Subcontractor Bid Mistake: Alaska Supreme Court Issues a Predictable Ruling [1]

Date: February 29, 2012  /  Author: John P. Ahlers  /  Categories: Claims, Damages, Contracting, Construction Bidding  /  Comments (0)  /  Back to Blog

Norcon Incorporated ("Norcon") was the prime contractor for a utility project at Fort Greely Alaska.  Norcon solicited a bid from Handle Construction Co. ("Handle") to perform concrete work for the utility project.  Norcon sent a solicitation to Handle which included drawings showing the foundation work and the bid schedule.  Norcon's bid schedule was attached to an email.  The drawing showed 15 footings, each to be comprised of two piers that would be paired together to form a single foundation.  Norcon's email advised Handle that each foundation group had two piers.  Handle's general manager who received the email provided the bid schedule and plans to Handle's estimator but did not provide the estimator with the email that explained that each foundation was comprised of two piers.  Handle bid the project anticipating a single pier rather than two piers. Norcon awarded the subcontract to Handle.  After work commenced, Handle advised Norcon that it had discovered a discrepancy between the bid schedule and the project drawings that Handle had anticipated a single pier rather than two piers as set forth in Norcon's email which was not provided to Handle manager but the Handle manager failed to provide to the Handle estimators.

Handle sued Norcon for breach of the implied warranty of the adequacy of the contract documents pursuant to which the general contractor impliedly warrants the sufficiency in the plans when those are provided to a subcontractor before the bid.  The court reviewed the plans and concluded that the plans were adequate and sufficient to build the project but due to the error by Handle's manager in failing to provide its estimator with the Norcon email, Handle only assumed a single pier. 

The court then analyzed as between Handle and Norcon which party bears the risk of the mistake.  In doing so the court applied a three-party test:  (1) the risk is allocated to the mistaken party by agreement of the parties, or (2) a mistaken party is aware, at the time the contract is made, that it has only limited knowledge with respect to the facts to which the mistake relates but treats its limited knowledge as sufficient; or (3) the risk is allocated to the mistaken party by the court on ground that it is reasonable in the circumstances to do so.  The court held by not diligently reviewing the materials provided to it by Norcon and by not seeking clarification in the instructions, Handle bore the risk of the mistake.  The general contractor, Norcon, had no responsibility for the "flagrant" miscommunication missteps between Handle's manager and its estimator that led to the bid error.  The court held that "the risk of mistake should be borne by the party who has the greater interest in the consequences of a contract term."

The court also addressed the 35% discrepancy between Handle's bid and the next lowest bidder.  Handle argued that Norcon should not be allowed to snap up its bid if Norcon knew that its 35% low bid was "too good to be true." Handle asserted that the discrepancy of 35% placed Norcon on notice that Handle had made a mistake.  As indicated in previous Ahlers & Cressman blogs (February 10, 2012, February 14, 2012, and February 22, 2012), the fact that there is a difference between a subcontractor’s bid price and the next lowest bid price, even if that discrepancy is 35%, does not, as a matter of law, put the general contractor on notice that the subcontractor made a mistake.  Handle failed to provide the court with sufficient evidence demonstrating that Norcon knew or should have known of Handle's bid mistake because of the bid discrepancy.

This case illustrates that courts are reluctant to reform a subcontract when a mistake is made by the subcontractor who failed to diligently review the materials provided to it by the general contractor and who did not seek clarifying instructions to the extent questions existed in the bid specifications.

 

[1] 264 P.3d 367 (2011 AK), 2011 WL 5107129 (AK).


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