Author: LegalEase Solutions 

Questions Presented

1. Can a California Contractor sue a public agency for lost profits?
2. What damages can a California contractor claim from a public agency?

Short Answers

1. No, a California Contractor cannot sue a public agency for ‘lost profits’.
2. The California contractor can bring an action against a public agency for promissory estoppel damages to the extent of the cost of preparation of the bid.

Discussion

1. A California Contractor cannot sue a public agency for ‘lost profits’

California Public Contract Code Section 22038 requires the district to award the contract to the lowest responsible bidder. Sections 22037 and 22038 of the California Public Contract Code require the public agency to conduct the bidding process competitively and fairly and do not have to power to waive any irregularities in bids.  Menifee v. County of Fresno, 163 Cal. App 3d 1175; Miller v. Mckinnon, 20 Cal. 2d 83. See also, Baldwin-Lima-Hamilton Corp. v. Superior Court of San Francisco , 208 Cal. App. 2d 803; Konica Business Machines U. S. A., Inc. v. Regents of University of California, 206 Cal. App. 3d 449.

Under the California Public Contracts Code there is no relief available to a California contractor. Relief is available under Pub Con C §§ 5101 and  5103 only for errors in the general contractor’s bid, and relief is available to a general contractor whose bid is based on a clerical mistake brought promptly to the attention of the public agency.  MCM Construction, Inc.  v. City & County of San Francisco , 66 Cal. App. 4th 359, 78 Cal. Rptr. 2d 44 (1998).

In the case at hand there is no error in the contractors bid. The error is on the part of the district (“the district”). Hence, relief cannot be sought by the contractor under sections 5101 and 5103 of the California Public Contract Code.

Furthermore, a bidder deprived of a public contract, by the wrongful misaward of that contract, has neither a tort nor a breach of contract action against the public agency and hence cannot sue a public agency for lost profits. Kajima/Ray Wilson v. Los Angeles County Metropolitan, 23 Cal. 4th 305 (2000); Sierra Nat’l Ins. Holdings, Inc. v. Altus Fin., S.A., 2001 U.S. Dist. LEXIS 22301.

2. A California contractor (bidder) can bring an action against a public agency for promissory estoppel damages to the extent of the cost of preparation and submission of the bid.

In California, the doctrine of promissory estoppel as per Section 90(1) of Restatement of the Law, 2d, Contracts is defined as follows:

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

Further, comment ‘d’ to Section 90 of Restatement of the Law, 2d, Contracts states that a promise binding under Section 90 is a contract, and full-scale enforcement by normal remedies is often appropriate. The California courts have characterized  promissory estoppel as “a doctrine which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced. Raedeke v. Gibraltar Sav. & Loan Assn., 10 Cal.3d 665, 111 Cal.Rptr. 693 (1974); Seymour v. Oelrichs,  156 Cal. 782 (1909); Klein v. Farmer , 85 Cal.App.2d 545.

In the case in issue the contractor submitted a bid to the public agency. The public agency promised in its solicitation of bids to award the contract to the lowest responsible bidder and the California contractor’s reasonable and detrimental reliance upon this promise stated a cause of action for promissory estoppel. Swinerton & Walberg Co. v. City of Inglewood-L.A. County Civic Center Authority, 40 Cal. App. 3d 98 (1974). In Swinerton, Argo Construction Company, Inc. (Argo) instituted a mandate proceeding to have a management contract awarded to Swinerton & Walberg Company (Swinerton) set aside. Argo contended it was the lowest responsible bidder and was improperly denied the contract. On appeal, the court first concluded the misaward by a public entity of a public works contract to one other than the lowest responsible bidder did not give the lowest bidder a cause of action in tort. The court further concluded, however, that Swinerton could recover damages under a theory of promissory estoppel.

Further, in Monterey Mechanical Co. v. Sacramento Regional County Sanitation Dist., 44 Cal. App. 4th 1391, 52 Cal. Rptr. 2d 395 (1996) the Court stated that  promissory estoppel damages, if any, would be limited to the cost of preparing a bid and held that the  plaintiff was only entitled to recover bid preparation and submission expenses.  Again, in Kajima/Ray Wilson v. Los Angeles County Metropolitan, 23 Cal. 4th 305 (2000) the court permitted plaintiff therein to recover bid preparation costs on that theory that such recovery encouraged proper challenges to misawarded public contracts and deterred public entity misconduct. See also Planning & Design Solutions v. City of Sante Fe , 118 N.M. 707, 885 P.2d 628 (1994);  City of Atlanta v. J.A. Jones Const. Co., 398 S.E.2d   at pp 370-371.

Here, the public agency solicits bids, it represents, consistent with the statutory mandate, that if the contract is awarded, it will be awarded to the lowest responsible bidder. In reliance on this representation or requirement, the contractor (bidder) incurs costs preparing and submitting a bid. Since the contractor’s bid is the lowest, and it is a responsible bidder, and as the contract is awarded to a higher bidder, the elements of a promissory estoppel cause of action are established and the contractor is entitled to recover the bid preparation and submission expenses.

Conclusion

In the present case, a California contractor (bidder) can bring an action against a public agency for promissory estoppel damages to the extent of the cost of preparation and submission of the bid.