A prime contractor’s reliance on a quote must be both reasonable and justifiable, and as a recent case decided by a federal court in Pennsylvania illustrates, it is not enough that the prime contractor merely used a subcontractor’s quote in its price to the owner in order for the prime contractor to recover.

Numbers crossed

In Neshaminy Constructors, Inc. v. Concrete Bldg. Sys, Inc., 2007 WL 2728870 (E.D. Pa. 2007), a prime contractor bidding on a multistory parking garage project for a public entity accepted subcontractor quotes on bid day in March 2006 from several suppliers that bid to supply and erect precast structural members. One bidder, CBS, forwarded to the prime on the morning of the bid a written proposal, which was conditioned on, among other things, award of a subcontract within five weeks, starting production of the precast members in June 2006 and erection on-site during November/December 2006.

Within minutes of receiving CBS’s proposal, the prime telephoned CBS to confirm the quote of $5.4 million because it was $1 million lower than the next highest price received. CBS confirmed the price and the prime inserted it into the bid estimate. Soon thereafter, but before the prime submitted its bid to the owner, CBS telephoned the prime and increased its price by $200,000 to $5.6 million to take into account a requirement that it had initially overlooked in the specifications governing minimum crane sizes. The prime acknowledged the increase, but elected to increase the number in its bid by only $100,000, to $5.5 million.

As it turned out, the prime’s bid to the owner was the only bid received and it was well over the engineer’s estimate. Consequently, the owner consumed nearly all of the 90-day period during which bids were to remain open to perform due diligence required by law before awarding the project. Some time later, CBS notified the prime that it had received another job that would occupy its production capacity in June 2006 and that it would be unable to fabricate materials for the project until January 2007.

The following day, the prime forwarded to CBS a letter of intent. The letter of intent reflected CBS’s original price of $5.4 million, not its revised price of $5.6 million. The prime retained the right to modify the production schedule from the June 2006 date contained in CBS’s proposal and to order only the shop drawings, but cancel the remainder of the subcontract if the owner did not award it the project. CBS refused to sign the letter of intent and subsequently refused to enter into a subcontract when the owner eventually awarded the project to the prime.

The prime sued CBS and alleged that the parties had entered into a contract by their conduct or, in the alternative, that because it relied upon CBS’s quote to its detriment, CBS is liable under the doctrine of promissory estoppel for costs incurred subcontracting with another precast supplier.

Spot trouble

The court sided with CBS and held that neither the use of CBS’s price in the prime’s bid to the owner nor the prime’s notice to CBS that it had submitted the lowest price for the precast work constituted acceptance of CBS’s offer. Thus no contract was ever formed between the parties. Also, when the prime proposed in the letter of intent terms differing materially from CBS’s proposal (in other words, price, schedule and scope), the prime actually rejected CBS’s offer and made a counteroffer, which CBS never accepted. As to promissory estoppel, the court held that the prime never relied upon CBS’s proposal because it used a lower number than CBS’s in its bid to the owner and thus obviously intended to negotiate with CBS at a later date to lower its price.