Fixing or Addressing Mistakes in Public Construction Contract Bids
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What happens if you make a mistake in your bid response and need to correct it? This is a common circumstance in practice because the timing of solicitations and responses creates a pressure packed situation. Often subcontractor pricing is received and updated until the very last moments before a response is due. This often causes mistakes, both in the form and in the substance of bids submitted. It is not unusual for contractors to make mistakes in their bids, some resulting from mathematical errors, some from typographical miscues, while still others may be based upon errors in judgment or the failure to conduct a proper site investigation prior to bidding. Mistakes happen quite regularly and reasons for mistakes are abundant. If you realize that you have made a mistake in your bid or proposal prior to the bid opening date and time, you should immediately contact the agency to see if you may withdraw your bid, correct it and resubmit prior to the bid opening date and time, or in the alternative whether you may submit a sealed statement clarifying the error before the bid opening date and time. This blog post deals with what happens in Florida when you aren’t able to correct your mistake in public construction contract bidding.
The leading Florida Supreme Court case which dealt with the issue of unilateral mistake is Graham v. Clyde, 61 So. 2d 656 (Fla. 1952). In that case, the contractor had already executed the contract when the mistake was discovered; however, the court still did not allow the contractor to rescind the contract due to an error in computing the items of the bid. The Court stated, that “…equity will not relieve against the mistake of one guilty of culpable negligence, neither will it relieve against a mistake that could have been avoided by caution. If the one seeking relief could have avoided his mistake by reasonable care or diligence, a court of equity will not relieve him. In other words if one’s mistake is due to his own negligence and lack of foresight and there is absence of fraud or imposition, equity will not relieve him.”
The court in that case said that even bids containing unilateral mistakes are binding and the bidder is expected to bear the consequences of the erroneous bid. Despite that ruling, agencies will give strong consideration to allowing withdrawal of the winning bid if there has been flawed and clearly erroneous factual misunderstandings or mistakes. However, public owners do not allow withdrawal of bids when the concept of mistake is based on mistakes in law, mistakes in personal judgments or wrongful assumptions of contract obligations. It is important to recognize that in no event may the bidder alter or correct the bid. The competitive bidding process requires that bids be evaluated as submitted. Errors in bids may be the basis for rejection or for withdrawal, but they may not be corrected, even when it would suit the agency to do so. Correction of a material error in a bid creates an unfair advantage and creates the potential for collusion and abuse of the competitive bidding process.
Courts give wide latitude to an agency’s discretion to review and interpret bids. Particularly where the intent of the bidder is clear, and when doing so does not give the bidder an unfair advantage. As the court in Hotel China & Glassware Co. v. Board of Public Instruction of Alachua County, 130 So. 2d 78 (Fla. 1st DCA 1961) noted, generally, a court of equity will relieve a unilateral mistake if the public body is informed promptly upon discovery and if the mistake is material, goes to substance, was not occasioned by the lack of due care or diligence or the result of neglect. In that case, the plaintiff supplier submitted a bid to defendant school board to furnish equipment to schools. Defendant accepted plaintiff’s bid because it was the lowest bid received. Plaintiff’s employee immediately realized that its bid was incorrectly calculated and attempted to withdraw its bid, but defendant had already formally accepted it in writing. Defendant forwarded a purchase order to plaintiff for the equipment, and plaintiff refused to accept it. Defendant refused to return plaintiff’s check, so plaintiff initiated an action. The trial court granted a direct verdict in favor of defendant on the grounds that plaintiff’s bid was irrevocable. On appeal, the court affirmed the decision stating that plaintiff did not have a right to withdraw his bid after it had been opened and accepted by defendant. The court reasoned that if bidders were allowed to withdraw their bids after they were opened and accepted, the system of competitive bidding would be destroyed.
The prevailing view in Florida is that reformation is not the appropriate form of relief for unilateral mistakes in public contract bids where the bidder is negligent. Dep’t of Transp. v. Ronlee, 518 So. 2d 1326, 1328 (Fla. 3rd DCA 1987). The reason for not permitting reformation of bid contracts for public projects based on unilateral mistake is the same in other jurisdictions — to prevent collusive schemes between bidders, or between bidders and awarding officials, or multiple claims from contractors asserting mistake and claiming inequity at taxpayers’ expense. See Heating Maintenance Corp. v. City of New York, 129 N.Y.S.2d 466 (N.Y.Sup.Ct. 1954); Paterson v. Board of Trustees, 157 Cal.App.2d 811, 321 P.2d 825 (1958).
However, as set forth in the Ronlee case, rescission or withdrawal may be appropriate remedies. Department of Transp. v. Ronlee, Inc., 518 So. 2d 1326 (Fla. 3d DCA 1987). In Ronlee, the appellate court reversed and remanded with instructions to enter judgment for defendant state department of transportation in plaintiff contractor’s action to reform a road construction contract. Plaintiff had made the lowest bid but determined later that it had made a mistake as to a unit bid price. The appellate court noted that only after most of its contractual obligations were completed did plaintiff bring suit. The appellate court concluded that rescission, not reformation, was the appropriate form of relief for unilateral mistakes in public contracts where the bidder was negligent. Plaintiff did not show by clear and convincing evidence that defendant’s conduct in not calling defendant’s attention to a possible error in the bid tabulations was fraudulent or otherwise inequitable. Defendant did not have to act for the protection of plaintiff’s best interest, and the error was so minor that not calling it to plaintiff’s attention did not constitute fraud. By delaying suit, plaintiff had in any case waived its objection to defendant’s alleged fraud. Accordingly, the appellate court reversed the lower court’s decision and remanded the matter because defendant state department of transportation did not have to look out for plaintiff contractors’ best interests and because rescission, rather than reformation, was the appropriate form of relief for unilateral mistakes in public contracts cases.
Florida courts are very tough against contractors who submit sloppy bids. In Lassiter Constr. Co. v. School Bd. of Palm Beach County, 395 So. 2d 567 (Fla. 4th DCA 1981), no upward adjustment to compensation was made where an error in transposing a figure for concrete work from bid worksheet to final bid summary was negligently made by the president himself. In that case, the appellant contractor challenged, pursuant to Fla. Stat. Ch. 120.68(1) (1977), the final agency action of appellee School Board for Palm Beach County (Florida), which accepted the contractors bid to construct an addition to a high school. The contractor claimed that it made a unilateral mistake in the calculation of the bid and it was inequitable to perform the contract in accordance with the flawed bid. Appellant contracting company’s president, who prepared the bid, discovered that he had miscalculated a bid figure after the bids were opened and immediately notified appellee. The contractor was given the opportunity to withdraw his bid, but declined to do so. Instead, the contractor explained the error and asked appellee to increase the construction price by the amount of the error. The school board voted to accept the bid without the requested increase even though the contractor argued that it was an honest, unilateral mistake and that it would be inequitable to require appellant to perform the contract in accordance with its bid. The court disagreed and affirmed appellee school board’s decision. The court aligned itself with the Graham v. Clyde precedent, which held a bidder liable because the mistake was made by the complaining party, particularly a principal in the complaining party. Since construction company’s president prepared the bid and the mistake was not made by a subordinate employee, the court found it persuasive that the contractor should be held liable for performance. The court noted further that the mistake was less than four percent of the intended bid and the contractor would still make a profit. Though there is limited precedent on this topic, it is odd that those two factual distinctions (president of company mistake and it was ultimately a profitable job) were relied on as part of reason. It makes me question whether there is room for challenges of unilateral mistakes in public bids where the bid is prepared by a lower level employee and the net result will be a substantial loss to the company? I believe those arguments are the best arguments that can be made for withdrawal.
State Bd. of Control v. Clutter Constr. Corp., 139 So. 2d 153 (Fla. 1st DCA 1962) does get into that issue somewhat. In Clutter Construction Corporation, the contractor was permitted to withdraw a bid where complying in the face of honest mistake of $100,000 would work severe hardship upon the bidder, error was not the result of gross negligence or willful inattention, and the error was discovered and communicated before acceptance. In Clutter Construction Corporation, the appellant State Board of Control sought review of the order of the trial court (Florida) permitting appellee construction company to withdraw an erroneous bid on the construction of a classroom building and to obtain return of its good faith check if construction company paid the state interest for a 45-day delay, calculated on the amount the construction company intended to bid, and the state would not increase its intended bid. The appellee construction company, soon after the bids were opened, realized it had made a $ 100,000 mistake, which it traced to either a malfunction in the computing machine or an error by an employee. It contacted appellant State Board of Control and asked to withdraw its bid and have its $80,000 bid check returned. The trial court permitted appellee to withdraw its bid and regain its check if it paid appellant interest on the intended bid for a 45-day delay, and agreed not to submit of bid more than $100,000 higher if the state chose to rebid the project. Affirming the trial court except as to interest, which the court found unsupported by the record or law, the court explained that construction company could withdraw its bid because it acted in good faith, the error would cause severe hardship if the bid was enforced, the error did not result from gross negligence or willful inattention, and the error was discovered and communicated to appellant before the bid was accepted.
Typically, when a contractor who submits the low bid contends that a mistake has been made, it requests the bid to be withdrawn. As the case law holds, whether the agency should allow a bidder to withdraw its bid requires consideration of many factors. If each bidder on public contracts could withdraw its bid after the bids are opened and announced, it opens up Pandora’s Box for frauds to be perpetrated against public agencies. Thus, the agencies are very careful in their determination of when they will allow a bidder to withdraw its bid (with or without consequences [bid bond claims]), and each decision either granting or precluding withdrawal based on mistake must be well documented and based on a clear, sound reason as to the purpose behind the decision. For you contractors, this means that you should be prepared to engage in the bureaucratic process at a very high level.
There are several established principles available to guide an agency as to how to proceed in light of a unilateral contractor mistake in bidding. First, the contractor must demonstrate to the public owner’s reasonable satisfaction that it did, in fact, make an error in its bid. Second, the nature of the mistake must be examined. Generally, public owners allow a contractor to withdraw a bid, or correct it, if the mistake is one of fact. This often means clerical errors and erroneous assumptions about the existence of the subject matter or substance of the contract. Best examples are improper additions of work scope, misevaluation of project planning documents, miscalculation or misapplication of numbers or other misguided assumptions as to the project location or work performance. However, as noted above, public owners do not allow withdrawal of bids when the concept of “mistake is based on mistakes in law, mistakes in personal judgments or wrongful assumptions of contract obligations. Therefore, it is necessary to review the circumstances resulting in the alleged mistake to assist the public owner in determining a proper course of action. Where the mistake is based on an error of personal judgment, it has been held that the contractor who seeks to withdraw his bid must be free of negligence, or other fault in making the mistake, and the contractor that fails to diligently investigate what his costs will be is denied the right to withdraw his bid.” Lassiter Construction Co. v. School Board of Palm Beach Co., 395 So. 2d 567 (Fla. 4th DCA, 1981).
A public agency’s determinations regarding mistakes which affect the responsiveness of a bid are afforded wide discretion. If a reasonable rationale is advanced for the public agency’s determination on responsiveness, it is likely that it will be upheld on review by the courts. In Department of Transp. v. Groves-Watkins Constructors, 530 So. 2d 912, 913 (Fla. 1988), the court stated, “[a] public body has wide discretion in soliciting bids for public improvements and its decision, when based on an honest exercise of this discretion, will not be overturned by a court even if it may appear erroneous and even if reasonable persons may disagree.” Ultimately, whether a bid mistake is material depends on the facts of each situation.
In sum, the best way to deal with bid mistakes is to not make them. If you’re reading this because you just made one, I bet that you are now saying “gee, thanks genius.” If you’re reading this because you just made one, you should also take a look and see if your responsive period is still open. If it is, contact your agency to address the issues. If it is not, you should still contact the agency to address the issues, but only with the help and planning of competent counsel. With good preservation of the record, documentation of the issues and a large helping of humble pie, your company may be able to simply withdraw the bid and avoid the nasty circumstances of performing an unprofitable job because it is for the greater public good.