Powder Horn Constructors, Inc. v. City of Florence

CONSTRUCTORS, POWDER HORN

INC., and Paul Fire and Marine St. Petitioners, Company,

Insurance FLORENCE, Respondent. OF

CITY

No. 85SC502. Colorado,

Supreme Court

En Banc.

April 1988.

Rehearing June Denied

Conover, P.C., & Heppenstall, McClearn Hugh McClearn, Lemon, J. Catherine A. Denver, petitioners. for Krassa, P.C., F.T. Law Office of Robert Krassa, Pueblo, respon- Robert F.T. for dent. Grover, Denver,

Charles E. for amicus Ass’n, curiae Colorado Contractors’ Inc. KIRSHBAUM, Justice. In City Florence v. Powder Horn

Constructors, Inc., (Colo.App. P.2d 1985), Appeals affirmed a trial Court ordering judgment court forfeiture of a bid bond executed for the benefit of the (the City) by petitioners, Florence Pow Constructors, Horn) (Powder der Horn Inc. surety, Fire Powder Horn’s St. Paul (St. Paul). Insurance Co. Marine requesting action the for filed a civil damages feiture as for Powder Horn’s re fusal, bidder, City’s to accept low public improvement construc award tion Powder Horn as a contract. asserted equitable right defense a from the relief provisions ground on the that it of the bond bid; reject had rescinded its trial court ed this claim. The Court of held certain circumstances a low bid under for construction contract der the trial rescind its but affirmed Having judgment. granted court’s certio- decision, rari to reverse and review we remand directions.

I 1981, 24, City publish- On December for ed an sealed bids advertisement on a construction work water treatment facility. initially were due The bids January 14, but that was subse- date On quently January extended 6, 1982, January obtained Horn from, detailing set of documents engineering specifications project. sub- Powder Horn January

On $699,500 project. for the mitted a doc- required by As the terms the bid uments, a bid bond submitted it also sum percent of five its total bid.1 When der Horn asserted as a defense it had publicly opened the bids were late that rescinded its bid and therefore could not be day, same Powder Horn was identified as held liable under the terms of the bid bond. the low bidder. The second lowest bid The trial court found that Powder Horn $754,330. price was pre- had not exercised reasonable care in Gilbert, day, January The next Paul paring finding, its bid. Based on this it City’s consulting engineer charge the determined that Powder Horn was liable to administering project, telephoned the Mi- City the in the amount of the bid bond. O’Clair, estimator, a chael Powder Horn The trial court also determined that Pow- him in tabulating advised that the bids der Horn’s conduct constituted a unilateral he found one item had in Powder Horn’s mistake, material, that the mistake was appeared substantially bid that be to low requiring perform that Powder Horn to the view the other bids submitted. Gilbert unconscionable, contract would be and that suggested might that Powder Horn want Powder Horn had failed to establish that particular that review item. City the prejudiced by would not be the January president, On Powder Horn’s withdrawal Powder Horn’s bid. Donahue, Cletus informed Gilbert tele- In affirming the judgment, trial court’s phone mistakenly that Powder Horn had Appeals recognized the Court that $66,660, omitted from its bid the sum of some per circumstances a bidder be item, representing major the of one cost mitted to rescind a for bid submitted being and that bid was therefore with- public construction contract because day, drawn. On that same Donahue also calculating mistake in the bid. The Court wrote a letter tо engineering Gilbert’s firm Appeals remedy concluded that such a is in which he stated that a subtotal from one only proves by available when the bidder inadvertently worksheet had been omitted preponderance “(1) of the evidence that: amount, final bid advised that the the mistake relates to a material feature of security being bid and the bid were with- contract; despite it occurred drawn and offered meet with the con- care; exercise of reasonable sulting engineers, attorney or oth- public authority placed can be status er officials to demonstrate that omis- quo.” City Florence v. Powder Horn sion was an honest error. Constructors, (Colo. 716 P.2d February 1, 1982, On City, through App.1985). It held that Powder Horn could council, city its voted to award the contract not rescind the bid because it had exer not $699,- to Powder Horn amount preparing cised reasonable care in it. The February 500. On Donahue sent a letter Appeals pub Court of also observed that a engineering stating Gilbert’s firm entity changed position lic which has accept Powder Horn would not the award reliance a mistaken has suffered bid the contract. The then awarded the damages no actual able to maintain contract to the second lowest bidder. That quo merely by accepting the status accepted the contract and com- second only lowest bid “since it has lost menced work. sought gain by taking what it advantage against filed this action Powder of the mistake.” Id. at 145. Paul, asserting Horn right and St. agree We with the conclusion оf the amount of liquidated the bid bond as dam- ages Court of that under certain cir- Powder Horn’s failure to execute submitting cumstances a bidder a bid for a complaint construction contract. The alleged although City’s permit- construction contract actual damages equaled $54,830, acceptance ted rescind the bid to its difference between Powder Horn’s if it reflects bid and the second a material mistake of fact. bid, liability agree, however, lowest Powder Horn's was lim- We do not exer- ited to the amount of the bid bond. Pow- cise of appropriate reasonable care $699,500 $34,975. bond for Powder Horn's bid was thus addition, right bargain). many to condition factor which courts, legislative rescission. commentators bodies explicitly implicitly recog- have either II nized a mathematical or clerical error bid, yields an unintended while an error in class of falls into that narrow This case such as judgment, estimating an error in in which an public construction cases when, necessary the number hours of work prior tó mistaken arises issue of project, complete yields precisely public entity’s acceptance is not intended and deemed a mistaken that the bid contains bid. parties discover E.g., College error. Boise Junior Dist. v. mathematical or clerical material Mattefs Co., argues such cir Idaho 450 P.2d Horn that under Constr. Phelps the bidder be allowed State v. Hensel Constr. cumstances should (Mo.1982); Jobeo, pen automatically its bid without 634 S.W.2d withdraw Inc. v. Nassau, supports A.D.2d alty. body County A substantial of law argument, (1987); in con 108 Muncy Horn’s effect N.Y.S.2d Area School Powder Gardner, 406, a bid cluding that where a bidder submits Dist. v. 91 Pa.Commw. 497 (1985); containing of and 683 10 generally a material mistake fact A.2d see E. apparently accepted McQuillin, Municipal there has not The Corpo- the bid is Law of (3d 1981); Rudland, any meeting of minds 29.82 ed. been because rations § Rules, public accepted by entity Rationalizing is not the Mistake bid Bid 16 (1986); 446 E.g., Moffett, bid the bidder. Pub.Cont.LJ. see also intended M.F. Rochester, Kemper 178 Hodgkins Ange- Clarke Co. v. Constr. Co. v. Los & 957, 696, 373, (1900); les, (1951), 44 1108 37 Cal.2d P.2d 7 super- U.S. 20 S.Ct. L.Ed. 235 statute, No. 6 v. Aet Cal.Pub.Cont.Code Marana School Dist. seded Unified 159, (West (where 1985) P.2d na 144 Ariz. 696 5103 mistake made Cas. & Sur. § intended, Dist. (Ariz.App.1984); Regional materially 711 School different than re- hid Co., Conn.App. filling 4 v. Pac. Ins. out No. United lief available mistake 4 895, denied, 175, form, 196 Conn. judgment); 493 A.2d not for mistake in but certif. (1985); County (1987)(if 813,494 A.2d 907 Baltimore N.C.Gen.Stat. 143-129.1 clerical § Inc., 62, mistake, 375 A.2d Ruff, agency 281 Md. v. John K. shall allow withdrawal of (1977); Bldg. security); Mississippi 237 State bid without forfeiture Constr., Inc., 329 for State and Lo- v. Becknell Model Procurement Code' Comm’n (Miss.1976); 3-202(6) commentary v. Syracuse So.2d 57 cal Governments § Bros., Inc., 984, (4) (1979) (observing 451 that bid withdrawal Sarkisian 87 A.D.2d 618, permitted there is aff'd, N.Y.2d 454 should be where reason- N.Y.S.2d 57 of fact proof 439 Arcon of a material mistake and N.Y.S.2d N.E.2d 880 able (S.D. State, 314 303 ascertainable with rea- v. N.W.2d intended bid not Constr. Co. Camion, certainty).2 undisputed 1982); It is here Highway v. sonable State Comm’n not an (Tex.Civ.App.1952); 250 439 see Powder Horn’s error was error S.W.2d that circumstances, Dobbs, judgment. on the Law Under these also D. Handbook that, (1973) (observing position Horn’s 11.4 there is merit Remedies § mistake, agreement or could have fail no was been where bid contains material that at time the bids were grant рublic results in consummated ure to bidder relief receiving authority opened. it was seek- more than party knew to know of the Similarly, "In- other or had reason the contract document entitled Manzo, Marriage P.2d bidders here In re 669 formation for Bidders” advised error. Perillo, 1983) judgment respecting (Colo. (relying & J. that a bidder’s errors Calamari on J. performed (2d quantity 1977)). to be nature and work As Calamari Contracts 9-27 ed. out, point relieve the from its obli- would not gations; Perillo rescission while require- re- were silent judgment, the contract documents allowed for mistakes in specting errors. the resolution of clerical party or have reason that the other know ment substantially traditionally recognized has been to know mistake This court has that Perillo, Contracts & J. the basis of an eroded. J. Calameri contract could not avoided on (2d 1977). judgment party, ed. unless the 9-27 error in value one

However, analysis Rules, legal ignores (1986). 16 Pub.Cont.L.J. 446 courts, important emerged has distinction that issue for these as the Court of assump- public Appeals recognized, ques- the law of contracts —the is reduced to the construction con- public identifying tion that bids for tion of the circumstances and generally are considered to be irrev- appropriate tracts support factors will Jones, upon opening. The Law request ocable bidder’s for relief from the conse- Bids, 48 & U.Cin.L.Rev. Mistaken quences agree a mistaken bid. We of n. principle pro- serves to This Appeals the conclusion of the Court bidding process by integrity tect the responsible thе more fair policy is to encouraging preparation of accurate recognize public entity’s bids, reducing possibilities of collusion and acceptance public of a bid for a construc- bidding practices among contrac- artificial project tion a bidder in some circum- tors, predictability promoting cer- equitable stances obtain relief from the expending tainty process consequences containing aof a mathe- funds. matical or clerical error. jurisdictions Some have determined principally Court relied adopting policies by further these a rule on the case John J. Calnan Co. v. prohibits generally rescission of a bid Builders, Talsma 67 Ill.2d for a construction contract at (1977), Ill.Dec. 367 N.E.2d opened. E.g., time after bids are Anco adopting requirement a test that includes a Wichita, Constr. Co. Kan. proof non-negligence justify re (1983); City 660 P.2d 560 Colum- of public project scission of a construction bid Independent bus Supply ‍​​‌‌​‌‌​‌​​‌​‌‌‌​​​​​‌​‌​​‌‌​‌‌​‌​‌‌‌​​​‌‌‌​‌​​‌‍Towel 51 prior any acceptance thereof. Calnan (1977). App.2d 250, Ohio 367 N.E.2d 915 quite in arose circumstances different from adopting Jurisdictions this restrictive view case, the factual of this context however. are the minority, general- however. See Calnan, subcontractor, In a John J. Calnan Rudland, ly Rationalizing the Bid Mistake Co., an filed action to rescind a contract it (1986). Rules, 16 Pub.Cont.L.J. 446 Most already had entered into Talsma jurisdictions recognized have that other im- Builders, Inc., general a contractor. Tals- portant policies are also in the involved ma had invited a rush from for bid Calnan question of whether and under cir- what plumbing public on work a construction cumstances on a bidder a construc- previous contract a because subcontractor tion permitted contract should be to with- surety had failed to a obtain bond. Calnan policies draw bid. These include a re- $237,000 May submitted a on forfeitures, penal luctance to enforce a he- day 1974. The next Calnan informed Tals- sitancy promote profits windfall $40,000 ma that a the bid failed reflect change any position absence of and a cost item for bathtubs. subse agreements concern that based unilater- quently agreement an executed based on represent al or mutual mistake the enhanced but Calnan refused to meeting that firm minds that provide performance request bond when enforceability essential law mid-September, ed to do In so. after com Jones, generally contracts. See The Law mencing work project, on the Calnan dis Bids, Mistaken 48 U.Cin.L.Rev. 43 original covered that its bid did not include (1979); Rudland, Rationalizing the Bid $31,000 cost item for the entire water Rules, (1986). Mistake Pub.Cont.L.J. supply system project. for the Calnan sub competing policy view the con mitted a sum bill to Talsma for this as well case, cerns raised this kind of allegedly periodic pay courts sums as due recognizing right of performed; a bidder to rescind ments for work when Talsma payment, construction contract refused Calnan filed action generally have done so in the Apply context of rescind contract. the construction faсts, for equitable claims generally three-part relief. See test to those Rudland, Rationalizing Supreme the Bid Illinois Cal- Mistake Court concluded that

Sfil encouraging con bidding practices. nan was not entitled to rescind the fair To the contrary, tract. requirement such would in these severely limited circumstances undermine presents This case far different circum- policies fostering dealing fair and cer “possi- stances. The was aware tainty among contracting parties essential ble” mistake Powder Horn’s bid before negotiation process. See was, Horn and Powder Horn com- Jones, Bids, The Law Mistaken municated its intention to rescind its bid U.Cin.L.Rev. 43 immediately, prior any change posi- by City. accept tion did not The Court of concluded that re- until later —at time when it had quiring prove Powder Horn to it was not knowledge full of both the mistake and the negligent in preparation of its mistaken fact that because mistake Powder protect bid served to the integrity of the Horn had withdrawn its bid. No contract bidding process, consistency to foster in bid project for construction was ever preparation throughout state, and to parties, executed and there nowas discourage prevent fraud and collusion. delay, surprise, justifiable no and no re- City Florence v. Powder Horn Con- liance at the time it elected to structors, Inc., 716 P.2d at 145. Such salu- accept the bid. should, course, tary policies be encour- aged. However, requiring a bidder to dem- Although distinguishable Calnan negligent onstrate freedom from conduct case, question remains whether the accepted when bid has not been and the Supreme formula articulated the Illinois error, bid contains a mechanical as distin- adopted Court that decision should guished judgment, from an error of will formula, Colorado. That as stated significantly availability restrict the of this Appeals, grants equitable Court a bidder equitable remedy in circumstances wherein following relief from its bid if the criteria recognition of the remedy would not under- are met: Moreover, policies. rejection mine those (1) the mistake relates to a material fea- negligence standard in these limited contract; (2) ture of the it occurred de- important circumstances will foster other spite care; the exercise of reasonable policies encouraging dealing by fair all (3) public authority the placed can be parties bidding process. quo. in status Florence v. Powder very generally Horn Con term “mistake” con structors, 143, (Colo. degree negligent 716 P.2d 144 notes some conduct. App.1985). inquiry Our shaped Mississippi course Bldg. See State Comm’n v. particular Constr., Inc., (Miss. the circumstances of this case 329 Becknell So.2d 57 1976); Jones, —the fact that Powder Horn’s Bids, decision to The Law Mistaken 43, rescind its promptly upon bid was made 48 U.Cin.L.Rev. 70 In most discovery mistake, of the at illogical, a time when circumstances it if would be knowledge the had full impossible, require of the mistake a bidder who has City’s accept calculating decision to made a mistake in persuaded the bid. We are not in that establish that the mistake was one most imposition requirement context of a reasonable bidders would make under the neg that bidder establish freedom from substantially same or similar circumstance ligence substantially policies furthers Requiring proof neg s.3 of freedom from recognition problem, of such a the Restate- unless his fault to act in amounts to a failure (Second) (1979) ment good of Contracts section 157 faith and in with reasonable accordance provides as follows: dealing. standards of fair pertinent in Comment a to section 157 states Seeking Party § 157. Effect of Fault Re- part as follows: lief a. fact that a mistak- party’s failing A Rationale. The mere mistaken fault in or to know party making en the mistake discover the facts before could have avoided the contract pre- does not bar him from avoidance the exercise care does not or reforma- of reasonable 152, (§§ 153) Chapter, tion under the rules stated in this clude either avoidance or refor-

362 (1983) (under law, ligence focuses attention on the substantial federal where mistake; question cause of the agency or is on actual constructive notice equitable from availability relief a mis of bidder’s unreasonable mistake and ac- primarily taken bid should focus on cepts bid verifying accuracy, without consequences of the mistake. Further presumption agency arises that acted more, three-part test articulated in Cal- attempt bad faith in to take advantage of prove require nan would bidder); 24-101-104, (1982) see 10 C.R.S. magnitude its mistake was of sufficient good (imрosing faith standard all yet, material to the contract be considered parties procurement involved state activ- incongruously, that the mistake was not ities); Corbin, A. see also Corbin on Con- Corbin, negligence.4 the result A. process (bidding tracts 609 will 608, 609 Corbin on Contracts §§ stability by requiring prove retain bidder to (noting computing an error mistake). recog- substantial approach This negligence). invariably involves at least nizes that bidder should not be allowed Numerous courts commentators if rescind a mistaken bid the made bid were have concluded that in construction emphasizes desirability faith and bad eq contract cases which a bidder seeks ensuring public projects proceed provi uitable relief bond forfeiture the basis of accurate cost A estimates. sions because of a mistaken funda contrary encourage manipu- rule would mental issue whether bidder made bidding practices lative undermine good any ques honest faith mistake and stability bidding process. Further- of gross negligence tion or extreme more, application evenhanded only bidder should be considered as evi faith standard fair ensures treatment of all dence of the bidder’s lack of faith. dealings municipal involved in E.g., Marana Dist. School No. v. Unified authorities, thereby enhancing integrity Co., 159, Aetna &Cas. Sur. 144 Ariz. at bidding process. 711; Naugatuck 696 P.2d at Valley Dev. Corp. Corp., Conn.App. v. Acmat context, In this noteworthy it is (1987); Mississippi 523 A.2d 924 State Code, in adopting the Procurement Bldg. Constr., Inc., Comm’n v. Becknell 24^112-101, 24-101-101 to 10 C.R.S. §§ (Miss.1976); 329 So.2d 57 Balaban-Gor (1982)(the Code), mandatorily applicable to Brighton don Co. v. Sewer Dist. No. agencies contracting state executive (1973); A.D.2d 342 N.Y.S.2d 435 State projects on construction of com basis Union Constr. Utah 2d petitive bidding, Assembly has Jones, General (1959); P.2d The Law Mistak public policies indicated Bids, that one of en 48 U.Cin.L.Rev. Rudland, provisions regulating be served Rationalizing Bid Mistake Rules, awarding 16 public projects Pub.Cont.L.J. of bids for 455 is that cf. States, Corp. BCM United ensuring equitable Cl.Ct. of and fair treat- Indeed, (§ 155). care); Dobbs, party mation a can since mistake due of was to lack D. by (1973) often avoid a mistake the exercise of such Handbook § Law Remedies 11.2 of care, availability (concluding negligent of relief be party would severe- that a be should ly if circumscribed he were to be barred relieved from a mistake unless the nonmistaken Nevertheless, Rabin, negligence. his party prejudice); in extreme Proposed suffers A party’s cases proper Concerning the mistaken is a Assump- fault Rule Black-Letter Mistaken ground denying Transactions, Bargain him relief for a mistake tions in 45 Tex.L.Rev.. 1273, 1278-1279, that he otherwise could have Al- (concluding avoided. though degree the critical of fault is some- the better is rule that relief from mistake should "gross” negligence, times described as depend inequality exchange on the rather term is not well defined and is avoided in this negligence party). than the of the mistaken Restatement, Second, Section as it is in the Instead, Here, Torts. the rule is stated in the trial court ruled that the omission of terms good dealing.... relatively large faith and fair "the two items" from bid was mistake,

See also Restatement of § Restitutiоn a material and then stated that a rea- (person mistakenly upon who conferred benefit sonable contractor should not have omitted precluded another is not from restitution where such "considerable amounts." 3-202(6) bidding process. cal parties commentary all Governments ment of (2), (3) (1979) Although (bidder See 24-101-102. the Code should not be allowed bidding apply process, does to this its opening to amend bid unless after mistake ensuring good negotiation faith policy of is not one of and intended judgment bid is degree is notable.5 The public contracts documents). clearly evident from bid may a bidder negligence exhibited well In reviewing competing policy good bear whether a bid was made here, presented considerations we conclude faith, respect an inquiry in that into and that, in controlling legisla absence of the mistake be material cause tion, a bidder for a construction con ultimate determination of whether containing tract who submits bid mis equitable relief from a mistaken bid should prior take rescind the to its accept bid However, granted.6 awhen contain- bid if the by prepon ance bidder establishes prof- or mathematical error is a clerical derance of the evidence that the mistake is faith, fered in the fact that the mis- nature, of a or mathematical clerical negligent take conduct resulted the, mistake faith was made ability not foreclose the rescind should aspect relates to a material prior acceptance if no bid thereof public аuthority rely did not to its harm from the results rescission. detriment on If a the mistaken bid. bidder argued require that failure to elements, proves all rescission these negli- to demonstrate freedom from bidder granted the bid becaúse the should be bid gent as a condition to the exercise conduct apparently accepted was not the bid intend any right to rescind bid mistaken and, therefore, If, ed was not a valid bid. preparation. would reward careless bid however, prove each bidder fails to However, competitive environment test, equitable the elements bid public contracting a invariably submitted deemed the bid must be intended compelling has incentive bid accurate- proven entity may and the recover ly a bid an amount lower submit —to damages to the extent the bidder fails to than at which the bidder real- can perform obligations its contractual —such istically perform the work tantamount to bargain public entity’s as the loss of Rudland, all. submitting no bid at being forego forced the valid low bid Rules, Rationalizing the Bid Mistake award the contract to the next lowest bid (1986) (observing Pub.Cont.L.J. der. Such undermine the in test will not gains nothing by withdrawing that a bidder promote tegrity process, will fair bid). being rewarded, Far from a bid- dealing process all to that prior any der to rescind its bid allowed promote certainty will contractual en acceptance possibility thereof loses couraging discovery and disclosure early reaping profit from fulfillment of the con- material mistakes in bids. contrast, struction contract. careless case, advеrtising for In this bids actually preparation rewarded where City’s consulting engineer estimated bidding process fails to closely circum- $890,000 ability project the total cost of the to be scribe a to amend its bidder’s $699,- E.g., acceptance. after —well above Powder Horn’s bid opening but before Moreover, alerted Model Procurement Code State and Lo- 500. 24-105-201, (1982), any requires 5. 10 C.R.S. the record However, indication of such. Section disclose equal percent involving allegations the execution of a bid bond to five even in cases of of of bid for all con- the amount construction question fraud the of whether an honest mis- procurement tracts where the the officer estimates take of a nature is clerical or mathematical price fifty to exceed contract thousand dol- present objective subject is determination to an However, City adopted has not lars. preparation on a doc- based review of the bid thus, Code; provision of the Procurement See, e.g., City Syracuse v. Sarkisian uments. Bros., Inc., of case, provision inapplicable to this trial as the 945, 984, 451 N.Y.S.2d 87 A.D.2d court found. 71, 618, aff’d, 439 N.Y.S.2d N.E. SI N.Y.2d 454 2d 880 City does not assert that Horn’s The Powder fraud, constituted nor does review of conduct 364 of possible 3-202(6)

Horn mistake when it (6) (1979) (a re- ments commentary § viewed bids submitted and noted that suspected give mistake duty can rise ato $169,500, on item Horn one Powder had bid on part authority seek $216,600 the next lowest had bidder bid bid; confirmation of bidder who demon- remaining eight bidders had bid from strates mistake should be allowed cor- $230,000 $330,000. Furthermore, Pow- bid).7 rect or withdraw City der Horn notified the of the nature of undisputed It is City did not its intent mistake and its to withdraw the solicit bids new when Powder Horn with awarding contract, prior and, therefore, drew its bid no incurred yet when no action been taken in re- had rebidding administrative of costs on liance Powder Horn’s bid and inaccurate project. Regents Board Murray Cf. of of when other bids were still available to the Cole, Ky. 761, State Normal School 209 City. (1925) 273 (withdrawing S.W. 508 bidder These circumstances reveal absence held authority liable for costs of policies of underlying one the basic contract). rebidding the The City ultimate party enforcement of contracts —if one cre- ly awarded contract to the next lowest expectations ates reasonable in the other bidder, was, assuming which rescission party, expectations those should be ful- Horn’s lowest valid bid. filled, by performance either award change Thus in this case the did not its damages. Dobbs, D. Handbook on position in reliance on mistaken bid. (1973). Here, the Law Remedies 11.4 § E.g., Regional School Dist. No. v. United 4 did not act reasonable Co., 175, Conn.App. Pac. 4 Ins. 493 A.2d expectations, sought but rather to take ad- (public authority 895 is unharmed mis vantage of Powder Horn’s mistake and take notified prior where of mistake gain profit. a windfall If Powder Horn contract), denied, award of 196 acting faith, in good was requiring it to certif. 813, (1985); 494 Conn. A.2d 907 Boise Jun though forfeit bid bond even the City College ior Dist. v. 92 Constr. accepting knew of the mistake Mattefs 757, (1969) (same Idaho 450 P.2d 604 con princi- would contravene fundamental clusion); Mississippi Bldg. State ples Comm’n of fairness encourage bad faith Constr., Inc., v. Becknell 329 negotiations subsequent So.2d 57 opening. to bid (same Enters., conclusion); (Miss.1976) Maguire, See Jackson Smith & Inc. v. Herrera, (1960) Colo. Lowe (equity 355 P.2d 540 Constr. Co. v. 79 N.M. will conclusion); (1968)(same not party allow P.2d 197 knowingly take advan- Bal tage another); Brighton of mistake of Model Pro- aban-Gordon Co. v. Sewer Dist. curement Code for State and Local Govem- No. 41 A.D.2d 342 N.Y.S.2d 435 (Second) 7. The Court of concluded that the mis- § Restatement Contracts (1979) take at issue case in this was party unilateral na- states where a mistake of one assumption ture. Florence v. Powder Horn Construc- occurs as to basic tors, 143, 144, (Colo.App. only 716 P.2d voidable if enforcement of the contract 1985). Often the classification of a mistake party would be unconscionable or the other had unilateral or require- mutual be difficult and not reason to know of the mistake. The particularly helpful indicating unconscionability in terms of ment of or reason to know Corbin, appropriate E.g., ensuring solution. A. Corbin on assists in that ‍​​‌‌​‌‌​‌​​‌​‌‌‌​​​​​‌​‌​​‌‌​‌‌​‌​‌‌‌​​​‌‌‌​‌​​‌‍avoidance of the con- Dobbs, (1960); § Contracts unreasonably D. disappoint Handbook tract will not the ex- Law (noting pectations party Remedies 11.4 causing § the mistake. generally (Second) that while a mistaken bid is caused See Restatement Contracts party, Palmer, one it is true often that both the comment c see also G. and the accurately (1978) (observing offeree believe the bid was Law Restitution 12.20 prepared, presenting thus tendency mutual rather than that the courts have a to find that the Jones, mistake); unilateral The Law Mistaken offeree reason had to know of the mistake when Bids, substantial). 48 U.Cin.LJRev. 48 & n. 36 the size error is In this case (noting policy protecting City's representative social indi- the evidence indicates the imposition viduals from the probability was contractual obli- aware that a had mistake gations they tabulated; equally present did not intend is been made as soon bids as the were fact, representative cases of mutual mistake and of unilateral mis- notified Horn Powder error). problem immediately take where the offeree is aware of the thereafter.

365 conclusion); hi (same (1973) City see also Co., De Luca-Davis Constr. Baltimore v. City argues that whatever standard 518, 124 (1956)(observing 557 210 Md. A.2d might applied eq- be Powder Horn’s virtually unanimous that the courts were claim, parties agreed if uitable permitting withdrawal of bids where designated Powder Horn was the low bid- of mistake authority was notified subsequently der and failed to execute a Corbin, contract); see also A. award construction contract Powder Horn’s bid (1960)(offeree payable liquidated damages. Corbin Contracts § bond was given notice of mistake argument unpersuasive. is unharmed where findWe this bid). acceptance of before A rule of fundamental course, in other the factual context Of law is that court should strive to ascer that the may support cases the conclusion tain and effectuate mutual intent of the change position its in re- public entity did Enters., parties. Martinez v. Continental example, For liance on the mistaken bid. (Colo.1986); Pepcol Mfg. 730 P.2d 308 Co. to rebid a contract expenses of a decision Corp., 687 v. Denver Union P.2d delays completion of a con- or costs (Colo.1984); v. United Bank Griffin project may directly found at- struction be Denver, (1979). P.2d 198 Colo. ques- to the mistaken bid. tributable may Intent be determined reference changes public entity its tion of whether separate ancillary instruments. Town of on a mistaken bid for position reliance Park v. Con Estes Northern Colo. Water determining Dist., (Colo.1984). whether the bid- purposes of servancy 677 P.2d 320 may bond, contracts, is distinct from the der rescind bid A like other should be damages public entity give issue of what effect to the intent of the construed might if is parties, may be entitled to recover the bidder and reference be made to the not entitled to rescind the bid. and other instruments to which the bond bond refers to ascertain intent. General neither the trial court nor the Because City Ins. Co. Am. v. Colorado opportunity to parties had an address (1981); Springs, 638 P.2d 752 Central Sur. appropriate in this case under the issues Emp. Corp. v. American Ins. & Ins. standard, legal necessary to a remand is (1962); Covey 370 P.2d 455 Colo. However, provide opportunity. as the (1911). Schiesswohl, 114 P. 292 50 Colo. concluded, City did Court change position its in reliance on the liqui The essential elements of a undisputed mistaken it is (1) that the damages provision dated are: of material clerical nature. mistake was damages; liquidate intended Thus, only element to be addressed on contracting that at the time of the amount remand is whether Powder Horn’s mistake damages specified esti was reasonable made in faith. If Powder Horn was damages presumed actual mate element, equitable fails to cause; establish that at the the breach would falls, its must deemed valid defense be ascer contracting it was difficult to time of and, therefore, pursu- City damages recover tain the amount actual terms of the as a result ant to the bid bond from a Rohauer v. would result breach. (Colo.1987); carry Little, Horn’s failure to out its of Powder 736 P.2d 403 O’Hara However, Denver, obligations Sys., if Hous. Group as low bidder.8 Ltd. v. Marcor good-faith Horn mis- 197 Colo. 595 P.2d Powder establishes take, Jarvis, 135 Colo. 312 P.2d it will entitled to rescind the bid Perino v. obligation by a damages. An created and the can recover no Here, alleged damages only damages alleged by exceeds the amount are of these flowing bargain having parties, penal those from loss of the if the bond executed project price constructed for the damages, it re- is entitled to recover Horn, damages measured the differ- bid bond. See full amount of the cover the allegedly ence between Powder Horn’s valid accompanying 12 and text. note infra and the second lowest bid. Because the amount agreement provi- obligation bond be void, will viewed as a then this shall be other- for penalty, liqui- sion rather than as a wise the same shall remain in force and damages provision, bond, effect; dated being unless the expressly it understood and refers, or other instruments to which it agreed liability Surety shows intended otherwise. any shall, and claims hereunder in no all Mining Turck v. Marshall Silver event, penal exceed thе amount of this Kline, Colo. 5 P. 838 Moore v. obligation as herein stated.... (1914). Here, Colo.App. 143 P. 262 Conspicuously any absent mention provided pertinent part bid bond in as “liquidated damages,” per- while the five follows: cent “penal” bond is twice referred in to as nature.

BID BOND provided pertinent itself in part [W]e, undersigned, ... POWDER as follows: CONSTRUCTORS, HORN INC.... as

Principal, and ST. PAUL FIRE AND BID MARINE COMPANY INSURANCE as Surety, hereby firmly are held and bound compliance your with Advertise- FLORENCE, unto CITY OF COLORA- Bids, hereby ment for BIDDER proposes penal DO as OWNER the sum Five perform all WORK for the construc- (5%) Percent Total Amount Bid tion of Florence-Coal Creek-Williams- burg Regional System Water —Schedule obligation Condition of the above 3 in strict accordance CON- Principal such that whereas has sub- DOCUMENTS, TRACT within the time mitted CITY OF COLO- FLORENCE. therein, set forth prices and at the stated BID, RADO a certain attached hereto below. hereby part amade hereof to enter writing, into a contract in for the Flor- agrees hereby BIDDER to commence Creek-Williamsburg Regional ence-Coal WORK under this contract on or before System NOW, Water —Schedule specified in a date to be the NOTICE TO THEREFORE, fully complete PROCEED and to (a) If rejected, said BID shall be PROJECT within 210 consecutive calen- (b) If said BID accepted shall be days dar thereafter. BIDDER further Principal shall execute and deliver agrees damages, as pay liquidated a contract in the Form of Contract of $200.00 sum for each consecutive cal- (properly completed attached hereto day endar thereafter.... BID) accordance with said and shall Again, no “liquidated mention is made of furnish a per- BOND for his faithful damages” bond, in reference to the bid contract, formance of said and for the although provides clearly the bid payment persons performing of all la- pay liquidated damages per of $200 furnishing bor or materials connec- day dilatory completion project. therewith, tion shall all other respects perform agreement cre- The contract documents also included an acceptance BID, ated by the of said informational document.9 This document part provided pertinent This document opening after the actual date of thereof. follows: why Should there reasons specified peri- cannot be awarded within the INFORMATION FOR BIDDERS od, may the time be extended mutual agreement may between the OWNER and the BID- The OWNER waive informalities DER. reject any or minor defects or and all BIDS. Any satisfy BID BIDDERS must be withdrawn themselves of the accuracy opening quantities above scheduled time for BIDS estimated postponement or authorized thereof.... No BID Schedule examination site and days drawings BIDDER withdraw a BID within 60 specifications a review of the suggest percent sixty days the five bid within opening does not of the repre by party intended either bids,10 bond was it also authorizes the to waive liquidated dam agreed amount of sent reject any minor defects bids or to ages damages from a or that the actual all It bids. does not indicate that the bond to execute ‍​​‌‌​‌‌​‌​​‌​‌‌‌​​​​​‌​‌​​‌‌​‌‌​‌​‌‌‌​​​‌‌‌​‌​​‌‍a construction bidder’s failure liquidated damages must be forfeited as if might regarded as the differ be any of its terms are not followed. еnce between a withdrawn low bid and the appears It from the terms of the bid Borough next lowest bid. Cf. Bellefonte provisions bond and from the of the accom- Co., Gateway Equip. Supply & Auth. v. panying purpose documents that the (1971) (where Pa. 277 A.2d compel bid bond is to the execution of a given prospec informational documents by construction contract the threat of ex- failing tive bidders stated acting payment the amount of the execute construction contract would forfeit punishment as bond for failure to execute liquidated damages, amount of bid bond as Palmer, such a contract. 2See G. The Law liquidated damages bid bond constituted 12.20, (1978) (“the Restitution at penalty). Although rather than the doc prohibit purpose ument does the withdrawal of bids of the contract formed the bid including accompanying proposal ADDENDA. After BIDS have been shall become the submitted, property the BIDDER shall not assert that of the OWNER. misunderstanding concerning there was quantities may investigations of WORK or of the nature The OWNER make such necessary WORK to be done. as he deems to determine the abili- WORK, ty perform of the BIDDER to The CONTRACTDOCUMENTS contain the the BIDDER shall furnish to the OWNER all provisions required purpose for the construction of such information and data for this request. may the PROJECT. Information obtained from an the OWNER The OWNER re- officer, agent, employee right reject any or of the OWNER or serves the BID if the evi- of, any person by, investigation other shall not affect the risks or dence submitted such obligations satisfy assumed the CONTRACTORor BIDDER fails to the OWNER that such fulfilling any properly qualified carry relieve him from of the condi- BIDDER is out the obligations Agreement complete tions of the contract. and to accompanied by contemplated Each BID must be a BID the WORK therein. payable percent bond to the OWNER for five respon- of the total amount of the BID. As soon as Award will be made to the lowest prices compared, BID have been sible BIDDER. laws, ordinances, except applicable OWNER will return the BONDS of all All and the responsible having regulations the three lowest BIDDERS. rules and of all authorities Agreement jurisdiction When the is executed the bonds over construction remaining apply through- the two unsuccessful BIDDERS PROJECT shall to the contract will be returned. The BID BOND of the suc- out. cessful BIDDER will be retained until responsible inspecting Each BIDDER is payment performance BOND and the BOND reading being thoroughly the site and for approved, have been executed and after which familiar with the CONTRACTDOCUMENTS. may it will be A returned. certified check be any The failure or omission of BIDDER to do used in lieu of BID BOND. way any foregoing shall in no relieve performance payment A BOND and a any obligation respect BIDDER from BOND, percent each in the amount of 100 his BID.... PRICE, corporate the CONTRACT awith sure- OWNER, ty approved required Although given will be the informational document performance for the faithful contract. to bidders stated that bids could not be with- days opening, provi- such a drawn within not, course, party preclude to whom the contract is awarded does withdrawal sion required Agreement legally justifiable E.g. will be to execute the for a reason. Connecticut Co., (D.Conn. performance payment F.Supp. obtain the BOND and v. F.H. McGraw & law; 1941) concluding days (applying BOND within ten calendar from the Connecticut provision date when NOTICE OF AWARD is delivered that the effect of a in bid documents to the BIDDER. The NOTICE OF AWARD that bid could not be withdrawn within a cer- accompanied by necessary Agree- days opening be de- shall tain number of of bid was signed ment and BOND In be relieved forms. case failure to assure that bidder would Agreement, obligation only legally justifiable); the BIDDER to execute the where of its option College OWNER at his consider the BID- Dist. v. Constr. Boise Junior Mattefs default, result). (1969) (same DER in BID which case the BOND 92 Idaho 450 P.2d 604 give (1986), bond is to compelled ... some assurance it was to award the con- performance bidder will enter into a con- struction contract to Powder Horn. We accepted”). tract if his bid is persuaded by City’s argument. are not purposes ascertaining 31-15-712,12B Section (1986),pro- C.R.S. contract, accomplished by one pertinent vides in part as follows: also consider the circumstances surround improvements by Public contract— making I.M.A., contract. All city cities. work done Rocky Airways, Inc. 713 P.2d Mtn. of public improve- construction works of (Colo.1986); 882 Lorenzen v. Mustard’s of ment five thousand dollars or more Inc., 265, Stand, 12 Last 196 Colo. 586 P.2d shall done be contract the lowest trial, City presented At the no evi responsible open bidder on bids after am- respecting dence the circumstances sur ple If advertisement.... no are bids rounding the execution of the bid bond and if, in opinion received or the city of thе accompanying documents which indi would council, high, all bids received are too purpose cate that a of bond was to city may liquidated negotiations enter into damages establish a sum.11 concern- Construing together, the bond negotiated documents price the contract. No must, parties we it is clear that shall responsible exceed the lowest penal intended the bid bond to constitute a previously received.... sum. In of any the absence evidence in the In City Colorado Springs Coray, v. 25 of demonstrating record purpose that the of 460, 139 Colo.App. (1914), 1031 P. the Court liquidate damages, bond was we Appeals prede of concluded that under the mutually conclude that the did not cessor to municipality section 31-15-712 a liquidate damages, intend see Rohauer improve could be held liable a Little, 403; Group v. 736 P.2d at O’Hara only ment if contract was contract Denver, Sys., v. Ltd. Marcor Horn. express approved by contract and was a 530, 679; 197 Colo. at 595 P.2d at v. Perino majority city of the council or board of Colo, Jarvis, 393, 135 at 312 P.2d at 108. plaintiff trustees. The alleged that case Rather, the as agreed upon bid bond by the superintended that he had con parties here must penal be deemed a bond.12 project, struction but allege failed to his complaint that he express had an

IV public authority. City with the The asserts light City that in argues Coray also decision section that under (cid:127) 31-15-712, terms section 12B require C.R.S. 31-15-712 must read to a munic- 11. (3d 1961). The trial court sustained Powder Horn's ob- Law §§ Contracts 774-775A ed. jection contrast, admissibility testimony penal рursu- where a bond is executed Decker, Charles statutory Farmers Home requirement, obligee Administra- ant to a engineer, purpose tion civil toas of a bid upon recover the full amount the bond non- evidence, Although bond. not into admitted performance regardless of whether actual dam- City presented proof as an ages offer of the testimo- E.g., Barnard, are shown. Clark v. 108 U.S. ny understanding 436, 878, of Decker to the effect his (1883); 2 S.Ct. 27 L.Ed. 780 General primary purpose was that the of a bid bond is to Springs, Ins. Co. Am. v. Colorado 638 preserve bidding process by guaranteeing Williston, (Colo.1981); P.2d 5 S. that a construction contract will be entered into (3d 1961). Law Contracts 775B ed. How- Although based low bid. ever, we need not indemnity pur- where an is bond executed question admissibility decide the of Decker’s statutory upon nonper- requirement, suant to testimony, testimony we note that this did not obligee may only formance the recover support City’s argument purpose of damages, amount of actual exceed the essentially provide a bid bond liqui- E.g., face amount States of the bond. United v. damages. dated Zerbey, 271 S.Ct. 70 L.Ed. U.S. (1926); Am. v. General Ins. Co. Colora- party's recovery Springs, undisputed Under common law a on a do P.2d at 757. It is penal ordinance, damages bond is promulgated by limited actual shown. or that no statute E.g., Mining Turck v. Assembly City, Marshall Silver 8 Colo. either the General or the re- Stearns, quired 5 P. A. The Law the execution forfeiture (5th 1951); Williston, Suretyship § ed. 8.17 5 S. bond here. ipality bonds, provides to award the construction contract pertinent part as fol- to the lowest bidder even where that bidder lows: inadvertently computa makes substantial security. (1) Bid security Bid shall be agree

tional error. We cannot required competitive for all sealed bid- compels Coray necessarily decision ding such for construction contracts when the In Coray price conclusion. the Court of procurement estimated question did not have before it the officer to fifty exceed thousand dol- municipality properly put Nothing whether a lars which .... this subsection prevents project up requirement forego awarding for bids could of such bonds on construction fifty contracts under contract to a bidder on the common law thousand dollars. basis of mistake. County & Bowen, 315, 317, Denver security 67 Colo. 184 P. Bid shall be in an amount (1919). Moreover, equal to at least percent the General five Assembly amount of the bid. specifically provided has the construction of statutes the common law shall in full repealed remain force until (4) After the opened, bids are they 2-4-211,

by legislative authority, 1B § shall be period speci- irrevocable for the (1980), C.R.S. and section 31-15-712 does bids, fied in the except invitation for purport repeal not its terms the com provided 24-103-202(6). in section If a respecting mon law in mistakes the forma permitted bidder is to withdraw his bid tion of award, contracts. before no action shall be had against security. bidder or the bid However, assuming is cor- 24-105-201, (1982). pro- 10 C.R.S. These § concluding rect in that the General Assem- visions of the Code demonstrate a clear bly initially intended to disallow with- legislative intent allow bidders who have drawals of bids for construction inadvertently in рreparation erred projects, legislative intent was altered their bids to withdraw those bids before prior to the bidding time of in this case. In award of the contract without loss of bid 1981, the Assembly General enacted the Although application bond. of the Code (the Code), Procurement Code 24-101- §§ provisions is mandatory only respect 24-112-101, (1982). 101 to 10 C.R.S. branch, to bodies of the state executive Code is based the American Bar Asso- 24-101-105(2) section specifi- of the Code ciation’s Model Procurement Code for State cally grants municipal pow- authorities the Governments, and published Local in 1979. apply any provisions er to or all Code, Section 24-103-202 detailing conclude, therefore, Code. We requirements competitive be met City’s compelled contention that it was bidding, provides sealed pertinent part statutory law award the contract to the as follows: lowest bidder even where that bid con- (6) Withdrawal of inadvertently erro- tained an inadvertent error is without mer- neous per- bids before the award it. pursuant mitted to rules if the bidder proof submits of evidentiary value which V clearly convincingly and demonstrates judgment Appeals the Court of is Except that an error was made. as oth- reversed, and the case is remanded to the rules, provided by erwise all decisions to Court of with directions to reverse permit the withdrawal of bids based on judgment of the trial court to re- such supported by bid mistakes shall be mand the case to the deter- trial court for a written determination made the mination of whether Powder Hоrn’s bid purchasing state director or the head of good was made faith. In the event the purchasing agency. trial court the mistake was determines 24-103-202(6), faith, C.R.S. More- judgment made in should be over, Code, section 24-105-201 of the against entered for Powder Horn and provision specifically dealing City. with bid In the event the trial court deter- good verely policies

mines the mistake was made in undermine fostering fair faith, judgment should be entered for the dealing certainty among contracting against Powder Horn on the basis to any negotia- essential of the bond. process.” tion Maj. op. major- at 361. The ity asserts that requiring negli- a lack of

ERICKSON, J., dissents. gence “focuses substantial evidence on the mistake,” cause of VOLLACK, J., primary when dissents; focus given “consequences should be MULLARKEY, J., joins dissent. Maj. op. According- mistake.” at 362. ERICKSON, Justice, dissenting: ly, the majority concludes that in order view, I respectfully my dissent. In once to rescind Powder Horn must estab- opened, a bid to authority “good lish a Maj. faith op. mistake.” at irrevocable, bid or offer becomes see 10 E. McQuillin, Municipal The Law Corpo- view, my simply requiring a contrac- 29.67, (3d 1981),1 rations at 383 ed. and a tor to submit bid in faith compro- unilateral mistake of a contractor does not mises integrity bidding process justify showing rescission absent a by failing penalize sloppy prepara- (1) the mistake relates to a material fea- by failing discourage tion and fraud contract; (2) ture of the it occurred de- contractors seek who to rescind a bid that spite care; the exercise of reasonable product not the of clerical error but public authority placed can be rather judgment mistake on the con- quo. in status A part. jurisdictions tractor’s majority of Florence v. Powder Horn Con adopted has the requirement that a con- structors, (Colo. 716 P.2d tractor demonstrate that he exercised rea- App.1985) (relying upon J. John Calnan sonable care before he is to allowed rescind Builders, Inc., Co. v. Talsma 67 Ill.2d McQuillin, a bid. See 10 E. The Law of (1977)). 10 Ill.Dec. 367 N.E.2d 695 The 29.67, Municipal Corporations at 383 is, irrevocability extent, of the (3d 1981); Annotation, ed. Right Bidder of supported by the “Information for Bid Municipal State or Contract to Re- for ders” of section the bid contract which scind Bid on Ground That Bid Was Based provides that: “No BIDDER with Upon His Own Mistake or That His draw a BID days within 60 of the actual Employee, 2 A.L.R.4th 1003-13 opening date of the thereof.” case, In this it is that conceded Powder acknowledge While I that the John J. $73,326 material, Horn’s error was thus distinguishable Calnan Co. case is on its satisfying first element of the three- case, facts from this I pro- believe that it part appeals. test set forth the court vides balancing the best formula for respect negligence element, With preserve need to the trial ability court’s trial court concluded Horn grant equitable remedy of rescission in failed to exercise in prepar- reasonable care cases, against meritorious pre- the need to ing its finding bid. Because this sup- is integrity bidding process serve the ported record, op. maj. see at 358- fraud, and to diminish frequency J., (Vollack, dissenting), we will not collusion, рreparation. and careless bid disturb it. We need not address the third majority, questions whether le- element because Powder Horn failed to ex- gitimate purpose by requiring is served ercise reasonable care in preparing its bid. bidder to negli- establish freedom from gence, asserting requirement I “such While believe that under the bid bond would in these limited circumstances the City damages se- is limited to actual not to 24-105-201(4), however, (1982), pro- 1. Section language C.R.S. in section 24-103- pertinent 202(6), part: (1982), vides in opened, they relating “After bids are 10 C.R.S. withdrawal period inadvertently permissive, shall be irrevocable erroneous bids bids, specified (Vollack, J., except Maj. op. in the invitation mandatory. as See at 359 24-103-202(6)." provided dissenting). in section I note. bond, bid; pect public I am not limits of the and that the au- exceed the appeals thority rely or the did not to its the court detriment convinced that the mistaken damages the actual bid. trial court considered City. Flor- by the suffered added). Maj. op. (emphasis at 363-364 ence, Accordingly, I 716 P.2d at 145. good majority nowhere defines faith. I ap- return the case to the court would guidance believe some definitional is re- peals for remand to Úie district court quired. Dictionary ‍​​‌‌​‌‌​‌​​‌​‌‌‌​​​​​‌​‌​​‌‌​‌‌​‌​‌‌‌​​​‌‌‌​‌​​‌‍Black’s defines Law damages suffered determine actual good faith as: City. intangible quality and abstract with [A]n meaning statutory no technical or defini-

VOLLACK, Justice, dissenting: tion, encompasses, among and it other belief, things, an honest absence agree I respectfully I dissent. While design malice and the absence of to de- majority with the that considerations fraud or to seek an unconscionable ad- require rejection of the “firm equity vantage, personal and an individual’s rule, agree majority’s I bid” do not good concept faith is of his own mind and bidder can demand conclusion that low and, therefore, spirit inner not con- public rescission of a construction contract clusively protesta- be determined his merely by a result of a mistaken bid intention, Honesty tions alone. I showing that he acted in faith. knowledge freedom from of circumstanc- under such circumstances a believe that ought put es which holder escape liability cannot for the low bidder inquiry. An honest intention to abstain simply by consequences of his mistake taking any from unconscientious advan- faith, showing he acted in but another, tage through technicali- even prove must that his mistake occurred de- law, together with absence of all ties spite the exercise of reasonable care. The information, notice, or benefit belief give adopted by majority rule fails to facts which render transaction uncon- weight due character usage scientious. common term bidding process. rule serves to Such a ordinarily to describe that state used undermine confidence con- denoting honesty purpose, of mind bidding process ignores struction defraud, and, freedom intention enacting Assembly intent of the General being generally speaking, means faithful its version of the Model Procurement Code. obligation. duty to one’s or Honesty in Law. fact Commercial I. the conduct or transactiоn concerned. majority The concludes that 1-201(19). In the case of a U.C.C. § controlling legislation, in the absence of merchant, honesty in fact and the observ- public construction con- a bidder for a of reasonable commercial standards ance containing a a tract who submits dealing in trade. of fair U.C.C. mistake rescind the bid to its 2-103(l)(b). § acceptance if the bidder establishes (5th ed. Dictionary Law 623-24 Black’s preponderance of the evidence that the 1979) (citations omitted). mistake is of a clerical or mathematical nature; element to the definition of mistake was made in The common requires an good honesty, is which and relates to a material as- faith1 good faith applied to service con- whether the UCC faith is also defined in the Uniform mine 1. Good (UCC). goods. Code Article Two of the Four- Commercial which included a sale tract applies expressly to contracts for transac- UCC to determine were identified useful factors goods by analogy to service con- tions and predominates. "goods" or "services” whether goods. which include transactions in See tracts They include: Anderson, (1978); 1 R. Anderson §UCC 2-102 (1) par- language used the contractual (3d ed. on the Commercial Code 502 Uniform ties; Installation, 1981). Carpet Inc. v. In Colorado (2) agreement involves one over- whether the Palermo, (Colo.1983), 668 P.2d 1384 this court goods price and labor that includes both all recognized "primary purpose” test to deter- subjective Sales & Bulk 3 Duesenberg evaluation of the intention of the R. King, & L. Under The Commer- рarties. In order to demand rescission of a Transfers Uniform cial Code [ii], at to 4-267 -269 § negligently prepared majori- 4.08[3][a] under (1987) (footnotes omitted). rule, only ty’s prove the low bidder need an faith, say, absence of bad which is to that II. the bid without intent was submitted Requiring a contractor show his claim, To the City defraud. refute such a error despite occurred the exercise of rea- would have to the low show sonable care as precedent a condition through dishonesty. acted in bad faith rescission of a construction contract Such a standard would allow a bidder is a good sensible alternative faith escape responsibility for conduct fact, appears rule. it to be rule in might prevented by well have been exercis- majority jurisdictions. See 10 E. impose and reasonable care would an McQuillin, Municipal Corpo- Law of impossible evidentiary burden on rations 29.67, (3d 1981); at 383 ed. 3 J. § to circumvent. Pomeroy, A Jurispru- Treatise on Equity good dence 870a, (5th standard for 1941); faith mer- at [T]he ed. Anno- Right tation, Bidder State Mu- is one can chants which be asserted in a for nicipal Contract to Rescind Bid circumstances, variety is often Upon Ground that Bid Was Based His avoiding liability.... used as a sword in Own Mistake or Employee, That His It is a standard difficult to deal A.L.R.4th 1003-13 any given with and hard define in situation, and creatively is used in a vari- Prohibiting a rescinding contractor ety challenge rights of contexts a negligently prepared bid furthers a num- liabilities under sales public policies. contracts. ber of or, instead, separate calls for and discrete under thе faith standard of section 2- billings goods 103(l)(b) on the one hand labor rather than the faith standard of other; 1-201(19). on the section goods “Honesty the ratio that the cost of subjectively, bears to in fact” is measured price; the overall contract while "the observance reasonable commer- pur- dealing the nature and reasonableness cial standards fair trade” expectations Summers, acquiring objectively. chaser’s contractual measured J. White & R. goods.... property interest in Handbook the Law Under the Com- Uniform (citations omitted). 6-3, (2d 1980). Id. at 1388-89 Determina- mercial Code at 218 ed. tion of these factors cannot be made in this case observance reasonable commercial standards presented dealing because the facts were trial fair is a trade lower standard event, purpose applying court. In than the standard of reasonable care. UCC to the facts of case is not to create a Recommendation of the Editorial Board precedent requiring 21; Burton, all contractors of services Uniform Commercial Code Good UCC, to assume the duties of but to make Faith a Contract Within Article 2 Performance of analysis Code, use of a standard in the absence of Commercial 67 Iowa of L.Rev. 1 Uniform guidelines by (1981); Farnsworth, majority. definitional Good Faith Per- Assuming analysis for the sake and Commercial Reasonableness Un- formance facts, applies Code, UCC to these the UCC creates two der the Commercial 30 U.Chi.L. Uniform good 666, depending (1963). standards faith on whether Rev. 675 party 2-103(l)(b) concerned, is a merchant. Section Where merchants are bad faith "honesty through defines faith for merchants as in can also be shown failure to observe fact and dealing the observance of reasonable commer- reasonable standards of fair dealing cial Although standards of fair in proved the trade.” Sec- trade. this can sometimes 1-201(19) through tion gross negligence, defines faith for nonmer- evidence of commen- "honesty chants fact agree as in in the conduct or tators that the standard created “ob- transaction concerned." servance of reasonable commercial standards 2-104(1) dealing Section defines the ambiguous term “merchant" fair in the trade” is at best person goods Burton, as "a who deals in of the kind or and incoherent at worst. See Good occupation otherwise his holds himself out Faith a Contract Within Article 2 Performance of having knowledge peculiar Code, or skill Commercial 67 Iowa of L.Rev. Uniform practices goods 21-23, 1, Summers, involved in the transac- 25-29 "Good obviously tion...." This definition includes Faith" in General Contract Law and the Sales Code, Consequent- contractors such as Powder Horn. Provisions Commercial 54 Uniform ly, (1968). Powder Horn's conduct must be measured Va.L.Rev. 195 (5th importance 33, paramount 1984). is of that the Torts at It ed. bidding process integrity of the not be Horn’s conduct falls short of those stan- compromised by those entrusted with dards. providing the state’s citizens the im- Donahue, Cletus presi- Powder Horn’s policy provements public and the dent and bidder on the project, Florence interpreting command. In the re- law testified picked that he could have up bidding process quirements of the specifications for project the Florence from keep proce- must in mind that court 24, 1981, on December but chose designed prevent fraud, “are dures 6, January 1982, to wait until so. to do collusion, improvidence favoritism and This twenty-seven reduced from to four- public

the administration of business as teen days the number of Powder Horn had as to insure well receives to prepare its bid. best supplies work or at the most price practicable.” reasonable project estimator, The Florence Michael O’Clair, calculated the cost of Constr., concrete and Dillingham Inc. v. Milwaukee Dist, 406, labor associated wall Sewerage F.Supp. forming with Metro. (E.D.Wis.1986) Nelson, (quoting project page Florence Inc. v. on fifteen of his Comm’n, 400, 409, Sewerage 72 Wis.2d 241 book. The bid book was a ring three bind- (1976)). N.W.2d permitted er that removal of all its pages. O’Clair testified that the estimates majority recognizes that Powder page on completed January fifteen were on negligently prepared. Horn’s bid was It twenty-four more than hours the role before nevertheless minimizes that rea- plays bidding missing care erroneous bid was submitted. sonable process by stating very page term had been removed from the bid book “[t]he usually degree ‘mistake’ connotes some on January though changes even no negligent Maj. op. conduct.” at 361. were made to subsequently it. Contrary intimation, majority’s O’Clair that he admitted failed to fill equated care reasonable has never been preprinted three of the spaces blank on the Rather, absolute with blamelessness. the missing page fifteen. These blanks includ- question of whether mistake constitutes space ed for the estimator to fill in his negligence depends circumstances initials, estimate, original to recheck his requires objective comparison page. to total the costs on the Neither particular conduct a reasonably to what Donahue, he nor Powder Horn’s other esti- prudent person would do the same situa- mator, page had double-checked his fifteen light recognized tion risk associat- estimate of the cost labor and concrete Keeton, ed it. See W. Prosser and project. for the Florence Keeton on the Law Torts at 170- trial, Following judge a bench the trial (5th 1984); (Second) ed. Restatement up found two waiting pick weeks to Torts In the area of §§ specifications, removing pages bids, I mistaken believe the most useful bid book need that did not last-minute revi- determining standard whether a mis- sion, failing to use the series of checks negligence take constitutes is the standard built into made system, Powder Horn’s practice or custom in in- the construction product negligence. mistaken bid a dustry.2 It undisputed that failure to suggested fact judge the trial that Powder industry observe standards reasonable bidding procedure may is evidence Horn’s consti- negligence. care W. have Keeton, gross Prosser negligence.3 on the Law tuted Keeton order, sаy compliance judge 2. This is not to that with indus 3. his noted that trial try negligence. standards can never constitute 4, large relatively as the two items in Number 737, (2d Cir.), Hooper, The T.J. 60 F.2d Page to Item 4 of Exhibit that were on Transp. cert. denied sub nom. Eastern Co. v. omitted ... I wonder about ... it seems Barge Corp., Northern 287 U.S. 53 S.Ct. ordinary just more than ne- to me that that’s issue, however, (1932). 77 L.Ed. 571 That is not glect something to else that it amounts ... before the court. is required calculating can permit Errors in a bid occur de to the contractor re- to spite scind language the exercise of reasonable care on the the contract. The clear 24-103-202(6) section part of the When such errors that contractor. shows Gen- Assembly eral prohibit never intended to despite occur exercise reasonable care, municipalities City4 such appro I that as the from en- believe rescission an forcing a contract based on a priate long mistaken bid. remedy consider as as the mistake relates to a material also feature 24-103-202(6) Section that states “[with- could the contract and rescission return inadvertently drawal of erroneous bids be- position was in City it before permitted pursuant fore the award See, e.g., accepting Horn’s bid. proof to rules if the bidder submits Builders, John J. Calnan Co. Talsma evidentiary clearly value which and con- 67 Ill.2d Ill.Dec. N.E. vincingly demonstrates error was (1977). 2d 695 That this error was due to (1982) (emphasis added). made.” 10 C.R.S. negligence my Powder Horn’s increases be Significantly, Assembly General de- lief that of the contract is not the rescission adоpt clined to the Model Procurement remedy appropriate in this case. rule, Code’s bid which withdrawal would required public permit have authorities

III. contractor inadvertently to withdraw an er- majority correctly majority’s concludes roneous rule bid.5 would 24-103-202(6) prohibit require section does withdrawal of all erroneous bids faith, permitting Powder Horn to re- made in essentially which is analysis scind proposed by the contract. This neverthe- same standard that was important question rejected less the more Model by overlooks Procurement Code and Assembly.6 of whether in such circumstances General promulgated by Policy and this was the concrete and the Office. labor. After bid opening changes prices These were considerable amounts ... which I no in bid or other provisions prejudicial think a reasonable contractor should not have of bids to the interest of Nor, opinion, missed. in the Court’s would competition permit- or fair shall be [State] not, contractor a bid reasonable magnitude, of this by Except provided regula- ted. tion, as otherwise $700,000, go through almost permit all decisions to the correction or up figures add one more time. bids, withdrawal of or to cancel awards or added). (Emphasis He concluded mistakes, sup- contracts based on bid shall be here, think, you I think have a I combination ported by a written determination made courtroom, using papers spread as the Chief Procurement Officer or head of a system probably demonstrated defense Agency. Purchasing was, meаn, in and of itself I that was ludi- added). (Emphasis you crous to the Court. How could avoid an my way error did taxes ... if I income I "inadvertent," appears 6.The word which sec- just would be in Leavenworth now. It won’t tion 3-202 the Model Code Procurement way. work that 24-103-202(6) section of the Colorado Revised “inadvertently,” Statutes as is defined as "heed- 24-101-105(2) politi- 4. Section ’’[a]Il states that less, negligent, inattentive unintentional.” ... agencies cal subdivisions and local of this Dictionary New Webster’s Third International adopt any part state are authorized to or all (5th Dictionary Black’s Law accompanying this code and its rules.” The 1979) as ed. ness; defines "inadvertence” ”[h]eedless- adopted has not the Procurement Code. Never- attention; care; lack of want careless- theless, municipal- it is fair assume that other ness; person pay failure careful and Code, adopted ities have the Procurement there- prudent negotia- progress of attention to the by making relevant intent General proceeding rights tion or which his court Assembly applies policy it considerations text be affected.” Neither the nor the com- implicated by majority’s rule. 3-202(6) mentary to section resolves the ambi- 3-202(6) guity "inadvertently" Section of the Model Procurement created the word as to Code states: Model Code whether the Procurement intends Bids; adopt negligence faith or a standard Correction or Withdrawal of Cancel- permitting standard for rescission of an errone- lation of Awards. Correction withdrawal 24-103-202(6) inadvertently similarly ous si- before bid. Section erroneous bids or af- award, ambiguity prob- but ter or cancellation awards or lent. This underscores one con- mistakes, tracts based on such lem of Code’s effort to shall be the Model Procurement Rudland, permitted regulations codify in accordance with rules. See Ration- mistake Requiring cost, Powder Horn to show that its resulting estimated in a net loss to despite error exercise occurred of rea- the bidder for that item. Yet a low bidder policy sonable care is faithful to the consid- corresponding has no bring incentive to erations that underlie the Colorado Pro- public the attention of the authority an curement Code. Section 24-101-102 recites resulting gain error in a net to the bidder underlying purposes policies of Col- he already because has been awarded the orado’s version of the Model Procurement contract. Accordingly, purchasing val- purposes policies Code. These are: public ue of funds can be diminished but (a) simplify, clarify, To and modernize by permitting not increased rescission of governing procurement by law carelessly computed bids. Colorado; state of Careless bids also public lower confi- (b) provide To public for increased con- procedures dence in the in public followed procedures fidence in the followed in procurement in violation of section 24-101- public procurement; 102(2)(b). A low bidder would receive the (c) equitable To ensure the fair and opportunity, bidders, denied to all other persons treatmеnt of all who deal with light reconsider his bid in competitors’ procurement system of the state of bids which are higher known to be than his Colorado; required and which are to remain available (d) provide economy To increased public and, inspection by custom procurement state activities and to max- municipalities those adopted have imize practicable to the fullest extent Code, by See, Procurement e.g., statute. purchasing public value of funds of the 24-103-202(4), (1982). 10 C.R.S. Re- Colorado; state of simply scission could then become another (e) To foster effective broad-based option business oppor- event that an competition within enterprise the free tunity larger profit to make a arises after system; and open. are possibility bids Even the (f) provide safeguards To for the main- option public such an would erode confi- procurement tenance of a system qual- public dence in the procurement process. ity and integrity. public authority prevent That the could not (1982). 10 C.R.S. by showing that rescission the mistake was Permitting bid withdrawal for mistakes negligence due to the bidder’s would fur- that occur the exercise of despite reason- ther public undermine that confidence. able care ensures fair treatment of low Finally, permitting contractors to rescind by relieving bidders them of burdens carelessly prepared bids would confuse they caused mistakes could not reason- simplify public procurement rather than ably prevented. Requiring have bidders to 24-101-102(2)(a) violation of section by in- conform bids to the industry standards of troducing greater uncertainty into the bid reasonable care maintains the integrity of bidding process, process. longer and in Public authorities could no turn increases public confidence in procedures process complete consider the bid fol- when the public procurement. lowed in opened. bids longer were Bids could no considered period irrevocable the time A good permits faith rule that rescission specified in the invitation for as re- bids bids, of contracts for careless errors in quired by parties, between the contrast, would undermine the policy con- industry, custom in the statute siderations outlined in the Procurement municipalities adopted those that have Code. purchas- Careless bids diminish the See, e.g., Procurement Code. public value of funds in violation of 24-105-201(4), (1982). The 24-101-102(2)(d). section A C.R.S. low bidder has majority bring adopted by economic incentive to faith rule to the atten- tion of authority any could conceivably error cause authorities given whose actual cost for a item acceptance process exceeds to accelerate the formal Rules, diking the Bid Mistake 16 Pub.Cont.L.J. so as was opening product of bid to remove tractor s error not a of bad

to the time importantly, analysis faith. More good uncertainty the the faith rule weight places no significance the creates. requiring parties bid bonds. Private are required accept not the lowest IV. generally require do not bonds. But gives majority’s the insuffi- Finally, rule procedures, public these so vital to the public character cient consideration designed process, appear- are the avoid bidding process. in Unlike bids prac- ance that form of favoritism sector, public private in sector bids public procurement by awarding ticed in responsible to the lowest must be awarded the contract in all cases to the lowest re- 31-15-712, (1986).7 12B C.R.S. bidder. § sponsible way parties In this bidder. adopted Although has not the Pro- satisfy simply their duties not to them- Code, its curement contract public selves but to which demands in- Horn contains the same elements. The expenditures public funds be above provided formational document to all bid- reproach. incorporated by reference into the ders and Every obligates contract requires applicant bid contract each to sub- (Second) act in faith. Restatement mit not be a sealed bid which revoked (1979). By requiring Contracts § sixty days opening. after Each bid no more in of bidders than faith re- accompanied by must bond for be five contracts, scinding majority relieves percent of the total amount of the bid. higher obligations contractors of the at- opened publicly Bids must be and read tending management public funds. The aloud accordance with the advertisement question very rule calls existence into recog- As the Procurement Code bids. evidentiary of bid bonds because the bur- nizes, designed these elements are to main- den on the contractor is so minimal. bidding process. integrity tain the three-part I adopt would test John аddition, in- informational document Builders, Inc., J. Calnan v. Talsma Co. corporated into the bid contract states that Ill.2d N.E.2d 10 Ill.Dec. party to whom contract [t]he (1977), require a contractor show as required awarded will be execute the (1) precedent to rescission that condition performance Agreement and obtain the the mistake relates to a material feature of payment within BOND and BOND ten (2) contract; the mistake de occurred days calendar from the date when care; spite the exercise of reasonable OF NOTICE AWARD is delivered to the rescission could return the au BIDDER. The OF AWARD NOTICE thority quo. status I believe accompanied by necessary shall be the proper damages measure of when a Agreement prove entitled to and BOND forms. In case bidder fails to that he is rescission is the difference between the two of the BIDDER to failure execute the bids, lowest to exceed amount of Agreement, op- the OWNER at his the bid bond. default, tion consider the BIDDER the BID accompany- which case BOND appeals. I would affirm the court of proposal proper- shall become say I am MUL- authorized that Justice ty of the OWNER. joins LARKEY me this dissent. added). (Emphasis majority’s analysis defeats the ex- press provisions by per- the bid

mitting City’s option rescission not at the showing merely

but that the con- pertinent part: responsible open 7. Section 31-15-712 states tract bidder on to the lowest ample bids city after advertisement.... ‍​​‌‌​‌‌​‌​​‌​‌‌‌​​​​​‌​‌​​‌‌​‌‌​‌​‌‌‌​​​‌‌‌​‌​​‌‍All work done in the construction added). (1986) (emphasis improvement of works of five 12B thou- C.R.S. sand dollars more shall done con-

Case Details

Case Name: Powder Horn Constructors, Inc. v. City of Florence

Court Name: Supreme Court of Colorado

Date Published: Apr 25, 1988

Citation: 754 P.2d 356

Docket Number: 85SC502

Court Abbreviation: Colo.