Court Opinion

ID: 9547122
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:42:00.249448+00
Date Added: 2024-06-11T15:17:21.228368
License: Public Domain

VOLLACK, Justice,
dissenting:
I respectfully dissent. While I agree with the majority that considerations of equity require the rejection of the “firm bid” rule, I do not agree with the majority’s conclusion that a low bidder can demand rescission of a public construction contract as a result of a mistaken bid merely by showing that he acted in good faith. I believe that under such circumstances a low bidder cannot escape liability for the consequences of his mistake simply by showing that he acted in good faith, but must prove that his mistake occurred despite the exercise of reasonable care. The rule adopted by the majority fails to give due weight to the public character of the bidding process. Such a rule serves to undermine confidence in the public construction bidding process and ignores the intent of the General Assembly in enacting its version of the Model Procurement Code.
I.
The majority concludes that
in the absence of controlling legislation, a bidder for a public construction contract who submits a bid containing a mistake may rescind the bid prior to its acceptance if the bidder establishes by a preponderance of the evidence that the mistake is of a clerical or mathematical nature; that the mistake was made in good faith and relates to a material aspect of the bid; and that the public authority did not rely to its detriment on the mistaken bid.
Maj. op. at 363-364 (emphasis added). The majority nowhere defines good faith. I believe some definitional guidance is required. Black’s Law Dictionary defines good faith as:
[A]n intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage, and an individual’s personal good faith is concept of his own mind and inner spirit and, therefore, may not conclusively be determined by his protestations alone. Honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. An honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction uncon-scientious. In common usage this term is ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one’s duty or obligation.
Commercial Law. Honesty in fact in the conduct or transaction concerned. U.C.C. § 1-201(19). In the case of a merchant, honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. U.C.C. § 2-103(l)(b).
Black’s Law Dictionary 623-24 (5th ed. 1979) (citations omitted).
The common element to the definition of good faith1 is honesty, which requires an *372evaluation of the subjective intention of the parties. In order to demand rescission of a negligently prepared bid under the majority’s rule, the low bidder need only prove an absence of bad faith, which is to say, that the bid was submitted without an intent to defraud. To refute such a claim, the City would have to show that the low bidder acted in bad faith through dishonesty. Such a standard would allow a bidder to escape responsibility for conduct that might well have been prevented by exercising reasonable care and would impose an impossible evidentiary burden on the City to circumvent.
[T]he standard of good faith for merchants is one which can be asserted in a variety of circumstances, and is often used as a sword in avoiding liability.... It is a standard that is difficult to deal with and hard to define in any given situation, and is used creatively in a variety of contexts to challenge rights and liabilities under sales contracts.
3 R. Duesenberg & L. King, Sales & Bulk Transfers Under The Uniform Commercial Code § 4.08[3][a] [ii], at 4-267 to -269 (1987) (footnotes omitted).
II.
Requiring a contractor to show that his error occurred despite the exercise of reasonable care as a condition precedent to rescission of a public construction contract is a sensible alternative to a good faith rule. In fact, it appears to be the rule in a majority of jurisdictions. See 10 E. McQuillin, The Law of Municipal Corporations § 29.67, at 383 (3d ed. 1981); 3 J. Pomeroy, A Treatise on Equity Jurisprudence § 870a, at 388 (5th ed. 1941); Annotation, Right of Bidder for State or Municipal Contract to Rescind Bid on Ground that Bid Was Based Upon His Own Mistake or That of His Employee, 2 A.L.R.4th 991, 1003-13 (1980).
Prohibiting a contractor from rescinding a negligently prepared bid furthers a number of public policies.
*373It is of paramount importance that the integrity of the bidding process not be compromised by those entrusted with providing the state’s citizens the improvements that public policy and the law command. In interpreting the requirements of the bidding process the court must keep in mind that the procedures “are designed to prevent fraud, collusion, favoritism and improvidence in the administration of public business as well as to insure that the public receives the best work or supplies at the most reasonable price practicable.”
Dillingham Constr., Inc. v. Milwaukee Metro. Sewerage Dist, 629 F.Supp. 406, 409 (E.D.Wis.1986) (quoting Nelson, Inc. v. Sewerage Comm’n, 72 Wis.2d 400, 409, 241 N.W.2d 390, 395 (1976)).
The majority recognizes that Powder Horn’s bid was negligently prepared. It nevertheless minimizes the role that reasonable care plays in the public bidding process by stating that “[t]he very term ‘mistake’ usually connotes some degree of negligent conduct.” Maj. op. at 361.
Contrary to the majority’s intimation, reasonable care has never been equated with absolute blamelessness. Rather, the question of whether a mistake constitutes negligence depends on the circumstances and requires an objective comparison of particular conduct to what a reasonably prudent person would do in the same situation in light of the recognized risk associated with it. See W. Keeton, Prosser and Keeton on the Law of Torts § 31, at 170-73 (5th ed. 1984); Restatement (Second) of Torts §§ 282, 283 (1965). In the area of mistaken bids, I believe the most useful standard for determining whether a mistake constitutes negligence is the standard practice or custom in the construction industry.2 It is undisputed that failure to observe industry standards of reasonable care is evidence of negligence. See W. Keeton, Prosser and Keeton on the Law of Torts § 33, at 195 (5th ed. 1984). Powder Horn’s conduct falls short of those standards.
Cletus Donahue, Powder Horn’s president and bidder on the Florence project, testified that he could have picked up the specifications for the Florence project from the City on December 24, 1981, but chose to wait until January 6, 1982, to do so. This reduced from twenty-seven to fourteen the number of days Powder Horn had to prepare its bid.
The Florence project estimator, Michael O’Clair, calculated the cost of concrete and labor associated with wall forming for the Florence project on page fifteen of his bid book. The bid book was a three ring binder that permitted removal of all of its pages. O’Clair testified that the estimates on page fifteen were completed on January 18, more than twenty-four hours before the erroneous bid was submitted. The missing page had been removed from the bid book on January 19, even though no changes were subsequently made to it.
O’Clair admitted that he failed to fill in three of the preprinted blank spaces on the missing page fifteen. These blanks included space for the estimator to fill in his initials, to recheck his original estimate, and to total the costs on the page. Neither he nor Donahue, Powder Horn’s other estimator, had double-checked his page fifteen estimate of the cost of labor and concrete for the Florence project.
Following a bench trial, the trial judge found that waiting two weeks to pick up the specifications, removing pages from the bid book that did not need last-minute revision, and failing to use the series of checks built into its system, made Powder Horn’s mistaken bid a product of negligence. In fact the trial judge suggested that Powder Horn’s bidding procedure may have constituted gross negligence.3
*374Errors in calculating a bid can occur despite the exercise of reasonable care on the part of the contractor. When such errors occur despite the exercise of reasonable care, I believe that rescission is an appropriate remedy to consider as long as the mistake also relates to a material feature of the contract and rescission could return the City to the position it was in before accepting Powder Horn’s bid. See, e.g., John J. Calnan Co. v. Talsma Builders, Inc., 67 Ill.2d 213, 10 Ill.Dec. 242, 367 N.E.2d 695 (1977). That this error was due to Powder Horn’s negligence increases my belief that rescission of the contract is not the appropriate remedy in this case.
III.
The majority correctly concludes that section 24-103-202(6) does not prohibit the City from permitting Powder Horn to rescind the contract. This analysis nevertheless overlooks the more important question of whether in such circumstances the City is required to permit the contractor to rescind the contract. The clear language of section 24-103-202(6) shows that the General Assembly never intended to prohibit municipalities such as the City4 from enforcing a contract based on a mistaken bid.
Section 24-103-202(6) states that “[withdrawal of inadvertently erroneous bids before the award may be permitted pursuant to rules if the bidder submits proof of evidentiary value which clearly and convincingly demonstrates that an error was made.” 10 C.R.S. (1982) (emphasis added). Significantly, the General Assembly declined to adopt the Model Procurement Code’s bid withdrawal rule, which would have required public authorities to permit a contractor to withdraw an inadvertently erroneous bid.5 The majority’s rule would require withdrawal of all erroneous bids made in good faith, which is essentially the same standard that was proposed by the Model Procurement Code and rejected by the General Assembly.6
*375Requiring Powder Horn to show that its error occurred despite the exercise of reasonable care is faithful to the policy considerations that underlie the Colorado Procurement Code. Section 24-101-102 recites the underlying purposes and policies of Colorado’s version of the Model Procurement Code. These purposes and policies are:
(a) To simplify, clarify, and modernize the law governing procurement by the state of Colorado;
(b) To provide for increased public confidence in the procedures followed in public procurement;
(c) To ensure the fair and equitable treatment of all persons who deal with the procurement system of the state of Colorado;
(d) To provide increased economy in state procurement activities and to maximize to the fullest extent practicable the purchasing value of public funds of the state of Colorado;
(e) To foster effective broad-based competition within the free enterprise system; and
(f) To provide safeguards for the maintenance of a procurement system of quality and integrity.
10 C.R.S. (1982).
Permitting bid withdrawal for mistakes that occur despite the exercise of reasonable care ensures fair treatment of low bidders by relieving them of burdens caused by mistakes they could not reasonably have prevented. Requiring bidders to conform bids to the industry standards of reasonable care maintains the integrity of the bidding process, and in turn increases public confidence in the procedures followed in public procurement.
A good faith rule that permits rescission of contracts for careless errors in bids, by contrast, would undermine the policy considerations outlined in the Procurement Code. Careless bids diminish the purchasing value of public funds in violation of section 24-101-102(2)(d). A low bidder has an economic incentive to bring to the attention of the public authority any error whose actual cost for a given item exceeds its estimated cost, resulting in a net loss to the bidder for that item. Yet a low bidder has no corresponding incentive to bring to the attention of the public authority an error resulting in a net gain to the bidder because he has already been awarded the contract. Accordingly, the purchasing value of public funds can be diminished but not increased by permitting rescission of carelessly computed bids.
Careless bids also lower public confidence in the procedures followed in public procurement in violation of section 24-101-102(2)(b). A low bidder would receive the opportunity, denied to all other bidders, to reconsider his bid in light of competitors’ bids which are known to be higher than his and which are required to remain available for public inspection by custom and, in those municipalities that have adopted the Procurement Code, by statute. See, e.g., § 24-103-202(4), 10 C.R.S. (1982). Rescission could then become simply another business option in the event that an opportunity to make a larger profit arises after the bids are open. Even the possibility of such an option would erode public confidence in the public procurement process. That the public authority could not prevent rescission by showing that the mistake was due to the bidder’s negligence would further undermine that public confidence.
Finally, permitting contractors to rescind carelessly prepared bids would confuse rather than simplify public procurement in violation of section 24-101-102(2)(a) by introducing greater uncertainty into the bid process. Public authorities could no longer consider the bid process complete when the bids were opened. Bids could no longer be considered irrevocable for the time period specified in the invitation for bids as required by contract between the parties, by custom in the industry, and by statute in those municipalities that have adopted the Procurement Code. See, e.g., § 24-105-201(4), 10 C.R.S. (1982). The good faith rule adopted by the majority could conceivably cause public authorities to accelerate the formal acceptance process *376to the time of bid opening so as to remove the uncertainty that the good faith rule creates.
IV.
Finally, the majority’s rule gives insufficient consideration to the public character of the bidding process. Unlike bids in the private sector, bids in the public sector must be awarded to the lowest responsible bidder. § 31-15-712, 12B C.R.S. (1986).7 Although the City has not adopted the Procurement Code, its contract with Powder Horn contains the same elements. The informational document provided to all bidders and incorporated by reference into the bid contract requires each applicant to submit a sealed bid which may not be revoked for sixty days after opening. Each bid must be accompanied by a bid bond for five percent of the total amount of the bid. Bids must be opened publicly and read aloud in accordance with the advertisement for bids. As the Procurement Code recognizes, these elements are designed to maintain the integrity of the bidding process. In addition, the informational document incorporated into the bid contract states that
[t]he party to whom the contract is awarded will be required to execute the Agreement and obtain the performance BOND and payment BOND within ten (10) calendar days from the date when NOTICE OF AWARD is delivered to the BIDDER. The NOTICE OF AWARD shall be accompanied by the necessary Agreement and BOND forms. In case of failure of the BIDDER to execute the Agreement, the OWNER may at his option consider the BIDDER in default, in which case the BID BOND accompanying the proposal shall become the property of the OWNER.
(Emphasis added).
The majority’s analysis defeats the express provisions of the bid contract by permitting rescission not at the City’s option but merely upon a showing that the contractor s error was not a product of bad faith. More importantly, its analysis places no weight on the significance of requiring bid bonds. Private parties are not required to accept the lowest bid, and do not generally require bid bonds. But these procedures, so vital to the public bid process, are designed to avoid the appearance that any form of favoritism is practiced in public procurement by awarding the contract in all cases to the lowest responsible bidder. In this way the parties satisfy their duties not simply to themselves but to the public which demands that expenditures of public funds be above reproach.
Every contract obligates the parties to act in good faith. Restatement (Second) of Contracts § 205 (1979). By requiring no more of bidders than good faith in rescinding contracts, the majority relieves contractors of the higher obligations attending management of public funds. The rule calls into question the very existence of bid bonds because the evidentiary burden on the contractor is so minimal.
I would adopt the three-part test of John J. Calnan Co. v. Talsma Builders, Inc., 67 Ill.2d 213, 10 Ill.Dec. 242, 367 N.E.2d 695 (1977), and require a contractor to show as a condition precedent to rescission that (1) the mistake relates to a material feature of the contract; (2) the mistake occurred despite the exercise of reasonable care; and (3) rescission could return the public authority to the status quo. I believe that the proper measure of damages when a bidder fails to prove that he is entitled to rescission is the difference between the two lowest bids, not to exceed the amount of the bid bond.
I would affirm the court of appeals.
I am authorized to say that Justice MUL-LARKEY joins me in this dissent.

. Good faith is also defined in the Uniform Commercial Code (UCC). Article Two of the UCC applies expressly to contracts for transactions in goods and by analogy to service contracts which include transactions in goods. See UCC § 2-102 (1978); 1 R. Anderson, Anderson on the Uniform Commercial Code 502 (3d ed. 1981). In Colorado Carpet Installation, Inc. v. Palermo, 668 P.2d 1384 (Colo.1983), this court recognized a "primary purpose” test to determine whether the UCC applied to a service contract which included a sale of goods. Four-useful factors were identified to determine whether "goods" or "services” predominates. They include:
(1) the contractual language used by the parties;
(2) whether the agreement involves one overall price that includes both goods and labor *372or, instead, calls for separate and discrete billings for goods on the one hand and labor on the other;
(3) the ratio that the cost of goods bears to the overall contract price; and
(4) the nature and reasonableness of the purchaser’s contractual expectations of acquiring a property interest in goods....
Id. at 1388-89 (citations omitted). Determination of these factors cannot be made in this case because the facts were not presented to the trial court. In any event, the purpose of applying the UCC to the facts of this case is not to create a precedent requiring all contractors of services to assume the duties of the UCC, but to make use of a standard analysis in the absence of definitional guidelines by the majority.
Assuming for the sake of this analysis that the UCC applies to these facts, the UCC creates two standards of good faith depending on whether the party is a merchant. Section 2-103(l)(b) defines good faith for merchants as "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Section 1-201(19) defines good faith for nonmer-chants as "honesty in fact in the conduct or transaction concerned."
Section 2-104(1) defines the term “merchant" as "a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction...." This definition obviously includes contractors such as Powder Horn. Consequently, Powder Horn's conduct must be measured under the good faith standard of section 2-103(l)(b) rather than the good faith standard of section 1-201(19).
“Honesty in fact” is measured subjectively, while "the observance of reasonable commercial standards of fair dealing in the trade” is measured objectively. J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code § 6-3, at 218 (2d ed. 1980). The observance of reasonable commercial standards of fair dealing in the trade is a lower standard than the standard of reasonable care. See 1956 Recommendation of the Editorial Board for the Uniform Commercial Code 21; Burton, Good Faith Performance of a Contract Within Article 2 of the Uniform Commercial Code, 67 Iowa L.Rev. 1 (1981); Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U.Chi.L. Rev. 666, 675 (1963).
Where merchants are concerned, bad faith can also be shown through failure to observe reasonable standards of fair dealing in the trade. Although this can sometimes be proved through evidence of gross negligence, commentators agree that the standard created by “observance of reasonable commercial standards of fair dealing in the trade” is ambiguous at best and incoherent at worst. See Burton, Good Faith Performance of a Contract Within Article 2 of the Uniform Commercial Code, 67 Iowa L.Rev. 1, 21-23, 25-29 (1981); Summers, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va.L.Rev. 195 (1968).

. This is not to say that compliance with industry standards can never constitute negligence. See The T.J. Hooper, 60 F.2d 737, 740 (2d Cir.), cert. denied sub nom. Eastern Transp. Co. v. Northern Barge Corp., 287 U.S. 662, 53 S.Ct. 220, 77 L.Ed. 571 (1932). That issue, however, is not before the court.

. In his order, the trial judge noted that
the two relatively large items in Number 4, as to Item 4 on Page 15 of Exhibit 1, that were omitted ... and I wonder about ... it seems to me that that’s just more than ordinary neglect ... that it amounts to something else *374and this was the concrete and the labor. These were considerable amounts ... which I think a reasonable contractor should not have missed. Nor, in the Court’s opinion, would a reasonable contractor not, on a bid of this magnitude, almost $700,000, go through and add up figures one more time.
(Emphasis added). He concluded that
I think you have a combination here, I think, using the papers as spread in the courtroom, the system demonstrated by defense probably in and of itself was, I mean, that was ludicrous to the Court. How you could avoid an error ... if I did my income taxes that way I would be in Leavenworth now. It just won’t work that way.

. Section 24-101-105(2) states that ’’[a]Il political subdivisions and local public agencies of this state are authorized to adopt all or any part of this code and its accompanying rules.” The City has not adopted the Procurement Code. Nevertheless, it is fair to assume that other municipalities have adopted the Procurement Code, thereby making relevant the intent of the General Assembly as it applies to policy considerations implicated by the majority’s rule.

. Section 3-202(6) of the Model Procurement Code states:
Correction or Withdrawal of Bids; Cancellation of Awards. Correction or withdrawal of inadvertently erroneous bids before or after award, or cancellation of awards or contracts based on such bid mistakes, shall be permitted in accordance with regulations promulgated by the Policy Office. After bid opening no changes in bid prices or other provisions of bids prejudicial to the interest of the [State] or fair competition shall be permitted. Except as otherwise provided by regulation, all decisions to permit the correction or withdrawal of bids, or to cancel awards or contracts based on bid mistakes, shall be supported by a written determination made by the Chief Procurement Officer or head of a Purchasing Agency.
(Emphasis added).

.The word "inadvertent," which appears in section 3-202 of the Model Procurement Code and section 24-103-202(6) of the Colorado Revised Statutes as “inadvertently,” is defined as "heedless, negligent, inattentive ... unintentional.” Webster’s Third New International Dictionary 1140 (1986). Black’s Law Dictionary 683 (5th ed. 1979) defines "inadvertence” as ”[h]eedlessness; lack of attention; want of care; carelessness; failure of a person to pay careful and prudent attention to the progress of a negotiation or a proceeding in court by which his rights may be affected.” Neither the text nor the commentary to section 3-202(6) resolves the ambiguity created by the word "inadvertently" as to whether the Model Procurement Code intends to adopt a good faith standard or a negligence standard for permitting rescission of an erroneous bid. Section 24-103-202(6) is similarly silent. This ambiguity underscores but one problem of the Model Procurement Code’s effort to codify bid mistake rules. See Rudland, Ration-*375diking the Bid Mistake Rules, 16 Pub.Cont.L.J. 446, 469 (1986).

. Section 31-15-712 states in pertinent part:
All work done by the city in the construction of works of public improvement of five thousand dollars or more shall be done by contract to the lowest responsible bidder on open bids after ample advertisement....
12B C.R.S. (1986) (emphasis added).