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California Court of Appeals holds that Water District could include "project labor agreement" in solicitation because it was not subject to State competitive bidding statute.
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Associated Builders & Contractors, Golden Gate Chapter, Inc. v. Contra Costa Water District,
43 Cal. Rptr. 2d 600, 1995 Cal. App. LEXIS 734 (Cal. Ct. App. Aug. 2, 1995)
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California county water district performing construction financed under the provisions of state bond law was not subject to state statutes requiring competitive bidding and, therefore, its solicitation for bids which included a "project labor agreement" requiring the work to be performed with union labor was not improper.
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| A California county water district solicited bids for the construction of a $450 million water system reservoir and pipeline project. The solicitation for bids required all bidders to accept a "project labor agreement" which was included in the contract documents and negotiated between the water district and a local union. The local chapter of the Associated Builders & Contractors ("ABC") brought this action seeking a declaration that the project labor agreement violates California law which requires the water district to solicit bids in an open and competitive bidding process and to accept the bid from the lowest bidder. The ABC contended that the project labor agreement violates the law in that it would permit the water district to reject the lowest bidder and award the project to a higher bidder if the low bidder was unwilling to be a party to the union contract.
In a narrowly tailored decision, the California Appellate Court held that the defendant, the Contra Costa Water District, was not required by any California statute to award contracts to the lowest bidder where the contract is one for construction of a project financed under the provisions of the California Revenue Bond Law of 1941. The authority of the Revenue Bond Law of 1941, and entrusted to county water districts, are subject to a lowest bidder requirement in the circumstances of this case. Unless that legislative action is taken, we are precluded from imposing such a requirement in this case in light of our Supreme Court's observation that minimum bidding laws must be strictly construed, and may not be extended beyond the specific provisions enacted by the Legislature. |
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Minnesota Court of Appeals holds evidence of contractors profit inadmissible in dispute concerning proper unit price to apply to excavation work through rock.
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AyrCom Contractors, Inc. v. U.S. West Communications, Inc.,
1995 Minn. App. LEXIS 981 (Minn. Ct. App. Aug. 1, 1995)
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Contract which contained two unit prices for laying cable in rock was ambiguous and court admitted extrinsic evidence regarding the meaning of the ambiguous provisions.
Evidence regarding the contractor's profit or loss was not admissible because its relevance was outweighed by its substantial prejudice regarding the meaning of an ambiguous contract provision.
A state's requirement of a "certificate of authority" to conduct business in the state as a prerequisite to maintaining an action was not a requirement for subject matter jurisdiction, but rather was related to a party's capacity to sue and, therefore, was waived if not raised timely.
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| A contractor sued an owner for breach of contract and for attorneys' fees arising out of its mechanics' lien claim related to a contract to lay approximately 25 miles of fiber optic cable. The dispute centered around the contract's two different unit prices for laying cable through rock: $18.90 per linear foot of cable laid or $490 per cubic yard of excavation. The contractor claimed that the cubic yard price applied to the rock excavation, while the owner claimed that the linear foot price applied. The jury found that the owner had breached its contract and awarded damages in excess of $600,000. The owner appealed from the trial court's denial of its motion for judgment n.o.v. or, in the alternative, a new trial.
The owner challenged the trial court's exclusion of evidence relating to the contractor's profit and loss for the project. The owner contended that evidence of profit would have shown, among l court determined, however, that even though this evidence of profit or loss appeared relevant, its prejudicial impact significantly out-weighed its relevance because a reasonable profit would not show that the owner's interpretation of the contract the only reasonable interpretation. The court noted that the issues in the case involved what the parties intended at the time they entered the contract and whether those intentions were reasonable. Therefore, evidence of the project's profitability had limited relevance. The court also found that the owner was able to cross-examine the contractor's key witness effectively, despite the exclusion of the evidence of profitability.
The owner also argued that the evidence adduced at trial did not support the verdict. The trial court, however, concluded that the contract, as it related to the different unit prices, was ambiguous and therefore permitted extrinsic evidence for the purpose of determining the reasonable interpretation of the unit price provision and the parties' intent with respect to that provision. The appellate court agreed that the contract was ambiguous and found that the jury was entitled to accept the contractor's interpretation of the unit price provision. The court also found that there was ample evidence in the record to support the jury's calculation of damages. Therefore, the appellate court upheld the jury's verdict.
In addition to the issues discussed above, the contractor appealed from the trial court's dismissal of its mechanics' lien claim. The trial court had, prior to trial, dismissed the contractor's mechanics' lien claim on a summary judgment motion on the grounds that the contractor failed to obtain a "certificate of authority" to conduct business in Minnesota prior to filing that lien claim. The contractor filed its complaint in October 1991, the owner filed its answer in November 1991, the contractor obtained its certificate in November 1992, and the owner challenged the lien claim in December 1992, more than a year after filing its answer.
In reviewing the dismissal of the lien claim, the appellate court distinguished between the notions of "subject matter jurisdiction" and "capacity to sue." The appellate court noted that while subject matter jurisdiction may be challenged at any time, the right to challenge a party's capacity to sue is waived if it is not timely asserted. By failing to challenge the contractor's capacity to sue in a timely manner, the owner had waived its right to do so and, therefore, the court reversed and remanded the dismissal of the contractor's mechanics' lien claim. |
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US District Court in Colorado holds subcontractor's Miller Act rights unaffected by subcontract's "incorporation by reference" and "pay upon payment" clauses.
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United States of America for the Use of DDC Interiors, Inc. v. Dawson Construction Co., Inc.,
No. 94-B-2699, 1995 U.S. Dist. LEXIS 10643 (D. Colo. July 25, 1995).
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Summary - Waiver of subcontractor's right to sue prime contractor and payment bond surety for extra work under the Miller Act must be "clear and express." Minimally, an effective waiver of rights under the Miller Act must specifically mention the Miller Act and unambiguously express an intention to waive said rights.
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| Plaintiff DDC Interiors, Inc. ("DDC") subcontracted with Defendant Dawson Construction Co., Inc. ("Dawson") to furnish labor, materials and equipment for framing, drywalling and related work on a courthouse renovation project for the United States General Services Administration (the "GSA") in Denver, Colorado. Plaintiff filed suit against Dawson as principal and surety on a payment bond (issued by defendant USF&G) for a $600,000 balance due DDC for allegedly approved change order work. Dawson as the general contractor moved to stay the action pending the outcome of its dispute with the GSA. The court held that absent a clear and express waiver, a government subcontractor does not surrender its right to seek prompt payment under the Miller Act.
The court found that subcontract language generally incorporating by reference the "plans, specifications and amendments" to the prime contract between Dawson and the GSA, without specific reference to the disputes clause (which obligates the subcontractor to await payment until resolution of whatever disputes process the general contractor may be pursuing against the owner) does not effectuate a waiver of the subcontractor's Miller Act rights.
Similarly, the court found that a subcontract "pa
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California Court of Appeals holds contrator properly debarred from bidding on municipality's public works projects for submitting a greatly inflated claim.
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Stacy & Witbeck, Inc. v. San Francisco,
42 Cal. Rptr. 2d 805, 1995 Cal. App. LEXIS 658 (Cal. Ct. App. Jul. 17, 1995)
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A municipal public utilities commission's order barring a contractor from bidding on the municipality's public works projects for five years was upheld by the California appellate court where the commission found that the contractor had knowingly submitted a greatly inflated delay and disruption claim.
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| A contractor brought suit for declaratory and injunctive relief prohibiting a municipal public utilities commission ("PUC") from barring the contractor from bidding on public works projects for five years. The California appellate court held that the PUC's debarment order was enforceable.
The contractor was awarded a contract for the construction of a railway crossover track system. Problems ensued, delays occurred, and the contractor submitted a claim for damages to the City. The contractor ultimately filed suit -- in another action -- against the City and the City counterclaimed alleging that the contractor submitted a false claim in violation of the California False Claims Act. The City's False Claims Act claim was eventually dismissed in that action on the grounds that the alleged false claim was absolutely privileged under state law because it was submitted to the City in anticipation of litigation. That lawsuit was eventually settled.
While that action was pending, however, the San Francisco PUC brought an administrative action against the contractor to determine whether (1) the contract claim was false; (2) if so, did the contractor knowingly submit it; and (3) if so, should the contractor be declared an irresponsible bidder. The PUC ultimately found that tued for injunctive relief. The trial court granted the contractor's request, but the appellate court reversed, finding that the PUC's action was valid and was not barred by the "litigation privilege."
The PUC found that the contractor violated the implied covenant of good faith and fair dealing which was a part of the contract's claim procedures. Although the contractor argued that the PUC was not empowered to "create a policy" within the ordinance it was enforcing, the appellate court found that the PUC's interpretation was consistent with the policy of protecting the public when it is engaged in business with building contractors.
The contractor also argued that it submitted its claim in anticipation of litigation and, therefore, the claim was absolutely privileged under state law. The contractor further argued that because the communication of the claim was protected by the "litigation privilege," it could not serve as the basis for the administrative action conducted by the PUC. The PUC, however, found that the claim was submitted to the City as part of the normal claims procedure -- and not in anticipation of litigation -- and, therefore, the "litigation privilege" did not apply. The court found that the submission of the claim served two purposes: to comply with the contract claims procedures and to detail the damages for the alleged breaches by the City. As a result, the court found that the "litigation privilege" would not protect the communication of the claim in this context.
The court also rejected the contractor's arguments that the appeal was void because the ordinance had been repealed and revised, that the ordinance was unconstitutional, that the hearing was unfair and bias, and that the ordinance and the PUC's action was preempted by state law. |
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US District Court in Minnesota holds that owner did not waive right to arbitrate against designer by failing to join it in arbitration against contractor.
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Buhler, Inc. v. Reuter Recycling of Florida, Inc.
889 F. Supp. 1126, 1995 U.S. Dist. LEXIS 9815 (D. Minn. Jul. 10, 1995)
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Based on interpretation of two differing arbitration provisions, an owner did not waive its right to arbitrate its claim against designer of facility and seller of equipment by failing to consolidate the arbitration proceeding with the proceeding against its general contractor.
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| Reuter contracted with Buhler to design a resource recovery and composting facility and to purchase certain equipment for that facility. Reuter also contracted with a general contractor, AMCA, to construct the facility. After completion of the project, Reuter was forced to close the facility after being cited by the local authority for emitting an "objectionable odor."
Reuter initiated arbitration proceedings against AMCA pursuant to the arbitration clause in the Reuter-AMCA contract and was ultimately awarded $2.5 million. Reuter then initiated arbitration proceedings against Buhler pursuant to the arbitration clause in that contract. In response, Buhler sought injunctive and declaratory relief in federal district court, arguing that Reuter waived any right to compel Buhler to arbitrate claims that arose out of the Reuter-Buhler contract when it failed to consolidate all claims involving the facility in Reuter's arbitration against AMCA. The court denied Buhler's request for declaratory relief (which was presented to the court in the form of a motion for summary judgment) on the grounds that Buhler had not met its heavy burden in establishing that Reuter had waived its right to arbitrate.
The Reuter-AMCA contract and the Reuter-Buhler contract both contained arbitration clause the arbitrator or any other party to an arbitration initiated under the arbitration provisions of this Agreement, Buyer, Seller and any other parties bound by this arbitration provision or corresponding provision in any other agreement relating to the Facility shall be joined, become a party to, and be bound by such arbitration proceedings.
The court found that the Federal Arbitration Act applied to this action and that the court's inquiry was, therefore, generally limited to whether an expressed written agreement to arbitrate the subject matter of the dispute exists between the parties, and if so, whether the agreement to arbitrate has been breached. The court stated that to prove a waiver of the right to arbitrate, the moving party must show (1) a known existing right to arbitration; (2) an act inconsistent with that right; and (3) resulting prejudice. Further, the court noted that the moving party carries a heavy burden in light of the presumption against waiver and the strong federal policy in favor of enforcing arbitration agreements and that any ambiguity regarding the scope of the waiver should be resolved in favor of arbitration.
The court found that Reuter knew it had a right to arbitrate against Buhler at the time it commenced its arbitration proceeding against AMCA. Buhler claimed that by failing to include it in the AMCA arbitration, Reuter acted inconsistently with that right. The court found, however, that this failure is only inconsistent with the right to arbitrate if Reuter was obligated to commence only one consolidated arbitration proceeding. The court analyzed the two arbitration clauses and found that although the Reuter-AMCA contract provides that all related claims "shall" be submitted to the same arbitrator, the Reuter-Buhler contract permits the joinder of additional parties only on demand of the arbitrator or any other party to the arbitration. The court held "these provisions do not unambiguously require Reuter to consolidate all related claims arising from separate agreements in one proceeding. The fact that the contracts are susceptible to different meanings precludes a finding of waiver." Therefore, the court found that Reuter did not act inconsistently with its right to arbitrate against Buhler. The court also found that Buhler had not suffered prejudice sufficient to overcome the arbitration agreement. |
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District Court in New York finds evidence sufficient to support waiver of written change order requirement and bad faith exception to enforceability of "no damage for delay" clause in subcontractor Miller Act suit.
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United States of America, for the Use and Benefit of Evergreen Pipeline Construction Co., Inc. v. Me
No. 90 Civ. 5106, 890 F. Supp. 1213, 1995 U.S. Dist. LEXIS 9385 (S.D.N.Y. July 7, 1995).
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Oral Requests for Extra Work - Under New York law, either oral directions to perform extra work, or a general course of dealing may effectuate a waiver or modification of contract provisions which otherwise expressly require written authorization or notice of such extra work claims.
No Damage for Delay - Under New York law, an exculpatory "no damage for delay" clause will not be enforced where the delay was: 1) not contemplated by the parties 2) caused by the contractor's bad faith, or willful, malicious, or grossly negligent conduct; 3) so unreasonable that it constituted an intentional abandonment of the contract; or, 4) the result of a fundamental breach of the contract by the contractor.
Punitive Damages - Punitive damages on purely contractual claim will not be awarded where there is insufficient evidence for a jury to conclude that public rights were implicated or that objectionable conduct was directed at the public generally.
Prejudgment Interest - Subcontractor is entitled to prejudgment interest for services rendered seven years before judgment was entered.
Rule 11 Sanctions - Defendants' assertion of a civil RICO counterclaim without sufficient basis therefor warrants imposition of sanctions under Rule 11. Attorney's fees awarded as a Rule 11 sanction is a matter committed solely to the discretion of the district court. In ascertaining "reasonable" fees, the court must bear in mind that the principrned a verdict in favor of subcontractor Evergreen and found that Merritt materially breached the subcontract and that certain provisions regarding extra work and delay damages were either waived or eliminated by the parties. Merritt filed various post trial motions challenging the jury's verdict regarding: the oral requests for extra work under a contract which required that all such requests be in writing; the award of delay damages under a contract with an express "no damage for delay" provision; and challenging the propriety of permitting a claim for punitive damages to be submitted to the jury. Evergreen also filed various post trial motions seeking prejudgment interest and attorney's fees incurred in defending baseless civil RICO claims.
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| The court held that adequate evidentiary basis was established from which a reasonable jury could conclude that defendant Merritt through its prior course of conduct had waived the contractual "in writing" requirement for the change orders and extra work it orally directed Evergreen to perform. The court further found that there was sufficient basis for the jury to conclude that Merritt also waived the "no damage for delay" provision through its bad faith and malicious conduct in grossly inflating backcharges, spoon feeding progress payments to Evergreen and refusing to provide surveyors as promised. As to the punitive damages claim, the court found that a new trial was not warranted in light of the court's refusal to dismiss the punitive damages claim before trial despite the fact that the court ultimately concluded that public rights were not implicated sufficient to warrant said punitive damages. The court reasoned that evidence of bad faith were relevant to other issues in the trial and evidence that was relevant only to a punitive damages claim were expressly excluded from the jury.
As to plaintiff's post-trial motions, the court found that subcontractor Evergreen was entitled to prejudgment interest as an "element of complete compensation" pursuant to Supreme Court precedent recognizing the time value of money. The court further found that Defendants' assertion of a civil RICO counterclaim without sufficient basis warranted imposition of sanctions under Rule 11. However the court noted in ascertaining the appropriate sanction, the court must bear in mind that the principal objective of Rule 11 sanctions is to curb baseless filings; they are not to be used a fee-shifting mechanism. |
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US Court of Appeals for Seventh Circuit holds gross discrepancy in bid price not sufficient to relieve vendor of obligation to subcontractor.
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Architectural Metal Systems, Inc. v. Consolidated Systems, Inc.
58 F.3d 1227 No 94-3898 (7th Cir. July 5, 1995).
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Offer and Acceptance - Under the Illinois U.C.C., a price quotation that specifies the items to be sold, the quantity and price of each specified item, and the delivery terms is not hopelessly vague, as long as the remaining terms regarding warranty, excuses, remedies and the like can be inferred from trade usage.
Promissory Estoppel and the Statute of Frauds - Under the Illinois U.C.C., while the statute of frauds is applicable to a claim of promissory estoppel, if the alleged promise is a price quotation and such term is in writing, the statute of frauds is not a bar to the claim.
Discrepancy in Bids Does Not Create Presumption of Mistake - a bid that is more than 50% lower than another bid does not, as a matter of law place the buyer on notice that the low bid contains a mistake.
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| Plaintiff subcontractor ASM submitted a bid to the general contractor on a train station rehabilitation project to provide metal decking. The bid was based upon a price quotation from defendant CSI, which bid was expressly made contingent upon CSI first obtaining corporate approval of said quotation. After certain revisions in project specifications were made, ASM submitted two subsequent bids to the general contractor based upon CSI's revised price quotations. CSI's revised price quotations were more than 50% lower than those of the other supplier from whom ASM solicited a price quotation. These second and third CSI quotes were not contingent upon subsequent corporate approval.
After some negotiation, the general contractor accepted ASM's bid for the metal decking. Thereafter, CSI alleged that it had made a mistake in the initial quotes and s that the test for an offer is whether it induces a reasonable belief in the recipient that by accepting said offer the seller can be bound. The court explained that while a hopelessly vague offer could not have such effect, where, as here, the price, quantity and delivery terms are specified, the requisite detail is established.
The court further found that there existed triable issues of fact precluding summary judgment on the issues of whether the condition in the first price quotation which conditioned the quote upon subsequent corporate approval was omitted from the later second and third price quotations by mistake and whether ASM had reason to know about the alleged mistake.
Finally, the court rejected the district court's finding on a summary judgment motion that ASM should have at least suspected that CSI's price had been mistakenly computed as it was more than 50% lower than the other bid. The court explained that it may have been the other bid that was erroneous. |
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