Nevada's Highest Court Upholds Award Against Electrical Subcontractor That Reneged On Pre-Bid Price Quote

This July, the Nevada Supreme Court ruled that a contractor was entitled to rely on a subcontractor's withdrawn bid under the doctrine of promissory estoppel.

In Dynalectric Co. of Nev. v. Clark & Sullivan Constructors, Inc., No. 51758, 127 Nev. Adv. Op. No. 41 (July 14, 2011) (per curiam), the Nevada Supreme Court affirmed a $2.5 million expectation damages award to a general contractor for its promissory estoppel claim against its electrical subcontractor. In 2004, a medical center sought bids for an expansion project in Las Vegas. In submitting its bid, the winning general contractor relied on a pre-bid price quote of $7,808,983 from an electrical subcontractor to perform all of the electrical work for the project. The electrical subcontractor assured the general contractor of the accuracy of its bid; however, after learning of the award, the subcontractor repudiated its pre-bid offer. As a result, the general contractor retained three replacement subcontractors to complete the electrical work for the project at a price of $10,310,598.

The general subcontractor sued the electrical subcontractor, asserting a claim for promissory estoppel. While traditional contract theory permits an offer to be withdrawn at any time prior to acceptance, under the doctrine of promissory estoppel, a promise which the promisor should reasonably expect to induce action or forbearance is binding if injustice can be avoided through enforcement of the promise. The doctrine of promissory estoppel is typically asserted by general contractors when they detrimentally rely on subcontractors’ bids to formulate their general bids. Applying this rule, the lower court found that the general contractor, having reasonably relied on the subcontractor’s quote to formulate its own bid, had a valid promissory estoppel claim.

On appeal, the Nevada Supreme Court affirmed the expectation damages award of $2,501,615 – the difference between the two bids. The court relied on the seminal promissory estoppel case in the subcontract bidding context, Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757, 761 (Cal. 1958). The court reasoned that, when a subcontractor submits a bid to obtain its subcontract, it should reasonably expect the general contractor to rely on its bid. The fact that the electrical subcontractor repeatedly assured the general contractor of the accuracy of its bid and was a sophisticated subcontractor that could readily anticipate the result of its promise was particularly compelling to the court in finding an expectation damages award appropriate.

The issue of holding a subcontractor or supplier to its bid is highly fact-specific, and a different jurisdiction could reach a different conclusion on similar facts. See e.g., Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc., 421 F.Supp.2d 831 (D.N.J. 2006). For example, in Fletcher, the U.S. District Court of New Jersey, on very similar facts as Dynalectric, refused to enforce a sub-bidder’s quote to perform concrete work at a college construction project. In that case, the court held that the doctrine of promissory estoppel was not applicable because there could be no reasonable reliance on the part of the general contractor given that the sub-bidder’s written quote included disclaimers, such as: “this is provided for informational purposes and no reliance should be placed thereon. … [Subcontractor] will not be responsible or liable in any manner pending execution of a written agreement covering the work in question. … The submission of this information should not be regarded as a firm offer.” The purpose of these disclaimers was to permit the subcontractor to revise its initial quote when the cost of material had significantly increased between the time of the quote and acceptance of the offer. The Dynalectric case should caution subcontractors against submitting unequivocal bids, without clear disclaimers and caveats, in uncertain financial times - even if it may risk losing the chance to win the contract.

Categories: Legal Updates