City of Lonsdale v. NewMech Companies, Inc., No. A07-0105 (Minn. App. 1/22/2008)
| Decision Date | 22 January 2008 |
| Docket Number | A07-0107.,A07-0108.,No. A07-0105.,A07-0105. |
| Parties | City of Lonsdale, Minnesota, Respondent (A07-105, A07-108), Appellant (A07-107) v. NewMech Companies, Inc., et al., defendants and third-party plaintiffs, Respondents (A07-105, A07-107), Appellants (A07-108), v. BNR Excavating, Inc., Appellant (A07-105), Third-Party Defendant (A07-107), Respondent (A07-108). |
| Court | Minnesota Court of Appeals |
Appeal from the Rice County District Court, File No. 66-C7-03-001941.
Theodore V. Roberts, Kyle E. Hart, Fabyanske, Westra, Hart & Thomson, for City of Lonsdale.
Ernest F. Peake, Chad A. Kelsch, Leonard, O'Brien, Spencer, Gale & Sayre, for NewMech Companies, Travelers Casualty & Surety.
Thomas E. Brever, Foster & Brever, for BNR Excavating, Inc.
Considered and decided by Peterson, Presiding Judge; Willis, Judge; and Wright, Judge.
UNPUBLISHED OPINION
This is a consolidated appeal in which each party challenges a different aspect of the district court's judgment. After a bench trial, the district court found that general contractor NewMech Companies, Inc. (NewMech) breached a bidding contract with the City of Lonsdale (city) and was liable for the amount of the bid bond but that subcontractor BNR Excavating, Inc., (BNR) was liable to NewMech for one-half that amount. The city challenges the measure of damages for NewMech's breach, arguing that the district court misconstrued the contract. NewMech challenges its liability for the breach, arguing that the district court erroneously found that it failed to prove its unilateral-mistake defense. NewMech also challenges the measure of BNR's third-party liability, arguing that the district court erred by finding that NewMech's conduct contributed to the breach of its contract with the city. Finally, BNR challenges its third-party liability to NewMech, arguing that the evidence does not support the district court's finding that NewMech justifiably relied on its subcontractor bid. We affirm.
In 2003, the City of Lonsdale solicited sealed bids for construction of a wastewater-treatment plant. Each prospective bidder received a large packet that included instructions, various contract documents, and technical specifications for the project. According to the terms of the bid form, a bidder who submits the bid form
proposes and agrees, if [the] Bid is accepted, to enter into an Agreement with [the city] in the form included in the Bidding Documents to perform all Work as specified or indicated in the Bidding Documents for the prices and within the times indicated in the Bid and in accordance with the other terms and conditions of the Bidding Documents.
To be considered for the project, bidders were required to submit a completed copy of the bid form by 2:00 p.m. on August 21, 2003, when the city would open the bids. As security for the bid, bidders also were required to include a bond worth five percent of the submitted bid price. Bidders could withdraw without penalty a submitted bid within 24 hours after the bid opening if the bid contained a "material and substantial mistake." If awarded the contract, the bidder would be required to sign and return a number of copies of the Agreement and other documents included in the bidding packet.
NewMech submitted its bid on the project. Before doing so, NewMech solicited subcontractor bids to perform various aspects of the project. NewMech received BNR's bid to perform the necessary excavation work approximately 20 minutes before the bidding deadline. NewMech's bid captain, Paul Ptak, noticed that BNR's bid was over $1,000,000 lower than the competing excavation bid that NewMech had received about one and one-half hours earlier. Because the other bid specifically excluded certain labor and material, including a PVC pond liner, Ptak immediately called BNR's project manager and estimator, Larry Walde, to confirm BNR's bid. Walde assured Ptak that BNR's bid of $984,500 was complete and included all the labor and material costs associated with each of the items bid unless specifically noted. Ptak testified that, after speaking with Walde, he felt "completely satisfied that BNR's bid contained an acceptable bid number and was free of mistakes."
Although Ptak knew little about BNR, he did nothing else to verify its reliability as a subcontractor. Ptak did not know that BNR was a small excavating company that had previously worked on "small to mid-size jobs" typically valued at less than $1,000,000. But after 12 years in the construction industry, Ptak had "quite frequently" seen 100-percent differences between valid subcontractor bids and was "completely confident" in using BNR's subcontractor bid in NewMech's bid for the project. Using BNR's bid, NewMech submitted a bid form stating that it "will complete the Work . . . for the . . . lump sum price [of] $4,910,000" and attached a bid bond of $245,500.
In the rush to submit NewMech's bid before the deadline, Ptak had failed to notice the "sloppy work" in BNR's bid. Although Walde had performed a general inspection of the site conditions, he had not studied the technical specifications for the project in detail and he began his preparation of BNR's bid only one day before it was due. When Ptak called BNR to confirm its bid minutes before NewMech's bid was due, Walde was shocked to learn that BNR's bid was more than $1,000,000 lower than the other excavation subcontractor's bid. Indeed, when he called his boss a few minutes after learning this, Walde was told that he "should have withdrawn [BNR's] bid." But it was too late.
NewMech's bid was the lowest by a margin of $863,600. Bill Chang, the city's engineer in charge of the project, called NewMech's president and CEO, Paul Jordan, to congratulate NewMech on being the low bidder. Because he was concerned about the large difference between the two excavation bids, Jordan told Chang that he would "like to go back and sit down with [BNR]" and notify the city of NewMech's decision by 2:00 p.m. the following day.
Aware that they had only 24 hours to withdraw their bid without penalty, Jordan, Ptak, and NewMech's vice president, Steve Poser, met with Walde the following morning to discuss BNR's bid. Despite Walde's assurances to Ptak on the phone one day earlier, by the end of the meeting, everyone was "well-aware that the BNR bid failed to include several items." But "neither company realized the scope of the errors" because no one discussed how much the missing items would cost. Rather than withdraw, NewMech and BNR "assumed they would be able to resolve their differences and proceed with the project." Jordan, therefore, called Chang and informed him that, although NewMech had "discovered some discrepancies," it "would proceed with [its] bid."
At 3:49 p.m. on August 22, almost two hours after the deadline for NewMech to withdraw without penalty, Walde faxed a revised bid proposal that added $129,500 for a missing PVC pond liner. A second revision faxed the following day quoted an additional $8 per cubic yard for sand required for the project. Both faxes indicated that they excluded the cost of other missing items, which would be extra. Characterizing the magnitude of the revisions as a "major problem," Poser estimated that the revisions received after the withdrawal deadline had increased BNR's initial bid by approximately $730,000. Poser advised Walde that the new bids were unacceptable and that NewMech expected BNR to honor its initial bid.
On August 28, Ptak appeared before the Lonsdale City Council. One councilmember noted that there was approximately $800,000 difference between NewMech's bid and the next lowest bidder and asked Ptak whether NewMech "was prepared to proceed and fulfill this contract at the bid price." Despite his awareness of BNR's mistake, Ptak advised the city council that NewMech would complete the project at the bid price. The city council passed a resolution awarding NewMech the project. In mid-September, Chang sent NewMech a Notice of Award under which NewMech was required to sign and deliver "four fully executed counterparts of the Contract Documents" to the city by September 30, accompanied by performance and payment bonds.
NewMech did not attempt to secure other subcontractors that might have been able to perform the excavation work. On September 22, Poser sent Walde a proposed subcontract for $1,114,000, the amount of BNR's first revised bid. This was NewMech's first contact with BNR since Poser's discussion with Walde almost one month earlier. Walde immediately rejected this proposal and handed Poser his attorney's business card. Walde later sent a proposed subcontract for $1,250,000, which NewMech rejected.
NewMech also sent a letter to the city informing the city that "a material error in the bidding process," combined with "BNR's unlawful withdrawal of its bid," significantly affected NewMech's "ability to enter into a contract [for the project]." NewMech proposed two alternatives: (1) rebid the excavation subcontract and renegotiate the overall price for the project, or (2) permit NewMech to withdraw based on mutual mistake in the bidding process. The city rejected NewMech's alternative proposals, stating that it would "be waiting for a signed contract and for NewMech to proceed with. . . construction." NewMech subsequently informed the city that it was withdrawing its bid.
After awarding the project to the next-lowest bidder, the city sued NewMech for breach of contract, seeking both $863,600, the difference between NewMech's bid and the next-lowest, and $245,500 as forfeiture of the bid bond. NewMech, in turn, impleaded BNR as a third-party defendant.
After a four-day bench trial, the district court found that: (1) BNR was negligent in preparing and submitting the subcontractor bid on which it intended NewMech to rely; (2)...
To continue reading
Request your trial