Varsity Transit, Inc. v. City of New York, 73 N.Y.2d 114 (1989)
In the context of public contracts awarded through competitive bidding, a bidder cannot unilaterally modify its bid after submission to include additional costs not reflected in the original bid price unless the bid is withdrawn before acceptance.
Summary
Varsity Transit submitted a bid to supply fuel oil to New York City. After bid submission but before formal contract award, a new tax law subjected Varsity to a gross receipts tax. Varsity notified the City of its intent to charge the City for the tax as a separate line item. The City awarded the contract based on the original bid price. The Court of Appeals held that Varsity was bound by its original bid. Public policy favors honest competition in public contracts, and allowing post-bid modifications that affect the competitive character of the bidding is prohibited. Varsity should have withdrawn its bid if it could not honor the original price.
Facts
In April 1983, New York City solicited bids for fuel oil supply contracts. Bidders were required to keep their bids open for 45 days after the May 12 bid opening. After the firm offer period, bids could be withdrawn in writing. Varsity Transit submitted a bid that did not include a charge for gross receipts tax because it was initially exempt from the tax. On July 1, 1983, after the firm offer period, but before the notice of award, Varsity informed the city that it would be charging the city a separate line item for the new gross receipts tax due to a change in the tax law effective July 1, 1983. The City issued a formal notice of award on July 6 based on the original bid price.
Procedural History
Varsity Transit sued the City to recover the gross receipts tax. The City counterclaimed for the difference between Varsity’s bid and the higher price the City paid other suppliers after Varsity suspended deliveries. The lower courts ruled in favor of the City. The Court of Appeals granted leave to appeal.
Issue(s)
Whether Varsity Transit’s July 1st letter effectively modified its original bid to include the right to bill the City for gross receipts tax, despite the original bid not including this charge and the City’s awarding the contract based on the original bid price.
Holding
No, because in the competitive bidding context, Varsity Transit could not unilaterally modify its bid after submission to include the gross receipts tax without withdrawing its bid; therefore, Varsity is bound by the terms of its original bid.
Court’s Reasoning
The Court reasoned that competitive bidding statutes promote honest competition to secure the best supplies at the lowest price and guard against favoritism. Allowing post-bid modifications would undermine this process by giving a bidder an unfair advantage. Unlike traditional contract negotiations, competitive bidding requires bidders to submit their best offer and stand by it or withdraw. Varsity’s letter was an attempt to construe the contract in its favor, not a formal withdrawal or a permissible modification. The court cited Le Cesse Bros. Contr. v Town Bd., stating that a municipality cannot allow a bidder to modify its bid in a way that would “affect the competitive character of the bidding and give [the bidder] a substantial advantage or benefit not enjoyed by the other bidders”. The Court noted other fuel suppliers made similar arguments for tax reimbursement, which had been rejected by the courts. As stated by the court, “Competitive bidding, by its nature, does not contemplate the continuous bargaining that is the hallmark of negotiated contracts. Instead, a bidder is expected to submit its best offer and either stand by it or, after the firm offer period has expired, withdraw the bid and withdraw itself from competition.”