The Supreme Court of Nebraska has recently issued an opinion that affects the construction industry, and you should be aware of the ramifications. The case, entitled Weitz Company, LLC v. Hands, Inc., deals with the effect of a subcontractor’s refusal to honor its bid to a general contractor after the subcontractor’s bid was relied upon and included in the general contractor’s bid to an owner. The court held that a general contractor can reasonably rely on a subcontractor’s bid, and if a subcontractor rescinds its bid after it has been accepted by the general contractor and owner, it may be liable for damages incurred by the general contractor.
Good Samaritan Society (“Good Samaritan” or “Owner”) invited four prequalified General Contractors to bid on a proposed nursing home (the “Project”). Weitz Company, LLC (“Weitz”) was one of the prequalified General Contractors (“GC”). Weitz knew that there was the potential for future projects or negotiated work with the Owner, so this project was important. The Owner did not require bid security from the prequalified GCs, but the Instructions to Bidders specifically stated that no bids could be withdrawn for 60 days after the opening of bids.
Less than fifteen minutes before Weitz’s bid deadline, Hands, Inc. (“H&S”) submitted a subcontractor bid to Weitz for the plumbing and HVAC work on the Project. Weitz had estimated the cost of the plumbing and HVAC work based on historical data, and H&S’s bid did not seem funny or off. Weitz chose H&S’s bid for inclusion in its own bid to the Owner, who selected Weitz’s bid for the Project.
Weitz was the low bidder and was selected, H&S refused to honor its bid. The evidence at trial showed that H&S’s owner had bitter feelings towards Weitz and did not want to work with them. H&S told Weitz that certain costs were missing from their bid, and claimed there were errors in the bid which ranged from $250,000.00 to more than $430,000.00. The parties could not come to terms, and Weitz informed H&S it would use other subcontractors for the HVAC and plumbing work.
Weitz honored its bid to the Owner, and hired subcontractors for the work bid by H&S, at an increased cost of $292,492.00 over H&S’s bid. Weitz filed suit against H&S to recover the difference, based on a theory called “Promissory Estoppel.”
Promissory estoppel is a legal theory which allows a party to recover when another party has made a promise but there is not a contract. In order to recover under the theory of promissory estoppel, the plaintiff must prove three things: (1) that the defendant made a promise which he should have reasonably expected the plaintiff to rely on; (2) that the plaintiff did in fact rely upon the promise; and (3) that injustice can only be avoided by enforcing the promise.
H&S made a promise to Weitz when it bid the project. H&S gave Weitz information that H&S should have reasonably expected Weitz to rely on. The court noted that subcontractors generally expect (and hope) that general contractors will rely on their bids. Weitz relied upon H&S’s bid when it included the bid in its Project bid. Weitz was damaged because H&S reneged its bid, and was thus entitled to recover the difference between H&S’s bid and the cost of hiring other subcontractors.
While there were specific facts of the case which may have affected the Nebraska Supreme Court’s decision, the effect of the decision is clear: if a subcontractor bids a project, and that bid is included in the general contractor’s bid and is ultimately accepted by the owner, the subcontractor must honor the terms of the bid or suffer the consequences.
Bids are Important.
- Check a quality control system to check for errors;
- If there is an error in the bid, you must announce as soon as possible, show the error and withdraw the bid.
In this case, H&S’s “errors” were suspect (not really errors) and it is clear the court believed the owner was not being truthful about the error.