Creation of a Contract by Solicitation of a Bid

Bid day for a general contractor ("Contractor" or "GC") is full of excitement, tension, and stress, motivated by the hope that the bid submitted to the owner is the lowest so that it obtains the award. Often, subcontractors/suppliers ("subcontractor") will submit to the contractor a bid that is supposedly given only to that contractor with an implicit understanding that the subcontractor will receive a subcontract (or its scope of work) if the contractor is awarded a contract for the overall project. On occasion, in an effort to lower its overall project bid, a GC will contact an "exclusive" supplier or subcontractor in an attempt to lure a bid out of that firm. As indicated by the recent Florida decision in W.R. Townsend Contracting v. Jensen Civil Construction, 728 So. 2d 297 (Fla. 1st D.C.A. 1999), a GC or any other contractor with subcontractors/suppliers ("sub" or "subcontractor") at any tier must be very careful to avoid creating a contract guaranteeing use of that subcontractor as a result of soliciting its proposal or bid.

Factual Background

Jensen Civil Construction ("Jensen") was one of seven bidders on a Florida Department of Transportation (FDOT) road project. The FDOT project included specifications that indicated that a significant amount of fill would be needed for the project. The most cost-effective way to obtain the fill was from adjacent landowners. Eighteen Construction ("Eighteen") entered agreements with three of the four landowners whose property adjoined the project. Townsend Contracting ("Townsend") contracted with the fourth and originally provided a bid for use of that property as a source of fill only to Superior Construction, one of Jensen's competitors for the work. All of the contractors bidding on the project had bids from Eighteen.

Knowing this and knowing that it could obtain the FDOT project only if it got a bid from Townsend, Jensen contacted Townsend on several occasions to solicit a bid. In the process of inducing Townsend to provide a bid, Jensen promised to use Townsend to supply labor and materials as listed on the FDOT bid if Jensen won the project and if Townsend's price was the lowest price for the supplied items on bid day. Jensen was the low bidder by $1,283 on a bid of almost $21.5 million and was awarded the prime contract by the FDOT. It was further undisputed that, without Townsend's bid, Jensen would not have been the low bidder, as the other GCs who bid without a Townsend bid were at least $150,000 higher than the two companies that had a price from Townsend. Eighteen's price to the other bidders was more than $150,000 higher than Townsend's bid to Jensen. Subsequent to the award by the FDOT, Jensen refused to allow Townsend to supply the items of labor and materials that had been listed on the FDOT bid papers.

Rights Based on Representations

Breach of Contract

Townsend alleged several causes of action in its complaint against Jensen. These included breach of an oral contract, promissory estoppel, unjust enrichment, and fraud in inducing an agreement between the parties. In analyzing the breach of contract issue, the Florida First District Court of Appeal recognized the general rule that the construction bidding process alone is insufficient to form a contract. However, an oral contract could be alleged sufficiently by Townsend because no essential terms of the contract remained open for consideration and negotiation. Townsend Contracting, 728 So. 2d at 301. According to the court, the parties had entered a contract that would subsequently be reduced to writing after the occurrence of a contingency upon which the contract was based--in other words, the award of the FDOT project to Jensen. Since such an agreement is well-recognized by courts, the court in this case found that such allegations could sustain a cause of action for breach of contract.

Promissory Estoppel

In looking at the concepts of promissory estoppel, unjust enrichment, and fraud in inducing an agreement between the parties, the court again found sufficient allegations to support these theories of recovery. Under the theory of promissory estoppel--when a court will force a party to live up to a promise if a promise caused detrimental reliance to the second party and that promise is one upon which the first party could reasonably expect the other party to rely--the court again found sufficient facts to support a cause of action. Looking to the specifics of the case, the court indicated that the reliance in this matter was based upon the failure by Jensen to use Townsend as a subcontractor after making promises to Townsend to induce a bid. If Townsend had not provided Jensen with a bid, Superior Contraction would have been awarded the contract using Townsend as its fill supplier. Under these facts, the court found sufficient facts to support a finding of reasonable reliance by Townsend upon Jensen's promise to use Townsend as a supplier.

Fraud

A similar analysis applied to Townsend's cause of action for fraud in inducing it to enter into a contract with Jensen. To allege this claim fully, there must be sufficient facts to show that a knowingly false statement was made by one party with the purpose of causing the second party to reasonably rely upon that statement. Townsend's claim for fraud was based upon the allegation that Jensen never intended to use Townsend as a supplier and instead tricked Townsend into providing a price on fill to ensure that Jensen would get the FDOT contract. Supporting this claim is the oral agreement alleged by Townsend, providing that Jensen would definitely use Townsend as a supplier so long as Jensen won the FDOT contract if Townsend provided the lowest price. Particularly important once again was the small sum separating Jensen from Superior in the bidding process--Townsend would have benefited had Superior been awarded the contract rather than Jensen. Because the representations made by Jensen to Townsend caused Townsend to rely upon this agreement and provide a price to its detriment (damages resulting from the loss of work), the court found once again that sufficient reliance had been created to support a cause of action on this theory.

Unjust Enrichment

The court also found that sufficient facts had been alleged to support Townsend's theory of unjust enrichment. Under this cause of action, facts showing that a benefit was conferred upon a party who requested the benefit but for which the party did not pay the proper value. Townsend's claim for this cause of action stated that the benefit Jensen received, the award of the FDOT project, came as a result of the low fill bid given to Jensen by Townsend. Without Townsend's price, Jensen would not have received the FDOT project. However, because Jensen failed to use Townsend as a supplier on the project, Jensen did not pay anything to Townsend in return for the bid. While normally such a theory would not apply to the bidding process, a key fact in this analysis was the great disparity in prices offered by Eighteen and Townsend. As such, Townsend's claim for unjust enrichment was allowed to go to a jury.

Practical Implications The situation played out in the Townsend Contracting case is a potential pitfall for any contractor no matter what kind of contracting it does. The pressures of getting the low bid on a project may lead to statements similar to those made by Jensen--an unqualified promise that a certain subcontractor or supplier will be used so long as the contractor is awarded the project. Care must be taken to avoid such situations.

As a contractor, one must also recognize that even pre-award statements can be construed as a potentially enforceable contract, even if the contract has not been reduced to writing. A court will make a contractor stand up to its promises if the facts surrounding these promises tend to show that the bid received as a result was the only way the project was awarded to that firm. Along those same lines, if a firm makes promises of this nature to a subcontractor or supplier, both the contractor and the subcontractor must understand that they may have reached an binding contract that each side must live up to. Thus, if a contractor really needs a bid from a certain subcontractor who has previously said that it would only bid to a competitor, it may be best to either put a disclaimer in writing stating that no contract will be formed by pre-bid negotiations or to recognize that the subcontractor must be used on the project. Otherwise, the contractor scheduling the bid may find itself in the same position as Jensen--going to trial and facing potential liability for hundreds of thousands of dollars to a spurned subcontractor or supplier.