Opinion ID: 1351655
Heading Depth: 1
Heading Rank: 5

Heading: Did the Bid and the Board's Approval Constitute a Binding Contract?

Text: This court has adopted Restatement (Second) of Contracts, section 27, which provides: Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. Restatement (Second) of Contracts § 27 (1981); Faught v. Budlong, 540 N.W.2d 33, 35 (Iowa 1995). Comments a and b to section 27 are critical to an understanding of this general rule. Comment a provides: Parties who plan to make a final written instrument as the expression of their contract necessarily discuss the proposed terms of the contract before they enter into it and often, before the final writing is made, agree upon all the terms which they plan to incorporate therein. This they may do orally or by exchange of several writings. It is possible thus to make a contract the terms of which include an obligation to execute subsequently a final writing which shall contain certain provisions. If parties have definitely agreed that they will do so, and that the final writing shall contain these provisions and no others, they have then concluded the contract. Restatement (Second) of Contracts § 27 cmt. a (emphasis added); Faught, 540 N.W.2d at 35. Comment b provides: On the other hand, if either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist until other terms are assented to or until the whole has been reduced to another written form, the preliminary negotiations and agreements do not constitute a contract. Restatement (Second) of Contracts § 27 cmt. b; Faught, 540 N.W.2d at 35. Factors that bear on whether a contract has been concluded include the following: the extent to which express agreement has been reached on all the terms to be included, whether the contract is of a type usually put in writing, whether it needs a formal writing for its full expression, whether it has few or many details, whether the amount involved is large or small, whether it is a common or unusual contract, whether a standard form of contract is widely used in similar transactions, and whether either party takes any action in preparation for performance during the negotiations. Restatement (Second) of Contracts § 27 cmt. c; Faught, 540 N.W.2d at 36. It is undisputed in this case that HCI's bid was an offer to do the work as outlined in the County's plans and specifications. The bid was specific as to (1) the start date (two weeks after the award of contract), (2) the number of working days to complete the project (80), and (3) the consideration (the per unit price and total price for each bid item was set forth in the bid). Additionally, each bid item was cross-referenced in the County's engineering plans and further referenced in the Blue Book. The record shows that the parties would not be agreeing to any new terms or conditions upon signing a formal contract. The Board's October 7 letter was unconditional. It approved HCI's bid with no mention that its approval was subject to a written contract to be entered into later. See Jameson v. Joint Drainage Dist., 191 Iowa 920, 922 183 N.W. 512, 513 (1921) (acceptance of a bid or proposal to enter into a contract, to be binding upon the parties, must be absolute and unconditional). Significantly, in re-bidding the project the County revised its proposal form to include the following language: Acceptance of a bid by the county is subject to confirmation and review and no contract enforceable by the bidder is created until execution of a written contract by all parties. See Delta Democrat Publ'g Co. v. Bd. of Public Contracts, 224 Miss. 848, 81 So.2d 715, 716-17 (Miss.1955) (acceptance of low bid was expressly made subject to bidder executing contract; held that bidder's refusal to enter contract as written allowed governing body to reject bid). In short, the contract document that was to follow was a mere formality and redundant to HCI's bid and the Board's October 7 approval. Moreover, before the Board's unconditional approval, there was no evidence indicating that either party considered something further had to be done to make the contract complete. In its October 7 approval, the Board left no doubt that it believed an agreement had been reached when it commented: We look forward to working with you and understand that you can begin some work on the project yet this fall. In reliance on the Board's acceptance of its bid, HCI purchased a portable cement mix plant with accessories for $203,000. It also purchased a John Deere rubber tire end loader for approximately $95,000. Additionally, HCI contacted providers of materials and other subcontractors. There was testimony from HCI representatives that the company would not have taken these steps without the approval of its bid by the Board. All of these facts are undisputed and lead us to conclude as a matter of law that the parties intended to be bound when the Board accepted HCI's bid and that the written contract called for by the statute was intended only as a memorial of their agreement. See Pennington v. Town of Sumner, 222 Iowa 1005, 1021-22, 270 N.W. 629, 638 (1936) (holding that where construction company submitted bid for construction of municipality's electric plant on municipality's form of proposal and stated in accompanying letter that proposal was to do all work in accordance with specifications, municipality's acceptance of bid constituted binding agreement which could be enforced even if no formal contract was thereafter entered into); see also Power Serv. Corp. v. Joslin, 175 F.2d 698, 702 (9th Cir.1949) (holding that though parties contemplate the ultimate execution of a more formal writing, the acceptance of a bid or offer results in a binding contract when none of the material terms remain unsettled or require future determination). The following language in the County's notice to bidders provides further support for our conclusion that the parties reached a binding contract when the Board approved HCI's bid: Failure to execute a contract and file an acceptable bond and certificate of insurance within 15 days of the date of the approval for awarding the contract, as herein provided, will be just and sufficient cause for the denial of the award and forfeiture of the proposal guarantee. HCI enclosed a certified check ($40,000) with its bid as a guarantee to execute the formal contract and agreed in the bid that such sum could be kept by the County as a forfeiture in the event HCI did not execute the contract if the bid was accepted. In Lynch v. City of New York, 37 N.Y.S. 798 (N.Y.App.Div.1896), a bidding statute provided for a similar guarantee and forfeiture. The court viewed this provision as evidence that the intention of the statute was to bind both the lowest bidder and the city to sign the formal contract, stating: [W]hen that award is made, it seems to be clearly the intention of the statute to bind both the lowest bidder and the city to sign the contract. The penalty for a violation of that obligation by the lowest bidder is fixed by the statute, namely, a forfeiting of the amount of money that the bidder was required to deposit at the time of the submission of his bid; and as no penalty is affixed for a refusal of the city to perform its part of the contract, namely, to execute the contract that had been settled by the corporation counsel as an act of preliminary specification to the bid, we think it follows that the city was liable for the damages sustained by the lowest bidder for the refusal to execute the contract. Id. at 801, 73 N.Y.St.Rep. 479. To allow the Board to re-bid under the facts before us would sanction arbitrary rejection and hence have the effect of opening the door to the possibility of favoritism in future public bidding. Northeast Miss. Cmty. Coll. Dist. v. Vanderheyden Constr. Co., 800 F.Supp. 1400, 1403 (N.D.Miss.1992). We conclude the district court erroneously interpreted Iowa Code section 314.1 to the extent it found there was no binding contract when the Board approved HCI's bid because the parties did not subsequently enter into a formal written contract. That leaves for our consideration the district court's conclusion that the Board's October 7 approval was conditional, the final issue we address.