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Contractor’s mistake not inexcusable neglect

Deininger

“The sole error committed by Cape was its failure to incorporate a last-minute price increase transmitted by one of its subcontractors during the final hour of bid assembly. The error had nothing to do with a misjudgment or omission in determining the cost of items necessary to the bid. … Any carelessness, negligence or neglect on Cape’s part was excusable within the meaning of sec. 66.0901(5).”

Hon. David G. Deininger
Wisconsin Court of Appeals

Where a contractor’s bid on a highway project was inadvertently low, because it failed to revise its bid after a last-minute increase in a subcontractor’s bid, the contractor’s error was not “inexcusable,” and its proposal guaranty (or “bid bond”) should not have been forfeited, the Wisconsin Court of Appeals held on Oct. 30.

The Department of Transportation (DOT) solicited bids for construction of a highway interchange in Milwaukee. The bids were to be opened at 9 a.m. on Oct. 10, 2000. Prospective bidders, including James Cape & Sons Company, assembled personnel in rooms at a Madison hotel the evening before the bid opening in order to work through the night, compiling and reworking bids for submission just before the 9 a.m. deadline.

One prospective subcontractor, Zenith Tech, submitted a proposal to Cape at about 6 a.m., and Cape personnel identified Zenith Tech’s bid as the low one for a component of the interchange project and entered the quotation into its bid calculations.

At about 8 a.m., Zenith Tech discovered an error in the proposals it had submitted to Cape and two other contractors. Accordingly, Zenith Tech notified the three contractors by phone between 8 and 8:30 a.m. of an upward revision in its quoted price.

Cape concluded that Zenith Tech was still low for the item, and decided to use it. However, Cape failed to make the change in its bid, and the Zenith Tech item continued to reflect Zenith Tech’s original, lower quotation. As a result, Cape’s bid was $450,450 lower than if the revised Zenith Tech figure had been inserted.

The final bids of two other contractors who utilized Zenith Tech for the item in question reflected the revised, higher Zenith Tech quotation.

Cape discovered the error the same day the bids were opened, but before the contract was awarded. It notified DOT immediately, and submitted a letter explaining the reason for the error, pursuant to sec. 66.0901(5).

Nevertheless, DOT awarded Cape the contract at the original bid price. Cape informed DOT it would not execute the contract at that price. DOT annulled its award of the contract to Cape, awarded the contract to the second lowest bidder, and informed Cape it was forfeiting its $100,000 proposal guaranty.

Cape brought suit, seeking return of its forfeiture, and Dane County Circuit Court Judge Moria G. Krueger granted summary judgment in Cape’s favor.

Section 66.0901(5) provides: If a person submits a bid or proposal for the performance of public work under any public contract to be let by a municipality and the bidder claims that a mistake, omission or error has been made in preparing the bid, the bidder shall, before the bids are opened, make known the fact that an error, omission or mistake has been made. If the bidder makes this fact known, the bid shall be returned to the bidder unopened and the bidder may not bid upon the public contract unless it is readvertised and relet upon the readvertisement. If a bidder makes an error, omission or mistake and discovers it after the bids are opened, the bidder shall immediately and without delay give written notice and make known the fact of the mistake, omission or error which has been committed and submit to the municipality clear and satisfactory evidence of the mistake, omission or error and that it was not caused by any careless act or omission on the bidder’s part in the exercise of ordinary care in examining the plans or specifications and in conforming with the provisions of this section. If the discovery and notice of a mistake, omission or error causes a forfeiture, the bidder may not recover the moneys or certified check forfeited as liquidated damages unless it is proven before a court of competent jurisdiction in an action brought for the recovery of the amount forfeited, that in making the mistake, error or omission the bidder was free from carelessness, negligence or inexcusable neglect.”

Judge Krueger agreed with Cape that the case is governed by the second sentence of the statute, and thus, Cape need only show that it was not careless “in examining the plans or specifications.” Krueger concluded that the third sentence a
pplies only if the mistake is not discovered until after the contract has been awarded, and thus, Cape need not show that it was free from any “carelessness, negligence or inexcusable neglect.”

Krueger concluded there was no carelessness in examining the plans or specifications, and thus, held in favor of Cape.

DOT appealed, and the Wisconsin Court of Appeals held, in a decision by Judge David G. Deininger, that, although it agrees with the trial court’s analysis of the statute, Wisconsin Supreme Court precedent requires that both the second and third sentences apply, even though the error was discovered before the contract was awarded. However, the court also concluded that Cape’s negligence was not “inexcusable,” and therefore affirmed the result — that the $100,000 proposal guaranty be returned.

The Precedent

The two governing Wisconsin Supreme Court decisions are Krasin v. Village of Almond, 233 Wis. 513, 290 N.W.152 (1940), and Nelson, Inc., v. Sewerage Commission of Milwaukee, 72 Wis.2d 400, 241 N.W.2d 390 (1976).

The facts in Krasin are similar to those in the case at bar. The contractor did not receive a quotation from a materialman until the morning of the bid opening. Due to a worn ribbon in his adding machine, he then misread the “6” in the materialman’s $6,000 bid as a “0.”

What the court held

Case: James Cape & Sons Company v. DOT, No. 02-2817

Issue: When a contractor notifies the state that its bid was mistakenly low, after bids are opened, but before the contract is awarded, what does the contractor have to show in order to avoid forfeiture of its bid bond?

When the mistake was the result of a last-minute change in a subcontractor’s proposal, is the error “inexcusable neglect”?

Holding: Pursuant to sec. 66.0901(5), the contractor must show that its error was not the result of “inexcusable neglect.”

No. The error is excusable, and the contractor can get its bid bond returned.

Counsel: Frank D. Remington, Madison, for appellant; Brian W. Mullins, Madison; Carl A. Sinderbrand, Madison, for respondent.

The contractor discovered, and notified the village of, the error the same day after bids were opened, but before the contract was awarded. The village, however, refused to permit the correction, and declared the bid bond forfeited.

The Supreme Court ruled in favor of the contractor in his suit to recover the bond. The court did not explicitly consider whether both the second and third sentences are applicable, but implicitly held that they were, stating, “if ever negligence may be excusable, as the statute manifestly contemplates it may be,” the standard was met in that case.

In Nelson, the bid was erroneously low due to 5 different mistakes on the contractor’s part. The errors did not concern late or erroneous bids by subcontractors, but involved work to be done by the contractor itself.

The contractor did not discover the error on the same day the bids were opened, as in Krasin, but did notify the sewerage commission of the errors before the award of the contract. Nevertheless, the commission awarded the contract to Nelson, triggering a bid bond forfeiture.

In Nelson, the Supreme Court held the forfeiture was proper, concluding that the contractor was guilty of “inexcusable neglect.”

The Arguments

The DOT conceded that Cape both gave immediate notification of the error, and that it was not careless “in examining the plans or specifications” — satisfying the requirements for return of the bid bond in the second sentence.

It argued, however, that pursuant to Nelson, Krasin, and the third part of the statute, a bidder must always prove the exercise of ordinary care in submitting its bid to avoid a forfeiture. The DOT noted that Nelson explicitly holds this, and that Krasin implicitly does, by addressing the “inexcusable neglect” standard, even though it found that the contractor had satisfied the second part of the statute.

Cape argued that, if all bidders who discover errors after the bids have been opened must show absence of inexcusable neglect, then the second part of the statute has no independent meaning and
becomes superfluous.

Cape argued that the Krasin court’s discussion of “inexcusable neglect” was merely dicta, and that Nelson is distinguishable because, in that case the contractor was seeking the recovery of a forfeiture, while Cape was only seeking to avoid one.

No Blank Slate

The court of appeals agreed that Cape’s interpretation of the statute — and the one adopted by the trial court — was the more reasonable of the two, and would adopt it if writing on a blank slate.

The court reasoned, “By enacting the statute in question, the legislature plainly intended to permit contractors to be relieved from the consequences of bid errors under certain circumstances. See Nelson, 72 Wis. 2d at 418. The language and structure of the statute seems to evince an intent that the circumstances justifying relief from an erroneous bid vary according to when a contractor gives notice of the error: prior to bid opening, after opening but before an award, or after a contract has been awarded.”

Under this interpretation, the only penalty for a pre-opening error is disqualification. Once bids are opened, a contractor must show the error was not caused by carelessness with respect to examination of plans and specifications. The court concluded, “Although the statute is silent regarding what should happen if a bidder satisfies these requirements, a reasonable interpretation is that the bidder should be allowed to correct the error before a contract is awarded, as the Supreme Court in Krasin, the attorney general in 1973 and the trial court in this case have all concluded.”

Once a contract is awarded, however, the contractor should additionally have to show freedom any “carelessness, negligence or inexcusable neglect.”

Nevertheless, the court concluded it was bound by the Supreme Court in Nelson not to adopt the interpretation with which it agrees. The court stated, “Notwithstanding the court’s conclusion in Nelson regarding the bidder’s compliance with the second part of the statute, the court, in the very next sentence of the opinion said this: ‘However, under [Wis. Stat. sec.] 66.29(5) … the plaintiff is not entitled to recover the deposit unless the mistakes in its bid were shown not to have been due to its “carelessness, negligence or inexcusable neglect.”’ Nelson, 72 Wis. 2d at 413. Thus, even though notice of the error had been given prior to the commission’s awarding of the contract, the court deemed the inexcusable neglect standard to apply, implicitly ratifying the commission’s actions in refusing the contractor’s request to amend its bid, awarding the contract on the original bid and declaring a forfeiture of the bid bond. Although the analysis in Krasin may be read to suggest otherwise, the court’s analysis and holding in Nelson cannot be read in any way other than to require a contractor in Cape’s position to meet the showing of freedom from ‘carelessness, negligence or inexcusable neglect’ required by the third part of Wis. Stat. sec. 66.0901(5).”

Reconciliation

Accordingly, the court resolved the case by focusing its attention, not on the discussions of the legal standards in Krasin and Nelson, but on the nature of the errors of the two cases, noting that, in one case the court found the error excusable and, in the other, not.

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Case Analysis

The court distinguished the two cases, concluding, “Although the court did not employ these terms, we would characterize the Krasin error to have been ‘mechanical’ or ‘clerical’ in nature, as opposed to an error involving a lapse in the exercise of professional judgment.”

By contrast, the court concluded the error in Nelson was a lapse in professional judgment. The court also noted that the mistake occurred at a much earlier point in the bid preparation process.

Turning to the case at bar, the court found Cape’s error more similar to that in Krasin, noting, “It is undisputed that the sole error committed by Cape was its failure to incorporate a last-minute price increase transmitted by one of its subcontractors during
the final hour of bid assembly. The error had nothing to do with a misjudgment or omission in determining the cost of items necessary to the bid. We conclude therefore that, based on the similarity of the present facts to those in Krasin, any carelessness, negligence or neglect on Cape’s part was excusable within the meaning of Wis. Stat. sec. 66.0901(5).”

Accordingly, the court affirmed the result in the case. Before concluding, however, the court encouraged further review by the Supreme Court if DOT requests it.

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David Ziemer can be reached by email.

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