Dealing With Bid Errors
You’ve just submitted your bid to the owner and discovered your estimator’s mistake that caused you to bid 10% lower than you otherwise would have. Can you obtain relief or withdraw your bid? In Texas, the answer depends on the type of mistake, when you notified the owner and usually whether the owner has accepted the bid or taken other steps in reliance of your proposal.
The Texas Supreme Court has explained that a bid mistake may be remedied if the mistake: 1) is of so great a consequence that to enforce the contract as made would be unconscionable; 2) relates to a material feature of the contract; 3) must have been made regardless of the exercise of ordinary care; and 4) rescinding the contract would not result in prejudice to the owner except for the loss of the benefit for which it bargained.
Generally there are two types of mistakes. A mistake of fact usually results from a clerical or mathematical error. Mistakes of judgment result when a contractor misinterprets the owner’s plans and specifications, or where a contractor understands the scope of the project, but incorrectly estimates the material, labor or other costs.
Mistakes of judgment will rarely support relief for the contractor.
In James T. Taylor & Son versus Arlington Independent School District, a case decided years ago, the Texas Supreme Court decided that Taylor’s $100,000 bid mistake that resulted from a mathematical error—when the estimator failed to carry a digit in his addition —was a remedial mistake. Taylor discovered the mistake the day after submitting the bid and promptly notified the school district, which refused to excuse Taylor from its bid. When Taylor refused to sign the contract, the school district awarded the job to the second bidder and sued Taylor for the difference between the two bids. As the Supreme Court explained, even though the school accepted Taylor’s bid, Taylor was entitled to rescission of its bid or relief against its enforcement because the mistake could be excused.
The third factor is often the most important when evaluating whether a clerical or mathematical error will qualify as a remedial mistake, entitling the contractor to relief.
What do the courts mean by “the mistake must have been made regardless of the exercise of ordinary care?” As the Texas Supreme Court explained, another way to look at it is to ask if the contractor’s negligence “amounts to such carelessness or lack of good faith in calculation, which violates a positive duty in making up the bid.”
Most contractors understand that the time leading up to competitive bidding opportunities is frantic and involves many computations and bid adjustments in order to take advantage of last-minute subcontractor and supplier quotes. For example, if your mistake occurred during this usually hectic period of time, why did it occur? Does your estimating department have an established bidding process to receive, track and integrate last-minutes quotes into the proposal? Is the established process equal to or better than similar processes used by other contractors? In other words, did you act as a reasonable contractor would have acted in a similar situation? This generally is the test you must pass. Make sure that you have an established process in place that you can point to in support of a need to seek relief for a bid error.
Relief for a remedial mistake is not automatic. It is important to quickly notify the owner in writing of the mistake before the owner acts in reliance on the offer. To award relief, a court must be able to place the parties back in the position they occupied before the mistake was made. One Texas case involved a situation where an owner relied on a bid by buying land to construct the building. When the mistake was raised, the bidder couldn’t be excused because it was too late.
Subcontractors and suppliers who discover bidding errors should follow the same general rules described above. Timing, however, becomes a problem for many subcontractors and suppliers because in many situations the general contractor has relied upon the quote in developing its bid. If the general contractor wins the bid that includes a subcontractor’s mistake, the owner will likely be unconcerned about the subcontractor’s bidding error.