BUILDERS EXCHANGE MAGAZINE ARTICLE June 2010

Court Rules That Qualifying Your Bid Can Save You From Bad Subontract Terms By: R. Russell O’Rourke, Esq.

Congratulations, you are the low bidder on that big job. Now the bad news, you just saw their subcontract form—you did read it, right? There are a lot of terms that you would never agree to: Your Scope was expanded to include the entire division, not just the portion you bid; Retainage is crazy, more than will be withheld from the contractor; There is a pay-if-paid clause; You cannot walk off the job, even if you are not being paid; You have to indemnify and insure just about everyone, for just about everything; You waive your mechanic’s lien and bond claim rights; They get to choose litigation or arbitration to resolve disputes and where those disputes will be heard, perhaps another state, and they can choose after you have filed, costing you extra time and money; The pay applications, change orders, waivers and other forms you have to use are specified, and they have even more onerous terms; They can even require a bond later, after you started your work (the fact that it is almost impossible to get a bond then is irrelevant, they can still claim that the failure to get it is a default).

Truth be told, those are just the common, unreasonable terms that you see, there are many more. What are you going to do? Sign the form? Call your lawyer? It all depends on how you started. Did your bid form require specific terms that they now want to change? If you have protected yourself, you can dictate/negotiate the contract terms, if they want you to do the work. If you cannot reach agreement on the terms, you can walk away. While that is not your first choice, it is better than having to complete the work, paying your workers, subcontractors and suppliers with no hope of getting paid yourself.

Your goal should be to have a fair contract that permits you to make a profit for a job well done. This is not always easy, particularly if your bid does not require favorable terms. You can either require specific terms in you bid, or specify the use of a particular subcontract form such as ConsensusDocs forms-750, Standard Subcontract, or 752 Federal Project Subcontract, or by requiring the inclusion of the American Subcontractors Association Addendum to Subcontract (2008). If you have used a bid form which includes an adequate qualification of your bid, Ohio courts are now on your side.

The Franklin County Court of Appeals ruled in Complete General Construction Co. v. Kard Welding, Inc., that the contractor must accept a sub’s bid within a reasonable period of time, cannot renegotiate specified terms and cannot shop the bid, and still expect to hold the original bidder to its bid. The Court distinguished the holding of an earlier case Lichtenberg Constr. & Dev., Inc. v. Paul W. Wilson, Inc., where the subcontractor did not qualify its bid. The Lichtenberg Court held that if the contractor’s proposed contract terms were customary in the industry, the subcontractor would be required to honor its bid.

Kard made its proposal expressly conditioned upon specific terms that Complete later tried to change. The Court held that Complete’s rejection of Kard’s terms and proposal of its own was a counteroffer, therefore Kard could not be held to the contract, even if it had “customary” terms. The Court also held that even if Complete relied upon Kard’s bid in its own bid, it could not, after being awarded the contract, shop Kard’s bid with other subcontractors to, in the Court’s words, “chisel down the bids,” while trying to hold Kard to its bid.

This case gives us three important rulings: If your bid is not accepted within a reasonable period of time you cannot be held to your bid; If you qualify your bid, a contractor cannot force you to agree to contrary terms; and If a contractor shops your bid, it cannot then hold you to a contract you do not agree with.