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Robert P. Wise                                                                                                                                                                                     Facsimile: 969-5593
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A. Potential Liability for Bid Errors
 

1. Starting Line Error: A Contractor's Failure to Include A Certificate of Responsibility Number on the Exterior of the Bid Envelope
 

A contractor who simply forgets to place his certificate of responsibility number on the outside of his bid envelope will find no relief in the courts, even if the certificate of responsibility number is contained within the sealed bid. Mississippi law at § 31-3-21 Miss. Code Ann. requires that a bid envelope without the requisite certificate of responsibility number not even be opened or considered further if it is for a public project in excess of $50,000 or a private project in excess of $100,000. § 31-3-21 (2) Miss. Code Ann. states:
 

(2) All bids submitted for public or private projects where said bid is in excess of Fifty Thousand Dollars ($50,000.00) with respect to public projects and in excess of One Hundred Thousand Dollars ($100,000.00) with respect to private projects shall contain on the outside or exterior of the envelope or container of such bid the contractor's current certificate number, and no bid shall be opened or considered unless such contractor's current certificate number appears on the outside or exterior of said envelope or container, or unless there appears a statement on the outside or exterior of such envelope or container to the effect that the bid enclosed therewith did not exceed Fifty Thousand Dollars ($50,000.00) with respect to public projects or One Hundred Thousand Dollars ($100,000.00) with respect to private projects. Any person violating the provisions of this subsection shall be guilty of a misdemeanor and, upon conviction, shall be punished by a fine of not more than One Thousand Dollars ($1,000.00), or by imprisonment for not more than six (6) months, or by both such fine and imprisonment.

(Emphasis added).

For example, the City of Durant awarded a bid for a million plus dollar project to the lowest bidder, King Metal Buildings, even though King had failed to include its certificate of responsibility number on the outside of its bid envelope. The second highest bidder, Laws Construction, protested King's award and appealed. Even so, the City of Durant allowed King to proceeded with the work. The Supreme Court of Mississippi later determined in City of Durant v. Laws Construction Company, Inc.,721 So. 2d 598 (Miss. 1998) that the City of Durant had acted illegally in opening and accepting King's bid, and that the City was liable to Laws Construction in damages. The Court rejected the City of Durant's argument that the purpose of the statute had been upheld since King, in fact, was a licensed contractor with a valid certificate of responsibility number, but had made a mere negligent, technical mistake by failing to place its number on the bid envelope. The Supreme Court stated:
 

The statute clearly and unambiguously states that a bid may not be opened, the bid may not be considered, and the bid may not be awarded the contract if the contractor fails to include the certificate of responsibility number on the exterior of the envelope. The only exception to the rule is when a bid for a public project is not in excess of $50,000.00, or not in excess of $100,000.00 for a private project. However, even this exception requires that the bid contain a statement on the exterior of the bid envelope that the bid did not exceed the designated monetary limit.

In the case sub judice, King failed to include a certificate of responsibility number on the exterior of the envelope. Furthermore, the bid was in excess of $50,000.00 for a public project. Therefore, the City should not have opened, considered, nor awarded King's bid. By opening, considering, and contracting with King, the City blatantly violated § 31-3-21.

Laws Construction Company, Inc., 721 So. 2d at 602. Thus, the courts can be of no help for such a bid error which violates a clear statute. However, for most every other kind of bid mistake, the contractor is likely to have at least an argument for relief as we will see below.

2. The Role of the Bid Bond As Protection to the Owner

The legal principles of contract law apply to construction contracts. Further, "[i]t is basic contract law that a contract requires an offer and acceptance." R.C. Construction Co., Inc. v. National Office Systems, Inc., 622 So. 2d 1253, 1255 (Miss. 1993); 13 Am Jur 2d Building, Etc. Contracts § 1. A construction bid, which is an offer to enter a contract, is therefore a first step toward a contract, but is not by itself a contract: there must be an acceptance of the bid for a mutually binding contract to come into effect. R.C. Construction Co., Inc., 622 So. 2d at 1255.

The bidder may argue that he is free to withdraw his bid at any time prior to its acceptance by the other party; and that until an acceptance there is no mutuality of obligations to support a contract. For this reason, the owner's bid documents may require that the bidder keep his bid open for a time certain, say 30 days, while the owner has the opportunity to examine and select the winning bid. Also, the owner may seek to protect himself by requiring the bidder to put up a bid bond along with his bid. The bid bond is payable to the owner if the bidder refuses to honor the bid after the owner has accepted it.

Public owners particularly are likely to have bid bond requirements. For example, the Mississippi statute providing for the private financing and construction of dorm facilities for the Institutions of Higher Learning requires that bids be accompanied by a check or "bid-bond payable to said board in a sum not less than five percent of the gross construction cost of the facility to be constructed as estimated by said board.... The said bid security...shall be forfeited if the successful bidder fails to enter into the lease contract and commence construction within the time limitation set forth in the notice." § 37-101-43 Miss Code Ann. The bid bond penalty of five percent of the gross construction cost on an multi-million dollar dorm project should indeed be sufficient to cause a reasonable contractor to hesitate before withdrawing his bid for any reason.

A form for a bid bond is available from the AIA, A310 (1970).
 

B. Correction of Bid Prior to Award

1. Prime Contractor Bid Mistakes

The Mississippi Supreme Court recently revisited the issue of whether a prime contractor should receive relief from a unilateral bid mistake in Hemphill Construction Co. v. City of Laurel, 2000 WL 539787 (Miss. 2000). In Hemphill the City of Laurel recieved three bids for the construction of the Laurel Sportsplex. The City opened the bids, but within an hour of the opening received a letter from West Contractors that its bid had failed to include a charge for site work in the amount of $300,823, resulting in a bid of $1,579,400 rather than $1,880,223. The error was due to a computer data entry error by a West employee. The city engineer and city attorney reviewed the documents West had used to prepare its bid and concluded that West's estimator had made an honest $300,000-plus mistake by simply overlooking an entire category of cost. Since West would remain the lowest bidder even after allowing a correction for West's mistake, the City of Laurel accepted a corrected bid and awarded the contract for $1,880,223 to West.

The next highest bidder, Hemphill Construction, promptly protested the City's acceptance of West's corrected bid, contending that under Mississippi law West's only available relief was the withdrawal of its bid, thus leaving Hemphill the low bidder.

Prior to the Supreme Court's grant of review of the Hemphill case, the Mississippi Court of Appeals affirmed the city's decision to award the bid to West Construction and to allow West to amend upward its mistaken bid. The Court of Appeals noted West had given notice of its error to the City prior to any formal award based on the mistaken bid and that the mistake was inadvertent and unintentional. The Court of Appeals had based its decision on a prior Supreme Court case, Mississippi State Bldg. Com'n v. Becknell Construction, Inc., 329 So. 2d 57, 60 (Miss. 1976), reciting the opinion as follows:
 

Under Mississippi contract law, '[e]quity will grant appropriate relief for a unilateral mistake in proper cases.' Mississippi State Bldg. Com'n v. Becknell Construction, Inc., 329 So. 2d 57, 60 (Miss. 1976). '[W]here the mistake is of so fundamental a character, that the minds of the parties have never, in fact, met; or where an unconscionable advantage has been gained, by mere mistake or misapprehension; and there was no gross negligence on the part of the plaintiff, either in falling into the error, or in not sooner claiming redress; and no intervening rights have accrued; and the parties may still be placed in status quo; equity will interfere, in its discretion, in order to prevent intolerable injustice.' Mississippi State Bldg. Commission, 329 So. 2d at 60-61.

The Mississippi Supreme Court reversed the Court of Appeals's holding in Hemphill, and in the process distinguished its prior holding in Becknell as well as an additional holding argued on appeal, City of Hattiesburg v. Cobb Bros. Construction Co., 183 Miss. 482, 184 So. 2d 630 (1938). The Supreme Court noted that in the earlier cases of Becknell and Cobb, the only relief involved in those cases was withdrawal of the mistaken bid by the contractor. By contrast, the City of Laurel had actually allowed West to amend its bid upward which the City had no authority to do. The Court stated:
 

It is also true that bidders for public contracts have been allowed, in limited circumstances, to withdraw bids containing errors. But those cases, Becknell and Cobb, supra, involve bid withdrawals, not bid amendments, and are limited to their specific facts. Both cases are consistent with general principles of contract law, which provide that recission, not reformation, is a remedy for unilateral mistakes in proper circumstances. 17A Am. Jur, 2d Contracts § 218 (1991).

Further, the Court found that the City of Laurel's action in allowing West to amend its bid upward was inconsistent with the principles of the public purchase bid statute, § 31-7-13 Miss. Code Ann. The Court stated:
 

The purpose of the law is to protect the public by promoting competition so as to prevent fraud, favoritism and the like. These premises negate any inference that a bid can be amended after opening to substantially increase the bid price, and this is especially so where, as here, the error and the intended bid are not apparent from the bid document. Therefore, the City acted beyond its powers in awarding the contract to West under the amended bid price.

The Mississippi Court was also unmoved by the City of Laurel's argument that even after allowing West to amend its bid, West still had the lowest bid. The Court stated that, "...the broader public will lose in the long run if the public purchase laws are circumvented." Thus, the most a mistaken contractor can hope for is to be allowed to withdraw his bid through the remedy of recission; he can not expect to amend his bid to correct it and have it accepted.

The Mississippi Supreme Court stated early on that a contractor could have relief for his unilateral bid mistake, "provided he gives notice of his withdrawal of the bid before any action is taken thereon." City of Hattiesburg v. Cobb Bros. Construction Co., 174 Miss. 20, 163 So. 676, 677 (1936) (Cobb Bros I). However, in a follow-up case (Cobb Bros. II), the Court stressed that for a court to grant relief, the contractor must have given the public owner not mere notice that a mistake was made, but sufficient notice in some detail so as to allow the public body to reasonably determine the nature and extent of the mistake. The Court denied relief to the contractor, stating:
 

The mere claim that a bidder has "made a mistake" or "found some error" in his bid neither gives him the right to withdraw his bid nor imposes on the public authorities any duty to examine the bid in order to ascertain whether a mistake appears therein. Another reason for requiring the character of the mistake made to be set forth in a notice of withdrawal of a bid is that, in an action to rescind the contract made by the acceptance of the bid and to recover a benefit conferred by the bidder on the other party to the contractor, the bidder may be confined to the particular mistake claimed to have been made when the notice of withdrawal was given.

Further, the mistaken contractor may have a better chance of obtaining equitable relief in the form of recission if he can show that his bid is "entirely disproportionate to the value of the subject involved and the other party is cognizant of the mistake." Crenshaw County Hospital Board v. St. Paul Fire & Marine Insurance Co., 411 F. 2d 213, 215 (5th Cir. 1969). At some point a low bid may be so far removed from the next higher bid that the other party opening the bid must realize that a mistake has been made, thus providing the argument that reliance on the mistaken bid would be unreasonable, and that relief should be afforded by the court for the mistaken bidder. See also, Godfrey Bassett & Kuykendall Architects, Ltd. v. Huntington Lumber & Supply Company, Inc. (Miss. 1991) (relief afforded to the successful bidder on a school renovation project against architects who had induced a higher bid based upon a misrepresentation to the contractor). So, on the one hand the mistaken contractor can not get relief if he was "grossly negligent". On the other hand, if the mistake was so large as to be obvious in comparison to the next bid, that supports equitable relief since at some point the owner is bound to have realized that a mistake must have been made.

2. Construction Subcontractor Bid Mistakes

Prime contractors often rely upon telephone bids from subcontractors in the formulation of their own bids to the owner. If the subcontractor promptly notifies the prime of a mistake before the prime submits its own bid, the subcontractor will probably be able to withdraw it bid because the parties can be returned to the status quo. However, a subcontractor who fails to notify the prime of a mistaken bid before the prime acts in reliance on his bid will have a more difficult time arguing the doctrine of mistake. That is because the doctrine of mistake that the subcontractor would cite then runs up upon another equally weighty equitable doctrine favoring the prime contractor who has relied on the sub's bid: the doctrine of promissory estoppel, or as it is also known, the doctrine of detrimental reliance.

The Restatement of Contracts, Second §90 sets forth the doctrine of promissory estoppel:
 

A promise which the promisor should reasonably expect to induce action or forebearance on the part of the promisee or a third person and which does induce such action or forebearance is binding if injustice can be avoided only by enforcement of the promise.

In addition through case law the Mississippi Supreme Court has adopted the doctrine of equitable estoppel which holds a party to the results of his representations that another has relied upon. The Mississippi Supreme Court has described the doctrine of equitable estoppel in a construction law setting as follows:
 

Equitable estoppel precludes a party from denying a material fact which he has previously induced another to rely upon, whereby the second party changed his position in such a way that he would suffer injury if denial was allowed. [citation omitted] Estoppel is based on "public policy, fair dealing, good faith and justice." [citations omitted] Where it would be substantially unfair to allow a party to deny what he has previously induced another party to believe and take action on equitable estoppel may be enforced. ...

The party asserting equitable estoppel must show that he has changed his position, to his detriment, in reliance upon the conduct of another. [citation omitted]

The Mississippi Supreme Court has recognized that a prime contractor can assert the doctrine of promissory estoppel to hold a subcontractor to his bid following reliance on it by the prime for his own bid to the owner in C.E. Frazier Construction Company, Inc. v. Campbell Roofing and Metal Works, Inc. (Miss. 1979). In Campbell Roofing a prime contractor submitted a bid for construction of a Yazoo City high school stadium relying in part on the price quoted over the phone by a roofing installer. After the prime contractor received the contract, the roofing subcontractor whose bid he had relied upon refused to sign a subcontract although it correctly set forth the amount of the sub's quoted bid. The Court noted that the prime contractor had relied and acted on the roofer's bid to its detriment, and had used the sub's bid without modification or exception. Accordingly, the Court found that a triable case based on equitable estoppel had been presented. Campbell Roofing and Metal Works, Inc., 373 So. 2d at 1038-39.

3. Supplier and Materialmen's Bid Mistakes

The roofer in Campbell Roofing and Metal Works, Inc. was supplying both materials and labor for the installation of a roof, and the Court found that the prime contractor could validly assert the doctrine of equitable estoppel in that case to hold the sub to his telephone bid. However, a prime seeking to hold a pure materialman or supplier to an oral telephone bid could find the doctrine of equitable estoppel is trumped by the protection afforded the materialman or supplier by the Uniform Commercial Code (U.C.C.) statute of frauds applicable to the sale of goods. The U.C.C. statutorily prevents enforcement of an oral bid for the sale of goods over $500, no matter how detrimental the reliance may be on the bid.

The Mississippi U.C.C., like the U.C.C. in all states, requires that transactions for the sales of good for the price of $500 or more be in writing to be enforceable by the courts. § 75-2-201 (1) Miss. Code Ann. The question in each case, though, is whether the oral telephone bid that is sought to be enforced involved primarily the sale of goods over $500 that the U.C.C. would say would not be enforceable since it was oral, or whether, as in the Campbell Roofing and Metal Works, Inc. case, the oral bid was for primarily construction services such as roofing installation, although also involving the ancillary supply of materials, that would not have to be in writing to be enforceable, permitting the Court to apply the doctrine of promissory estoppel to enforce the oral bid.

Such a question was presented squarely in the Mississippi case of Anderson Construction Company v. Lyon Metal Products, Incorporated, 370 So. 2d 935 (Miss. 1979). In Anderson Construction the general contractor, Anderson, submitted a bid for construction of an addition to Jim Hill High School in Jackson in part on the basis of an oral telephone bid received from Lyon Metal Products for the installation and supply of student lockers. Unfortunately Lyon Metal Products determined after submitting its bid to Anderson Construction that it had left out of its bid the cost of supplying lockers for a second floor addition. Anderson Construction sought to enforce Lyon Metal Products' oral bid on the basis that it had detrimentally relied on the bid for its own bid to the school district. Lyon Metal Products countered that the Court could not enforce the oral telephone bid because of the U.C.C. statute of frauds requirement that sales of goods over $500 be evidenced in writing.

The Mississippi Supreme Court in Anderson found that the supplier's contract there involving the sale of school lockers was "essentially for the sale of goods" rather than services, although involving some labor for installation of the lockers. Since the contract was primarily for the sale of goods, the Court found that the Mississippi U.C.C. statute of frauds governed the transaction and that Court could not enforce Metal Lyons' telephone bid even though Anderson asserted it had relied to its detriment on the bid. Anderson Construction, 370 So. 2d at 938. In this case, since it involved primarily the sale of goods, the doctrine of promissory estoppel was forced to give way to the U.C.C. statute of frauds. In so holding the Mississippi Court recited its earlier opinion that "'this Court, contrary to the course pursued by some others, has uniformly held that it is without power to engraft exceptions to the statute, and must enforce it as written.'" Anderson Construction, 370 So. 2d at 937, quoting from Thomas v. Prewitt, 355 So. 2d 657, 661 (Miss. 1978).

Each supplier case can turn on its facts as to whether there is essentially a contract for the supply of goods or of construction services. In a case involving an electrical subcontract, C.E. Frazier v. National Electric Supply Co., Inc., 362 So. 2d 609 (Miss. 1978), the Court held that the contract involving installation of electrical materials was primarily one for services to which the U.C.C. statute of frauds would not apply. Similarly, in the case of In Re Livingston, 119 B.R. 935 (Bkrtcy. N.D. Miss 1990) the Court found that the Mississippi U.C.C. statute of frauds was not applicable to oral change orders involving the acquisition of goods for installation in a residence which were related to the overall construction project. Home construction involves mostly services.

How then can a general contractor protect itself, not knowing in some cases if a court would find the sub's oral telephone bid enforceable in the face of the U.C.C. statue of frauds, protect itself? The Mississippi U.C.C. itself supplies an answer. § 75-2-201 (2) Miss. Code Ann. provides:
 

Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements [for a writing] of subsection (1) against such party unless written notice of objection to its contents is given within ten (10) days after it is received.

Thus, the contractor can protect itself after receiving and relying upon an oral telephone bid for the supply of goods or materials by simply sending a written purchase order or letter confirming the purchase to the seller who then has ten (10) days to object or become bound by the written confirmation. The buyer's purchase order or confirmation letter to the seller satisfies the U.C.C. writing requirment.

C. Correction of Bid After Award

The rules of promissory or equitable estoppel apply the same way to attempts to withdraw a bid after award of the project contract as before the award. As one commentator states:
 

Under state law, the primary relief granted for mistake in bid is withdrawal of the bid or recission. Little distinction is made between pre-award and post-award withdrawal of a mistaken bid. Rather, the delineation for allowing recission or withdrawal is whether, either pre- or post-award, the parties can be restored to the status quo.

D. Correction of Bid After Commencement of Construction

The same commentator just recited also states that, "[t]he cases uniformly indicate that if performance of the contract has begun, relief will not be granted." Stein, Steven G.M., Construction Law § 2.04 [5] at 2-138 (Mathew Brady, 1994). See, e.g., Dominick P. Massa & Sons v. State of New York, 147 A.D. 2d 799, 537 N.Y.S. 2d 674 (1989). Thus, if the contractor is to have any hope of escaping a bid due to mistake, it must present a timely, detailed notice of the nature of the mistake to the other party as soon as possible, and in no event after the beginning of performance of the contract, otherwise the issue is effectively waived.

E. Conclusion

The failure to include a contractor's certificate of responsibility number on the outside of the bid envelope is fatal to the bid on public jobs more than $50,000 or private jobs more than $100,000. The courts will afford no relief from such a mistake in violation of the statute, § 31-3-21 Miss. Code Ann.

The making of a bid alone does not create a contract in the absence of an acceptance of the bid or some act by the other party in reliance on it that would make the bid enforceable. Therefore, an owner may wish to require that the bidder put up a bid bond with his bid that will penalize a withdrawal of the bid prior to award. If the contractor makes a unilateral mistake in his bid the courts may allow him to rescind and withdraw it if the mistake was innocent and the bidder promptly gave a detailed notice of the mistake to the other party before that party changed its position to its detriment in reliance on the bid. The courts, though, will not allow the mistaken contractor to amend or reform the mistaken bid to make it acceptable.

Relief from a bid is unlikely if it would create such prejudice as to invoke equitable or promissory estoppel, as would be the case where the other party has relied on the bid to make his own bid to an owner. In the case of the supply of materials, though, an oral telephone bid may not be enforceable if the amount of the goods sold was over $500 because of the U.C.C. statute of frauds, unless the contract involved primarily the supply of construction services, and not just materials. The contractor can protect himself in relying on an oral bid for materials that he hopes to purchase by confirming the transaction in writing to the seller as provided in the U.C.C. Once performance of the work has begun, equitable relief will not be granted for a bid mistake.