Bidder & Surety May Be Liable For Low Bid

Kegler Brown Construction Newsletter

The case of White Hat v. Ohio Farmers Ins. Co., 167 Ohio App.3d 663, 2006-Ohio-3280, involved a contractor’s effort to withdraw a public bid on a school project. The low (very low) bidding contractor gave notice of the withdrawal of its bid after the bid opening (but presumably beyond the two-day period for withdrawal of a bid without liability in the event of a math or clerical error). The agent for the school owner said he had accepted the low bidder by submitting a contract that the low bidder refused to sign. The surety for the low bidder also denied liability on the bid bond.

At trial, the Court granted the contractor’s motion for a directed verdict agreeing with the contractor that no contract with a public authority is formed under R.C. §153.12 until a contract is formally signed. Ultimately, a jury found in favor of the surety on the bid bond as well.

However, on appeal the Court of Appeals reversed and found that a contract could be formed by the public owner orally accepting the bid (an oral contract) and ultimately memorializing that agreement into an executed written contract.

In addition, the Court of Appeals found the surety could not use the defense that the owner had not provided proof of financing, in that the surety had repudiated the contract by failing to pay on the bid bond.

This case means that low bidders and their sureties will have potential liability should the low bidder fail to properly withdraw a clerical or math mistake within the two-day statutory period, and still fail to enter into a contract with the owner. That liability is typically the cost difference between the low bid and the price of the second bidder who ultimately performs the work.