Construction Law Notes
Edward J. Kinberg
Mistakes
Introduction
While I'm confident none of our readers make mistakes in bidding, it does happen to others from time to time. In this article, I will discuss the basic principles involved in unilateral mistakes as this issue affects both private and public contracting.
In regard to private contracting, I will be discussing general principles. Please keep in mind these principles vary from state to state. In addition, various judicial districts within a state may have slightly different interpretations.
My discussion of state law principles is based on my experience in Florida. As I'm sure many of you know, state rules and regulations vary wildly between the states. In addition, each city and county seems to make up its own rules. While the principles discussed in this section have some general applicability, you must have an intimate knowledge of the rules and regulations effecting public contracting in each jurisdiction in which you do work.
Before deciding on how you are going to handle a specific problem you should consult a good construction attorney in your own area. Before you meet with an attorney organize your facts and documents as much as possible. Be prepared to discuss the issues raised in this article. Remember, being well prepared for meeting with an attorney, can significantly shorten the meeting and save legal fees.
General Principles
Unilateral mistakes fall into two basic categories. The first includes mathematical, clerical or typographical errors (technical errors). These type of errors usually result from transposing numbers, inadvertently leaving out a line item when adding a series of numbers, or simple mathematical errors. The second involve errors in judgement. Such errors include mistakes involving availability or quantity of materials, or misinterpretation of technical or legal requirements.
As a general rule, the courts will, in appropriate circumstances, grant relief for technical errors, but will not allow relief for errors of judgment. However, each case must be considered on its own merits and there are rare exceptions to the general rule. For example, in a Florida case the court refused to grant relief for a technical error because it was made by the company's president instead of an employee.
Private Contracts
In the case of private contracts, the courts may allow rescission due to a bidding error if the bidder can demonstrate the following elements:
The mistake goes to the substance of the agreement,
It did not result from a lack of due care, and
The other party has not relied on the mistake to its detriment.
In this regard, courts act in equity (fairness), not in law. In essence, the court basically examines the facts and circumstances of the case to determine a "just" result. In so doing, the courts attempt to prevent injury to both parties to the maximum extent possible.
If your company makes a mistake in a bid, the most effective defense you have is early identification and notice to the other party. Be prepared to show how the mistake was made and that the other party will not be harmed by correction. You must be prepared to convince the Judge (or the other party) that you really are a good guy and deserve a break.
If your company is seeking enforcement of the contract, you must be prepared to demonstrate you reasonably relied on the bid and will suffer some sort of horrible injury if the Court refuses to enforce the contract. If the Court believes you knew, or should have known, of the mistake, it will probably find some way to grant relief.
State, County, and Municipal Contracts
Unless the request for bids or proposals states otherwise, bids on most public contracts may be withdrawn or modified at any time BEFORE bid opening. Once the bids are open and made public, individual bids may not be withdrawn or modified.
Unfortunately, in many cases bids are not submitted until shortly before the bid is due and you don't have time to review your bid for accuracy. It is not unusual for a bidder to realize an error has been made as he watches the envelope drop in the bid box.
While you do not have a legal right to withdraw a bid after opening in most states, the courts may allow withdrawal as a matter of equity. In this regard, the courts will generally examine the following elements in determining whether any relief is warranted.
The bidder acted in good faith in submitting the bid.
The error is so substantial that enforcement would cause the bidder a severe hardship.
The error was not the result of gross negligence or wilful inattention.
The bidder discovered the error, reported it to the public body, and requested permission to withdraw the bid prior to acceptance.
As with private contracting, the courts basically look to the overall fairness of the situation. If you are unfortunate enough to find a mistake in a bid after submission, you need to promptly notify the public official responsible for evaluating the bids and be prepared to demonstrate the mistake was a technical error which will cause your business great hardship if you are not allowed to withdraw the bid.
Federal Contracts
Bidding on Federal contracts is controlled by the Federal Acquisition Regulation (FAR). The FAR provides very specific guidance for handling bid mistakes.
In the case of "apparent clerical mistakes" such as misplaced decimal points, obviously incorrect discounts, or an obvious mistake in a unit designation, the Contracting Officer may allow correction upon receipt of proof of the intended bid. The Contracting Officer may allow correction of other mistakes under the following circumstances.
The bidder requests permission to correct a mistake.
The bidder presents clear and convincing evidence that there is a mistake in the bid.
The bidder presents clear and convincing evidence of the actual bid intended.
If the proposed correction will displace the low bidder, the evidence relied on to prove the intended bid is limited to the solicitation and the bid. If the bidder demonstrates the existence of the mistake but cannot show the actual bid intended, the Contracting Officer may not allow revision of the bid. However, the Contractor may still withdraw the bid.
Conclusion
You may avoid suffering a loss from a serious bid error if you take prompt action to notify the other party of the error. You must also be prepared to demonstrate the error was a technical error and that you will suffer great hardship if you are not allowed to withdraw the bid. The more sympathetic your case, the more likely it is you will be able to avoid the consequences of the error.