This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 1997 decision in City of Wildwood v. Gibbs & Register Inc., the Florida Fifth District Court of Appeal reversed a trial judgment that ordered the City to return a bid bond to a low bidder who had refused to enter into a construction contract after its bid was selected. While the low bidder argued that it should not forfeit its bond since the contract was never formalized, the Court of Appeal rejected this reasoning, finding that the bid bond served as security for the bid and that the bidder’s failure to accept the award therefore justified the forfeiture of its bid bond:
The purpose of a bid bond is set forth in Appleman, Insurance Law and Practice § 5831 as follows:
The purpose of a bid bond is to assure that such bidder, if his proposal is accepted, will enter into a binding contract to do the work in accordance with such proposal. He enters such bid at his own risk, ordinarily not being excused by mistakes or errors in computation, and his bond is not discharged until a contract has been executed and a performance bond accepted in lieu of the bid bond. It provides that a certain amount of money will be paid in the event that a successful bidder on a public project fails to enter into a formal contract; it is a type of liquidated damages and it represents an added incentive to discourage the withdrawal of bids.
It follows that G & R’s bid was an offer to construct reuse storage ponds for $510,095. The bid bond, which accompanied G & R’s bid proposal, insured against a failure of G & R to adhere to the agreements and requirements of its bid proposal. The bid bond reads in pertinent part:
The condition of the above obligation is such that whereas the Principal [G & R] has submitted to the City of Wildwood a certain Bid, attached hereto and hereby made a part hereof to enter into a contract in writing, for the Reuse Storage Ponds at the Rolling Hills Golf Course, Contract No. 9.
(a). If said Bid shall be rejected, or in the alternative,
(b). If said Bid shall be accepted and the Principal shall execute and deliver a contract in the Form of Contract attached hereto (properly completed in accordance with said Bid) and shall furnish a bond for his faithful performance of said Contract, and for the payment of all persons performing labor or furnishing materials in connection therewith, and shall in all other respects perform the agreement created by the acceptance of said Bid, then this obligation shall be void; otherwise the same shall remain in force and effect, it being expressly understood and agreed that the liability of the Surety for any and all claims hereunder shall, in no event, exceed the penalty amount of this obligation as herein stated. [emphasis supplied].
The failure of G & R, as the successful bidder, to execute a contract for the work and its failure to perform the agreement created by the acceptance of their bid constituted a breach of the conditions of the bond. The refusal to comply with conditions when it had the ability to comply was a unilateral attempt by G & R to withdraw its bid. We think that G & R’s arguments in opposition are specious. The purpose of the bid bond was not to secure the construction of the project, but to see that G & R complied with the bid instructions and conditions. G & R did not and forfeiture of the bond was proper. Accordingly, we reverse and remand with instructions that a summary judgment be entered in favor of the City.
As this case illustrates, bidders, under Florida law, can be liable for forfeiture of bid security, even if they are unable to claim lost profit damages against government bodies. The same is not true of bidders facing similar circumstances in many Commonwealth jurisdictions, including Canada, the United Kingdom, Australia, New Zealand, and the Caribbean Commonwealth countries, where irrevocable bids and bid bonds would give rise to the Contract A process contract and to the right to sue for lost profit damages.