Great Midwest Insurance and Skyward Underwriters in court win over construction bid bond

The Intermediate Court of Appeals of West Virginia has ruled in favor of Olympus Painting Contractors, Inc. Great Midwest Insurance and Skyward Underwriters in a legal dispute with the West Virginia Department of Transportation, Division of Highways (DOH) over a mistaken bid submission. The court affirmed that Olympus met the conditions required for bid withdrawal and was entitled to have its bid bond returned.

The dispute arose in early 2021 when Olympus submitted a bid of $5.6 million for a bridge repair and repainting contract in Brooke County, West Virginia. However, shortly after bids were opened, the company discovered a clerical error - a misinterpretation of a handwritten figure - which underpriced a key project component by $708,000. Olympus promptly notified the DOH and requested to withdraw its bid under West Virginia Code § 5-22-2, a state law that allows for bid rejections due to errors.

Despite this, the DOH refused the withdrawal request, declared Olympus the lowest bidder, and demanded that the company sign the contract. When Olympus refused, the DOH attempted to claim the company's bid bond worth 5% of the proposal - approximately $280,000 - leading to legal action, which included the contractor’s insurers.

The circuit court initially ruled in favor of Olympus, stating that the company met all four statutory conditions to justify bid rejection:

1. A clear clerical error was made.
2. The mistake materially affected the bid.
3. Rejecting the bid would not have caused hardship to the DOH beyond the loss of a lower price.
4. Enforcing the bid would have been unconscionable, as Olympus could have suffered significant financial harm.

The DOH appealed the ruling, arguing that it had discretion to determine whether an error had occurred. However, the Intermediate Court of Appeals upheld most of the lower court’s decision, affirming that Olympus had proven its case on three of the four conditions.

The appellate court vacated part of the ruling, requiring the lower court to re-examine whether the DOH’s decision not to recognize the error was arbitrary or an abuse of discretion. This means the trial court will need to reassess whether the agency acted within its legal authority when it refused to allow Olympus to withdraw its bid.

The ruling reinforces the legal protections for contractors bidding on public projects in West Virginia, ensuring that companies have a mechanism to correct significant clerical mistakes without suffering punitive consequences. It also underscores the responsibilities of government agencies to fairly evaluate bid errors rather than automatically enforcing flawed contracts.

The case now returns to the circuit court for further review, specifically on whether the DOH acted unreasonably in its decision. If the lower court reaffirms its ruling, Olympus will not be required to forfeit its bid bond, potentially setting a precedent for future bid disputes in the state.

This case highlights the complexities of public contract bidding and the importance of fair bidding procedures. While the DOH sought to enforce the bid, the court found that West Virginia law prioritizes fairness and prevents unjust enrichment due to clerical errors. The final ruling will depend on whether the circuit court finds the DOH’s decision was capricious or reasonable.

The construction bid bond market is a significant segment within the broader surety bond industry, which plays a crucial role in ensuring the fulfillment of contractual obligations in construction projects. While precise figures for bid bonds alone are not readily available, understanding the overall surety bond market and its components provides valuable context.

Global Surety Bond Market

• Market size and growth: The global surety bond market is on an upward trajectory, projected to reach a value of $27 billion by 2030, driven by a Compound Annual Growth Rate (CAGR) of 5.8% from 2023 to 2030. 

United States Surety Bond Market

• Premiums written: In 2023, the US surety bond industry wrote approximately $9.3 billion in premiums, reflecting steady demand and market stability. 

Breakdown by bond type

• Contract surety bonds: This category, which includes bid bonds, performance bonds, and payment bonds, constitutes the largest segment, accounting for 62% of the surety bond market. 
• Bid bonds: These bonds provide assurance that a contractor will honor their bid and execute the contract properly.

Construction industry context

• Market size: The US construction industry was valued at nearly $2 trillion in 2023, with projections to reach over $2.2 trillion by 2027.