Bid Acceptance Not a Contract, Court Rules

The September 2004 Construction Advisor reported on an Arizona Court of Appeals decision, in Ry-Tan Construction, Inc. v. Washington Elementary School District No. 6, in which the Court ruled that formal contract execution may not be required to bind the parties in the awarding of a contract.

That decision was vacated in May 2005 by the state Supreme Court, which also reversed the trial court’s ruling for Ry-Tan Construction. The Supreme Court found that the Washington Elementary School District board was free to withdraw its acceptance of Ry-Tan’s bid prior to the signing of the contract, even though Ry-Tan, relying on the award, had begun work on the district’s project.

BACKGROUND

Ry-Tan was the lowest qualified bidder on a public school project. The school board voted to award the contract to Ry-Tan, and a letter documenting the award and a notice to proceed were prepared for delivery to Ry-Tan.

Before the contract documents were formally executed, Ry-Tan moved equipment onto the jobsite and began construction. Ry-Tan was familiar with the jobsite and the location of utility lines and, thus, did not request a “blue stake” inspection of utility lines at the project site before beginning work. When the school board became aware that Ry-Tan began work without a blue stake inspection, it refused to sign the contract that it had awarded to Ry-Tan and ultimately voted to re-bid the project.

Ry-Tan sued for breach of contract, won in Superior Court, and won again in the Court of Appeals.

SUPREME COURT FINDINGS

In its ruling, the state Supreme Court relied on its 1951 Covington decision, which held that a public agency that accepts a bid on a public contract is not bound until a formal contract exists. Attorneys for Ry-Tan argued, unsuccessfully, that Covington did not apply to this case and, alternatively, whether it applied or not, it was a bad decision and should be overturned.

Ry-Tan also contended that, since the Arizona School District Procurement Code required the district to award the contract to “the lowest responsible and responsive bidder whose bid conforms to … the invitation for bids,” the district had no choice but to contract with Ry-Tan and, thus, the signing of the contract was a mere formality. The Court acknowledged that requirement but noted that “nothing in the Code expressly prohibits a public entity from withdrawing a bid after acceptance of the bid but prior to the award of the project.”

CONCLUSION

The moral of the story should come as no surprise: The written contract is not a formality, and a vote to award a contract is not binding until the document is actually signed.