The time and resources in estimating the bid price, the lost business opportunity, the lost profit, etc… but that is all it should cost, it does not cost the contractor his bid bond if the mistake is an honest one and it is properly brought to the public body’s attention.
There are three reported cases that deal with a contractor’s ability to withdraw its bid due to the contractor’s mistake. These cases stand for the premise that if a contractor makes an honest mistake in its bid and that contractor brings the mistake to the public body’s attention before the public body changes it’s position based on the contractor’s bid, the contractor should be permitted to withdraw his bid without penalty.
The court developed a four prong test to determine whether the contractor should be permitted to withdraw its bid without penalty:
( 1 ) the mistake must be of so great a consequence that to enforce the contract as actually made would be unconscionable;
( 2 ) the matter as to which the mistake was made must relate to the material feature of the contract;
( 3 ) the mistake must have occurred notwithstanding the exercise of reasonable care by the party making the mistake;
( 4 ) it must be able to get relief by way of rescission without serious prejudice to the other party, except for loss of his bargain.
Conduit & Foundation Corp. v. Atlantic City 2 N.J.Super. 433, 440 (Ch.Div. 1949)
Whenever I argued these cases in court, I was usually arguing the law in front of a Judge in order to get my client’s bid bond returned. Some public bodies attempt to impose a “penalty” against the withdrawing bidder because the bidder made a mistake. The “penalty” was written into the bid specifications and attempted to make the withdrawing contractor liable for the difference that the public body had to pay between the withdrawing contractor’s bid and the next lowest bidder’s bid. The contractor making the honest mistake should not lose its bid bond or be penalized.
State laws and sometimes federal laws define the value of bid bonds on public projects. It should be noted that if the project is federally funded, the amount of the bid bond can be greater. In any event, the contractor’s liability should be limited by the amount of the bid bond.
As the Supreme Court noted in the Meadowbrook Carting case, a contractor could make a calculated decision to withdraw his or her bid and forfeit his bid bond if his bid was mis-estimated (not a mistake but a judgment error). So how does the public body distinguish between a bidder who wants to withdraw his bid because he made a judgment error (such withdrawal is NOT permitted) and a bidder that has made an honest mistake? The answer is that the Court will apply the four prong test described above. The McElwee Group, LLC v. Atlantic County Utilities Authority, 2009 WL 5062349 (App.Div.)