THE BARGAINING PROCESS – PRECONTRACTUAL LIABILITY (Pg. 231)
Holman Erection Co. v. Orville E. Madsen & Sons
Minnesota Court of Appeals, 1983
330 N.W.2d 693
JUDICIAL HISTORY: Subcontractor is suing general contractor alleging that the general contractor accepted its sub-bid and should be bound to it. The trial court held that no contract had been made between the parties and granted summary judgment for the general contractor, upon which the subcontractor appeals.
FACTS: Holman, a steel erection subcontractor, telephoned seven sub-bids to seven general contractors who were bidding on a wastewater treatment project for the city of Moorhead. One of them, Madsen, used Holman’s sub-bid and listed Holman. When Madsen was awarded the contract, it made subcontracts with other subcontractors, but did not contact Holman. Instead, Madsen awarded the steel erection subcontract to Van Knight, after requesting information on its status as a minority business. (Madsen’s contract with the city required that an effort be made to use minority businesses for part of the work, pursuant to federal Minority Business Enterprise (MBE) regulations.)
ISSUE: Whether or not there was a contract formed between Holman and Madsen when Madsen listed Holman.
HOLDING: No, judgment affirmed.
REASONING: There is a large body of precedent holding that the listing of a subcontractor in a general contractor’s bid forms no contract. One may ask why does the subcontractor have to be bound to its bid, but the general contractor remains free to avoid the listed subcontractor and negotiate with other subcontractors. The court gives 3 reasons: (1) the existence of justifiable reliance by the general on the subcontractor’s price for specified work. For the subcontractor to be able to refuse to perform would subject the general to a financial detriment. In contrast, the subcontractor does not rely on the general and suffers no detriment. (2) The nature of the bidding process compels allowing the general sufficient leeway to maintain its flexibility in executing subcontracts and selecting the subcontractors it will hire for a project. Specifics of bids are left for future negotiation and clarification to prevent bid shopping. (3) The lowest dollar amount bidder is not always the one chosen to do the work or the one listed as the potential subcontractor. Reliability, quality or work, and capability to handle the job are all considerations weighed by the general in choosing subcontractors. MBE regulations are another potential consideration.
GENERAL RULE: No contract is formed by the listing of a subcontractor in a general contractor’s bid.