|
May a Mistaken Public Bid Be Withdrawn Without Penalty?
by John S. Mrowiec
Public owners of construction projects want assurance that
the lowest responsive bidder will enter into the contract.
Bid security in cash or a bid bond is routinely required from
public bidders. The Invitation to Bid usually provides that
if a bidder is selected but refuses to enter into the contract,
the bid security is forfeited as liquidated damages.
Bidding public construction contracts can be a chaotic experience,
and mistakes sometimes occur in reaching the final bid price.
What remedies does a bidder have who discovers a bid error
after the bids are opened? May the bid legally be corrected?
If after correction the low bid is no longer low, may the
bid legally be withdrawn? If the mistaken bid is withdrawn,
does the withdrawing bidder forfeit its bid security to the
public owner?
Issues of Bid Integrity
From the public owner's perspective, maintaining the integrity
of the bidding process is important. If the low bidder legally
may be allowed to correct an "error" too easily after
bid opening, the taxpayer will suffer. Low bidders would be
inclined to find "errors" to reduce the spread between
the low and the second low bid after the second bidder's amount
is known. Allowing post-opening corrections or withdrawals could
be viewed as encouraging slipshod bidding practices.
From the low bidder's perspective, the public owner should not
benefit from a true mistake resulting in an artificially low
price. The purpose of public bidding of ensuring that the taxpayers
pay the best prices would be thwarted. Bidders would be reluctant
to bid or would include unwarranted contingencies, if they would
be bound despite an inadvertent error. Higher bid prices would
be the result.
A balance, then, must be struck between allowing corrections
or withdrawals for just any error and holding bidders to their
bid prices, no matter the circumstance.
Case law has discussed the issue of bid mistakes under the theory
of "unilateral mistake." Some states have statutes
that provide relief for a mistaken bid.
Whether under the case law or under statute not all mistaken
bids may be corrected or withdrawn. The language permitting
correction or withdrawal in the case law or statute varies
from state to state. The controlling questions usually concern
(1) whether the bidder acted quickly to notify the government
of the error, (2) whether the mistake was one of judgment
(which usually will not be permitted to be corrected) or instead
a "clerical" error (which might be permitted to
be corrected), and (3) the degree of care exercised by the
bidder to attempt to avoid mistakes.
Wisconsin's Statute
Wisconsin has a statute permitting mistaken bids to be withdrawn
before bid opening and, under certain circumstances, after bid
opening to correct a mistaken bid, Wis. Stat. §66.0901(5).
The application of the Wisconsin statute was recently at issue
in James Cape
& Sons Co. v. Mulch, 2003 Wisk. App. 1013 (4th
Dist., Oct. 30, 2003).
In James Cape & Sons one sees a fairly typical bidding scenario.
The Wisconsin Department of Transportation advertised for bids
of a highway interchange. That project's bids, along with other
projects' bids, were to be submitted and opened at 9 a.m. on
a designated date.
Prospective bidders, including the bidder, assembled personnel
in hotel rooms near the government's office. This bidder's team
had eight people equipped with computers, printers, project
folders and telephones.
The bidder's team worked the prior day and into the early morning
hours receiving subcontractor proposals and integrating some
of them into the bidder's final bid. The proposals were maintained
in hard copy form and integrated into computer spreadsheets.
One potential subcontractor submitted its proposal at 6 a.m.
the morning the bids were due. The subcontractor had the low
price for a designated scope of work, and the bidder integrated
the subcontractor's price into the tentative bid computer spreadsheet.
Less than 30 minutes before the bid deadline, the subcontractor
notified the bidder - and two other bidders - that its proposal
was mistaken on a unit price. The revised unit price required
an upward revision of $450,000. The bidder compared the revised
proposal with another proposal for that work scope and determined
the subcontractor still had the low price.
For some reason, the subcontractor's revised price was not integrated
into the computer spreadsheet. The bidder did make one handwritten
change to the sheet before submitting the final bid price. However,
the bidder failed to note that the revised price from the subcontractor
had not been corrected. The bidder submitted its final bid without
including the correction.
Other bidders, however, correctly included the subcontractor's
revised higher price and mark-up. The bidders submitted bid
security as required by invitation to bidders in the form
of bid bonds of $100,000 in penal sum.
The bidder in question was low. The bidder recognized the error
soon after the bids had been opened and notified the owner in
writing that day. The bidder's letter explained the circumstances
and attached copies of documents supporting the basis of the
mistake. The bidder requested a correction but recognized that
a correction would mean the bidder no longer would be low. Alternatively,
the bidder asked to withdraw the bid and that the owner not
claim upon the bidder's bid bond.
The owner responded that neither the statute nor specifications
permitted a correction after bid opening. The owner advised
that it would consider the alternative request to withdraw the
bid but, if withdrawn, the bidder would forfeit the $100,000
bid bond unless the bidder proved that the "error"
was "free from carelessness, negligence or inexcusable
neglect."
The bidder replied that the error was clerical and entitled
the bidder to withdrawal and return of the bond. The owner notified
the bidder that the owner was awarding to the bidder at the
bid price. The bidder replied that it would not execute the
contract because of the error that "was by a clerical person
who was finalizing our bid and was not performed by someone
who was reviewing the plans, specifications or making judgments
as to the cost of the work."
The owner then notified the bidder that it had "annulled"
the contract award to the bidder, would award to the second
low bidder but that the bidder would forfeit the bid security.
The bidder sued seeking a judgment declaring that the bidder
was entitled to correct its bid and be released from its bid
bond. The bidder and the owner moved for summary judgment.
The Court's Determination
The trial court determined there were no material facts in
dispute and that under the Wisconsin statute, the owner should
have permitted the bid to be corrected before contract award.
The trial court ruled in the alternative that if the bidder
was required by statute to show freedom from carelessness, negligence
or inexcusable, the bidder had done so. Accordingly, the trial
court ordered the owner to return the bid security. The owner
appealed.
On appeal, the appellate court first determined that the Wisconsin
statute permitted correction of bid after opening and prior
to award but required a contractor to prove freedom from carelessness,
negligence or inexcusable neglect.
But are not all "mistakes" in some way careless or
negligent? If one must be "free" from "carelessness,"
when could a mistake ever be corrected? After reviewing the
case law, the James
Cape & Sons appellate court reasoned "some
omissions on the part of a bidder, although representing some
degree of carelessness, negligence or neglect, may still be
excusable" (James
Cape & Sons, 2003 Wisc. App. 1010, 34.) The appellate
court said the focus should be on the "nature of the error."
According to the Wisconsin court, errors which are "mechanical"
or "clerical" in nature might be excusable; they should
be distinguished from those errors "involving a lapse in
the exercise of professional judgment" which likely would
not be excusable (James
Cape & Sons, 2003 Wisc. App. 1013, 36.)
Although the appellate court noted that the bidder, "could
have (and perhaps 'should have') caught the error" prior
to bid submission, that did not mean the bidder's procedures
for final bid preparation and submission represented a failure
to exercise ordinary care or inexcusable neglect. Therefore,
the appellate court affirmed the trial court's holding that
the bid security should be returned (James
Cape & Sons, 2003 Wisc. App. 1013, 39.)
Indiana, Illinois Statutes
Indiana has a statute regarding bid mistakes, Burns
Ind. Code Inn. §5-/22-7-10. The Indiana statute
merely allows governmental bodies to adopt rules or establish
policies to allow correction or withdrawal of erroneous bids
before or after award and cancellation of awards or contracts
based on mistake. Under the Indiana statute, in the absence
of a rule or policy otherwise, the purchasing agency must provide
a written decision.
Indiana courts have permitted withdrawal of a bid and return
of bid security where the facts surrounding the mistake showed
the bidder "was not negligent and careless in submitting
his bid" (Board
of School Commissions v. Bender, 36 Ind. App. 164,
72 N.E. 154 (1904) (bidder inadvertently failed to include amounts
from one sheet of his multiple sheet pre-bid worksheet in final
lump sum price)).
Illinois applies the common law doctrine of unilateral mistake.
A bid may be corrected if the bidder can show by clear and positive
evidence that (a) the mistake was material, (b) it occurred
despite exercise of reasonable case, (c) it would be unconscionable
to enforce the bid containing the mistake and (d) the owner
can be placed in status quo after the correction. (See Wil-Freds,
Inc. v. Metropolitan Sanitary District, 57 Ill. App.
3d 16, 21, 372 N.E. 2d 946, 951 (1st Dist. 1978)).
Generally, bidder relief is refused for errors in judgment and
allowed for clerical or mathematical mistakes. Yet, "the
facts surrounding the error, not the label, i.e. 'mistake of
fact' or 'mistake of judgment' [will] determine whether relief
is granted" (Wil-Fred's,
Inc., 372 N.E. 2d at 953 (prime contract bidder who
followed its bid review procedures could rescind awarded contract
and require bid security returned from error in subcontractor's
misunderstanding of specifications)).
John S. Mrowiec
is a partner with Chicago-based Conway & Mrowiec, a construction
and public contracts law and litigation practice. He may be
reached at (312) 658-1100. For information, go to the firm's
Web site at www.cmcontractors.com.
|
print this page
e-mail this page
