Opinion ID: 1985887
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Heading Rank: 2

Heading: the construction bidding casesan historical overview.

Text: The problem the construction bidding process poses is the determination of the precise points on the timeline that the various parties become bound to each other. The early landmark case was James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344 (2d Cir.1933). The plaintiff, James Baird Co., [Baird] was a general contractor from Washington, D.C., bidding to construct a government building in Harrisburg, Pennsylvania. Gimbel Bros., Inc., [Gimbel], the famous New York department store, sent its bid to supply linoleum to a number of bidding general contractors on December 24, and Baird received Gimbel's bid on December 28. Gimbel realized its bid was based on an incorrect computation and notified Baird of its withdrawal on December 28. The letting authority awarded Baird the job on December 30. Baird formally accepted the Gimbel bid on January 2. When Gimbel refused to perform, Baird sued for the additional cost of a substitute linoleum supplier. The Second Circuit Court of Appeals held that Gimbel's initial bid was an offer to contract and, under traditional contract law, remained open only until accepted or withdrawn. Because the offer was withdrawn before it was accepted there was no contract. Judge Learned Hand, speaking for the court, also rejected two alternative theories of the case: unilateral contract and promissory estoppel. He held that Gimbel's bid was not an offer of a unilateral contract [7] that Baird could accept by performing, i.e., submitting the bid as part of the general bid; and second, he held that the theory of promissory estoppel was limited to cases involving charitable pledges. Judge Hand's opinion was widely criticized, see Note, Contracts-Promissory Estoppel, 20 VA.L.REV. 214 (1933) [hereinafter, Promissory Estoppel]; Note, Contracts-Revocation of Offer Before Acceptance-Promissory Estoppel, 28 ILL.L.REV. 419 (1934), but also widely influential. The effect of the James Baird line of cases, however, is an obvious injustice without relief of any description. Promissory Estoppel, at 215. The general contractor is bound to the price submitted to the letting party, but the subcontractors are not bound, and are free to withdraw. [8] As one commentator described it, If the subcontractor revokes his bid before it is accepted by the general, any loss which results is a deduction from the general's profit and conceivably may transform overnight a profitable contract into a losing deal. Franklin M. Schultz, The Firm Offer Puzzle: A Study of Business Practice in the Construction Industry, 19 U.CHI.L.REV. 237, 239 (1952). The unfairness of this regime to the general contractor was addressed in Drennan v. Star Paving, 333 P.2d 757, 51 Cal.2d 409 (1958). Like James Baird, the Drennan case arose in the context of a bid mistake. [9] Justice Traynor, writing for the Supreme Court of California, relied upon § 90 of the Restatement (First) of Contracts: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Restatement (First) of Contracts § 90 (1932). [10] Justice Traynor reasoned that the subcontractor's bid contained an implied subsidiary promise not to revoke the bid. As the court stated: When plaintiff [, a General Contractor,] used defendant's offer in computing his own bid, he bound himself to perform in reliance on defendant's terms. Though defendant did not bargain for the use of its bid neither did defendant make it idly, indifferent to whether it would be used or not. On the contrary it is reasonable to suppose that defendant submitted its bid to obtain the subcontract. It was bound to realize the substantial possibility that its bid would be the lowest, and that it would be included by plaintiff in his bid. It was to its own interest that the contractor be awarded the general contract; the lower the subcontract bid, the lower the general contractor's bid was likely to be and the greater its chance of acceptance and hence the greater defendant's chance of getting the paving subcontract. Defendant had reason not only to expect plaintiff to rely on its bid but to want him to. Clearly defendant had a stake in plaintiff's reliance on its bid. Given this interest and the fact that plaintiff is bound by his own bid, it is only fair that plaintiff should have at least an opportunity to accept defendant's bid after the general contract has been awarded to him. Drennan, 51 Cal.2d at 415, 333 P.2d at 760. The Drennan court however did not use promissory estoppel as a substitute for the entire contract, as is the doctrine's usual function. Instead, the Drennan court, applying the principle of § 90, interpreted the subcontractor's bid to be irrevocable. Justice Traynor's analysis used promissory estoppel as consideration for an implied promise to keep the bid open for a reasonable time. Recovery was then predicated on traditional bilateral contract, with the sub-bid as the offer and promissory estoppel serving to replace acceptance. The Drennan decision has been very influential. Many states have adopted the reasoning used by Justice Traynor. See, e.g., Debron Corp. v. National Homes Constr. Corp., 493 F.2d 352 (8th Cir.1974) (applying Missouri law); Reynolds v. Texarkana Constr. Co., 237 Ark. 583, 374 S.W.2d 818 (1964); Mead Assocs. Inc. v. Antonsen, 677 P.2d 434 (Colo.1984); Illinois Valley Asphalt v. J.F. Edwards Constr. Co., 45 Ill.Dec. 876, 413 N.E.2d 209, 90 Ill.App.3d 768 (Ill.Ct.App. 1980); Lichtefeld-Massaro, Inc. v. R.J. Manteuffel Co., 806 S.W.2d 42 (Ky.App.1991); Constructors Supply Co. v. Bostrom Sheet Metal Works, Inc., 291 Minn. 113, 190 N.W.2d 71 (1971); E.A. Coronis Assocs. v. M. Gordon Constr. Co., 90 N.J. Super 69, 216 A.2d 246 (1966). Despite the popularity of the Drennan reasoning, the case has subsequently come under some criticism. [11] The criticism centers on the lack of symmetry of detrimental reliance in the bid process, in that subcontractors are bound to the general, but the general is not bound to the subcontractors. [12] The result is that the general is free to bid shop, [13] bid chop [14] , and to encourage bid peddling, [15] to the detriment of the subcontractors. One commentator described the problems that these practices create: Bid shopping and peddling have long been recognized as unethical by construction trade organizations. These `unethical,' but common practices have several detrimental results. First, as bid shopping becomes common within a particular trade, the subcontractors will pad their initial bids in order to make further reductions during post-award negotiations. This artificial inflation of subcontractor's offers makes the bid process less effective. Second, subcontractors who are forced into post-award negotiations with the general often must reduce their sub-bids in order to avoid losing the award. Thus, they will be faced with a Hobson's choice between doing the job at a loss or doing a less than adequate job. Third, bid shopping and peddling tend to increase the risk of loss of the time and money used in preparing a bid. This occurs because generals and subcontractors who engage in these practices use, without expense, the bid estimates prepared by others. Fourth, it is often impossible for a general to obtain bids far enough in advance to have sufficient time to properly prepare his own bid because of the practice, common among many subcontractors, of holding sub-bids until the last possible moment in order to avoid pre-award bid shopping by the general. Fifth, many subcontractors refuse to submit bids for jobs on which they expect bid shopping. As a result, competition is reduced, and, consequently, construction prices are increased. Sixth, any price reductions gained through the use of post-award bid shopping by the general will be of no benefit to the awarding authority, to whom these price reductions would normally accrue as a result of open competition before the award of the prime contract. Free competition in an open market is therefore perverted because of the use of post-award bid shopping. Bid Shopping, at 394-96 (citations omitted). See also Flag Pole, at 818 (bid mistake cases generally portray general contractor as victim, but market reality is that subs are usually in weaker negotiating position); Jay M. Feinman, Promissory Estoppel and Judicial Method, 97 HARV.L.REV. 678, 707-08 (1984). These problems have caused at least one court to reject promissory estoppel in the contractor-subcontractor relationship. Home Elec. Co. v. Underdown Heating & Air Conditioning Co., 86 N.C.App. 540, 358 S.E.2d 539 (1987). See also Note, Construction ContractsThe Problem of Offer and Acceptance in the General Contractor-Subcontractor Relationship, 37 U.CINN.L.RE. 798 (1980). But other courts, while aware of the limitations of promissory estoppel, have adopted it nonetheless. See, e.g., Alaska Bussell Elec. Co. v. Vern Hickel Constr. Co., 688 P.2d 576 (Alaska 1984). [16] The doctrine of detrimental reliance has evolved in the time since Drennan was decided in 1958. The American Law Institute, responding to Drennan, sought to make detrimental reliance more readily applicable to the construction bidding scenario by adding § 87. This new section was intended to make subcontractors' bids binding: § 87. OPTION CONTRACT