Court Slams School District for Misleading Bidder


The California Court of Appeal for the Second District recently issued an opinion on competitive bidding issues extending new liability to school districts in dealing with bidders, in the case entitled Emma Corporation v. Inglewood Unified School District (2004) 8 Cal.Rptr.2d 213.  While the court’s ruling will hopefully be limited to this case’s unfortunate facts, the case could have an effect on the willingness of courts to extend the protection of certain legal doctrines available to public entities.

Public Contract Code section 5103 permits bidders on a construction project to be relieved from their bids in very limited circumstances, without becoming liable on their bid bonds.  The bidder must, within five days after the bid opening, give written notice to the public entity that a mistake was made and specifying in detail how the mistake occurred.  Basically, the mistake must be a clerical error in filling out the bid, and not due to an error in judgment or carelessness in evaluating information about the project. 

In this case, the district went out to bid for the modernization of an elementary school.  The district initially received only one bid, which exceeded its budget, so it rejected the bid and re-advertised.   During the second round, several bids were received; the plaintiff’s bid was $850,000 lower than the next lowest bid.  The evidence showed that as soon as the bids were opened, the district’s construction manager expressed his opinion that the bid price likely contained a material mistake and that the bidder would probably seek to rescind.  The evidence further showed that the district set out a plan of action seeking to ensure that the plaintiff did not meet the requirements for withdrawal of its bid.  District employees were directed not to respond to questions about the bid withdrawal process.

Two days after the opening, the plaintiff bidder sent a letter notifying the district it had made a clerical error in its bid and requesting withdrawal.  The letter did not contain details about how the mistake occurred as required by the Public Contract Code.  The next day, when the plaintiff’s office manager contacted the district representative, the representative stated:  (1) that the withdrawal request was received, but that the district had instructed the construction manager not to discuss the matter, (2) that the letter requesting withdrawal had been sent to the district’s legal counsel and (3) that the district’s legal counsel would contact the plaintiff if any additional information were required.  No further contact was made. 

The district then awarded the project to the plaintiff.  Upon learning this, the plaintiff sent a letter detailing the reasons for its withdrawal request.  When the district refused to allow the withdrawal, the plaintiff filed an action seeking to rescind the contract.

The bidder argued that the district should be ”estopped” from enforcing the contract.  Estoppel is a legal doctrine which would prevent a party from asserting a legal right where it’s own house may not be clean:  in this case, because the district took steps to induce the bidder not to assert its rights to withdraw the bid.   The court agreed, and in doing so, departed from a great deal of case authority which holds that a theory of estoppel cannot be asserted against a government entity where this would defeat a policy adopted to protect the public.

For example, in a previous case, Merco Construction Engineers, Inc. v. Los Angeles Unified School District, a bidder wanted to substitute one subcontractor’s bid for another but failed to follow the proper procedure.  In contacting the district, the district’s agent told the bidder to leave the bid as it was and promised the bidder that an application to change the bid would be approved, which ultimately did not happen.  The court permitted the district to enforce the bid.

The Court of Appeals distinguished prior case law on the grounds that in those cases there was no evidence that the public entity’s assurances to bidders were anything other than innocent mistakes.  The court, obviously very much influenced by the deliberate nature of the district’s conduct in this case, permitted the use of estoppel to prevent the district from enforcing the contract.  The court stated:

”Taxpayers do not have an interest in lowering the costs of public projects by unfairly cheating mistaken bidders out of a portion of a project’s true costs.  Doing so would encourage bidders to try and recapture some additional revenue with false or exaggerated change orders.  Moreover, encouraging such practices will discourage honest contractors from bidding for public projects, thus lowering competition and eventually driving up the cost of public works projects.”

A petition for review by the California Supreme Court has been filed and is awaiting action.  While this ruling could be overturned, or ordered depublished by the California Supreme Court (with the result that it cannot be cited as precedent), it does point up the importance of fairness in dealing with bidders.  This court would probably not have found fault with a district’s simple lack of assistance to bidders seeking withdrawal.  This court has sent a message that deliberate conduct to mislead a bidder into missing a statutory deadline offends basic notions of fairness and may deprive a public entity of legal protections it would otherwise be entitled to.

The jurisdiction of the California Court of Appeal for the Second District covers the Los Angeles and Ventura areas.  Its rulings are not necessarily binding on courts in other districts, but may be cited as persuasive authority in subsequent cases throughout the State.