When the GC's Acceptance Is a Rejection

Waiver and estoppel are two different equitable concepts that lead to the same result. With waiver, a person’s actions result in the loss (a waiver) of a right. With estoppel, the right continues to exist, but it cannot be used. In both instances, the law is trying to do what is fair.

Promissory estoppel is a subgenre in contracts and is used where, legally, a contract is not yet formed. As a general rule, there are five elements needed for an agreement to be enforceable: offer, acceptance, consideration, legal capacity and legal purpose. If any of these parts are missing, there is no contract.

The basis for estoppel with bids

A subcontractor’s bid to a general contractor, where the owner has not yet awarded the job, is a major example of where a part is missing: acceptance by the general contractor (GC). The subcontractor’s bid is an offer, but the GC will not accept it until it knows the owner has accepted the GC’s own contract. During this interim period, there is no binding contract between the general and the sub.

To protect the GC, which, presumably, relied on the subcontractor’s bid in order to get a job, the law says the subcontractor is estopped from raising the defense of no contract, at least for a reasonable period of time. The GC, on the other hand, is not bound to the subcontractor. There are exceptions to this statement that are for discussion in a future article.

Late arrival of terms and conditions

A typical sequence, with somewhat unpredictable results, occurs when the general contractor obtains a subcontractor’s bid before it sends its terms and conditions to the subcontractor. Can the subcontractor withdraw its bid on the argument that the terms and conditions were not part of the bid? Can the subcontractor challenge the terms and conditions and still demand to be awarded the subcontract?

In one case, the electrical subcontractor refused to accept the contract award and repudiated its bid. In court, it argued, unsuccessfully, that the lack of agreement on terms and conditions gave it an excuse, even though the sub’s real motivation was something else. The court ruled that “the lack of an electrical subcontract between the general contractor and defendant was not due to the failure of the parties negotiating in good faith to arrive at terms other than price ... . [T]he parties did not get around to discussing contract provisions because defendant made it clear that it would not do the work at the price bid regardless of the other contractual provisions” (Saliba-Kringlen Corp. v. Allen Eng’g, 1971).

Similarly, an Arkansas court did not accept the subcontractor’s contention that the GC’s terms and conditions, which were not part of the original solicitation, constituted a “counteroffer” and, thereby, eliminated promissory estoppel liability (F.B. Reynolds v. Texarkana Constr. Co., Ark. 1964).

On the other hand, where the terms and conditions include a liquidated damages clause or bonding requirements, some courts treat these matters as a more serious variation from the expected and deem them counteroffers.

Where the bid has its own terms

A recent decision from a court in Atlanta emphasizes the tricky nature of promissory estoppel where terms and conditions are not part of the bid package. In APAC-Southeast Inc. v. Coastal Caisson Corp., (Ga. 2007), APAC used Coastal’s subcontract bid as part of its overall quote to the owner. After APAC was awarded the contract, it sent its standard subcontract form to Coastal, which refused to sign it or perform the work.

Before trial, it was found that Coastal’s refusal to accept the award was not based on the terms and conditions. In fact, Coastal had not even read the terms and conditions until months after receipt. APAC argued that Coastal’s late concerns about contract terms were an “artifice intended to enable Coastal to avoid performing the bid when it discovered that it had equipment scheduling problems or that its subcontract bid was too low.” On this basis, APAC demanded its excess reprocurement costs and other damages against Coastal. APAC lost.

The court cited established law to the effect that promissory estoppel keeps a subcontractor’s bid open for a reasonable time. It added, however, that the GC’s subsequent acceptance of the bid must be “unconditional and without variance from the offer.” That ruling may be an overstatement of the law. Apparently, the court was making a distinction between new terms in the GC’s acceptance as opposed to amended terms. The court went so far as to state that Coastal may have been bound, had APAC first accepted the bid, and then subsequently submitted its standard form subcontract for negotiations. This suggested route, however, is not to be recommended, as it leaves the general contractor in a vulnerable position of being forced to negotiate terms after contract award.

Rather, the basis for the decision lies in what Coastal put in its bid: that is, its own terms and conditions. Specifically, Coastal’s bid had a provision for recovery of delay damages and for recovery of costs relating to subsurface conditions. Those clauses were not acceptable to APAC, and APAC’s terms had different clauses for delays and differing conditions.

These differences, especially for any subcontractor involved in excavation, go to the heart of the agreement. In essence, APAC had rejected Coastal’s bid and could not then seek to enforce it.

As an aside, although Coastal’s bid terms caught APAC by surprise and led to Coastal’s being relieved of liability, the subcontractor may have revived the contract. For more than five months, Coastal and APAC had discussions on changing the terms of the agreement, and APAC claimed that a final arrangement had been made, at least orally, before Coastal ended further negotiations. The court allowed the case to go forward on whether an oral contract was created.

The APAC decision, for better or worse, emphasizes the confusion that can arise where a subcontractor’s bid contains general terms and conditions. In an effort to avoid these kinds of uncertainties, general contractors sometimes refer to their “standard” terms as applying when the bid solicitation in sent. Others will send a complete package to the subcontractor, including the owner’s and general’s terms.

At a minimum, APAC underscores the general contractor’s need to review the sub’s bid for unwanted language, just as a subcontractor should review its suppliers’ proposals. Aspects of this problem are discussed in previous issues of ELECTRICAL CONTRACTOR, including “The Phantom Contract” (June 2002) and “The U.C.C. and the Electrical Contractor” (August 2000).

ITTIG, of Ittig & Ittig, P.C., in Washington, D.C., specializes in construction law. He can be contacted at 202.387.5508, USBuildlaw@aol.com or www.ittig-ittig.com.

About the Author

Gerard W. Ittig

Legal Columnist
Gerard Ittig, of Ittig & Ittig, P.C., in Washington, D.C., specializes in construction law. He can be contacted at 202.387.5508, USBuildlaw@aol.com or www.ittig-ittig.com .

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