Alaska Intern. Const., Inc. v. Earth Movers of Fairbanks, Inc.

• Citation: 697 P.2d 626
• Decision Date: 14 March 1985
• Docket Number: S-457,Nos. S-440,s. S-440
• Parties: ALASKA INTERNATIONAL CONSTRUCTION, INC., Appellant, v. EARTH MOVERS OF FAIRBANKS, INC., Appellee. STATE of Alaska, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, Appellant, v. EARTH MOVERS OF FAIRBANKS, INC., Appellee.
• Court: Alaska Supreme Court

Page 626

697 P.2d 626

ALASKA INTERNATIONAL CONSTRUCTION, INC., Appellant, v. EARTH MOVERS OF FAIRBANKS, INC., Appellee.

STATE of Alaska, DEPARTMENT OF TRANSPORTATION AND PUBLIC

FACILITIES, Appellant, v. EARTH MOVERS OF FAIRBANKS, INC., Appellee.

Nos. S-440, S-457.

Supreme Court of Alaska.

March 14, 1985.

Kenneth D. Jensen, Scott H. Finley, Jensen, Harris & Roth, Anchorage, for appellant Alaska Intern. Const., Inc.

E. John Athens, Jr., Asst. Atty. Gen., Fairbanks, Norman C. Gorsuch, Atty. Gen., Juneau, for appellant State of Alaska, Dept. of Transp. and Public Facilities.

Joseph Paskvan, Rice, Hoppner, Brown & Brunner, Fairbanks, Sam E. Baker, Jr., Oles, Morrison, Rinker, Stanislaw & Ashbaugh, Seattle, Wash., for appellee Earth Movers of Fairbanks, Inc.

Hugh G. Wade, Richard H. Foley, Jr., Wade & DeYoung, Anchorage, for amicus curiae Associated General Contractors of America.

Before BURKE, C.J., and RABINOWITZ, MATTHEWS, COMPTON and MOORE, JJ.

OPINION

MATTHEWS, Justice.

This is an appeal from a decision of the superior court regarding the acceptance of bids for a road construction project. The court held that the Alaska Department of Transportation and Public Facilities (hereafter "the agency" or DOT/PF) had improperly awarded the project to Alaska International Construction, Inc. (hereafter AIC) rather than Earth Movers of Fairbanks, Inc. (hereafter Earth Movers).

I.

The facts in this appeal are not in dispute. On March 20, 1984, the agency opened bids on a grading and drainage road project near Nome. Earth Movers submitted the apparent low bid of $3,396,998.80. AIC, the apparent second low bidder, submitted a total bid of $3,476,680.63. However, a discrepancy was noted in AIC's bid; the numerical price quoted for the "mobilization item" was $90,491.00, while the price for this item as written out was "Nine Thousand Four Hundred Ninety-One Dollars."

At this point, the contracting officer followed the agency's procedure as provided in § 102-1.06 of the Alaska Department of Transportation and Public Facilities Standard Specifications for Highway Construction. ¹ That section provides in relevant part that, "[i]n case of a descrepancy [sic.] between the prices written in words and those written in figures, the prices written in words shall govern." Relying on this regulation, the contracting officer recomputed AIC's bid by reducing the figure for mobilization from $90,491.00 to $9,491.00. AIC was not asked for clarification. As a result, AIC's total bid became $3,395,680.63, $1,300 less than Earth Movers's bid. ²

After the agency had notified all bidders that it intended to award the contract to AIC, Earth Movers protested the agency's decision based on the agency's Standard Specifications for Highway Construction § 102-1.07(2) which states that irregular bid proposals shall be rejected if the irregularity may tend to make the proposal incomplete, indefinite, or ambiguous as to its meaning. ³ The agency denied Earth Movers's protest and reiterated its intent to award the contract to AIC based on § 102-1.06. ⁴

Earth Movers then sought judicial review of the contract award by seeking a temporary restraining order and preliminary injunction. The superior court issued a preliminary injunction on April 2, 1984, which enjoined the agency from awarding the contract to anyone other than Earth Movers. The court subsequently made the preliminary injunction permanent, finding that AIC's mistake was "a material variance that gave the bidder a substantial advantage over other bidders, thereby restricting or stifling competition...." We agreed to review AIC's appeal to this court on an expedited basis, and have consolidated the agency's appeal with it. On May 23, 1984, we entered an order reversing the judgment of the superior court and remanding the case with directions to dismiss the complaint. This opinion explains the reasons for our decision.

Two issues are presented. The first is whether the agency should have rejected AIC's bid because of its mistake. This involves consideration of whether AIC was entitled to withdraw its bid because of the mistake. If AIC could have withdrawn, then it could have chosen whether or not to perform, an option which would have given it a competitive advantage over the other bidders. If this was the case, then the DOT/PF should have rejected AIC's bid. See King v. Alaska State Housing Auth., 512 P.2d 887 (Alaska 1973); Chris Berg, Inc. v. State Dept. of Transp., 680 P.2d 93, 94 (Alaska 1984). The second issue is whether the agency erred by applying its policy favoring words over numerals when it could have determined that the numeral expressed was the intended amount.

II. STANDARD OF REVIEW

In reviewing an agency's acceptance or rejection of bids for public projects, this court has applied an abuse of discretion standard of review. See Chris Berg, Inc. v. State Dept. of Transp., 680 P.2d 93, 94 (Alaska 1984); State v. Bowers Office Products, Inc., 621 P.2d 11, 13 (Alaska 1980); Kelly v. Zamarello, 486 P.2d 906, 917-18 (Alaska 1971). ⁵ In this case, the superior court did not specify the standard of review which it applied, but it is clear from the record that it gave the agency's findings little, if any, deference. Thus, the superior court apparently substituted its judgment for that of the DOT/PF.

Earth Movers contends that the trial court correctly substituted its judgment because the DOT/PF exercised no discretion, but merely mechanically applied Specification § 102-1.06 to AIC's bid. Further, Earth Movers points out that the agency's letter of April 18, 1984, which explained why AIC's mistake did not give it the right to withdraw, was written sixteen days after the court had enjoined awarding the contract to AIC.

The agency's determination clearly required an understanding of the type of business involved. DOT/PF employed this expertise when it determined that AIC's mistake did not give it the right to withdraw its bid. The fact that the determination was not actually written until after the award of the contract may raise questions as to whether the determination is merely a post hoc rationalization. But this possibility at most means that the court should subject the findings to more critical scrutiny. The superior court was not free to disregard the agency's finding, but was required to state why it was an unreasonable one.

III. DID THE AGENCY ABUSE ITS DISCRETION BY DETERMINING THAT AIC'S BID COULD NOT BE WITHDRAWN BECAUSE OF ITS MISTAKE?

The crucial issue in this case is whether the DOT/PF had a reasonable basis for concluding that AIC could not withdraw its bid. As noted above, if AIC could have withdrawn, it would have been in a more advantageous situation than other bidders, and the DOT/PF then would have been obliged to reject AIC's bid.

The prevailing view, and the one which we adopt, is that a contract bidder may withdraw its bid because of a clerical mistake if (1) the mistake is of such consequence as to render enforcement unconscionable; (2) the mistake is material; (3) the mistake occurred despite ordinary care by the bidder; and (4) it is possible to place the other party in the status quo. In addition, the bidder must act promptly in order to be entitled to obtain rescission. See, e.g., City of Devils Lake v. St. Paul Fire & Marine Insurance Co., 497 F.Supp. 595, 597 (D.N.D.1980); M.J. McGough Co. v. Jane Lamb Memorial Hospital, 302 F.Supp. 482, 485 (S.D.Iowa 1969); M.F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7, 10 (1951); Boise Junior College District v. Mattefs Const. Co., 92 Idaho 757, 450 P.2d 604, 605 (1969); State v. State Const. Co., 203 Or. 414, 280 P.2d 370, 380 (1955); Puget Sound Painters, Inc. v. State, 45 Wash.2d 819, 278 P.2d 302, 304 (1954). See generally 10 E. McQuillin, The Law of Municipal Corporations § 29.67, at 383 (3d ed. 1981); Annot., 2 A.L.R.4th 991 (1980).

Here, the most appropriate subject of inquiry is whether requiring AIC to perform according to the terms of its mistaken bid would be unconscionable, for if so, then the mistake necessarily would be material. ⁶ In a letter dated April 18, 1984 the agency stated that AIC's mistake was not material, and by implication, that requiring performance would not be unconscionable. Thus, it concluded that AIC would not have been permitted to withdraw its bid and recover its bond. ⁷

The agency's letter relies on the fact that the difference between the mobilization bid price in words and figures was less than two and one-half percent of AIC's total bid for the project and that AIC would likely not be able to control its costs within such a small margin. In other words, the agency determined that even an $81,000 variation was not material in view of the large size of the project. The letter also relies on the fact that AIC's total bid was only slightly lower than the next bid.

This holding is in concert with decisions from other jurisdictions. Generally, in those cases which have found that a unilateral mistake will lead to an unconscionable result, the bid error has been considerably larger than two and one-half percent of the total bid. ⁸ The size of the bid error is not necessarily the determining fact of unconscionability. The Restatement (Second) of Contracts also contemplates that an erring bidder, in order to establish facts necessary for unconscionability, must prove that he would lose a substantial amount of money. ⁹ Further, the fact that the mistaken bid is not greatly disproportionate to other bids is relevant to the unconscionability question. ¹⁰

All of these factors indicate that the agency was correct in making its determination. The mistake made was a small one compared to the size of the project and within the expectable variation of the contractor's costs. The mistake would not cause the bidder to lose money. The mistaken bid differs only slightly from one that was not mistaken. In view of these facts we conclude that there was a...