BID BOND FORFEITURE UNDER PUBLIC COMPETITIVE BIDDING ACT OF 1974.

The Public Competitive Bidding Act of 1974 (“Act”) defines the process for bidding and awarding construction projects by the State of Oklahoma and other state agencies. The Act requires each bidder on a public project to include with its bid a bid security in the amount of 5% of the contractor’s bid. The Act also provides for the forfeiture of that bid security if the “apparently successful bidder fails to execute the contract or fails to provide the required bonds or irrevocable letters of credit and insurance.” Okla. Stat. tit. 61, ยง 107(B) (1994).

In the recent case of J.D. Graham Construction, Inc. and Mid-Continent Casualty Company v. Pryor Public Schools Independent School District No. 1, Mayes County, 64 O.B.J. 2016 (March 9, 1993), a general contractor challenged the meaning of the term “apparently successful bidder”, after finding a $100,000.00 error in its bid. Upon discovering the error, the contractor immediately contacted both the School and the architect in an attempt to withdraw its bid. At the same time the contractor requested that its bid security be returned. The School refused to permit the withdrawal, and further, refused to return the bid security. Instead, the School awarded the contract to the general contractor.

The contractor refused to execute the contract and, with its surety, sued the School seeking a judicial determination that all obligations arising from its bid and bid bond were discharged by the attempted withdrawal of its bid. The contractor and bonding company argued that the contractor was not the “apparently successful bidder” because it was not awarded the contract until after it advised the School of the error and attempted to withdraw its bid. The Oklahoma Court of Appeals disagreed, concluding that the “apparently successful bidder” is the bidder who, “unless something unusual happens, will be awarded the contract. The Act requires the contract to be awarded to the lowest bidder unless there are specific reasons why that bid is not ‘responsible’.”

The Court concluded that “apparently successful bidder” is synonymous with “lowest bidder,” and a contractor becomes the “apparently successful bidder” when the bids are opened and the contractor’s bid is the lowest bid submitted. Even though the contractor immediately attempted to withdraw its bid, the Court concluded that the mandatory forfeiture provisions of the Act required forfeiture of the contractor’s bid bond.

Though this holding is limited to the specific facts (i.e. instances where the low bidder can be determined from the base bid at the time of bid opening), it appears equally amenable to application in instances where alternates or unit prices are involved. Therefore, at least in the eyes of this Court, the obligation to execute a contract on publicly bid projects arises at the instant the bids are opened. If, after the bid opening, a contractor fails to execute a contract or provide the required security and insurance, the contractor’s bid security will be forfeited.

Steven K. Metcalf

This Newsletter addresses recent items of interest in various areas pertaining to the construction industry. While the Newsletter may alert you to potential problems or changes in the law, it does not attempt to offer solutions, opinions, or advice concerning specific problems. Such legal advice or opinion can only be given by an attorney after careful consideration of the facts unique to a given situation. Inquiries concerning this Newsletter or its subject matter should be directed to its contributors, Steven K. Metcalf, Esq. at (918) 430-3703 or William H. Spitler, Esq. at (918) 430-3704.