Suppose an electrical subcontractor who we will call Shocking Electric Company has an alert estimator. He carefully reads the local bid solicitations looking for new work for his employer. One day he reads that a general contractor (who we will call General Construction Company) is soliciting sub-bids for the major trades on a large project on which General Construction planned to bid.
Shocking Electric's estimator decides that this might be a profitable job for his company and arranges to obtain a set of the plans, specifications and other information about the job. Having assembled this detail, the estimator and his staff proceed to spend considerable work hours (formerly known as `'man" hours) necessary to prepare an estimate of the electrical portion of the work for the proposed project. Finally, Shocking Electric's bid is prepared and submitted to General Construction Company.
The bid form required by the owner of this particular project requires general contractors to identify the major trade subcontractors who they propose to use in the event that the general contract is awarded to them. Although General Construction Company had received several electrical bids besides that of Shocking Electric Company, Shocking's bid was low and General Construction was satisfied that Shocking was well-qualified to do the electrical work on that particular project.
Accordingly, General Construction Company used Shocking's electrical bid figure in arriving at its own bid amount and identified Shocking Electric Company as the electrical subcontractor it intended to use if awarded the contract.
General Construction Company turns out to be the low bidder and is awarded the general contract. Unfortunately, however, Shocking Electric estimator's joy was short-lived. General Construction Company awarded the electrical subcontract to the brother-in-law of its president who, according to informed sources, learned of Shocking Electric's bid amount and offered to do the electrical work for $5,000 less.
The dilemma is now obvious. Shocking Electric Company spent considerable dollars in preparing and submitting its bid fully expecting that if it was low on the electrical work and if General Construction Company was awarded the general contract Shocking would land the job. General Construction Company used Shocking Electric's numbers in arriving at its own now-successful bid and even represented to the owner that if it was awarded the general contract it would use Shocking as its electrical subcontractor. Without those efforts of Shocking Electric, General Construction may not have gotten the job at all.
General Construction thus managed to increase its profit by $5,000 and its president's brother-in-law landed a big job by only lifting the telephone receiver (and marrying the right guy's sister).
Only one more fact need be considered before we reach a verdict. That is, that in the United States we operate as a free enterprise system and the essence of this system is free competition. Everybody (and their brothers in-law) negotiates for lower prices. For example, telling car dealers how much cheaper you can get the car for from a competitor has almost become a way of life.
The reader may now ask how the courts might rule. In the case of Shocking Electric Company vs. General Construction Company Shocking might institute legal proceedings in an attempt to (1) either have General forced to award the electrical subcontract to it, (2) sue for damages equal to the amount of profits it would have made had General awarded it the electrical subcontract, or (3) seek to recover its expenses incurred in preparing and submitting its bid.
The circumstances presented permit strong arguments to be made on behalf of both Shocking and General. It is therefore, not surprising that different courts have arrived at conflicting results in cases involving similar circumstances.
Appellate courts (those which set precedent) in several states have had occasion to rule in cases involving these circumstances in only a few instances. The numerical majority of those cases have resulted in determinations that the subcontractor was entitled to no relief. Those decisions have ruled that the subcontractors knowingly risked the possibility that their bids would not be accepted even if their bids were low and used by the general contractor as part of his own bid.
One interesting Washington State decision ruled otherwise. Instead, it held that by both using the subcontractor's bid amount and identifying the subcontractor in its bid, the general contractor impliedly accepted the subcontractor's bid when the general contract was awarded to it.
It cannot now be determined what the law might be in Colorado since no Colorado appellate court has had occasion to rule upon this precise question. However, under opposite circumstances a Colorado Court of Appeals case ruled that a subcontractor in the shoes of our Shocking Electric was legally bound to honor its bid to the successful general. Mead Assoc., Inc. v. Antonsen, 677 P.2d 434 (Colo. App. 1984).
A middle-ground rule is to be available as a compromise between the two positions. Under this rule the subcontractor would be able to recover its bid preparation costs, i.e. reasonable estimating expenses were incurred in preparing its bid. This approach would at least reimburse the subcontractor's expenses.
The general contractor would thus be required to pay the cost of the estimating work of which it had taken advantage. Imposing this expense upon the contractor might also be a deterrent to his attempting to "shop" bids, that is, using someone's bid amounts in an effort to get another subcontractor to do the work cheaper.
We can probably expect to see courts struggling to arrive at fair results. Under our Shocking Electric scenario fairness would dictate some relief for Shocking. That should shock no one.