Did an irrevocable subcontractor bid remain fixed-price when it ended if the general contractor lost the award, or when the public agency requested an extension?

Plain-English summary

An irrevocable subcontractor bid could still qualify as fixed-price when it provided that the obligation ended if the general contractor failed to win the public project. That event was a condition subsequent outside the subcontractor's control, so the subcontractor had still undertaken a fixed obligation.

A public agency's request to extend the bid produced the opposite result. Because the contractor could cancel or voluntarily extend on the original terms, it had the ability to walk away after a tax increase. The memorandum therefore did not treat the extension as a fixed-price agreement.

Common questions

Did the general contractor's loss of the award defeat the subcontractor's bid status?

No.

Why was a requested extension different?

The contractor could choose to cancel rather than remain bound.

Was this a final Board adjudication?

No; it was an internal Legal Division response.

Citations and references

• California Revenue and Taxation Code section 6376.1 — historical fixed-price transition issue addressed
• Assembly Bill 2181 and source-printed Senate Bill 179 — identified as the transition legislation containing section 6376.1
• Statutes of 1971, chapter 1406, section 36 — prior language supplied for proposed amendment; attached text not reproduced in the official PDF
• Statutes of 1967, chapter 964, section 1 — earlier fixed-price language identified as the model after omitting “supplies”
• July 10, 1991 meeting with contracting-industry representatives — two bid questions and proposed legislative language discussed; no separate meeting record is reproduced in the official PDF
• Consultation with Gary Jugum — Legal Division response reviewed; no separate consultation record is reproduced in the official PDF
• Actual subcontractor and general-contractor bids and agency extension request — hypothetical facts described, but transaction documents are not reproduced in the official PDF
• Business Taxes Law Guide Annotation 190.2901 — same July 15, 1991 memorandum separately published for the voluntary-extension issue

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/190-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/190-6000.pdf

Original ruling text

State of California

Board of Equalization

Legal Division (MIC:82)

Memorandum
To:

Mr. Robert Nunes
Deputy Director
Sales and Use Tax Division

190.6000
Date:

From:

Tax Counsel (LAA) – Headquarters

Subject:

Meeting with Contracting Industry Representatives, July 10, 1991

July 15, 1991

During the meeting which you, I and Glenn Bystrom had with representatives of the construction industry regarding the exception from the new tax increases contained in AB 2181 and SB 179 (new Section 6376.1), the industry representatives raised several questions. They also requested language which they could present to the Legislature with which they could lobby the Legislature to amend Section 6376.1 in order to take care of the peculiar problems posed by contracting procedures in their industry. Attached hereto is the language used in 1972. (Stats. 1971, Ch. 1406 § 36.) We requested and they agreed, that in their proposed amendment that they not include the reference to “supplies”, which occurred in the 1972 statute, due to the problems with defining what were “supplies”. This charge makes the suggested language identical to that used in the fixed-price contract exemption enacted in 1967. (Stats. 1967,Ch. 964, § 1). At the end of our meeting, two questions were raised. I have consulted with Gary Jugum on these matters, and what follows is the Legal Division’s response: 1. A subcontractor has submitted an irrevocable bid to a general contractor who has in turn submitted an irrevocable bid for a public agency construction contract. The bid contains a provision that it is revoked if the general is not awarded the contrac, but otherwise qualifies for a “fixed-price” contract. In our view, the subcontractor has obligated himself to perform for a fixe obligation. This obligation may be defeated only by a condition subsequent which is not in the subcontractor’s control. The bid still qualifies as being for a fixed price. 2. Same situation as above, except that the agency is not yet ready to award the contract and requests an extension. The contractors have two options only – cancel their bids or agree to extend them on the original terms and conditions. In this situation, because the contractors have the ability to walk away from the bid and refuse to go through with it in the event of a tax increase, we consider that the bid does not qualify as an agreement for a fixed price.

JLW:es
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