Enforcement of bids on public projects by general contractors and subcontractors may become more prevalent under basic principles of contract law in Pennsylvania.  Ordinarily, subcontractors cannot require contractors to use them on a prospective project by merely submitting a bid to a general contractor who, in turn, relies upon the subcontractor’s pricing in submitting a bid to a project owner.  In contrast, contractors can typically require subcontractors to perform contracts at bid prices upon which the contractor relied in submitting its bid for a project under the equitable doctrine of promissory estoppel.  However, the Pennsylvania Superior Court, in Lobar, Inc. v. Lycoming Masonry, Inc., 876 A.2d 997, 2005 Pa. Super. LEXIS 1357 (Pa. Super. Ct.) recently announced that equitable principles of promissory estoppel do not apply when the question of a subcontractor’s liability can be decided on basic contractual principles of offer and acceptance.  In other words, the Superior Court determined that it is not necessary to resort to equitable principles because contract law can be applied to determine whether the contractor accepted the subcontractor’s offer (bid) or whether the contractor made a counteroffer.

In Lobar, Inc. v. Lycoming Masonry, Inc., a general contractor who obtained a bid from a masonry subcontractor used the masonry subcontractor’s bid in calculating its bid to the owner.  After the general contractor was awarded the contract, the contractor sent a written subcontract agreement to the low bidder subcontractor.  The subcontractor refused to sign the subcontract agreement on the basis that the subcontract agreement required the use of more expensive concrete masonry units than the subcontractor had intended to use as reflected in its bid, thus constituting a counteroffer, rather than acceptance of the bid.  In fact, the subcontractor had mistakenly submitted a bid based on its intended use of concrete masonry units that were much less expensive than those required by the contract specifications.

Ultimately, the contractor rebid the masonry work and subcontracted with another masonry contractor at a much higher cost.  The contractor then sued the low bidder masonry contractor for the difference in what the general contractor had to pay the second masonry subcontractor above what the subcontractor bid to do the job based upon both  breach of contract and promissory estoppel theories.

The lower bid subcontractor claimed that the subcontract sent by the general contractor following award, differed materially from the terms of the subcontractor’s bid, and therefore, under contract principles was considered a counteroffer, which the general contractor rejected.  However, the general contractor argued, and the Court agreed, that the subcontract agreement following award did not materially differ, and therefore a contract should be deemed to have been formed between the parties. 

Based upon this case, subcontractors and contractors alike should be aware that basic principles of offer and acceptance in contract law will govern whether subcontract agreements have been formed based upon terms established during the bidding phase.  Although this case did not bode well for the low bidder subcontractor, this case opens the door for subcontractors who attempt to enforce bids made to general contractors on the grounds that a contract was formed between them under similar factual circumstances.  It also raises issues with attempts by general contractors to require subcontractors to agree to more expansive, and perhaps onerous, terms in a written agreement than are contained in the bidding documents.  Consequently, all parties should pay particular attention to what is contained in the bidding documents, as they may serve as the starting point for an analysis of contract formation.

For more information about this case or any related issues, Ms. Decker can be reached at (717) 237-6735 or kdecker@rhoads-sinon.com.