Contract Award Is Not A Contract, But Bidder May Pursue Claim For Damages For Posting Of Bonds

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When is a contract award a contract? Virtually never.  Rather, a contract award is just that – an award.  It is not a binding contract and imposes no obligation on the public entity.  In the words of Billie Jean King, a contract award is as fleeting as victory.

Recently, in the case of Allan A. Myers LP v. Montgomery County, the Commonwealth Court of Pennsylvania re-affirmed this long-standing principle of public contracting law.  In 2011, Montgomery County issued a request for proposals for roadwork.  After rejecting a bid from another bidder, the Montgomery County Commissioners adopted a resolution accepting the bid of Allan A. Myers LP (Myers).  Later, when the contract award to Myers was challenged by the rejected bidder, the County Commissioners adopted a second resolution rescinding the award to Myers.  Thereafter, Myers filed suit, seeking damages for breach of contract.  The trial court rejected the claim, holding that merely awarding a contract does not create a binding obligation on the public entity to actually execute a contract.

On appeal to the Commonwealth Court, Myers argued that a contract was formed when the County Commissioners adopted the resolution accepting the bid and awarding a contract to Myers.  Myers also argued that it was entitled to pursue damages for the costs related to procuring the required bonds under a non-contractual theory of recovery.  The Commonwealth Court rejected the appeal by Myers, holding that the Second Class County Code governed the award of the contract to Myers and required a signed, written contract (and not simply a resolution).  The Commonwealth Court followed the seminal case of Crouse, Inc. v. School District of Braddock, 19 A.2d 843 (Pa. 1941), where the Supreme Court reasoned that:

When a municipal body advertises for bids for public work and receives what appears to be a satisfactory bid, it is within the contemplation of both bidder and acceptor that no contractual relation shall arise therefrom until a written contract embodying all material terms of the offer and acceptance has been formally entered into. The motion whose adoption is evidenced by the minutes of the school district in the instant case meant merely that the proposal was accepted subject to the preparation and execution of a formal contract or subject to the motion being rescinded before the contract was executed. A preliminary declaration of intention to enter into a formal contract, which was all the motion adopted amounted to, did not in any way limit the school directors’ freedom of future action.

Thus, Montgomery County was free to rescind the award to Myers without liability for breach of contract.  The first lesson here is that the public entity holds virtually all of the cards in the public bidding and contracting context.  Until a formal public contract is signed and executed, there is no contract.  It’s as simple as that.

On the other hand, the Commonwealth Court gave Myers a green light to pursue its claim for damages from having to post bonds in order to preserve its contract award.  In its Complaint against Montgomery County, Myers had alleged that the procurement of the bonds impaired its “ability to seek or to secure other contracts and work which required bonds.” Of course, how strong this claim is remains to be proven.

Significantly, to my knowledge, this is the first time that an appellate court in Pennsylvania has allowed the potential recovery of damages related to the rescission of a public contract award.  Normally, a disappointed bidder has no right to recover damages, and the Commonwealth Court reiterated this long-standing rule by advising Myers that it could not seek damages for any expenses related to procuring the bonds in connection with its bid as these expenses would have been incurred by all bidders. See J.P. Mascaro & Sons, Inc. v. Bristol Township, 505 A.2d 1071, 1073 (Pa. Cmwlth. 1986)(a disappointed bidder has sustained no injury which entitles him to redress in court).

So, the second lesson here is that, if you receive a contract award, and post the necessary bonds, and the contract award is then rescinded, you may be able to recover damages relating to the posting of the bonds.  Of course, such a claim will be exceedingly difficult to prove.

The decision in Allan A. Myers LP v. Montgomery County can be found here.

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions Leave a comment