Friday, January 14, 2011

Court of Appeals finds Contract, Airport Authority Bound by Accepted Bid

Matthew C. Norris, PLC

Occasionally, a contractor will successfully submit a low bid to a government entity and have the low bid accepted, only to have the public body refuse to formally enter into the contract.

The Michigan Court of Appeals recently decided a case in favor of a general contractor.  The Court ruled that accepting the contractor’s bid constituted formation of a contract.  The later refusal by the public body, to sign the contract, did not change the fact a contract had been entered into.  The case is The Garrison Company  v  Bishop International Airport Authority, Mich Ct App No. 293415 (Nov 18, 2010).

In the case, the contractor submitted the low bid, its bid was accepted by the Airport Board, and the public body communicated this to the contractor.  The contractor began to exchange emails with the architect for the airport.

A month later, the Airport Director refused to sign the contract, and the Airport Board rescinded its acceptance of the bid.  The contractor sued for lost profits.

The Court of Appeals ruled that there was a binding contract, even before the construction contracts themselves were signed.  The reasoning for the Court’s decision is that the Airport accepted the contractor’s offer to perform the contract at a fixed price, and the contract was enforceable.  The act of formally signing the construction contracts “was not a step that had to be completed before a valid contractual relationship arose.”
The Court of Appeals reasoned that, if the contractor attempted to walk away from its bid, the contractor could not “walk away from the project without liability.”  Since the bid and acceptance were binding on the contractor, the public body was also bound.

The Court was also not convinced by the Airport’s argument that the Airport needed to conduct “due diligence” after accepting a bid.  The Court reasoned that, if a public body were allowed to conduct due diligence after accepting a bid, the public body could accept a bid with impunity, and later interpose an indefinite due diligence time period before rescinding.  Due diligence should be done before acceptance of a bid.

The Court of Appeals cited a 100-year history of Michigan case law that a bid, once accepted, becomes a contract.

A low bid contractor is often disappointed if its contract is ultimately rescinded by a public body.  While cases against public bodies remain difficult, this Court of Appeals decision should make it more likely a contractor in this situation might prevail.

Matthew Norris graduated from Michigan State University (B.A., 1981); and Wayne State University Law School (1984) and has concentrated his practice on construction law. He was admitted to the Michigan and U.S. District Court, Eastern District of Michigan, in 1984; to the  U.S. District Court, Western District of Michigan and U.S. Court of Appeals, Sixth Circuit. 

Mr. Norris is a also member of the Oakland County Bar Association and State Bar of Michigan (Sections of: Business Law; Probate and Estate Planning; Real Estate Law; Construction Law Committee). He was Chair of the State Bar Construction Law Committee from 1997 through 2000. Chair, State Bar of Michigan Real Property Section Summer Conference, July, 2001; State Bar of Michigan Real Property Law Section, 2002 presenter: "Commercial Projections: What you Need to Know about Construction Contracts and Liens"; and Co-authored an article summarizing Construction Lien Act decisions and another dealing with pay-when-paid contract clauses, both published in the Michigan Real Property Review.

For more information about the Garrison case, you may contact Matt Norris  by e-mail or telephone at (248) 994-7320.

No comments: