Powder Horn Constructors, Inc. v. City of Florence

Citation754 P.2d 356
Decision Date25 April 1988
Docket NumberNo. 85SC502,85SC502
PartiesPOWDER HORN CONSTRUCTORS, INC., and St. Paul Fire and Marine Insurance Company, Petitioners, v. CITY OF FLORENCE, Respondent.
CourtColorado Supreme Court

Conover, McClearn & Heppenstall, P.C., Hugh J. McClearn, Catherine A. Lemon, Denver, for petitioners.

Law Office of Robert F.T. Krassa, P.C., Robert F.T. Krassa, Pueblo, for respondent.

Charles E. Grover, Denver, for amicus curiae Colorado Contractors' Ass'n, Inc.

KIRSHBAUM, Justice.

In City of Florence v. Powder Horn Constructors, Inc., 716 P.2d 143 (Colo.App.1985), the Court of Appeals affirmed a trial court judgment ordering forfeiture of a bid bond executed for the benefit of the City of Florence (the City) by the petitioners, Powder Horn Constructors, Inc. (Powder Horn) and Powder Horn's surety, St. Paul Fire and Marine Insurance Co. (St. Paul). The City filed a civil action requesting the forfeiture as damages for Powder Horn's refusal, as low bidder, to accept the City's award of a public improvement construction contract. Powder Horn asserted as a defense a right to equitable relief from the provisions of the bond on the ground that it had rescinded its bid; the trial court rejected this claim. The Court of Appeals held that under certain circumstances a low bidder for a public construction contract may rescind its bid, but affirmed the trial court's judgment. Having granted certiorari to review that decision, we reverse and remand with directions.

I

On December 24, 1981, the City published an advertisement for sealed bids for construction work on a water treatment facility. The bids were initially due on January 14, 1982, but that date was subsequently extended to January 19, 1982. On January 6, 1982, Powder Horn obtained a set of documents from the City detailing the engineering specifications for the project.

On January 19, 1982, Powder Horn submitted a bid of $699,500 for the project. As required by the terms of the bid documents, it also submitted a bid bond in the The next day, January 20, Paul Gilbert, the City's consulting engineer in charge of administering the project, telephoned Michael O'Clair, a Powder Horn estimator, and advised him that in tabulating the bids he had found one item in Powder Horn's bid that appeared to be substantially low in view of the other bids submitted. Gilbert suggested that Powder Horn might want to review that particular item.

sum of five percent of its total bid. 1 When the bids were publicly opened late that same day, Powder Horn was identified as the low bidder. The second lowest bid price was $754,330.

On January 21, Powder Horn's president, Cletus Donahue, informed Gilbert by telephone that Powder Horn had mistakenly omitted from its bid the sum of $66,660, representing the cost of one major item, and that the bid was therefore being withdrawn. On that same day, Donahue also wrote a letter to Gilbert's engineering firm in which he stated that a subtotal from one worksheet inadvertently had been omitted from the final bid amount, advised that the bid and the bid security were being withdrawn and offered to meet with the consulting engineers, the City attorney or other officials to demonstrate that the omission was an honest error.

On February 1, 1982, the City, through its city council, voted to award the contract to Powder Horn for the amount of $699,500. On February 4, Donahue sent a letter to Gilbert's engineering firm stating that Powder Horn would not accept the award of the contract. The City then awarded the contract to the second lowest bidder. That bidder accepted the contract and commenced work.

The City filed this action against Powder Horn and St. Paul, asserting a right to the amount of the bid bond as liquidated damages for Powder Horn's failure to execute the construction contract. The complaint alleged that although the City's actual damages equaled $54,830, the difference between Powder Horn's bid and the second lowest bid, Powder Horn's liability was limited to the amount of the bid bond. Powder Horn asserted as a defense that it had rescinded its bid and therefore could not be held liable under the terms of the bid bond.

The trial court found that Powder Horn had not exercised reasonable care in preparing its bid. Based on this finding, it determined that Powder Horn was liable to the City in the amount of the bid bond. The trial court also determined that Powder Horn's conduct constituted a unilateral mistake, that the mistake was material, that requiring Powder Horn to perform the contract would be unconscionable, and that Powder Horn had failed to establish that the City would not be prejudiced by the withdrawal of Powder Horn's bid.

In affirming the trial court's judgment, the Court of Appeals recognized that in some circumstances a bidder may be permitted to rescind a bid submitted for a public construction contract because of a mistake in calculating the bid. The Court of Appeals concluded that such a remedy is available only when the bidder proves by a preponderance of the evidence that: "(1) the mistake relates to a material feature of the contract; (2) it occurred despite the exercise of reasonable care; and (3) the public authority can be placed in status quo." City of Florence v. Powder Horn Constructors, Inc., 716 P.2d 143, 144 (Colo.App.1985). It held that Powder Horn could not rescind the bid because it had not exercised reasonable care in preparing it. The Court of Appeals also observed that a public entity which has not changed its position in reliance on a mistaken bid has suffered no actual damages and is able to maintain the status quo merely by accepting the second lowest bid "since it has lost only what it sought to gain by taking advantage of the mistake." Id. at 145.

We agree with the conclusion of the Court of Appeals that under certain circumstances a bidder submitting a bid for a public construction contract may be permitted to rescind the bid prior to its acceptance if it reflects a material mistake of fact. We do not agree, however, that the exercise of reasonable care is an appropriate

factor upon which to condition this right of rescission.

II

This case falls into that narrow class of public construction bid cases in which an issue of mistaken bid arises when, prior to the public entity's acceptance of the bid, the parties discover that the bid contains a material mathematical or clerical error. Powder Horn argues that under such circumstances the bidder should be allowed to withdraw its bid automatically without penalty. A substantial body of law supports Powder Horn's argument, in effect concluding that where a bidder submits a bid containing a material mistake of fact and the bid is apparently accepted there has not been any meeting of the minds because the bid accepted by the public entity is not the bid intended by the bidder. E.g., Moffett, Hodgkins & Clarke Co. v. Rochester, 178 U.S. 373, 20 S.Ct. 957, 44 L.Ed. 1108 (1900); Marana Unified School Dist. No. 6 v. Aetna Cas. & Sur. Co., 144 Ariz. 159, 696 P.2d 711 (Ariz.App.1984); Regional School Dist. No. 4 v. United Pac. Ins. Co., 4 Conn.App. 175, 493 A.2d 895, certif. denied, 196 Conn. 813, 494 A.2d 907 (1985); Baltimore County v. John K. Ruff, Inc., 281 Md. 62, 375 A.2d 237 (1977); Mississippi State Bldg. Comm'n v. Becknell Constr., Inc., 329 So.2d 57 (Miss.1976); City of Syracuse v. Sarkisian Bros., Inc., 87 A.D.2d 984, 451 N.Y.S.2d 945, aff'd, 57 N.Y.2d 618, 454 N.Y.S.2d 71, 439 N.E.2d 880 (1982); Arcon Constr. Co. v. State, 314 N.W.2d 303 (S.D.1982); State Highway Comm'n v. Canion, 250 S.W.2d 439 (Tex.Civ.App.1952); see also D. Dobbs, Handbook on the Law of Remedies § 11.4 (1973) (observing that, where bid contains material mistake, failure to grant bidder relief results in public authority receiving more than it was seeking in the bargain). In addition, many courts, commentators and legislative bodies have either explicitly or implicitly recognized that a mathematical or clerical error yields an unintended bid, while an error in judgment, such as an error in estimating the number of hours of work necessary to complete a project, yields precisely the bid intended and is not deemed a mistaken bid. E.g., Boise Junior College Dist. v. Mattefs Constr. Co., 92 Idaho 757, 450 P.2d 604 (1969); State v. Hensel Phelps Constr. Co., 634 S.W.2d 168 (Mo.1982); Jobco, Inc. v. County of Nassau, 129 A.D.2d 614, 514 N.Y.S.2d 108 (1987); Muncy Area School Dist. v. Gardner, 91 Pa.Commw. 406, 497 A.2d 683 (1985); see generally 10 E. McQuillin, The Law of Municipal Corporations § 29.82 (3d ed. 1981); Rudland, Rationalizing the Bid Mistake Rules, 16 Pub.Cont.L.J. 446 (1986); see also M.F. Kemper Constr. Co. v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7 (1951), superseded by statute, Cal.Pub.Cont.Code § 5103 (West 1985) (where mistake made bid materially different than intended, relief available for mistake in filling out bid form, but not for mistake in judgment); N.C.Gen.Stat. § 143-129.1 (1987) (if clerical mistake, agency shall allow withdrawal of bid without forfeiture of bid security); Model Procurement Code for State and Local Governments § 3-202(6) commentary (4) (1979) (observing that bid withdrawal should be permitted where there is reasonable proof of a material mistake of fact and intended bid is not ascertainable with reasonable certainty). 2 It is undisputed here that Powder Horn's error was not an error in judgment. Under these circumstances, there is merit to Powder Horn's position that no agreement was or could have been consummated at the time the bids were opened.

However, this legal analysis ignores an important distinction that has emerged in the law of public contracts--the assumption that bids for public construction contracts are generally considered to be irrevocable upon opening. See Jones, The Law of Mistaken Bids, 48 U.Cin.L.Rev. 43, 45 & n. 13 (1979). This...

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