In those states that have not recognized the doctrine of promissory estoppel, a subcontractor is free to withdraw its offer to perform at any time before the prime contractor formally accepts the offer—even after the prime contractor has been declared the successful bidder by the owner and the prime used the subcontractor’s quote in its price to the owner.
In states recognizing the doctrine, a subcontractor’s quote is held open and cannot be withdrawn until the prime contractor has had a reasonable opportunity to accept or reject it. However, as illustrated in a case decided in Georgia last year, the mere tendering of a standard-form subcontract that varies from conditions in the subcontractor’s quote can invalidate the offer and provide to the subcontractor the option of whether to honor it.
Refusing to sign
In APAC-Southeast, Inc. v. Coastal Caisson Corp., 514 F.Supp.2d 1373 (N.D. Ga. 2007), the prime contractor preparing a bid for a road project for the Georgia Department of Transportation accepted subcontractor quotes, including one for drilled shafts for bridge foundations. Immediately after being awarded the contract, the prime contractor forwarded a letter of intent to the drilled-shaft subcontractor. A month later, the prime forwarded to the subcontractor its standard-form subcontract. Notably, the subcontract contained provisions that disallowed damages to the subcontractor in the event of delay and also placed the risk of subsurface conditions on the subcontractor. These two provisions differed from the subcontractor’s quote, which specifically excluded unanticipated subsurface conditions and also included equipment standby rates that were applicable in the event of delay.
For the next few months, the prime and subcontractor’s project-level personnel met to plan the project, and from an operations standpoint things appeared to be progressing well. However, after not having received the subcontract back from the subcontractor, the prime’s contract administration personnel initiated a meeting during which the subcontractor voiced its concerns over several provisions contained in the subcontract, including the delay and subsurface conditions provisions.
Eventually they reached a stalemate and the subcontractor refused to perform. The prime contractor sued under the doctrine of promissory estoppel, which is recognized in Georgia.
The court held that the contractor never actually accepted the subcontractor’s quote. Rather, when the prime tendered a subcontract containing terms differing materially from the conditions in the quote, it conveyed a counteroffer. The counteroffer constituted a rejection of the original offer, and thus the subcontractor had no obligation to honor its original quote. Accordingly, the prime contractor’s promissory estoppel claim was rejected and it was strapped with the additional cost of procuring another drilled-shaft subcontractor.
So how can a contractor void the harsh result of the APAC decision? The answer is rather simple: It can mirror the actions of the public entity by sending out subcontractor bid packages outlining the terms under which it will accept quotes including, most prominently, the form subcontract the successful subcontractor will be required to execute. Any quote submitted in response to that bid package will be construed as an acceptance of all conditions contained in the package.
Does this approach prevent subcontractors from conditioning their quotes contrary to the requirements in the bid package? The answer is clearly no, but on the positive side, the issues will be brought to the forefront on bid day when they can be addressed before the final decision is made to include the price as part of the bid to the owner.