04 April 2012

Subcontractor Blues

WARNING: A bit on the lawyerly side.

The risk subcontractors undertake when bidding on public jobs came up the other night at a men's meeting. I regularly teach Drennan v. Star Paving and SoCal Acoustics v. CV Holder in first-semester Contracts so I asked a local electrical contractor what his experiences had been. In case you've forgotten, the California Supreme Court held in Drennan that a subcontractor could not withdraw its bid if the general contractor had relied on it in submitting its own successful bid to the owner of the project. However, not many years later the same court held that under the common law a sub could not rely on the GC's non-rejection of the sub's bid even where the the the GC had used the sub's bid in preparing its own, the owner had awarded the GC the job, and the GC had published the names of its anticipated subs pursuant to a state "naming statute." What was good for the goose was most definitely not good for the gander. (Note that SoCal Acoustics ultimately prevailed in its action against the GC under a California statute addressing public contracts that specifically protected subs in this situation.)

My local electrical subcontractor sputtered. Several times he had submitted what the GC told him was the lowest bid only to have the GC shop it around and get someone else to do it for less. Just the sort "bid shopping" that the California statute was designed to prevent.

Not nice, of course, but did the GC breach an agreement with the disgruntled sub? It doesn't appear so and that's Victor Goldberg's conclusion in his lengthy article Traynor (Drennan) Versus Hand (Baird): Much Ado About (Almost) Nothing (download here.) In short, unless the sub gets the GC to promise to award the sub its contract if the GC gets the project, the sub should not have a contractual claim against the GC if matters don't go as hoped.

But what about the flip side: Should a GC be able to hold a sub to a bid in the face of the sub's revocation before the GC's acceptance? In other words, should freedom from contract go both ways? The answer I believe, and I'm glad to see that Goldberg agrees, is that unless the sub has explicitly offered to make its bid irrevocable, it isn't. If one isn't bound, then neither should the other. Foisting an obligation on one who has not assented to it is no more consistent with contract law than it is with constitutional law.

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