State ex rel. Missouri State Highway Com'n v. Hensel Phelps Const. Co., 63307

• Decision Date: 08 June 1982
• Docket Number: No. 63307,63307
• Parties: STATE of Missouri ex rel. MISSOURI STATE HIGHWAY COMMISSION, Plaintiff-Respondent, v. HENSEL PHELPS CONSTRUCTION COMPANY and Aetna Casualty and Surety Company, Defendants-Appellants.
• Court: Missouri Supreme Court

Page 168

634 S.W.2d 168

STATE of Missouri ex rel. MISSOURI STATE HIGHWAY COMMISSION, Plaintiff-Respondent, v. HENSEL PHELPS CONSTRUCTION COMPANY and Aetna Casualty and Surety Company, Defendants-Appellants.

No. 63307.

Supreme Court of Missouri, En Banc.

June 8, 1982.

Charles E. Patterson, David J. Kornelis, Kansas City, for defendants-appellants.

Bruce A. Ring, Curtis F. Thompson, Dennis J. Redel, Jefferson City, for plaintiff-respondent.

MORGAN, Judge.

On July 31, 1974, the Missouri State Highway Commission issued a notice of bid letting for the construction of lighting and decking on a bridge over the Mississippi River between Missouri and Tennessee. The construction of the bridge was a joint project between Missouri and Tennessee; however, the contract was Missouri's responsibility and it advertised the project and received bids therefor.

The Commission furnished a proposal form explaining the details of the particular job to those interested in bidding. The Missouri Standard Specifications for Highway Construction, a guide to the bidding procedure, was incorporated into the bid documents by reference. The specifications indicated that each bid was to be accompanied by a certified check as a bid bond, guaranteed by a surety company, equal to five percent of the total bid. The bidder could withdraw the bid at any time prior to the opening of the bids, but at that time the bids became irrevocable. If a bid was accepted, and the bidder did not execute the contract within fifteen days, the contract was deemed cancelled and the bid bond was to be forfeited.

On August 20, 1974, Hensel Phelps Construction Company, based in Greeley, Colorado, sent two employees to the construction site where they spent five to six hours. At this time they determined the Tennessee side of the river to be the best location to begin work, because: (1) the Tennessee side was twelve to fifteen feet higher than the corresponding point in Missouri and subject to less flooding; (2) there was power available on the Tennessee side; and further, (3) most of the materials would be coming from Tennessee suppliers. The only transportation across the river of which they were aware was by ferry about five to ten miles south of the location.

The Hensel Phelps employees spoke with Joe Davidson of the Highway Department and asked if he knew of any "union problems" in the area. Davidson answered that the only one of which he was aware involved overtime pay on Saturday. They asked the same question of Gene Penzel of Penzel Construction Company (a competitor on the bid who was on the site) who answered that there were no problems. They then asked the officer manager of Beasley Construction Company if he knew of any problems and he also answered that there were no labor problems of which he was aware. They further reviewed area union agreements to gain an understanding of the wage rate, manning requirements, crew requirements and jurisdictional requirements. Yet they did not speak with any union officials or workers.

In preparing the proposal, a question arose as to the payment of sales taxes in Missouri and Tennessee. The employees referred to Summary of State Regulations and Taxes Affecting General Contractors, a book on sales tax laws in different states. Because the job was to be administered by Missouri, Hensel Phelps' representatives assumed that Missouri's sales tax law would apply, although they knew most of the materials would be purchased in Tennessee. The Missouri provision reads:

Sales to contractors for permanent installation in the performance of contracts, not exempt. Sales to Federal Government, state, political subdivisions and educational, religious, and charitable organizations, exempt. (Emphasis in original.)

Thinking this provision ambiguous, an employee called the Missouri Highway Department and asked them for an interpretation. He talked to someone from the plans and specifications division, who answered that they didn't know if the purchases would be exempt. The Hensel Phelps employees then determined that sales to Hensel Phelps would be exempt.

Hensel Phelps submitted its bid of.$4.5 million along with a bid bond of $225,000, guaranteed by Aetna Casualty and Surety Company, to the State Highway Commission. The bids were opened August 30, 1974, and Hensel Phelps' bid was the lowest. The next lowest bid was $4,990,536.44. The Highway Commission's latest estimate was $4,489,000. Upon noticing the 11% difference between the two low bids, the Hensel Phelps representatives became concerned, although an 11% difference was not unusual. They, thereafter, began an immediate review of the bid.

The employees returned to the construction site on September 5, 1974, and asked the project manager of Beasley Construction Company and the superintendent of Massman Construction Company if they had any labor problems. They answered that they did.

At this time the representatives of Hensel Phelps learned that they would be required to transport workers from the Missouri side of the river to the Tennessee side, and that they would be required to pay the workers one way during transit.

This requirement stemmed from an "area precedent" at the construction site. Massman Construction Company, that constructed the substructure of the bridge, had agreed with the unions that it would pick up the workers from the Missouri side and transport them across the river, paying them one way during transit. The result of this oral agreement apparently set an area precedent that future contractors would be expected to follow. This would lead to additional costs; including renting a vessel, hiring operators for the boats, paying the workers one way, and acquiring longshoreman's and marine insurance.

Hensel Phelps' representatives talked to the carpenters' business agent in Sikeston and the assistant laborers' agent in Cape Girardeau. Both indicated that the labor precedent would be a problem, but the representatives made no attempt to negotiate with the unions any further.

After determining that there would be additional labor costs, they further discovered that their purchases in Tennessee would not be tax exempt.

Hensel Phelps recalculated its bid and determined the new total to be $620,404 over the amount submitted in its actual bid.

They telephoned the Highway Commission on September 9, and expressed a desire to withdraw their bid. The next day a Hensel Phelps representative appeared at the Highway Commission, requested the bid be withdrawn, and indicated the mistakes made in its bid.

On September 11, the Highway Commission met and was informed of Hensel Phelps' request to withdraw its bid. The bid of Hensel Phelps was accepted subject to concurrence by the Department of Transportation of Tennessee. The Highway Commission wrote the Tennessee Department of Transportation and indicated Hensel Phelps' alleged errors. The Tennessee department concurred in the acceptance of the bid. On October 2, 1974, the Commission sent contract documents to Hensel Phelps for execution. Hensel Phelps replied that they wanted to be relieved of their responsibility to proceed with the contract.

Hensel Phelps appeared before the Commission on October 9. On October 11, the Commission notified Hensel Phelps the request to withdraw was denied. On October 24, Hensel Phelps met with the Commission and offered to enter a contract under two conditions: (1) that Hensel Phelps be allowed additional costs for the transportation of workers across the river; and (2) the Commission assured a seasonal time extension if the project could not be worked due to floods. The commission rejected both of the proposed modifications.

On December 3, 1974, the Highway Commission made formal demand for payment of the bid bond in the amount of $225,000. The request was refused and suit followed.

After a jury verdict for the State Highway Commission and subsequent denial of defendants' motion for new trial, defendant Hensel Phelps appealed. It contends the trial court erred when it denied defendants' motion for directed verdict because the evidence indicated it was entitled to withdraw its bid without forfeiture of its bond. Next, Hensel Phelps argues the trial court erred when it gave plaintiff's verdict director because it did not include the requested "tail" and in excluding defendants' exhibits 2, 3, and 5. It is also claimed that the trial court erred in permitting a portion of the Highway Commission's closing argument.

The question of whether or not a contractor who has submitted a bid on a public contract may thereafter be allowed to rescind its bid on the basis of its unilateral mistake is apparently a question of first impression in Missouri. If a contractor is allowed to rescind its bid, the bid bond would be cancelled. Certainly, the state may not require forfeiture of the bid bond either as a penalty or liquidated damages if the contractor has no legal obligation to fulfill its bid. Balaban-Gordon Co. v. Brighton Sewer District, 41 App.Div.2d 246, 342 N.Y.S.2d 435 (1973). Because this is a suit for forfeiture of the bond, it is necessary first to determine whether contractor Hensel Phelps is entitled to rescind its bid.

Defendant asserts that a bid based on a unilateral mistake may be withdrawn without forfeiture of its bid bond if the following conditions are met:

(1) the mistake is material,

(2) the mistake must not be the result of complete indifference, conscious disregard of the facts on lack of good faith; and

(3) it must be possible to restore the other party to status quo.

Defendant directs the Court to cases from other jurisdictions which support this view.

Plaintiff claims an added element is that the mistake must be obvious. The Highway Commission did not know when it opened the bid that there had been a mistake. The Commission checked the calculations and searched for omissions and found none. Furthermore, a difference of 11% between the lowest and next...