We have all seen this situation before. The bids come in, the lowest is taken, and lo and behold, the subcontractor finds out that it cannot perform for the amount listed in the bid. When this happens, the subcontractor may take the position that the general contractor should have told the subcontractor that their bid was too low. The case of Fidelity And Deposit Co of Maryland v Casey Industrial Inc. shows that it is be very difficult for the subcontractor to show that the general contractor should have told the subcontractor that its bid was too low.
In this case, Fidelity And Deposit Co of Maryland v Casey Industrial Inc. to supply and install piping for a power plant. Topps Mechanical estimated that it would need 10,000 linear feet to complete the job. In actuality, 35,000 linear feet were required to complete the job, resulting in a cost overrun of $4 million. Topps bonding company assisted in getting the job completed and litigation ensued.
Topps, through its surety, claimed that Casey Industrial breached an implied duty of good faith and that Casey Industrial had superior knowledge such that it should have told Topps that its bid was too low. The superior knowledge doctrine is an exception to the general rule that contractors in a firm, fixed price contract assume the risk of increased performance costs.
The superior knowledge doctrine typically applies to those situations where:
- the contractor takes on a project without vital knowledge of a fact that impacts performance costs or duration;
- the owner is aware that contractor has no knowledge of this fact;
- any contract specifications supplied misled the contractor or did not put it on notice to inquire; and
- the owner failed to provide the relevant information.
The court found that Topps was fully informed of all relevant aspects of the project and Casey Industrial had no obligation to disclose the quantity of piping that would be needed for completion of the project. The court commented that the contract even cautioned that:
“Topps must satisfy themselves as to the amount of pipe and fittings required to complete this system.”
And, Topps employees even testified that they did not believe that Casey Industrial was “holding out” on them and not giving Topps all the information needed for an accurate bid.
Take away: A general contractor does not have a duty to tell the subcontractor that its bid is too low where the subcontractor has been given all information necessary to submit an accurate bid.
While a contractor for a fixed sum is legitimately enforceable, and it may look like a windfall whenever a subcontractor grossly underbids a job, from a practical point of view, dealing with the problem of such a bid on the front end could save headaches, time, and attorney feels that will consume into your bottom line.