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13 August 2018
For those in the construction industry, you are probably familiar with the concept of negotiating contract terms, either in writing or just a discussion, and when the two parties agree to terms, either in writing or with a handshake, then a deal is a deal. This follows the legal concept of a contract, which requires an offer, acceptance, consideration and a meeting of the minds. What if you are a trade contractor and submit a bid that a general contractor relies on to win a contract. Is that bid a contract? Is it binding? Even if the bid does not meet the elements of a contract, it can still be binding. Courts apply the doctrine of promissory estoppel to hold parties to their bids in the absence of a contract.
The Restatement (First) of Contracts, Section 90 describes the legal premise: "A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." In the highly cited case of Drennan v. Star Paving Company 333 P.2d 757 (En Banc 1958), the Supreme Court of California explained "When [the contractor] used [the subcontractor's] offer in computing his own bid, he bound himself to perform in reliance on [subcontractor's] terms. Though [the subcontractor] did not bargain for this 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 [the subcontractor] submitted its bid to obtain the subcontract…[The Subcontractor] had reason not only to expect [the Contractor] to rely on its bid but to want him to. Given this interest and the fact that [the Contractor] is bound by his own bid, it is only fair that [the Contractor] should have at least an opportunity to accept [Subcontractor's ] bid after the general contract has been awarded to him."
As usual, there can be different treatment of this concept in various jurisdictions and differences in the facts of each case which may affect the outcome, but as a general rule, when you submit a bid, you should expect it to be binding.
For further information on this topic please contact Brian Gaudet at Kilpatrick Townsend & Stockton LLP by telephone (+1 281 809 4100) or email (firstname.lastname@example.org). The Kilpatrick Townsend & Stockton LLP website can be accessed at www.kilpatricktownsend.com.
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