseeable detrimental reliance on it as consideration, and if the gc then seasonably accepts, there's a contract. If the sub's quote/offer failed to express its desired non-price terms (and beyond just scope limits), it has itself to blame for - in the end -a court deciding what were mutually intended as reasonable terms. (Though, many arguably would be those in the owner-gc contract documents, which typically flow down to the sub anyway.) The sub also would have itself to blame for instead not adding a disclaimer to its quote. By the same token, if the gc starts pulling the sub's chain post-award - instead of giving an unqualified acceptance, that's at best a counteroffer-getting the sub off the hook. Finally, if the sub and gc proceed to perform without having nailed down all the terms, they've still got a deal - on the terms which were agreed and any other pertinent ones later found necessary and as what a court thinks they would have agreed.

 

I follow you VIA GFC and I love your blog!

 

 

COMMENTS

Do you have a spam issue on this site; I also am a blogger, and I was wondering your situation; many

of us have created some nice practices and we are looking to swap methods with

other folks, please shoot me an email if interested.
Posted by: Lowman - Tuesday, February 11, 2014 4:26 PM


Thank you, I've just been looking for information approximately this subject for a long time and yours is the

greatest I've found out till now. However, what in regards to the conclusion?

Are you certain about the source?
Posted by: Spradling - Thursday, March 20, 2014 8:14 PM


Somebody necessarily assist to make severely posts I would state.

This is the first time I frequented your web page and thus far?

I amazed with the analysis you made to make this particular submit amazing.

Fantastic task!
Posted by: Nisbet - Saturday, April 05, 2014 3:07 PM


The very best thing about these credits is you'll be able to get your hands on your

own desired funds in spite of getting the a low credit score scores miley cyrus

tickets 2014 united states at first, they might look like just a small amount, in due time, they'll eat

up hundreds of your savings.
Posted by: Wendt - Friday, May 02, 2014 2:46 PM


 









WPL
PUBLISHING CO, INC.
WPL Publishing - 5750 Bou Avenue #1712 - Rockville, MD 20852

Phone: (301)765-9525  -  Fax: (301)983-4367

All Content and Design Copyright © 2021 WPL Publishing
About Us

Contact Us

Privacy Policy

My Account