www.acpa.org 21 Quarter 2, 2022 C O N S T R U C T I O N L A W continues on page 22 » ONE OF THE GREATEST MISCONCEPTIONS that we see with our clients is the right to negotiate the terms in a subcontract. There is a principle in contracting known as “promissory estoppel” which protects general contractors fromhaving a bid withdrawn by a subcontractor. While courts differ around the country in how specifically the principal applies, in general the following is true: (1) a clear and definite promise; (2) the promise was made with the promisor’s clear understanding that the promisee was seeking an assurance upon which the promisee could rely and without which he would not act; (3) the promisee acted to his substantial detriment in reasonable reliance on the promise; and (4) injustice can be avoided only by enforcement of the promise. Misconceptions in Subcontracting By Thomas R. Olson & Rielly J. Lund Schof f v. Combined Ins. Co. of America, 604 N.W.2d 43, 49 (Iowa 1999). In general, this comes up when a subcontractor refuses to enter into an agreement after a general contractor uses the subcontractor’s pricing as part of a successful low-bid. Then, when the general contractor must find a replacement, the cost to the general contractor has increased dramatically (this is where the “detrimental reliance” comes in). If the elements of a claim are all met, the damages are typically the difference between the bid of the subcontractor, and the replacement cost after the subcontractor’s refusal to either enter into the subcontract or perform. Our reason for including the above information is as a background to the general principles of contracting, and why general contractors may rely on a subcontractor’s price in a bid. Where issues tend to arise are a misunderstanding of the doctrine as applied after bids are awarded and before a subcontract is signed. Just because a general contractor relied upon a subcontractor’s price in its bid, does not mean that the general contractor can force the subcontractor to sign a subcontract with unfair language under the threat of going to someone else and charging any damages to a subcontractor. The subcontractor has a right to negotiate terms that do not conflict with its bid and do not impact its pricing. Please remember, laws change from state to state and greatly depend on the specific facts of each case. You should consult with a lawyer for any
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