Subcontractors, what should you do when a bid goes bad?

From childhood on, we’re all told that “everyone makes mistakes.” Unfortunately, sometimes this particular aspect of the human condition can afflict subcontractors as they submit bids.

Make the right mistake

Most bidding errors are simple slips of the pencil or mouse — such as miscalculating a dollar amount or transposing figures on a spreadsheet. In a lawsuit, courts may consider these errors mechanical or clerical in nature as long as the error in question was an honest mistake and other parties were not significantly injured. A favorable outcome is “judicial relief” to the subcontractor in question, which will prevent you from being unduly punished and would usually restore you to the same financial position you held before the bid.

But it’s less likely for courts to excuse you if they define your bidding error as gross negligence. Bidding errors that courts may deem gross negligence include such mishaps as failing to seal the bid and forgetting to acquire the proper signatures. Omitting a bid bond and improperly notarizing a signature are also serious mistakes.

Act quickly

If you discover a bidding error, immediately notify the customer — even if the mistake is only a possibility. If you use the telephone to do so, follow up with a certified letter detailing the nature of the error and include a request to withdraw the bid if the error is found out to be substantial. Then offer to meet with the customer to explain how the error occurred. At this time, you can request the return of any bid deposit you may have made. Do nothing that the owner or general contractor might construe as contract acceptance.

Also, consider disqualifying yourself from further bidding on that project to avoid another party’s claim that the error was an attempt to get a second look at the bid. This may prevent a court from judging the erroneous bid valid, and may save you from having to forfeit your bid bond. If the error occurs before the bid’s acceptance, or if the bid is accepted before the contract’s performance, there is more of a likelihood that you can obtain judicial relief. The key is keeping all involved parties on a level playing field without significantly injuring anyone.

Explain yourself

If full or partial performance occurs, you may have a much harder time obtaining judicial relief. Why? Because, at that point, an irrevocable change of position has taken place among the parties involved. Legally, when two innocent parties are at fault, many courts penalize the more negligent party. In other words, the errant bidder may bear the guilt if he or she starts work on a project before rectifying the matter.

As mentioned, giving prompt notice before accepting the bid is a better tactic. Merely advising other parties of an error won’t suffice. You must explain the error’s nature with substantial, competently expressed evidence. This proof often consists of worksheets, take-off notes, estimator’s notes and employee testimony. Failing to provide such evidence may make judicial relief unobtainable.

Careful on the phone

A special note about phone bids: Some subcontractors still use this approach, with the customer confirming the bid with a return call. Letting your fingers do the walking in such a manner is risky, because courts are more likely to hold a subcontractor to a phone bid if the customer can show “reliance” — that is, the customer’s good-faith belief in the subcontractor’s promise.

When making a phone bid, try to specify that the bid is only an estimate and not a firm price. Then verify the bid with a written memo stating the date, time, place, party contacted, nature of the conversation and any variances with bid documents. Finally, confirm the memo with a certified letter to the general contractor.

Be prepared

Bidding should not have to be tumultuous, though it is obviously a competitive process. Be prepared for mishaps with a plan to recover and you’ll stand a better chance of minimizing the financial impact of any error.

Teal, Becker & Chiaramonte Certified Public Accountants