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Mistakes in Bidding and Contract Formation

Mistakes in Bidding and Contract Formation

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Mistakes often occur when preparing a bid for a construction contract. Usually, a mistake comes in the form of incorrectly adding figures or inaccurate transfer of figures from calculation sheets to bid proposal sheets. Furthermore, specifications may be misunderstood or not read correctly, causing inaccuracies in the bid. Mistakes that result in higher bid prices than the bidder intended usually will result in the bidder failing to win the contract, or if the mistake results in a low bid and the bidder is awarded the contract, a problem arises in whether the contract can actually be performed for that price. A question arises as to under what circumstances will a bidder be held to its mistaken bid? Generally, not all mistakes will relieve a bidder from its bid, unless the mistake is found to be excusable.

If a bidder submits a mistaken bid and is notified of the mistake, it still may choose to stand behind its mistaken bid. However, a bidder may not later claim a right to rescind the contract or its bids based on the mistake. In Premier Elec. Installation Co. v. Board of Ed., U.F.S.D. (1959), a proceeding against a board of education and successful bidder was held for review of the board’s action in awarding the contract to the successful bidder instead of the petitioner. The court held that where a successful bidder, by a unilateral error, bid a deduction of $2,900 after the public opening of a bid and stood by it, the board of education had no alternative but to consider it and was required to award the contract under the General Municipal Law.

An excusable mistaken bid is one where the mistake is of such a nature and consequence that the bidder will be relieved of its bid and allowed to withdraw the bid. If it is non-excusable, the bidder will be held to its bid and must enter into the contract or forfeit its bid security and face liability. Clerical and mathematical errors are often excusable because they are honest errors. However, overlooking a term in the contract is not an excusable mistake. The basic rule is that if the error is due to negligence in reviewing the plans and specifications, or an error in exercising proper business judgment, the bid will not be excusable. Factors that New York will consider include: 1) whether the mistake was of such consequence as to make enforcement unconscionable; 2) whether the mistake is material; 3) whether the bidder exercised ordinary care in compiling its bid; and 4) whether it is possible to place the other party in the status quo.

Mutual mistakes that are substantial will sometimes result in a voidable contract. If both parties are mistaken as to the content and meaning of the contract, there could have been no true agreement on the terms, giving justification for rescission. However, true mutual mistakes in construction contracts are rare. If both parties are mistaken and the mistake can be proven, relief from the contract will likely be granted.

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