by John McGill
Just when you think you’ve got it all dialed in, legal-wise, the court’s throw a curve ball that you just don’t see coming. Typically when a lawsuit is filed in a construction related matter, the claims that are raised are those that are traditional for the kind of dispute involved. If it’s construction defect litigation, then you expect negligence, indemnity, warranty, and breach of contract type causes of action. If it’s a construction payment claim then you’ll see breach of contract, prompt payment, mechanics lien and stop notice causes of action. If it’s a public works project then you may also have false claims and wrongful withhold type issues, maybe a Government Code claim violation thrown in for good measure.
It’s all fairly predictable because over the many years that these kinds of disputes have been hashed out in the courts, there is a large body of law that sets the parameters for what needs to be alleged and then proved to prevail in the particular dispute.
Now we have another claim that is apparently available in public works projects: intentional interference with prospective economic advantage. In the case of Roy Allan Slurry Seal Inc v American Asphalt South Inc. the court recognized for the first time in the public works context that the second low bid contractor can state a claim against the awarded low bidder for interference with future (prospective) economic advantage. In a two to one decision, the court upheld the second low bidder’s right to sue the low bidder for damages because the second low bidder was not awarded the contract.
The facts in the case are pretty straightforward. Over a four year period, American Slurry outbid Roy Allan Slurry and another bidder on 23 public works contracts with a total value of $14.6M. According to Roy Allan Slurry, the success of American Slurry was due to its failure to pay prevailing wage or to include prevailing wage labor rates in its bids. The cost of the materials was the same for all of the bidders, it was the cost of the labor that was manipulated and created the edge for American Slurry. Roy Allan sued and included a tortuous interference with prospective advantage claim.
The elements that need to be established for such a claim include the existence of an economic relationship with some third party that makes it reasonably certain the that plaintiff will gain some future economic benefit; the other party must know of that relationship; the other party must engage in wrongful acts to disrupt that relationship; the plaintiff’s relationship must be disrupted; and the plaintiff must suffer economic harm that was caused by the other party’s interference.
Tortuous interference is an available remedy for contractors, but in this case, the allegation was made in the public works context. Recall that in public works contracting, the responsible low bidder must be awarded the contract. The whole point of the Public Contract Code is to assure that the public fisc is protected and the public pays the low bid amount, not something more. The effort is to keep favoritism and the good ole boy network from giving projects out to friends so that the public is paying more than what it should; and therein lies the problem.
For one thing, there is no expectancy that one bidder will get any public project. If they are low bid, yes; if they are not, they don’t get the job. The first element of the cause of action requires that there must be a reasonable certainty that the bidder would get the job. In public works, there can’t be that certainty just as a matter of law.
Second, the fact that it is an open bid means that all bidders must be treated equal, so there cannot be any “knowledge” of any pre existing relationship. There could never be such a “relationship” so there could never be knowledge of such a relationship. If there was such a relationship, it would suggest collusion and that is a violation of the Public Contract Code.
Third, whether American Slurry underbid the projects or not, and notwithstanding that the underbids might be the result of a violation of the prevailing wage law, that violation is not one that can be alleged to interfere with some prior relationship of a competitor. In the public works context, there is no such relationship. The prevailing wage violation was intended to get a competitive advantage, not to interfere with the competitor’s prior relationship with the Owner.
Last, if there is no prior relationship that can be disrupted because such a guaranteed relationship would violate the Public Contract Code, then there can be no disruption of that economic relationship. And if there is no disruption, there can be no damages; the claim should fail.
The Public Contract Code precludes the key element of the kind of claim that Roy Allen brought: the pre-existing relationship. To be sure, there are any number of other claims that Roy Allan could bring, including Unfair Business Practice claims and prevailing wage (DIR) violations, but interference with prospective advantage is not one of them.
Roy Allan could have challenged the bid and/or sought an order from the court to enjoin the award of the project, and it did. The trial court ruled against Roy Allan but the Court of Appeals reversed. The Court of Appeal’s reasoning was good, but the underlying context of a public works project completely controverts and undermines that reasoning. It simply cannot happen that there is any expectation of prospective advantage in the public works contract arena.
Whether this case will have any real impact remains to be seen; hopefully it does not. But it is on the books and it is a published decision, so don’t be surprised if it shows up in future litigation; just not in any that you may be involved.
Bio: John McGill is an attorney and represents contractors and suppliers throughout the Bay Area and Northern California in both private and public work disputes and transactional, matters. He is the author of California Contractor’s DESKTOP GENERAL COUNSEL What You Need To Know About California Construction Law. Second Ed. Contact: 925-952 5403 or 707-337-1932. Email johnmcgill310@gmail.com
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