Posts Tagged ‘Bid Errors’

Louisiana Supreme Court Reverses Bad Decision That Allowed Bidders to Defraud the State

If you recall, on October 19, 2010, I discussed what I believed to be a very poor decision rendered by the Louisiana First Circuit, concluding that when a bidder on a public project defrauds the State, the State is refused any remedies.

Well, apparently the Louisiana Supreme Court agreed with me (for once), because it just reversed the First Circuit’s decision!

On May 10, 2011, the Louisiana Supreme Court decided that the decision rendered by the First Circuit in State of Louisiana v. Infinity Surety Agency, LLC, et al, 2010 CA 0123, Louisiana First Circuit Court of Appeal (Rendered September 10, 2010) was wrong and the case was remanded for trial. This decision by the La. Supreme Court definitely changes things for the better.

Before this decision was rendered, the First Circuit decided that a successful bidder to a public works project in Louisiana could defraud the State by providing an unauthorized surety and, despite the misrepresentation and failing to perform the contract in a specified time, the State would not be entitled to liquidated damages. The reasoning behind the line of thought was that State should have known that the surety was unauthorized thereby making the bidder unresponsive. The First Circuit placed an affirmative duty upon the State alone that was unfair and certainly unduly burdensome.

Now, the Supreme Court has decided that an appeals court does not have the power to make such a determination.

Whether Joint Venture breached the contract; whether Joint Venture’s bid was responsive; whether Joint Venture was the lowest responsible and responsive bidder; whether the State, as opposed to the bidder, had the sole and affirmative duty to determine if Infinity Surety was an authorized surety under the bid form; whether the State could instead reasonably rely on the representations of the bidder and the surety in the bid form; whether the State should have or could have rejected the bid as defective; whether the insurance codes precludes Infinity Surety as an unauthorized insurer from asserting its surety contract is void; and whether the State could have waived any purported defects in the bid bond, are all issues that should be resolved at trial…

These were all factual determinations that were not for the appeals court to decide and should be decided at trial. The La. Supreme Court here very smartly narrowed in on the particular issue that was to be resolved, namely whether the State alleged enough facts to assert a legitimate cause of action against the defendants, rather than allowing the decision of the court below extend its power beyond that which is lawful.

The unnecessary burden placed on the State in public works projects to investigate a surety that is being represented as authorized and fit for the purpose of the contract has been lifted.  In public works projects, the State should be allowed to rely on representations made by the other party that should be made in good faith, a notion that is fundamental to the law of contracts, and this decision properly reflects that.

Posted in:     Bidding, Louisiana, State & Federal Contracting  /  Tags: , , ,   /   Leave a comment

When Bidder on Public Project Defrauds the State, Louisiana 1st Circuit Refuses the State Any Remedies

In my view, the Louisiana First Circuit just rendered a very poor decision.   The decision was written by Judge William J. Kline (serving pro tempore) in the matter State of Louisiana v. Infinity Surety Agency, LLC, et al, 2010 CA 0123, Louisiana First Circuit Court of Appeal (Rendered September 10, 2010).

In Louisiana, when a successful bidder to a public works project fails to execute the contract within the specified time frame, the State has a right to retain the bid bond as liquidated damages.

So, what happens when the successful bidder represents that it could provide an acceptable performance…but through an unauthorized surety?    In such a case, the successful bidder is awarded the contract, but cannot proceed with work within the required time frame because of a failure to bond the project pursuant to the La. R.S. 38:2219 requirements.

A case last month out of the Louisiana First Circuit addressed this question, concluding that the State was not entitled to liquidated damages.

The reason?

Since the purported surety was unauthorized, the bid itself did not meet the statutory requirements of the Public Works Act.   The bid, in other words, was non-responsive and should have been rejected by the State.

What if the bidder made a misrepresentation – an outright fraudulent misrepresentation – that the surety had authority to bond the project and would in fact bond it?   The First Circuit says it doesn’t matter:

Although the State also argues that [the contractor and surety] should not be allowed to escape paying the penalty by its alleged fraud, there is no ambiguity in the statute.   The bid did not meet the requirements of the statute and is null and void.  When a law is clear and unambiguous and its application does not lead to absurd consequences, the law should be applied as written.

Doesn’t this remedy seem harsh, or maybe an absurd consequence?   After all, the contractor and surety defrauded the state intentionally….while the State was just guilty of an oversight, or was duped.   The First Circuit says this:

Admittedly, this conclusion seems harsh because in circumstances of this sort, when there are two breaches of statutory responsibility, one breach could be intentional and the other an oversight…Had the State rejected the bid up front, however, there would have been no delay in awarding the contract to the lowest responsible bidder.

I think the Court might have made a mistake here.   This explanation for the “harsh” conclusion is lacking of any good logic, acknowledging two breaches of statutory authority, but failing to acknowledge that maybe the State couldn’t have rejected the bid upfront…because it was lied to.

In this decision, the First Circuit has chosen to read one statutory mandate as more important than the other.  Namely, the First Circuit reads the duty of the State to reject non-conforming bids literally and without sympathy, but merely glazes over any statutory and legal requirement that the contractor and surety not commit a fraud on the State.

Further, the First Circuit ignores clear language elsewhere in the Public Works Act:  that if the bidder is awarded the contract, and does not perform, it forfeits its bid bond.   Here, clearly, the bidder was awarded the contract, and did not perform.   The conclusion that the bid might have been unresponsive because of a mistake in the bid or outright fraud, doesn’t change the facts:  the bidder won, and could not perform.

What about the State’s tort claim against the contractor and surety for the misrepresentations?  Surely, the tort claim would have merit – or at least be deserving of a trial….

Not so, said the First Circuit.   “The alleged tort claim should never have arisen,” it concludes, because the bid should have been rejected.

Posted in:     Bidding, Louisiana, State & Federal Contracting  /  Tags: , , , , ,   /   2 Comments

Budgets, Changes Orders and A Green Building Project

If you were to survey green building critics, it’s safe to guess most will argue that the cost to build green do not outweigh the benefits.

Indeed, many have suggested that the cost of building green (especially gaining LEED certification) is significantly higher than building to ordinary standards.   Others argue that LEED certification can be achieved through an everyday budget.

Regardless of where you fall on this issue, everyone should agree that green building projects have certain specifications, and bidding contractors must project the construction costs responsibly.

And so, one of the most challenging components of a constructing a green building may be the process of bidding it.

Since green building work is just starting to take hold in the construction industry, many contractors and subcontractors are working on little-to-no experience on green projects.   And sometimes the data behind green building techniques and products are thin (see greenwashing).

On Wolfe Law Group’s Construction Law Monitor, we published a 2-part article on the Bidding Process and Change Orders:   Bidding Errors and Change Orders: Avoiding a Nightmare [Part One and Part Two].

How do we suggest you avoid Bidding Error nightmares?   Spend time with the Contract Documents pre-bid.

With green building projects, this is more true than usual.

When preparing your green bid, here are some example thoughts that should be considered:

  • If the project is being certified with LEED or another standard, who will be responsible for the submittal process?   Who will be responsible for monitoring the construction process?
  • Contact vendors who will be providing the project’s materials, and review the data they have to back-up their performance and environmental claims.   It would be a pity to plan on using one product, and being forced to later use a more expensive substitute.   See this article on how to shop for green building materials.
  • If the builder is anticipating a tax credit, do you understand the requirements to qualify for the credit?   Will this increase your construction costs?

A successful green building project starts where successful ordinary projects begin:  during the bidding and contracting period.

Whether your green building project will increase costs, or not, understand the green building expenses associated with your project, and avoid bidding errors and change order nightmares.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Green Building Law Blog.

Posted in:     Bidding, Change Orders, Green Building  /  Tags: , , , , , ,   /   Leave a comment