July 20, 2023
Bids are at the core of the construction industry. Owners rely on them to price projects. General contractors bid these projects in reliance on other bids from subcontractors and material suppliers, and so forth. But what happens when a bidder withdraws or refuses to honor its bid? Under Kentucky law, it depends. Bidders are not generally bound by their bids, but they cannot always walk away, either. Kentucky law holds a bidder to its bid when fairness requires under the doctrine of promissory estoppel. Keep reading to learn more.
I. Bids Are Not Enforceable Contracts
Bids are offers to do business.[1] They are not, standing alone, enforceable contracts.[2] They may become so if and when they are accepted, but bidders are typically free to withdraw bids before acceptance. The law holds as much because there is no mutuality of obligation at the bidding stage. General contractors are free to work with whatever subcontractor they desire on a project, regardless of whether they relied on another subcontractor’s quote to fix the price with the owner.[3] So it is usually fair to hold bidders to the same laissez-faire standard, but not always.
II. Bids Can Be Binding
Although bids are not enforceable contracts, Kentucky law recognizes that there are certain situations where it would be unfair for a bidder to walk away from its bid. In these instances, courts may hold bidders to their bids under the equitable doctrine of promissory estoppel.
There are four elements to a clam for promissory estoppel under Kentucky law. The party seeking to enforce it must show that: (1) a promise was made by the bidder; (2) the recipient reasonably relied on it by acting or forbearing to act; (3) the bidder foresaw or expected that the recipient would rely on it at the time it was made; and (4) enforcement of the promise is necessary to avoid an injustice.[4]
In the bidding context, promissory estoppel most frequently comes into play where a bidder does not honor its bids after the recipient of the bid has relied on it to secure work. In Meade Construction v. Mansfield Commercial Electric, the Kentucky Supreme Court upheld a claim for promissory estoppel where a subcontractor refused to honor its bid after a project was awarded.[5] Mansfield, the subcontractor, submitted a quotation for the electrical work on a project that Meade, the general contractor, was bidding.[6] Mansfield’s pricing was substantially lower than other quotations. Meade questioned Mansfield about the low quotation, but Mansfield reaffirmed its figures. After Meade used the quote as part of its overall bid and won the project, Mansfield notified Meade that it was not going to do the work. In the ensuing suit, the Kentucky Supreme Court held that Mansfield was bound by its bid because it was reasonably foreseeable that Meade would rely on it—especially as Mansfield had notice that its bid was substantially lower than others.[7]
Courts have also enforced bids despite the fact that a bidding mistake was discovered after the work was secured. In Harry Harris, Inc. v. Quality Construction Co., Harris, a subcontractor, failed to include certain items in his quotation for the kitchen work for an elementary school project that Quality Construction, a general contractor, was bidding.[8] Quality Construction relied on Harris’s quotations in its bid and was ultimately awarded the project. Soon after, Harris learned of his mistake and reneged. The trial court awarded judgment in favor of Quality Construction regardless of Harris’s excuse. The Kentucky Court of Appeals affirmed, explaining: “[a] subcontractor may not withdraw its bid to a general contractor after the general contractor’s bid has been submitted to and accepted by the owner using the bid of the subcontractor.”[9] In other words, reasonably foreseeable reliance on a bid can trump a bidder’s avoidable mistake.
There are, however, limitations. Courts will not hold subcontractors to their bids unless reliance is truly reasonable and foreseeable. In Rotondo Weirich Enterprises v. Rock City Mechanical, Inc., the general contractor did not inform the subcontractor that it had been awarded the underlying bid until nearly eleven months after the fact.[10] Moreover, the scope of work had changed since the subcontractor submitted its bid. The United States District Court for the Eastern District of Kentucky rejected the general contractor’s attempts to hold the subcontractor to its original bid. The court explained that “[p]romissory estoppel acts to prevent a subcontractor from withdrawing its bid before the general contractor has a chance to accept.”[11] It does not, however, “hold a subcontractor indefinitely bound while the general contractor (or in this case, other subcontractor) tarries for no apparent reason.”[12]
III. What Should You Do?
All parties to a construction bid would be well served to keep the doctrine of promissory estoppel in mind. Bidders and recipients alike can benefit from making their intentions clear in writing. If a contractor intends to rely on certain bids to fix its own bid on a project, it should inform the bidders promptly and keep them reasonably apprised of all progress—including notifying them immediately if it secures the project. Likewise, bidders concerned with fluctuating market prices should make certain that their prices are accurate and up to date. They can also place deadlines for acceptance of their bids, and they should be prepared to notify the recipient immediately if circumstances change that make their bid untenable. As discussed above, the less reasonable the recipient’s reliance on a bid, the less likely courts are to hold the bidder to it and vice versa.
The world of construction law and bidding can be complicated and difficult to navigate. Attorneys at Stoll Keenon Ogden PLLC have extensive experience in this area and are here to help. If you have any questions about your construction project, do not hesitate to contact us.
[1] Finney Co. v. Monarch Constr. Co., 670 S.W.2d 857, 860 (Ky. 1984).
[2] Id.
[3] Id.
[4] Ashland Inc. v. Oppenheimer & Co., 689 F. Supp. 2d 874, 889-90 (E.D. Ky. 2010).
[5] Meade Constr. Co. v. Mansfield Commercial Elec., Inc., 579 S.W.2d 105, 106 (Ky. 1979).
[6] Id.
[7] Id.
[8] Harry Harris, Inc. v. Quality Constr. Co., 593 S.W.2d 872 (Ky. App. 1979).
[9] Id. at 874.
[10] Rotondo Weirich Enters. v. Rock City Mech., Inc., 2006 U.S. Dist. LEXIS 19177 (E.D. Ky. Apr. 11, 2006).
[11] Id. at *14-15.
[12] Id.
