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Close But No Cigar − Supreme Court Rejects Civil Liability to Unsuccessful Bidders of Public Works Projects

The end to a closely-watched case against a successful bidder on public contracts by its competitors came on February 15. In Roy Allen Slurry Seal, Inc. v. American Asphalt South, Inc., the California Supreme Court ruled that the plaintiffs – the second lowest bidders on several public works projects – could not continue their lawsuit against a competitor whom the plaintiffs claimed used improper bidding practices in order to win public contract awards.

Plaintiffs Roy Allen Slurry Seal and Doug Martin Contracting sued American Asphalt in several counties under the tort of intentional interference with prospective economic advantage.  Plaintiffs argued that American improperly won several competitively bid public works contracts only because American did not intend to pay mandatory prevailing wages.  Plaintiffs claimed they would have been low bidders but for American’s wrongful interference in the bidding process by basing bids on illegal wage rates.

The Court of Appeal agreed with the Plaintiffs, holding that second lowest bidders had a reasonably probable expectancy that they would be awarded the contracts. This ruling gave Plaintiffs and other bidders similarly situated a more powerful legal tool than the traditional bid protest, which has significant limitations.

But just as quickly as the Court of Appeal opened the door, the Supreme Court closed it. The Supreme Court found that submitting a bid to a public entity does not create an economic expectancy, but only the hope of one. A bidder could not rely on being awarded a contract merely because it was the lowest bidder as the agency could always reject all bids instead of awarding a contract.

The Supreme Court also rejected Plaintiffs’ argument that their suits would protect public works employees by deterring wage law violations, observing that compliance with prevailing wage requirements was heavily regulated by law, and creating a tort remedy between competing bidders was not the answer.

But notwithstanding the result in this case, contractors who fail to pay prevailing wages should not expect a free pass. Statutory penalties, disciplinary actions, and potential False Claims Act liability await those contractors who do not pay prevailing wages when required to do so. And while civil liability may not exist for the bidders left behind, contractors who play fast and loose with the rules for public work projects do so at grave risk.

Dale Ortmann is a senior shareholder and co-founder of Hunt Ortmann, a leader in California construction law. If you would like additional information about the subject matter of this bulletin, please contact him at ortmann@huntortmann.com.

 

 

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