Opinion
No. 1-661 / 00-1965.
Filed May 15, 2002.
Appeal from the Iowa District Court for Dubuque County, JOHN BAUERCAMPER, Judge.
Plaintiff contractor appeals from a district court judgment entered in favor of defendant Dubuque County following a bench trial on plaintiff's breach of contract claim. AFFIRMED.
Todd J. Locher of Locher Locher, Farley, for appellant.
Fred H. McCaw, County Attorney, for appellee.
Heard by SACKETT, C.J., and ZIMMER and VAITHESWARAN, JJ.
Horsfield Construction, Inc. (Horsfield) sued Dubuque County for breach of contract after the county accepted, then rejected its bid for a road-paving project. The district court determined the parties had not entered into an enforceable contract. We agree and, accordingly, affirm.
I. Background Facts and Proceedings
The Dubuque County Board of Supervisors sought bidders for a road-paving project. Four days before the bids were due, Horsfield advised the county engineer's office that the notice to bidders contained an error that, if corrected, would significantly reduce the cost of the project. The office declined to amend the notice and advised Horsfield to submit whatever bid it deemed appropriate. Horsfield submitted a bid that accounted for the error, but other bidders did not. The county board of supervisors informed Horsfield that its bid had been approved.
Approximately two months later, the county advised Horsfield it intended to rebid the project. This time, the county approved the bid of a different company.
Horsfield sued for breach of contract. After denying the county's summary judgment motion, the district court bifurcated the liability and damage phases of the trial. The court determined that no enforceable contract was created and denied the petition. This appeal followed. Although Horsfield raises a host of issues, they are all subsumed within the issue of whether the company had an enforceable contract. Our review of this issue is on error. Envirogas, L.P. v. Cedar Rapids/Linn County Solid Waste Agency d/b/a Bluestem Solid Waste Agency, ___ N.W.2d ___, ___ (Iowa 2002).
Our highest court recently held that a losing bidder lacks standing to sue a public entity for damages resulting from non-acceptance of its bid. Garling Construction, Inc. v. City of Shellsburg, ___ N.W.2d ___, ___ (Iowa 2002). The county does not challenge Horsfield's action on this ground. Therefore, we need not address the issue.
II. Existence of Contract
Horsfield maintains Dubuque County's acceptance of its initial bid created a binding contract. We disagree.
Public works contracts are governed by statute. The parties appear to agree that the pertinent statute here is Iowa Code section 314.1. That provision, applicable to "the award of contracts for the construction, reconstruction, improvement, repair or maintenance of any highway," requires that all contracts be in writing. Horsfield argues its bid proposal, plans and specifications, and Dubuque County's letter approving the bid constitute the written contract. The county responds that the statute contemplates a formally executed contract, a document that is conspicuously absent here. While Horsfield's position might well carry the day were this a private agreement, we conclude more than a bid proposal and acceptance were required to create a contract here. See Iowa Code § 314.1.
First, we note that the published notice to bidders distinguishes between "sealed proposals", the "approval for awarding of the contract," and execution of a "contract." The notice further states:
Failure to execute a contract and file an acceptable bond and certificate of insurance within 15 days of the date of the approval for awarding of the contract, as herein provided, will be just and sufficient cause for the denial of the award and forfeiture of the proposal guaranty.
This language clearly provides that approval of a bid is conditioned on obtaining and filing an acceptable bond and certificate of insurance. See Istari Const., Inc. v. City of Muscatine, 330 N.W.2d 798, 800 (Iowa 1983) (noting council's award was conditioned on approval by the Department of Housing and Urban Development).
Additionally, the proposal form used by Horsfield to submit its bid stipulates that if a bid is accepted, the bidder agrees "to execute the formal contract within thirty days of the date of approval for award or to forfeit the proposal guaranty furnished herewith. . . ." This language, therefore, mandates further action to consummate an agreement following approval of the bid.
Also, the Department of Transportation's Standard of Specifications, which the county engineer testified was followed for this project, distinguishes between a "proposal", an "approval for award," and a "contract." While a "proposal" is defined as the written offer to perform the work and the "approval for award" is the acceptance of the bid, the standards manual states that the "contract" is more than these two documents. Specifically, the contract is:
The written agreement between the Contracting Authority and the Contractor setting forth the obligations of the parties thereunder, including but not limited to, the performance of the work, the furnishing of labor and materials, and the basis of payment.
It includes the notice to bidders, proposal, addendum, contract form, contract bond, specifications, supplemental specifications, Materials Instructional Memorandums, special provisions, plans, and notice to proceed; also any change orders and agreements which are required to complete the construction of the work in an acceptable manner, including authorized extensions thereof, all of which constitute one instrument.
The standards manual additionally states, "[t]he bidder to whom a contract is being awarded shall execute and file two copies" of the contract and further provides that failure to execute the contract within the specified time frame "will be just and sufficient cause for annulment of the approval for award. . . ." Therefore, assuming the standards manual reflects industry practice, the practice is to enter into a formal contract after the bid is accepted.
Finally, Vice-President Matthew Horsfield testified that, in his dealings with the county, he typically expected to see the contract documents following approval of the bid. We believe this evidence unequivocally establishes that the documents proffered by Horsfield as evidence of the contract were insufficient to create an enforceable contract in this context.
In reaching this conclusion, we are cognizant of our highest court's seemingly contrary opinion in Pennington v. Town of Sumner, 222 Iowa 1005, 1022, 270 N.W. 629, 638-9 (Iowa 1936). The court there stated that a bid and acceptance "constituted a binding agreement, which could be enforced by the town, even if no formal contract was thereafter entered into." Id. at 638. However, the issue in Pennington was not whether the bid and acceptance would suffice in the absence of a formal contract, but whether a discrepancy in specifications between the formal contract and the proposal effectively voided the formal contract. The court held it did not, reasoning that the town could have argued the discrepancy was inadvertent and fallen back on the bid proposal and acceptance. Id. at 638-9. We believe the cited language concerning the effect of a bid and acceptance is therefore dicta and is not dispositive here.
We also are not persuaded by Horsfield's contention that the county had no power to reject the bid following its acceptance. Iowa Code section 314.1 allows a public entity to "reject any or all bids." The notice to bidders reaffirms this right, stating "the County Board reserves the right to waive technicalities and to reject any or all proposals." Finally, our highest court has held that "where no binding award has been made, a governing body is authorized . . . to reject all bids and fix a date for soliciting new ones." Istari, 330 N.W.2d at 800. We have already found that the county's approval was conditional on Horsfield's fulfillment of certain obligations as well as both parties' execution of a formal contract. See 64 C.J.S. Municipal Corporations § 931 (1999) (stating "[a] bid which has been accepted may afterward be rejected under a reserved right to do so, if such right is exercised before the contract is reduced to writing as required by statute or ordinance."). Therefore, the county was empowered to reject Horsfield's bid notwithstanding its earlier acceptance.
Finally, we are not convinced that the county's knowledge of the mistake in the bid specifications before its acceptance of Horsfield's bid mandates a different result. The county engineer testified that although he apprised the board of supervisors of the mistake, the bids were not recalculated in light of the mistake until after the board had approved Horsfield's bid. While unfortunate, we agree with the district court that this chain of events does not constitute fraud or bad faith that would require the court to void the contract. See Dickinson Co., Inc. v. City of Des Moines, 347 N.W.2d 436, 441 (Iowa Ct. App. 1984). Indeed, it is noteworthy that Horsfield did not seek this type of relief, nor could it have done so, as the county allowed it to submit a new bid proposal after its first one was rejected.
While we sympathize with Horsfield's assertion that it expended money in reliance on the county's acceptance letter, we reiterate the Iowa Supreme Court's admonition that "one who contracts with a municipality or a political subdivision is bound at its peril to take cognizance of statutory limitations upon the authority of the government agency." Thompson v. L.J. Voldahl, Inc., 188 N.W.2d 377, 380 (Iowa 1971). This principle is premised on the public policy of protecting taxpayers from fraud or collusion. Id.; accord Scheckel v. Jackson County, 467 N.W.2d 286, 289 (Iowa Ct. App. 1991). Here, the applicable statute mandated a formal contract. No such contract existed. Therefore, Horsfield had nothing to enforce.
We find it unnecessary to address the parties' remaining arguments. The district court judgment is affirmed.
AFFIRMED.