Are Construction Bid Errors Up in a Down Economy?

July 2010

By:  Dean R. Brackenridge and Brian M. Falcon

Difficult economic times obviously can place tremendous pressure on contractors to obtain work.  Adding the pressing need for a contractor to get something in the door when work is scarce to fast approaching bid deadlines for an increased number of bids, and the routine pressure of competition for contracts, may result in increased mistakes in the preparation of construction bids.

But if an error occurs, when can an Indiana contractor obtain relief once the error is discovered?  The answer will depend upon when the error is discovered and whether the error arose from a mathematical or clerical error by the contractor, or from the contractor's error in judgment.

A contractor may one day find itself in the following situation:  After spending weeks carefully reviewing and analyzing the plans and specifications, preparing take-offs and estimates, gathering anticipated labor and material costs, seeking information and bids from prospective subcontractors, and putting its bid in writing, a bid is submitted.  When the bids are opened, the contractor’s excitement in learning that the $5,000,000 bid it so carefully prepared is accepted is quickly tempered by discovering that the next closest bid was $7,000,000.

A contractor which suspects a bid error has occurred obviously is well advised to determine what in fact happened as quickly as possible.  General contract formation principles of offer, acceptance and consideration apply to the bid process.  The contractor's bid constitutes an offer, which the owner may accept or reject.  Once accepted, a contract has been formed.  Therefore, if the contractor discovers its error prior to acceptance by the owner, it is entitled to revoke its bid.  However, under the more common scenario discussed above, the contractor's discovery does not occur until after acceptance and contract formation.  Relief from a bid error is then possible only if the error can be attributed to a mathematical or clerical error.  The contractor will be hard-pressed to obtain relief if the error is caused by a misinterpretation of the specifications by the contractor or a mistake in judgment.  

Mistakes of Fact

Indiana's courts long ago recognized that a contractor who makes a clerical or mathematical error may be entitled to relief.  In Board of School Commissioners v. Bender, 72 N.E. 154 (Ind. Ct. App. 1904), the contractor was required to submit his bid by 4:00 p.m.; however, it did not receive bids from two of its subcontractors until 3:30 that same afternoon.  The contractor hastily finalized its bid and in doing so miscalculated the total bid by approximately $4,000 (which was 25 percent of the total bid).  The Bender court held that the error was an excusable, computational mistake and allowed the contractor to rescind its bid.  See also Schindler Elevator Corp. v. Metropolitan Development Commission, 641 N.E.2d 653 (Ind. Ct. App. 1994) (no material variance in bid where numerical amount on bid form provided that bid was for $2,399,000, but bid was written out as "Two Million Three Hundred Ninety Nine Dollars" as deletion of the word "Thousand" was merely a typographical error).

Mistakes of Judgment

However, an Indiana court is unlikely to grant a contractor relief where it has made a mistake of judgment rather than a mistake of fact.  Mistakes of judgment include instances where a contractor misinterprets the plans and specifications provided by the owner, or where a contractor understands the scope of the project, but incorrectly estimates the labor, materials or other costs necessary for completion of the project.  An unsuccessful attempt by a contractor to obtain relief from a mistake of judgment was the subject of Mid-States General & Mech. Contracting Corp. v. Town of Goodland, 811 N.E.2d 425 (Ind. Ct. App. 2004).  In Mid-States, the bid documents required all bidders to "break down their bid into one lump sum for the majority of the work and four smaller optional alternate projects that could be completed if funding was available." All component parts of the work and stated alternates and allowances were clearly required to be included in the stipulated sum amount.  Mid-States' $822,000 bid was the low bid and was accepted by the owner; however, Mid-States advised the architect that its total contract price including the stated allowances was actually $933,020.  The owner ultimately awarded the contract to the second lowest bidder and sued Mid-States for the difference between Mid-States’ bid and the second lowest bid.  Determining that the "bid documents were unambiguous" in requiring Mid-States to include the alternates and allowances as part of the stipulated sum amount, the court found in favor of the owner.

The Mid-States decision serves notice that a contractor's failure to understand unambiguous contract provisions in preparing its bid likely will not support relief from a bid mistake.  In such a case the contractor's best and perhaps only hope is that it realizes its mistake prior to bid opening and acceptance by the owner so that it may revoke the bid.

Conclusion

Given today's economic climate, where contractors may find themselves hurriedly reviewing plans and specifications and preparing an increased number of bids in advance of bidding deadlines to secure much-needed work, bids may be more susceptible to human error.  While mathematical or typographical errors may provide grounds for a contractor to withdraw a flawed bid, a contractor's failure to carefully review and follow unambiguous contract documents or its failure to properly estimate manpower, equipment or materials necessary for completion may leave it with little chance to walk away from an erroneous bid.  Prudent contractors will take great care to try to avoid potentially costly bid errors, particularly unforced errors which could be avoided by rereading bidding standards and plans and specifications before submitting a bid.

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