Contractor Loses Battle with Architect Over Improper Influence in Bid Selection

Posted by: Hilger Hammond On: 30th October 2012 | no responses.

By Aileen Leipprandt

In Cedroni Associates, Inc. v Tomblinson, Harburn Associates, Architects & Planners, Inc. (July 2012), the Michigan Supreme Court rejected a contractor’s claim against an architect for tortious interference for allegedly lying about a contractor’s qualifications during a bid selection process.

In Cedroni, Davison Community Schools (DCS) invited bids on a school construction project.  The architect, Tomblinson, Harburn Associates, Architects & Planners (THAAP) assisted DCS with the bid selection process by reviewing and evaluating bids, investigating contractors and their references, and expressing opinions about which contractor should be awarded the project. Plaintiff, Cedroni Associates, was the low bidder. THAAP, however, recommended that the school board award the contract to the second lowest bidder.  The school board accepted THAAP’s recommendation.

Cedroni then sued THAAP asserting that THAAP tortiously interfered with Cedroni’s “prospective economic relations” by wrongfully informing DCS that Cedroni was unqualified to perform work. Cedroni claimed the THAAP’s recommendation was motivated by revenge against Cedroni for a dispute between Cedroni and THAAP on another project that resulted in THAAP being fired from the project.

In a 4-3 opinion, the Supreme Court sided with the Architect affirming the long-standing principle that a disappointed low bidder on a public contract has no reasonable expectation of being awarded a contract, “only wishful thinking.”  In the absence of a valid business expectancy, the contractor could not sue the architect for tortious interference.  In so ruling, the Supreme Court did not rule that an architect was immune from liability for making false statements about the low bidder, implying that there may be some other theory upon which the offended contractor could sue the architect.  While Cedroni may be considered a victory for design professionals, the Supreme Court left the door open for other claims.  What those claims might be remains to be seen.

 

Contractor Holds Airport Authority’s Feet to the Fire Despite Absence of Signed Contract

Posted by: Hilger Hammond On: 13th April 2011 | no responses.

Contractor Holds Airport Authority’s Feet to the Fire Despite Absence of Signed Contract

April 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

Posted by: Hilger Hammond On: 8th April 2011 | no responses.

''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.

Bidding on Public Projects Funded by the American Reinvestment Recovery Act

Posted by: Hilger Hammond On: 21st March 2011 | no responses.

project plansBy: Mark A. Rysberg

 

The American Recovery and Reinvestment Act (ARRA) earmarked $143.4 billion in funds directly impacting the construction industry.  Bidding on public projects already requires navigating through complicated issues, including prevailing wage, buy America provisions, reporting requirements, employment practices, and mandatory contract requirements.  ARRA funds create a new twist adding another layer of complicated issues.

 

In order for ARRA funds to create new jobs on and off the project, contractors working on an ARRA funded project are required to purchase all iron, steel, and manufactured goods from producers and manufacturers in the United States.  Contractors receiving ARRA funds directly from the Federal Government are required to compile data and report quarterly on the total amount of ARRA funds received, the amount of funds actually spent or committed to projects and related activities, detailed lists of all projects and activities including evaluating completion status, and an estimate of the number of jobs created and retained because of the ARRA funds.  To fulfill these requirements may add unexpected costs to the project cost.

 

To avoid the pitfalls of non-compliance, contractors should be proactive at all stages of the project.  During the bidding process, contractors should alert their subcontractors of ARRA requirements.  Additionally, contractors should confirm that their bids include soft costs relating to data compilation and reporting requirements.  Throughout the construction process contractors should implement procedures for documenting ARRA compliance and monitoring possible changes in reporting requirements.  Strategies to ensure compliance could include a check box on project estimates, external audits, or establishing personnel to oversee and monitor project compliance.

Superior Knowledge Doctrine Allows Contractor To Recover From Owner…

Posted by: Hilger Hammond On: 2nd November 2010 | no responses.

 

…For Non-Disclosure of Material Information


By Benjamin Hammond

 

In Los Angeles Unified School District v Great American Insurance Company, the California Supreme Court held that a public entity owner can be required to pay additional compensation if it fails to disclose material facts which affect a contractor’s bid.

 

 

The Los Angeles Unified School District was forced to find a replacement contractor after the original contractor failed to meet certain requirements of the contract. As part of the re-bidding process, the District provided the original plans and specifications as well as a punch-list of items detailing necessary corrections. The replacement contractor was also required to correct any unlisted defects in any existing work performed by the original contractor.

 

The winning bid came in at a cost not to exceed $4.5 million, but as the replacement contractor delved into the repairs, it found additional deficiencies that would need to be corrected and were not previously disclosed. For example, a punch-list item to repair a few floor tiles led to the reinstallation of all tile. The contractor submitted the extra costs, totaling approximately $2.8 million, which led to litigation to determine who would bear the extra cost – the owner or the contractor.

 

The Court stated that, in certain circumstances, a contractor may be entitled to additional compensation for a public entity’s non-disclosure where:

 

a)    The contractor submitted its bid or undertook to perform work without material information that affected performance costs;

 

b)    The public entity was in possession of information and was aware the contractor had no knowledge or reason to seek it out;

 

c)    Contract specifications or other information furnished by the public entity to the contractor misled the contractor or did not put it on notice to inquire; or

 

d)    The public entity failed to provide relevant background information.

 

This legal doctrine, known as the “superior knowledge doctrine”, was previously adopted by the United States Supreme Court and allows relief in cases where a public entity owner is aware of material information, but fails to disclose that information to the bidding contractor. The superior knowledge doctrine requires public entities to provide accurate plans and specifications, but they are not required to disclose information that the contractor should have discovered through due diligence.

 

Concern that public entities will now be exposed to more claims as a result of this decision was tempered by the Court, which stated that nondisclosure is only actionable on a limited basis and when the information materially affects the cost of performance.

 

Competitive Bidding on Prevailing Wage Projects

Posted by: Hilger Hammond On: 13th September 2010 | no responses.

by Mark A. Rysberg

 

Contractors can reduce-wage related costs and gain a competitive edge in the bidding process by developing creative compensation methods.  soft cialis The Davis-Bacon Act requires contractors on federally-funded projects to pay laborers and mechanics prevailing wage and fringe benefits.  pay for someone to write your essay Michigan has a similar law that applies to state funded projects.  MCL 408.551.  Traditionally, fringe benefits have been paid as cash wages.  However, for every dollar spent on cash wages employers incur additional payroll taxes (FICA, FUTA, SUTA) and insurance-based expenses such as worker’s compensation and liability insurance.  The bottom line is that every dollar spent on wage-based compensation can cost employers 25% more.

 

Although prevailing wage laws eliminate the competitive advantage from the labor rate aspect of the project cost, employers can choose how to fund the fringe benefits.  By providing employees with fringe benefits as a bona fide benefits package rather than paying them wages to purchase or contribute to the same benefits, employers can eliminate some of the unnecessary payroll taxes and insurance costs.  By getting creative, contractors can become more competitive in an ever-tightening bid process.