Builders and Contractors Exchange
Weekly Bulletin: 14 Mar 2006
A Promise Is A Promise, Isn't It?
By: Neil Lowenstein
Promises are made to be kept, right? This is one of the many rules we learned when we were young, and hopefully maintain as adults. But in business, the promise intended and the promise perceived are not always the same. For example, let's consider the simple example of bidding. Prior to submitting a bid, a general contractor will solicit or receive multiple bids from various trade contractors. The general contractor then uses those bids to prepare the general contractor's bid to the owner. But by submitting bids do those trade contractors promise to accept a subcontract for the work? And by soliciting those bids, does the general contractor promise to use that trade subcontractor if awarded the contract from the owner?
In general the answer is no in Virginia. Instead, typically, all the parties have agreed is to agree to try and agree to subcontract terms in the event the contractor obtains award. This conclusion results from a similar case involving a teaming agreement entered into between a contractor and prospective supplier. After teaming for the contractor's bid, the parties could not reach agreement on subcontract terms. The contractor then sued the supplier seeking the additional costs incurred obtaining the materials from another supplier, claiming an implied contractual obligation to supply the materials or alternatively relying upon the legal doctrine known as "promissory estoppel," a doctrine that bars allegation or denial of facts as a consequence of prior conduct or statement relied upon by another to their detriment.
The Virginia Supreme Court disagreed on both grounds. The court held there was not a contract because the parties' "agreement to agree" to enter into subcontract negotiations did not bind either party to particular subcontract terms, regarding which the parties had not yet reach a "meeting of the minds." In so ruling, the court noted there was no mutual commitment by the parties, no obligation to sell the materials, and no obligation to purchase them. Indeed, as the court observed, all the parties had agreed to do was to enter into subcontract negotiations to try and agree upon a subcontract to establish such mutual commitments. Furthermore, the court concluded that promissory estoppel is a doctrine for defensive purposes only, and cannot be used offensively to create a cause of action.
Potentially, this result could differ depending upon the extent of the meeting of the minds at bid, and if there were a mutual commitment an enforceable contract could result. For example, a contractor could advise subcontractors that if they submit bids, and are low, the contractor will use the subcontractor and the subcontract terms are pre-accepted as being a pre-agreed subcontract form that both parties agree to sign without further negotiation; something like the process used by public owners with solicitation packages. Contractors could also require bid bonds of subcontractors to bind them to their bids.
However, none of these are consistent with the realities of the bidding process, last minute quotes, changing work commitments, etc. And, in fact, often, neither contractors nor subcontractors will want such specificity or restriction. So, when it comes to bidding, that promise may not be a promise after all. Instead, there may just be an agreement to try and agree in the future; which when talking bidding is almost always the result, and not enforceable by either party.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.