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February 2017

When is it Unreasonable for a General Contractor to Rely on A Subcontractor’s Bid?

It is well established law in California that a general contractor may reasonably rely on a subcontractor’s bid when submitting its prime bid to an owner. Further, a general contractor can recover under the doctrine of promissory estoppel when the general contractor reasonably relies on the bid, but the subcontractor fails to honor it. (Drennan c. Star Paving Co. (1958) 51 Cal. 2d 409) However, in the court’s recent ruling in Flintco Pacific, Inc. v. TEC Management Consultants, Inc. (1 Cal. App. 5th 727), the court found a general contractor’s bid reliance was unreasonable where it relied only on the amount of the bid, but failed to consider other material terms of the bid. This case emphasizes the importance for general contractors to read past the dollar amount when relying on subcontractors’ bids.

In the Flintco case, the subcontractor (TEC) submitted a bid to the general contractor (Flintco) for glazing work on a community college project. Flintco included the dollar amount from the TEC bid in its prime bid to the Project owner. However, in doing so, Flintco failed to consider the impact of other terms contained in TEC’s bid which conflicted with Flintco’s standard form subcontract. At trial, Flintco’s employees explained that bid day is usually chaotic, given the sheer amount of paperwork involved, and it would be impossible as a practical matter to negotiate specific terms and conditions of every subcontract before the prime contract is awarded. Flintco’s employees also testified that it is standard industry practice for subcontractors to include an extensive number of “boiler plate” terms and conditions in their bids which often conflict with general contractors’ standard form contract and prime contracts. Such terms were generally subject only to cursory review on bid day by Flintco, in anticipation that the subcontract details would be negotiated after the bid award.

Subsequently, Flintco was awarded the prime contract, but a dispute arose after Flintco sent a letter of intent and a copy of its standard form subcontract to TEC. TEC cited numerous conflicts between the subcontract and the terms of TEC’s bid. Despite efforts between the parties to negotiate terms of the subcontract, the parties could not reach an agreement, and Flintco eventually hired another Glazing contractor, at a cost greater than that bid by TEC.

Flintco sued TEC for the difference between the TEC bid upon which it relied in making its own bid, and the higher cost it incurred to retain a replacement contractor, under a cause of action for promissory estoppel. The court awarded no damages to Flintco. Both the trial and appellate courts ruled that Flintco’s reliance on the amount of TEC’s bid, while disregarding other material terms if the bid, was unreasonable in this case, even while acknowledging it might reflect industry practice. The court found TEC’s bid contained conditions that were “material” to its bid price and, if omitted, these would have considerably increased the price. These material provisions included TEC’s 35% deposit requirement, an exclusion for bonds, a refusal to accept liquidated damages, and a 3% per quarter escalation price if the bid was not accepted within the 15 day bid period. The court found that TEC could not be compelled to honor the amount of its bid in a subcontract where Flintco demanded these terms to be excluded.

This case represents a cautionary lesson for general contractors, and emphasizes the importance of reading ALL conditions which could even arguably be “material” to a bid, and to carefully consider these when evaluating, and relying upon, the amount of subcontractors’ bids. Likewise, a subcontractor should be sure to include any important terms in its bid, lest it risk waiving these terms after its bid is accepted, and the subcontract is being negotiated.


Brendan P. Bradley