Payment Bonds on Public Project
By Mark Rysberg
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The federal Miller Act and Michigan’s Little Miller Act require general contractors to provide the governmental agency contracting for the public project with a payment bond. The Miller Act applies to federal public projects exceeding $100,000 and the Little Miller Act applies to Michigan public projects exceeding $50,000. The purpose of both statutes is to provide security for payment of the subcontractors, suppliers, and laborers that contract with the general contractor. The security provided by these acts is intended to act as a substitute for a construction lien since construction liens do not apply to public projects.Contractor Holds Airport Authority’s Feet to the Fire Despite Absence of Signed Contract
Contractor Holds Airport Authority’s Feet to the Fire Despite Absence of Signed ContractApril 13, 2011
By Aileen Leipprandt Published in the AGC Michigan Legal Brief, Volume VII, Issue 1, 2011
In the recent Court of Appeals case, The Garrison Company v Bishop International Airport Authority,(November 2010), the court ruled in a favor of a contractor on the contractor’s claim that a contract existed based upon the defendant’s unequivocal acceptance of the contractor’s bid. In Garrision, the contractor submitted a bid for $6,650,000 to the Bishop International Airport Authority (Airport Authority) to build an air freight handling facility. The Airport Authority passed a unanimous resolution accepting Garrison’s bid. The resolution stated that funding for the project was available and the resolution authorized the Authority’s CEO to execute construction contracts to complete the project.
About a month after the Airport Authority accepted Garrison’s bid, before the parties signed construction contracts, the Authority rescinded its acceptance. Garrison then sued the Authority alleging that the parties had formed a binding contract and that the Authority had no basis to rescind the contract. Garrison also asserted that the general conditions of the contract (AIA A-201™) allowed the Authority to terminate the contract for convenience, but that Garrison was nonetheless entitled to recover the expenses for completed work and a reasonable amount for overhead and lost profits. The Airport Authority contended that no contract was ever formed.
The trial court agreed with the Airport Authority finding that the parties did not intend to be contractually bound until the construction contracts were actually signed, which never occurred. The trial court dismissed Garrison’s claim. Garrison appealed.
The Court of Appeals reversed the trial court and sided with the contractor, finding that the Airport Authority had accepted Garrison’s offer to perform the work in accordance with the bid documents. The bid documents included copies of the construction contracts (AIA A-101™, AIA A-201™) and those contracts covered the essential terms of the deal. Because there were no conditions in the Authority’s resolution accepting Garrison’s bid, the Authority was contractually bound to Garrison, just as Garrison would be contractually bound to the Authority to perform. The appellate court observed that the “act of formally executing the construction contracts was not a step that had to be completed before a valid contractual relationship arose, given that plaintiff had already agreed to these contracts as part of the bidding process and that defendant had necessarily agreed to these contracts by making them available to bidding contractors and mandating that they be part of the bid documents.”
While there is mixed authority on whether “agreements to agree” or a “contract to enter into a contract” provide sufficient basis to enforce a binding contract, the facts presented in this case left little room to argue that the Airport Authority had unconditionally accepted the contractor’s bid and that the essential terms of the contract were clearly and definitely set forth in the bid package. Lesson learned – form contracts included in bid packages should not be overlooked and may set the essential terms of a deal. |
Contractor Gets a Shot at Proving Architect Improperly Interfered with Bid Award
By Aileen Leipprandt
Previously published in AGC Michigan Legal Brief, Volume VII, Issue 1, 2011
A contractor’s claim for tortious interference in the context of a bid selection process was recently the subject of a detailed and lengthy Court of Appeals decision, Cedroni Associates, Inc. v Tomblinson, Harburn Associates, Architects & Planners, Inc., (November 2010). There, the appellate court ruled that the low bid contractor had produced enough evidence to allow the contractor to proceed to trial on its claim that the architect improperly interfered with the bid award process in refusing to recommend the low bid contractor.
In Cedroni, Davison Community Schools (DCS) invited bids on a construction project involving two elementary schools. Pursuant to its contract with DCS, the architect, Tomblinson Harburn Associates, assisted DCS with the bid selection process in typical fashion by reviewing and evaluating bid applications, investigating competing contractors and their references, and expressing opinions as to which contractor should be awarded the project. Plaintiff, Cedroni Associates, Inc., was the low bidder. However, based upon reference responses and the architect’s own experience with Cedroni, the architect recommended that the school board award the contract to the second lowest bidder. The school board accepted the architect’s recommendation.
Cedroni then sued the architect asserting that the architect tortiously interfered with Cedroni’s “prospective economic relations” by wrongfully claiming that Cedroni was unqualified to perform work on the project. The architect asked the trial court to dismiss the lawsuit because Cedroni did not have a valid expectation of entering into a business relationship with the school district given the broad discretion afforded the school district in selecting contractors and because the architect did nothing improper in expressing its opinion as to which bidder the school district should select. The trial court agreed with the architect and dismissed the case. The contractor appealed and the Court of Appeals reversed the trial court and remanded the case for trial.
The Court of Appeals first concluded that while the school board’s Fiscal Management Policy contained multiple provisions reserving to the board the right to reject bids, such discretion was not unfettered and was subject to the provision requiring an award to be made to the “lowest responsible bidder” as defined in the Fiscal Management Policy.
The appellate court next concluded that Cedroni had submitted enough evidence to suggest that Cedroni was a “responsible” contractor and that there was a reasonable probability that Cedroni would have been awarded the contract but for the wrongful conduct of the architect. To that end, Cedroni presented a detailed affidavit regarding the specifics of various projects that Cedroni had timely and successfully completed. In light of this evidence, the Court concluded that Cedroni had a valid business expectancy in the construction project.
Next, the appellate court ruled that Cedroni had submitted enough evidence to create a factual dispute as to whether the architect acted improperly in the manner in which it communicated and recommended the bidders. Cedroni showed that a great deal of friction and animosity had developed between Cedroni and the architect on past projects by the time of the bid selection on the Davison Schools project, and that this animosity unfairly colored the architect’s recommendation so that the unfavorable recommendation was motivated by malice and not legitimate business reasons. That is, the architect “sabotaged” Cedroni’s bid.
The appellate court was careful to limit its opinion, emphasizing that the architect’s exercise of professional business judgment in making recommendations as to public contracts “must be afforded some level of protection and deference.” Nonetheless, given that there was some evidence to suggest the architect’s exercise of judgment was “in reality a disguised” attempt to improperly interfere with Cedroni’s business expectancy, the appellate court concluded that Cedroni should have a chance to prove its case.
Judge Kelly authored a strong dissenting opinion, observing that given the school district’s broad discretion in bid selection, Cedroni’s only legitimate business expectancy was a fair bidding process free of fraud, not a favorable outcome.
While the Cedroni case may be considered a victory for contractors, design professionals may be dismayed at the prospect of being embroiled in litigation for recommendations it makes on bid awards.
