Full opinion text
MEMORANDUM OPINION EISELE, District Judge. Background of Controversies Around 1960 the officials of a group of electric utility companies operating in some six states began looking into the possibility of a diversity interchange between the Tennessee Valley Authority (TVA) and those utility companies. It was thought that this could be carried out through the construction of a network of extra-high voltage transmission lines (EHV) connecting the TVA system with the systems of the utility companies. Studies had indicated that the costs of the EHV facilities were sufficiently lower than the costs of creating an equivalent amount of new generating capacity to suggest that the diversity interchange was the better approach. On August 8, 1962, eleven electric utility companies, identifying themselves as the South Central Electrical Companies (SCEC), entered into an agreement with Commonwealth Associates, Inc. (CAI) of Jackson, Michigan, to assist in the planning of the proposed facilities. In performing such duties CAI conducted a study of an 1,100-mile grid of EHV transmission lines. Subsequently, the SCEC companies decided to build the grid, and the defendant, Arkansas Power & Light Company (AP&L), procured the services of CAI to design the portions thereof in which it was interested, to receive and evaluate bid proposals, to recommend the contractor to be employed, and to assist in the letting of the various contracts which would be required. CAI was also employed to provide the engineering and inspection services which would be needed during the construction. This lawsuit arises out of the circumstances attending the bidding for, and work on, the first segment of the SCEC grid, which was to run from the Mississippi River to Mabelvale, Arkansas, approximately 139 miles, exclusive of river crossings. On March 7, 1964, CAI forwarded bid documents to some 16 prospective bidders, including the plaintiff, Paul Hardeman, Inc. (PHI), with instructions that sealed bids should be submitted on or before March 23, 1964. The bids were for the construction of a single circuit, 500 KV electrical transmission line from the Mississippi River near West Memphis, Arkansas, to Mabelvale (near Little Rock), Arkansas. The bid proposal divided the work into 176 items, or units of work. The bid would show a price for each item or each unit of work. The quantity of each unit or item of work was estimated. The bid proposal contained the following provision: “Enclosed herewith is a Bid Bond in the amount of $300,000, which is submitted as a guaranty of the good faith of the bidder and that bidder will enter into a written Contract, in the form of the Agreement bound with the Specifications, to do the work should the award be made to him; and it is hereby agreed that if, at any time, other than as provided in the Proposal, the undersigned shall withdraw his Proposal, or shall fail to execute the Contract and furnish satisfactory Bond, as herein provided, the Owner, in either of such events, shall be entitled and is hereby given the right to retain the Bid Bond, Cashier’s Check, or Certified Check (strike those not applicable) as liquidated damages. If award is not made to the undersigned bidder, then the enclosed Bid Bond, Cashier’s Check, or Certified Check (strike those not applicable) shall be returned by the Owner to the Bidder in accordance with the Instructions to Bidders.” In response to the invitation, the plaintiff and seven other contractors submitted bids for the performance of the construction work. The original bid proposals were sent to CAI at its Jackson, Michigan office, and copies thereof were sent to AP&L at its offices in Pine Bluff, Arkansas. The bids were opened in private, and the amounts of the bids were not publicized or otherwise made known to the bidders. Eight bids were received, on or about March 23,1964, as follows: Paul Hardeman, Inc. Stanton, California $2,704,738.00 R. B. Stovall Construction Company Dallas, Texas $3,809,911.26 Foley-Jelco Salt Lake City, Utah $3,840,276.50 Commonwealth Electric Company Lincoln, Nebraska $4,528,593.00 L. E. Myers Company Chicago, Illinois $5,515,967.15 R. H. Boullgny Charlotte, North Carolina $5,997,710.00 Power Constructors, Inc. & Power Engineering Company Topeka, Kansas and Sioux City, Iowa $7,514,131.00 T. D. Brass Line Construction Company, Hartford, Connecticut $7,773,143.00 These bids vary from a low of $18,826.-00 per mile (the bid of PHI) to $53,129.00 per mile. On March 26, 1964, PHI was informed by telephone that it would be awarded the contract. A confirming letter was mailed on March 26, 1964, and the acceptance of PHI noted thereon on March 30, 1964. A formal contract was executed by the parties on April 1, 1964, showing a total contract price, based upon estimated quantities, of $2,704,738.00. A construction bond in the amount of $2,705,000.00 was issued by the Aetna Casualty and Surety Company (Aetna). In the early part of April, 1964, PHI commenced activities in connection with the performance of the work required. The contract contains the following provision: “If the work to be done under this Contract shall be abandoned by the Contractor, or if this Contract shall be assigned, or the work sublet by him without the permission of the Owner, or if he be placed in bankruptcy, or if a Receiver be appointed for his properties, or he shall make an assignment for the benefit of creditors, or if at any time the Engineer shall be of the opinion that the schedule of work is not being maintained or that the Contractor is violating any of the conditions or agreements of this Contract, or is executing said Contract in bad faith or not in accordance with the terms thereof, the Owner may notify the Contractor to discontinue all work under this Contract by written notice to be served upon the Contractor, a copy of which notice shall be given to the Surety may, at its option, assume the date of such notice, the Contractor shall discontinue the work, whereupon the Surety may, at its option, assume this Contract and proceed to perform the same. The Surety, in such event, shall take the Contractor’s place in all respects and shall be paid by the Owner for all work performed by the Surety in accordance with the terms of this Contract. In case the Surety does not, within two weeks after the date of the Owner’s notice to the Contractor to discontinue work, exercise its right or option to assume this Contract, then the Owner shall have the power to complete the work herein described by contract or otherwise, as it may determine, and the Contractor agrees that the Owner shall have the right to take possession of and use any of the materials, plant, tools, equipment, supplies, and property of any and every kind provided by the Contractor, and the expense so charged shall be deducted by the Owner out of such moneys as may be due or may at any time thereafter become due to the Contractor. In case such expense is more than the sum which would otherwise have been payable under the Contract, then the Contractor shall pay the amount of such excess so due. The Owner shall not be required to obtain the lowest figures for the work of completing the contract, but may make such expenditures as in its sole judgment shall best accomplish such completion.” In late November, 1964, AP&L received a letter from 'CAI, the first paragraph of which states: “Commonwealth Associates, Inc., as the Engineer referred to in Article 27 of the General Conditions in your contract with Paul Hardeman, Inc. for construction of a 500 KV Transmission Line, is of the opinion that the schedule of work set forth therein is not being maintained, that many of the conditions and agreements of this Contract are being violated, and that the Contract is not being executed in accordance with the terms thereof.” On November 28, 1964, AP&L wrote PHI the following letter: “Pursuant to paragraph numbered 27 of the General Conditions which constitute a part of that certain contract between the undersigned and you dated March 30, 1964, for the construction of the Mississippi River-West Memphis-Mabelvale Single-Circuit 500 KV Transmission Line, we hereby notify you to discontinue all work under the said contract. This notice is given as a result of the opinions of Commonwealth Associates, Inc., the Engineer designated in the contract. The Engineer is of the opinion that the schedule of work is not being maintained and at the present rate of progress the work will not be completed within the contract time; that you have been and are violating many of the conditions and agreements of the Contract and Contract documents; and that you are not executing the Contract in accordance with the terms of the Contract. A copy of the letter of the Engineer expressing these opinions is attached. “You are hereby directed to deliver to this company all of the materials, plant, tools, equipment, supplies and property of any and every kind which have been provided by you for the purpose of the work under the aforedescribed Contract so that the same may be used in the completion of the work. In addition, you are directed to deliver to us all material provided for us and received by you for incorporation in this work.” PHI responded with the following telegram, dated December 1,1964: “Receipt is acknowledged of your November 28, 1964 letter and its enclosure and acknowledgment is made of a telephone conversation this date with Floyd .W. Lewis while he was at the New York Hilton Hotel. During the telephone conversation Mr. Lewis reiterated the demand that Paul Hardeman, Inc. remove its forces from the job sight [sic] and stop any further performance on the project. He further indicated his acceptance of the opinion of Commonwealth Associates as set forth in the November 25, 1964 Commonwealth letter to Arkansas Power & Light. Paul Hardeman, Inc., under protest, is proceeding to withdraw its forces from the project. We except to the representations by way of opinion in the Commonwealth letter and we advise you that your instruction to withdraw our forces is unwarranted and not supportable by facts. In acceding to your direction to withdraw we do so with the reservation of all rights and defenses available to Paul Hardeman, Inc., including but not limited to the right for compensation for work done to date, demobilization costs and the matters mentioned in the Paul Hardeman, Inc. letter to Arkansas Power & Light dated November 16, 1964, which letter you have continued to ignore and fail to answer. A copy of this message is being transmitted to Aetna Casualty and Surety Company.” The Aetna Casualty and Surety Company was also given notice. Under the agreement and bond Aetna had the right to take over and complete the construction of the transmission line, if it elected to do so, within two weeks of the notice to discontinue given to PHI. Aetna elected not to take over and complete the work pursuant to this provision. By the time PHI received the notice to discontinue work, it had received $628,427.66 from AP&L for work performed under the contract. On December 15, 1964, AP&L contracted with Jelco, Inc. to complete the work. The basic Jelco contract was based on cost plus 10 per cent. The work was substantially completed in the summer of 1965 at a cost, according to the records of AP&L, of $8,237,056.59. Plaintiff PHI’s records indicate that it expended, or obligated itself for, some $3,054,166.32 prior to moving off the job. It is therefore apparent that the job, which was originally bid by PHI at approximately $2,700,000.00, ended up costing in excess of $11,000,000.00. The explanations for this financial and economic nightmare can be found from a more detailed discussion of the facts relating to the legal controversies. See infra. It has been stipulated that Aetna expended $610,126.71 in payment of suppliers of labor and material for the job. This amount is included in the $3,054,166.32 as the cost of work and materials performed by, and under, PHI prior to the termination of the contract. By virtue of its claims discussed below, PHI seeks judgment against AP&L in the amount of $1,815,610.95, and Aetna seeks judgment against AP&L in the amount of $610,127.71; both with interest at the rate of six per cent from and after November 28, 1964. AP&L counterclaims, seeking judgment against PHI in the amount of $5,875,173.15. It also seeks judgment against Aetna in the amount of the bond ($2,705,000.00) less payments made by Aetna in the amount of $610,127.71, or a net of $2,094,873.29. The complaint of PHI and the claim of Aetna are predicated upon essentially the same allegations and the same facts. Each asks for relief against the defendant AP&L on the basis of two separate claims. The “first claim” is based upon theories of mistake, misrepresentation, fraud or constructive fraud, implied contract, and the “inequitable” conduct of the defendant in the award of the contract. The “second claim” of PHI and Aetna is based upon the theory that the defendant had no right to “discontinue all work” under the contract or to terminate or repudiate the contract as it purported to do by its letter to PHI of November 28, 1964; that such discontinuance or termination was wrongful and was itself a breach of the contract for which PHI and Aetna are entitled to damages. AP&L has counterclaimed against PHI and has also complained against Aetna, contending that PHI committed breaches of contract and that PHI’s conduct constituted “total breaches” of the contract and that therefore PHI is liable to it for the cost of the completion of the project. Based upon the same theory, it seeks judgment against Aetna for the balance remaining upon its bond. The issue relating to the plaintiff’s and Aetna’s “first claim” against the defendant will be discussed first and thereafter the “breach of contract” claims. The “First Claim” of PHI and Aetna The gravamen of this claim is the alleged inducement of PHI by the defendant to enter a contract for a price that was known by the defendant (but unknown by PHI) to be shockingly inadequate and unfair; and plaintiff contends that defendant accomplished this objective not only by concealing information but by the giving of false or misleading information in response to PHI’s inquiries about the bids. In support of such allegations plaintiff attempted to prove that the defendant knew that there was something grossly wrong with the plaintiff’s bid, not only because of its relationship to the other bids received, but also because the defendant and its consultants had, prior to the acceptance of the bid, fairly precise estimates, data, and information as to the cost of the contract work (with which to compare and evaluate plaintiff’s bid) which indicated that the cost should be in the neighborhood of $35,000 a mile as contrasted with the cost of $18,826 per mile reflected in the plaintiff’s bid. Plaintiff contends that with such information in hand the defendant should have made inquiry of the plaintiff concerning the bid and that, if such an inquiry had been made, plaintiff would, upon reevaluation, have discovered its “gross” errors in estimating the job, and would either have submitted a new bid or withdrawn its bid, forfeiting some $300,000 pursuant to the terms of the bidding agreements. Since the facts relating to the “first claim” also affect, albeit indirectly, the other issues in the case, it will be necessary to discuss them briefly. Many of those facts are uncontested. The spread of the bids, noted above, is, of course, admitted by all. The testimony of practically everybody concerned was to the effect, and the Court so finds, that the two high bids were essentially “courtesy” bids which should have been, and were, ignored, since they could not be said to have been submitted in any serious hope or expectation of getting the job. There was also testimony, and the Court so finds, that the second low bid (that of Stovall) would also have to be ignored because that company was an open-shop contractor and therefore could not be accepted by AP&L. This, therefore, leaves five bids which were considered to have been submitted with serious intent. There was much controversy and much testimony concerning the issue of whether AP&L had information, estimates and data (other than the bids) from which it knew, or should have known, that PHI’s bid was grossly inadequate and based upon mistake or error. Generally, the defendant throughout the trial denied that it had any reliable information, data or estimates upon which to predicate such a judgment. The Court, however, finds to the contrary, and agrees with plaintiff that both AP&L and CAI had, prior to the acceptance of plaintiff’s bid, a satisfactory and sufficiently accurate basis for evaluating and comparing plaintiff’s bid and all other bids received. This basis of comparison is derived not only from the so-called R-943 estimate (Exhibit 30) but also from feasibility studies,- cost analyses and estimates, experience on other projects, information about other projects, professional knowledge and expertise, familiarity with then current labor, equipment and material costs, awareness of construction techniques, procedures and know-how, extensive knowledge as to the conditions imposed by the particular terrain to be traversed, general knowledge of access conditions and problems, familiarity with weather and soil conditions, and, of course, a full awareness of the detailed plans, specifications and other contract and bid requirements. To say less would be to suggest that either AP&L or CAI, or both, were incompetent to engage in the very business which they carried on. To the contrary, both were professionally competent to function in this important area which, of necessity, closely affects the public interest. They should have had, and they did have, adequate information upon which to intelligently evaluate and compare the bids, and they did utilize that information for those very purposes. More specifically, the Court finds that AP&L and CAI estimated and expected the line construction costs to roughly approximate $35,000 per mile. The Court bases this finding upon the evidence and the reasonable inferences arising from that evidence. Indeed, it was on the basis of this estimate and the other information available to them that AP&L and CAI were able to determine that the two high bids were essentially “courtesy bids”. Such determinations cannot be made without some reasonably reliable benchmark. In this connection it should be noted that the spread between the sixth bid and the two high bids was not too much greater than the spread between PHI’s bid and the Foley-Jelco bid. It is quite clear that the officials of AP&L and CAI were very surprised by the PHI bid. An analysis of the nature of the contract and the relationship of the bids will explain their surprise. The contract involved in this litigation was -essentially a labor and construction equipment contract. The owner (AP&L) was to supply practically all of the material which would end up as the transmission line in place, e. g., the steel for the towers and the conductor and ground wire. By “construction equipment” the Court is referring to that equipment which is used in the construction process but does not become incorporated into the end product. The contract itself is frequently referred to as the “line contract” or the “line construction contract”. When the bids were opened, it is clear that the CAI people were concerned about the PHI bid, particularly with respect to those items comprising “towers in place”, that is, generally, the “civil” portion of the contract. Although the construction of a 500 KV transmission line was new in the industry, at the time, the “newness” was principally related to the “stringing” portions of the contract and not to the “civil” construction aspects. The latter, relating as it does to the construction of foundations and the erection of steel towers, involved construction methods and techniques with which the industry as a whole had had much experience over many years. When the-bids were compared with each other and with the estimating figures being used by CAI and AP&L, the attention of CAI and AP&L was immediately drawn to the “towers in place” portion since the “stringing” portion of the PHI bid was more in line with competing bids. If one separates out and compares the “towers in place” portions of the various bids, he finds: Hardeman $1,484,534.00 Stovall 2,466,655.50 Foley-Jelco 2.822.471.00 Commonwealth Electric 2.695.183.00 L. E. Myers 3,575,286.85 Boullgny 4.324.230.00 Power Constructors 4.301.739.00 Brass 3.988.967.00 The difference between the PHI total bid and the Foley-Jelco total bid (the next higher potentially acceptable bid) comes to $1,135,538.50. If one looks only at the “towers in place” portions of those two bids, he finds the difference to be $1,337,937.00. Certainly the representatives of CAI and AP&L had to be startled when they made this comparison, particularly when they considered that the next three higher bids above the PHI bid contained figures for the “towers in place” portion of the contract which were all relatively close together. There was only one conclusion: that PHI had drastically underbid this portion of the work or that the next three bidders had drastically overstated the cost of such work. With their own opinions as to the cost of such work in mind, they had to conclude, and did conclude, that PHI was probably far off the mark. Of course, the people at AP&L were very pleased, in fact elated, with the lowness of the bid. The officials of CAI, including Mr. Denbrock, Mr. Sanford and Mr. Enger, were, however, as indicated, seriously concerned about the PHI bid. They wanted to look into it to determine if it was in fact a good bid. The Court is convinced that, if the people at CAI had had their way, there would have been a full and frank discussion of the PHI bid with the officials of PHI, including, probably, some revelation of parts or all of certain competing bids. The people at AP&L, however, did not wish to follow this procedure. It was their company’s policy not to reveal the contents of competing bids in a situation like this. Furthermore, the officials of AP&L did not want to do anything which would jeopardize their chance to take advantage of the low bid. Denbrock and Sanford of CAI initially were of the opinion that the job should not be awarded to PHI. They favored making the award to Foley-Jelco, the next lowest qualified bidder (since Stovall, the second low bidder, was nonunion and could not be considered). Mr. Sanford even revised a cash-flow chart between the time the bids came in and the date of the acceptance of the PHI bid, using the FoleyJelco bid figures. The Court finds that the officials of CAI believed that plaintiff’s bid was grossly low; were very skeptical of its validity; doubted that PHI had the experience and know-how required; and desired a contractor they knew more about and one that had had more line construction experience. The final decision to accept the PHI bid was made by the officials of AP&L after they had investigated PHI’s financial responsibility. The plaintiff contends that under the above circumstances the normal and accepted practice in the industry would have required that AP&L reject the PHI bid or warn it in some manner that its bid was suspect. The testimony in this case convinces the Court that there are certain rough industry-wide standards with respect to the degree of disparity between bids, and between particular bids and the owner’s own estimates of costs, which are used to check out the reliability of particular bids, to determine if “something is wrong” with particular bids or portions thereof, and as an aid in deciding whether to make further inquiry before accepting a bid. There is no precision in this industry-wide practice, but with respect to contracts of the type and magnitude involved in this litigation, it is clear that, when the- disparity, or spread, between the low and the next low bid is as high as ten per cent, or where the spread between the bid under consideration and the owner’s own estimate exceeds ten per cent, a “red flag goes up” and the situation then calls for careful study and, if such study does not satisfactorily reveal the reasons for the disparity, then inquiry into the possibility of error. This was in fact, as indicated above, the first response of the CAI personnel to the Hardeman bid. It is obvious that they would have liked very much to get the matter out into the open or, if not, then simply to reject the PHI bid in favor of Foley-Jelco. AP&L, on the other hand, wanted the advantage of an obviously extremely favorable bid if it could convince itself that the bidder had the financial resources to complete the project even if the actual cost thereof equalled the Foley-Jelco bid or AP&L’s own idea of what the project should cost. They were not content to open this matter up and thereby run the risk of PHI withdrawing from the contract, even though PHI probably would under such circumstances be liable for the amount of the bid bond, $300,000. To save more than $1,100,000 was obviously, to their way of thinking, preferable to obtaining what might be referred to as a windfall of $300,000. Stated otherwise, AP&L had every reason to doubt that PHI could perform the contract at its bid figure. In fact, it had no expectation that PHI could so perform. It was for this very reason that it concerned itself not with finding out what was wrong with the bid but, rather, with finding out if PHI had the financial resources to complete the “contract” at a substantial loss. The officials of AP&L did not feel they were doing anything wrong or unfair in taking this approach. PHI and Aetna not only contend that AP&L knew, or should have known, that PHI’s bid was so low that it could only have been based upon error or miscalculation (and therefore that AP&L was obligated to bring the matter to PHI’s attention before accepting the bid) -, they also contend that the agents of AP&L made affirmatively misleading statements to induce PHI to enter into the contract or to stay with its contract. This latter contention is based upon evidence that Mr. Pond of AP&L responded to a question from a PHI representative concerning the position or status of PHI’s bid with the statements, “You are very competitive,” or “You had a sharp pencil.” These, or similar remarks were made at meetings on March 25, 1964 and April 2, 1964. Ap-ril 4-964t It is important at this point to state the background and circumstances of these two meetings. AP&L requested PHI to send representatives to Pine Bluff, Arkansas, to meet with officials of AP&L and CAI on March 25, 1964, in what might be called a “pre-award” conference. Mr. Patrick R. Black and Mr. S. M. Rivers attended the meeting on behalf of PHI. Mr. Black, the executive vice-president and second in command of PHI, had had little to do with this particular project prior to March 24, 1964. However, he happened to be in New Orleans on that date and was contacted there by his California office and asked to meet Mr. Rivers in Little Rock that evening and then proceed to Pine Bluff for the meeting on March 25. Mr. Black went to Little Rock and met Mr. Rivers, who had come in from Los Angeles. He went over the contract and bid proposals. Mr. Rivers, who was one of the principal estimators along with Mr. Valentin, left the impression with Mr. Black that the PHI bid included a good profit margin. All in all, Mr. Black entered the conference on March 25 under the impression that PHI had submitted a good bid and would be very lucky if it got the job. At the meeting on March 25, 1964 there were present, in addition to Mr. Black and Mr. Rivers, two representatives from AP&L, Mr. Lloyd Pond and Mr. J. D. Phillips, and one representative from CAI, Mr. F. A. Denbrock. The meeting lasted approximately two hours. Under the terms of the bid documents, AP&L was not required to accept the low bid. The first item discussed was with respect to the correction of two offsetting, relatively minor mathematical errors which resulted in increasing the bid by approximately $1,500. Mr. Black was informed that AP&L had found the errors and asked if he objected to the correction. He did not object and the correction was made. The parties then discussed various other items, including PHI’s general capability of performing the job; the qualifications of certain personnel; the date PHI could start work; critical time factors; the ability of PHI to furnish a performance bond; the subcontractors which PHI contemplated using; the type of equipment PHI would use for wire stringing; and other such matters. During a discussion of the unit cost of wire stringing, someone representing AP&L, or CAI, stated that PHI’s bid on this part of the contract whs “not low”. Near the end of the meeting Mr. Black requested that he be informed as to the amounts of the other bids and was told that it was AP&L’s policy not to disclose the other bidders or the amounts of their bids. Mr. Black then specifically inquired as to the relative standing of PHI’s bid. He wanted to know “how low” it was. In response he was told that PHI “had a good competitive bid” and “had a sharp pencil”. Mr. Black was asked whether PHI would accept the contract in the form in which it was submitted, to which he replied that there would be “no problem”. He was asked if he was satisfied with PHI’s bid and answered in the affirmative. Throughout the meeting Mr. Black was attempting to “sell” AP&L on PHI. The other meeting was the “pre-construction meeting” on April 2, 1964, which was held in the offices of CAI in Little Rock. Among those present were Mr. Pond and Mr. Phillips of AP&L, Mr. Denbrock and Mr. Sanford of CAI, and Mr. Otjen, Mr. Rosenbaum and Mr. Valentin for PHI. At this meeting the parties discussed the methods to be used in construction; the right-of-way; the equipment to be used in construction and its condition; the starting point for the construction work; and the problems relating to the unloading and storage of steel which was located in railroad cars. It was on this occasion that Mr. Otjen also inquired as to the status of the PHI bid, “how our figures looked”. He, too, was advised that it was AP&L’s practice not to reveal the bids of competitors. Mr. Otjen persisted by asking for some indication of how PHI stood. The response was again that PHI had a “competitive bid” and that it must have “used a good, sharp pencil”. There was a great deal of testimony at the trial as to just what the terms “competitive bid” and “sharp pencil” meant. Taking the objective standard, the Court is convinced that such language conveyed the idea that the PHI bid was close to the next higher bid, or to the owner’s cost estimates. Mr. Pond knew that the question was asked for the purpose of determining how much, in contractor’s parlance, PHI had “left on the table”. His response was misleading; it was intended to, and did, reassure and lull the PHI people. In fairness to AP&L it should be emphatically stated that, although it had reason to suspect, and did suspect, that something might be, and probably was, seriously wrong with the plaintiff’s bid, it did not know that the bid actually contained any unintentional errors. PHI was known to it as a large and growing contracting company, doing a large volume of business both in this country and abroad. It was a “big boy” which, one might properly assume, had the resources to take care of its own interests. It speculated that PHI could, possibly, know exactly what it was doing and might even be intentionally entering into a “loss contract” to gain entry into this field of work with the hope that it might make up such losses in future contracts. With respect to the allegations concerning inducement, it should be noted that the officials of PHI thought they had submitted a bid which would return them a nice profit. Far from being reluctant, they were extremely anxious, as indicated above, to sign up the deal as quickly as possible. Before concluding the discussion of the plaintiff’s “first claim”, it is important to review the “errors” or “mistakes” contained in the PHI bid. It is clear that, at even this late date, plaintiff cannot point to this or that specific error or mistake and thereby adequately explain the lowness of its bid. The “mistakes” in fact permeate most of the “civil” construction portion of the bid. There were no clerical or mathematical errors of any importance. Plaintiff contends that the essential error was simply “an inadequate bid” and that the cause is not important if the defendant knew, or should have known, that the bid was clearly inadequate. It did, however, attempt to establish at the trial the basic causes and basic reasons for the inadequate bid. Plaintiff attributes its erroneously low bid principally to the failure of Mr. Loren Valentin, who did much of the work on the estimate for PHI, to appreciate, understand and take into account the terrain in, on, and over which the line-system was to be built. However, Mr. Valentin and other representatives of PHI, in the role of prospective bidders, did visit Arkansas in February, 1964 and inspected the route of the line. Mr. Valentin inspected the route by automobile and by airplane. Even though it was like “flying over the Pacific Ocean”, he was not disturbed by the wet conditions because he surmised from the apparent uses to which most of the land was devoted (principally farming) that it would support the necessary construction equipment. It was clear that he made some serious errors of judgment in this respect. The “buckshot” land presents many difficulties for a construction project of this type which Mr. Valentin did not understand or adequately take into account. He did not adequately provide in his estimate for sufficient track-type equipment, nor did he take into account the problems of access and the effect of poor access upon production. He also erroneously assumed that members of the craft unions would be employed on certain parts of the work when in fact this would not be possible because of an agreement which AP&L had with the IBEW. The Court finds that PHI’s bid was grossly inadequate and attributes this inadequacy mostly to the failure of PHI’s estimators to properly judge the effect of the terrain. As stated, this “error” permeated most of the items in its bid relating to the “civil” construction portion of the job. AP&L was in no way responsible for the mistakes in the PHI bid. Furthermore, even upon examination of the PHI bid and a comparison thereof with the other bids, neither CAI nor AP&L could determine the precise source or the exact reason for PHI’s alarmingly low bid. AP&L has called upon the Court to determine if the method and manner in which PHI prepared and submitted its bid was “negligent” or, stated differently, whether the errors in PHI’s bid arose out of the negligence and lack of professional competence of PHI’s estimators, particularly Mr. Valentin. It is one of AP&L’s legal contentions, which will be discussed below, that, if the errors and mistakes contained in the PHI bid were caused by the negligence or incompetence of its own employees, then its errors and mistakes may not be the basis of any legal relief against AP&L. PHI and Aetna contend that the law is otherwise: that the reason or cause of the mistake or error is irrelevant and particularly so in those cases where that error is “palpable” and the offeree must have known of its existence. Under their view of the law, negligence, if ever relevant, can only be considered in the case of two equally innocent parties, which, they assert, is not the situation here. It is their view further that if AP&L was prejudiced by “snapping up” the PHI bid, it was because of its own inequitable conduct and not as a result of any negligence on the part of PHI. Were the errors and mistakes of PHI the result of the negligence or the lack of professional competence of its own employees? This is a difficult question to answer. It is clear from the evidence that the estimators employed by PHI were well trained, experienced and professionally competent. The testimony indicates that even Mr. Valentin, who bears so much of the responsibility for the errors and mistakes involved in this ease, had a good record as an estimator in connection with many of the projects he participated in on behalf of PHI, both before and after this project. His performance here, therefore, must be viewed as a lapse in an otherwise fairly successful career as an estimator. Most of Mr. Valentin’s errors here were based on lack of knowledge, inadvertence, and false assumptions with respect to soil, terrain, weather, and access, as spelled out above. When one compares his estimates for the “civil” portion of the contract with the bid prices submitted by other contractors for the same work, it is quite clear that the estimators of the other contractors did not make the same mistakes as Mr. Valentin. The Court is forced to conclude, that the errors in the estimate and in the bid of PHI in this case were due to the negligence of the estimators of PHI, particularly Mr. Valentin, which resulted in their failure to include in their estimates sufficient costs to offset the effects of difficult access, mud and water, and unstable subsoil conditions in many areas. Their errors resulted in a gross and palpable underpricing of most of the items of work included in bid items 1 through 139 (the work necessary to complete all towers in place). Although the errors and mistakes in the bid were due to the negligence of PHI’s estimators, and particularly of Mr. Valentin, PHI was not negligent in relying upon the competence and ability of those estimators. Should the errors and mistakes be classified as being of “fact” or “judgment”? PHI’s estimators were in fact misled by appearances and false assumptions on their own part based upon a lack of appreciation and understanding of the peculiarities and difficulties inherent in the overall terrain with which they were dealing. They made errors in judgment in assuming that they had adequate information on which to make a reliable estimate, when they in fact did not have the data they needed. The “Second Claim” of PHI and Aetna and the Counterclaim of AP&L PHI commenced work on the project around April 1, 1964, and continued to perform such work until approximately December 1, 1964. The Court will not detail the evidence concerning the actual construction of the transmission line and the problems incident thereto. The testixnony and the exhibits with respect to such matters are voluminous, and the detailing thereof would serve no useful purpose. Suffice it to say that there were many difficulties and some technical breaches of the contract by both parties. The problems were particularly bad while the project was being supervised by Mr. Valentin in the early period between April and August, 1964. It was during this period that PHI fell substantially behind the schedule. AP&L, with ample justification, made all sorts of threats and protests and PHI struggled to “do better”. These efforts by PHI were largely successful. As a result the conditions and rate and quality of production markedly improved from then until into November, 1964. PHI was behind its schedule on the contract work in November, 1964, but its rate of production with respect to the foundation and tower work was back to normal. Furthermore, its failure to maintain the schedule, even in the early stages of the work, although in part due to its own deficiencies, was not solely PHI’s fault by any means. The delays were contributed to by the actions and inactions of AP&L and CAI. They were also contributed to by the very mistakes (principally concerning the terrain) that resulted in the palpably low bid of PHI in the first instance. Before analyzing the situation that existed in November, 1964, it should be stated that from time to time during the course of construction PHI improperly constructed towers and improperly installed the foundations which caused delays and called for time-consuming corrective work. It was late in commencing the stringing operations for the conductor and overhead ground wire. When PHI did get to the stringing work, it experienced many difficulties. It made many mistakes; but through trial and error and experimentation it was in the process of resolving such difficulties at the time of the termination of the contract. Moreover, the plaintiff’s failure to maintain the schedule of the work was contributed to by AP&L’s failure to provide cleared right-of-way and failure to provide required design data in a timely manner or in a manner which would permit PHI to plan its work far enough ahead to efficiently do the work and to avoid the necessity of “skips”. AP&L’s scheduling and delivery of materials also handicapped PHI from time to time. Furthermore, it is the Court’s impression that AP&L, through its engineers, CAI, was very rigid and inflexible in exercising discretion with respect to permitting PHI to use alternative foundation structures in lieu of augered foundations in certain situations where the use of such alternatives would not compromise the project. The inspection standards and methods of CAI and AP&L were overly strict and unnecessarily burdensome on occasions, although on occasion such practices were modified to provide relief for PHI. In summary, neither party was totally without blame, and both had committed a substantial number of “breaches” of their expressed and implied contractual undertaking prior to the termination on November 28, 1964. After listening to the testimony, the Court is convinced that this is not an unusual situation. Regardless of the competence and goodwill of the parties to such a monumental undertaking, one would expect a multitude of problems and, indeed, “breaches” of the agreement from time to time. The evidence indicates that in the ordinary case these are usually cumulated and negotiated away during, or at the conclusion of, the project. By November 28, 1964, PHI had, overall, performed slightly less than half of the contract work. It had completed in excess of 70 per cent of the foundation work and approximately 60 per cent of the tower construction. Slightly over ten per cent of the “conductor” or “stringing” work had been completed. As of November 28, 1964, one of the key considerations in evaluating the anticipated future progress of the work was the likely completion date for the foundation work. That work was scheduled to be completed by the first of January, 1965. Although everything slowed down during the chaotic “confrontation” period in November, the Court is convinced and finds that both PHI and AP&L were basically satisfied with the progress of the foundation work as of the first of November and would have, reasonably, even as of November 28, 1964, projected the completion of all such foundation work sometime in the middle or latter part of January, 1965. If one looks at the actual situation that obtained after AP&L’s decision to terminate PHI and hire Jelco, he will immediately realize the importance of this factor. So much of the actual cost of completion by Jelco was due to its failure to complete the foundation work in the early weeks of 1965. The effect of the storms, rain and wet conditions that so greatly impeded Jelco’s progress in the early months of 1965 would have been greatly reduced had it been “out of the ground” and through with the foundation work. It is true that tower construction would be, and was in fact, also adversely affected by the weather and wet land conditions, but these latter factors were not nearly as great a handicap in connection with the tower erection work as they were in connection with the foundation work. Furthermore, although the tower erection had fallen considerably behind in the early months of the contract, the rate of that work had picked up substantially by the end of September, 1964. In fact, that rate during September, October and the first two weeks of November, 1964 was approximately as projected. The problem was that PHI had completed only about 60 per cent of such tower work by November 28, 1964 when it should have completed almost 80 per cent of that work by that date. The original schedule called for the completion of the tower erection work by the second week of January, 1965. The Court is convinced and finds that the parties, upon the basis of the information known to them on November 28, 1964, would have also concluded that, had PHI proceeded with the project, it would have completed the tower erection work in February, 1965. This, too, is important to note in the light of the later actual experience of Jelco. Had the foundations been completed in January and the tower erection in February, 1965, not only would the cost and expense of those portions of the work have been drastically and dramatically less than the actual cost to Jelco therefor, but also the cost and the expense of, and the time for completion of, the stringing work would have been dramatically reduced. The Court further finds that PHI had the financial resources to complete the project, even if it had not been able to negotiate an increase in the price with AP&L and that PHI could in fact have completed the project, not by the original scheduled time of completion but in time to interface with TVA so as to fulfill the objective of the project and avoid any penalties upon AP&L. (Note also: AP&L had, by the end of November, 1964, impliedly waived its right to insist on full performance by PHI on or before the completion date; and, independently of such implied waiver, PHI would have been entitled to some additional time because of the breaches and defaults of AP&L which had the effect of slowing down PHI’s performance of the work.) In the light of the above facts, how did it come about that AP&L decided to discontinue all work under the contract and to terminate PHI ? The real “beginning of the end“ came about almost by accident as a result of a meeting on October 28, 1964. That meeting was called to discuss the job and its progress. Mr. Falls of CAI was present, as well as Mr. Otjen for PHI. They discussed “where we were”, “what we had done”, and “what we were going to do”. At this point some of the problems that had seemed quite serious in July and August with respect to footings and steel appeared to have been worked out for the most part. The stringing of the wire was the big concern. Mr. Falls asked if PHI would eonsider subcontracting this work, and Mr. Otjen replied that PHI would consider this possibility. Mr. Falls stated that Foley-Jelco had had a lower price on the stringing portion of the contract than PHI and that, therefore, PHI might want to contact them about the subcontract possibilities. Mr. Falls gave Mr. Otjen a phone number he could use for this purpose. He called from Conway, Arkansas. It was during this telephone conversation with representatives of Foley-Jelco that PHI learned, through Mr. Otjen, for the first time, the approximate bid that had been submitted by Foley-Jelco back in March. Mr. Otjen was told that Foley-Jelco had bid a “shade under four million.” He was shocked by this information and went back to Los Angeles to discuss the matter with Mr. Paul Hardeman and with Mr. Patrick Black. (Note: during the telephone conversation Mr. Otjen was informed that Foley-Jelco would not be interested in any subcontract arrangement except on a cost-plus basis.) The problem was discussed internally by the people at PHI for several days, and resulted in a decision that PHI approach AP&L for “additional costs”. The result was a letter dated November 16, 1964, which reads as follows: “We have recently become informed of certain information which gravely and seriously affects our overall relations with you on the above mentioned contract. “We bid this contract on a unit price basis. The total of all unit prices is in the approximate figure of $2.7 million. “The bids were opened on March 23, 1964. On March 25, 1964 and on April 2, 1964, both prior to your receipt of our executed contract, and on numerous occasions thereafter, our representatives conferred with your personnel and personnel of Commonwealth Associates, Inc., your agent, concerning this contract. On each of those occasions attempt was made by Hardeman personnel to ascertain the amounts of the other bids which were received and by what amount our bid was the low bid. Your personnel and that of Commonwealth Associates, Inc. refused to disclose that information. On the other hand, various remarks were definitely made at these meetings by representatives of your organization and that of Commonwealth Associates, Inc. to the effect that our bid was within reasonably competitive range of the other bids. These comments were made on various occasions and in various forms, all to the unmistakable effect that our low bid was not excessively or unreasonably low as to be out of the range of the other bids. Our personnel at all times in these meetings were given the impression that our bid was not excessively lower than other bids, and we were led to believe that the difference in bids was certainly less than the amount of our bid bond which was $300,000.00. “As this job has progressed, we have recently become aware of the fact that certain of the unit costs are substantially and grossly in excess of both our estimates and the unit prices based on those estimates which were included in our bid. We recently undertook a review of the procedures under which our bid was prepared and we have found that unfortunately certain serious mistakes were made, which resulted in gross underestimates of certain unit costs. “Further inquiry now indicates that these mistakes in our bid to you may have been such that the spread between our bid and a bid free from mistake would be in an amount in excess of $1.00 million. “With the information presently available to us we can only conclude that Paul Hardeman, Inc. has been deliberately misled by your conduct and the conduct of Commonwealth Associates, Inc. in this matter. “In view of the facts set forth in this letter, we request that a high level meeting take place immediately and not later than November 23, 1964, to consider all aspects of this situation. “Unless immediate steps are taken toward a solution of this matter, including but not limited to equitable relief, we will definitely consider stopping all further performance on the job or taking immediate legal action to obtain a declaration of our legal rights, or taking both such actions.” As a result of the request contained in the letter of November 16, 1964, a meeting was held on November 24 attended by Mr. Lewis, Mr. Phillips and Mr. Pond for AP&L, Mr. Warren, Mr. Falls and Mr. Sanford of CAI, and Mr. Otjen, Mr. Woods and Mr. Schwartz of PHI. Mr. Schwartz was an attorney for PHI. It appears that Mr. Horace Jewell, an attorney for AP&L was also present. At the meeting Mr. Otjen mentioned the information he had discovered with respect to the Foley-Jelco bid and requested negotiations for additional funds, stating that PHI had made mistakes in its bid. In response to inquiries from Mr. Lewis, however, Mr. Otjen refused to state the nature or the details of the errors or mistakes. Then the parties discussed the progress being made on the job and particularly the problems with respect to the stringing of the wire. Representatives of AP&L asked Mr. Otjen if PHI wanted to be terminated, or wished to continue with the construction of the project. Mr. Otjen replied “unequivocally” that it did not want to be terminated but, on the contrary, wanted to complete the job. At this point representatives of PHI were asked to leave the room. They were later called back, at which time they were advised that AP&L would give consideration to their request and contact them in a couple of days. On November 28, 1964 Mr. Otjen received a telephone call from Mr. Lewis advising that AP&L had decided to terminate PHI and that a letter to that effect was in the mail. This letter, which has been quoted above, was received on November 30, 1964. Upon receipt of he letter Mr. Otjen again called Mr. Lewis and asked him to reconsider. Mr. Lewis advised that AP&L’s position was firm. PHI then responded with the telegram, dated December 1, 1964, which is also quoted, supra. Why did AP&L decide to discontinue the work and terminate PHI? AP&L contends it was for the reasons stated in its letter of November 28, 1964 and resulted from the opinions of CAI “that the schedule of work is not being maintained and that at the present rate of progress the work will not be completed within the contract time; that you have been and are violating many of the conditions and agreements of the contract and contract documents; and that you are not executing the contract in accordance with the terms of the contract.” The plaintiff and Aetna deny this and argue that, as of November 28, 1964, AP&L was itself in substantial and unexcused default upon its obligations under the contract and would shortly find itself in even greater default; that the letter opinion of CAI was produced at the request of AP&L to form the justification for the decision to terminate the contract, which decision had already been reached for other reasons. The Court finds that the PHI letter of November 16, 1964 was the precipitating factor resulting in the decision to terminate. Conditions with respect to foundation and tower construction had materially improved in the period from August to November. Great difficulty was being experienced with the new stringing operations, but it was not clear at the time that PHI would not successfully work out these problems and be able to string the conductor and static line satisfactorily. Furthermore, there was the possibility of an agreement between AP&L and PHI to subcontract this phase of the work. PHI’s letter of November 16, 1964 altered the basis for evaluation of the entire project by AP&L. PHI had discovered the approximate amount of the Foley-Jelco bid, and was raising legal and factual questions concerning the whole bidding process and the resultant legal status of the parties. From this point on, legal questions began to predominate in the eyes of AP&L officials over the technical and engineering questions. Indeed, the Court finds that the management of AP&L was affronted by PHI’s inquiry and took it quite personally. The reaction, clearly inferable from the evidence, was basically subjective, emotional and visceral. Furthermore, the officials of AP&L at the time were convinced that PHI had grossly underestimated and underbid the job and could only complete it at a substantial loss. They suspected PHI was in serious financial distress. And PHI was calling upon AP&L to open negotiations looking towards an increase in the contract price of approximately one million dollars. Although the legal situation was very much in doubt, they felt that there was at least a possibility of holding PHI and Aetna legally responsible for the amounts necessary to employ a third party to finish the contract. Although PHI had not quit working and had 'not even stated that it would quit if it did not obtain additional consideration, still the possibility was there. Further, AP&L knew that if it proceeded with PHI, the latter would be doubly alert, under the circumstances, to charge AP&L with any breath of the agreement on its part and the situation was such that there were likely to be' serious breaches by AP&L (particularly in regard to right-of-way acquisition) if the project continued ahead full blast. Officials at AP&L felt that the PHI letter of November 16 called for a legal showdown with PHI. They then made the decision that it would be best to get PHI off the job and bring in a new contractor on a cost-plus basis. The Court finds and concludes that AP&L was not justified in dealing with the problem in this draconic manner. Its action in doing so was wrongful and constituted an overriding breach of the agreement which not only prevents it from obtaining judgment for the cost of the completion of the work but, to the contrary, forms the legal basis for PHI to obtain monetary relief against AP&L. See infra. At this point it would be well to mention what was contemplated by the “change over” to a new contractor. It was recognized by all that basically the same “nuts and bolts” work force would do the work whether the contractor was PHI or some third party. The new contractor, however, would bring in certain of its own supervisory personnel. All of the operating and construction equipment that had been used by PHI would be available to and used by the new contractor. However, being without effective financial restrictions and being on a cost-plus basis, the new contractor would be in a position to augment the equipment used. As of November 28, 1964, AP&L was dealing with a time frame of approximately six months. Reasonably, it could contemplate a delay of from several weeks to a month in the new contractor’s getting on the job and at work, even though that new contractor was essentially taking up where PHI left off and with essentially the same work force and equipment. The change contemplated, therefore, was more related to management, some expertise, and increased equipment and financial resources than one would ordinarily think when considering substituting one contractor for another. Although PHI had actually expended over three million dollars in completing slightly less than half of the contract (when measured by the dollars allocated in the bid and contract for the various items or units of work), it does not follow at all that, had PHI remained on the job, the cost of completing the “other 50 per cent” would have also come to approximately three million dollars. In fact, the Court is convinced from the evidence that such would not have been the case. The mistakes which PHI made which were responsible for its grossly low bid were made primarily in connection with the “civil construction” portion of the contract. Approximately 82 per cent of the $3,054,166.82 expended by PHI prior to the termination of the contract is attributable to the “civil” portion of the contract, which amounts to approximately $2,500,000, leaving only approximately a half million dollars having been expended for the “wire stringing” portion of the project. As has already been noted, PHI had completed approximately 70 per cent of the foundation work and approximately 60 per cent of the tower construction work by November 28, 1964. It is also clear that during the period from August into November, 1964, the rate and efficiency of the foundation and tower work had improved significantly. Therefore, the amounts required to finish such work, had PHI been permitted to proceed full speed ahead (thereby, in all probability, completing such foundation and tower work in January and February, respectively), would undoubtedly not have exceeded a straight-line projection of the costs of that portion of such work as had already been performed prior to November 28, 1964. Just as certainly the actual cost experience of Jelco in completing such work cannot be used as a basis for projecting PHI’s costs since the circumstances and conditions under which Jelco operated were completely different and distinct from those under which PHI would have operated had the contract not been terminated and if PHI had been permitted to proceed posthaste. Furthermore, the miserable start by PHI of the stringing operation cannot be used as a basis for predicting its performance with respect to the remaining p