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HANOVER AREA SCH. DIST. v. SARKISIAN BROS.

January 12, 1981

HANOVER AREA SCHOOL DISTRICT, Plaintiff,
v.
SARKISIAN BROTHERS, INC. and The Travelers Indemnity Company, Defendants



The opinion of the court was delivered by: NEALON

MEMORANDUM AND ORDER

I. BACKGROUND

 This case involved an attempt by the Hanover Area School District ("District") to recover liquidated damages upon a bid bond executed by Sarkisian Brothers, Inc., and the Travelers Indemnity Company. *fn1" The operative facts date to the summer of 1977. At that time, the District solicited sealed bids for the construction of a junior-senior high school in Hanover Township, Pennsylvania. Special instructions were issued for the submission of all proposals. *fn2" The District announced that it would divide erection of the school into six different facets: (1) General Construction; (2) Heating, Ventilating, and Air Conditioning; (3) Plumbing and Drainage; (4) Electricity; (5) Kitchen Equipment; and (6) Resilient Floor Covering and Carpet. Potential contractors were informed that bids were to be submitted with regard to these specific categories.

 Sarkisian competed for the right to carry out the General Construction and offered to perform the job for $ 5,745,000.00. *fn3" The builder enclosed a bid bond underwritten by Travelers which protected the District against losses incurred through breach of the promulgated instructions. The bond provided up to $ 287,250.00 in indemnification in the event that Sarkisian reneged after acceptance of the bid. *fn4" On September 20, 1977, the District adopted a resolution which identified the contractors who had made the lowest offers in each of the six categories. This list included Sarkisian under the designation "General Construction." The resolution also stated:

 
Section 5. The School District hereby declares its intent to award the several contracts for the construction of the School to the respective apparently lowest responsible bidders named in Section 4 hereof and the Architect is hereby authorized and directed to give notice, on behalf of the School District, to each of such bidders of such intent to award and, pursuant to the Public Works Contractors' Bond Law of 1967, to direct each such bidder to submit the Performance Bond and Payment Bond required under the terms of the bidding. *fn5"

 Apparently, the other contractors complied with these terms and reached satisfactory arrangements with the District. Sarkisian, however, experienced difficulties which ultimately resulted in litigation.

 Problems arose with the formalization of the final agreement. R. J. LaChance, Sarkisian's General Manager for the Northeast Region, informed the District on two separate occasions that his company could not obtain the requisite performance and payment bonds until a binding contract was finalized or, at least, scheduled for signing. *fn6" District Solicitor John Doran claims that in a phone conversation on October 27, 1977, he told a representative of Sarkisian that the closing would occur around the ninth or tenth of November. *fn7" The parties, nevertheless, did not draw up a final contract, and Sarkisian failed to secure the necessary bonds. Significantly, the instructions regulating the bidding provided that all proposals were to remain in effect for sixty days beyond August 30, 1977, the date of submissions. On October 16th, the District's Architect asked Sarkisian to hold its bid until November 15th, at which time a contract would be awarded and signed. *fn8" That date, of course, was fifteen days beyond the stated deadline. The construction company replied that such an extension would probably be impossible due to "estimated costs from subcontractors and anticipated increases in general condition costs." *fn9" Ultimately, the entire transaction collapsed. The District invited a new round of bids for the General Construction of the school. The Sutter Corporation received the award. *fn10" In January 1979, moreover, the School District filed the instant lawsuit. A defense motion for summary judgment is presently before the court.

 II. CONTENDING CHARACTERIZATIONS

 The material facts of this litigation are not contested. The two sides, nevertheless, portray the underlying controversy much differently. Selection of the proper characterization is the key to resolution of the matter.

 In the opinion of the complainant, the defendants simply defaulted on the bid bond. The District contends that the "preliminary declaration" of intent to award the project to Sarkisian obligated the builder to enter a final contract. The construction company's failure to adhere to this duty supposedly forfeited the security that protected the District against improprieties during the period between submission of proposals and finalization of agreements.

 Travelers and Sarkisian, conversely, note that the instructions the plaintiff issued for submission and acceptance of the bids contained the following terms:

 
Execution of Contract
 
19. The School District will notify the successful bidder by mail. This letter awarding the contract subject to the successful bidder complying with the requirements of the "Public Works Contractors Bond Law of 1967", will contain instructions and enclosures for the proper execution of the contract documents, bonds and insurance.
 
Bond and insurance requirements are found in Sections 5 and 6 of the "Conditions of Contract". Said bonds and insurance shall be issued by Companies legally authorized to conduct business in the Commonwealth of ...

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