03/08/2017 BUSINESS UPDATES
Actions by Judges and Lawmakers Could Alter Contracting in California AB262
Separate actions earlier this month by California Supreme Court justices and two state legislators could set some new parameters for construction contracting in the state.
In a Feb. 16 ruling, the state supreme court threw out a state appeals-court decision that had allowed lawsuits by two construction firms against a competitor, claiming that its winning bids on more than $14 million in public-works jobs with state municipalities over a three-year period were based on alleged repeated violations of prevailing-wage laws, which the defendant denied.
Justice Carol Corrigan reversed the appellate ruling in a decision endorsed by the six other judges, contending that Roy Allan Slurry Seal Inc. and Doug Martin Contracting Inc. could not sue American Asphalt South Inc. to have its contracts overturned and rebid. The high court reinstated a ruling by the state superior court, dismissing the two firms' suit.
Corrigan disputed the two firms' claim that American Asphalt had interfered with their prospective economic advantage because they could not prove a key element of the legal argument—a relationship with a third party, the public entities with which they were seeking to contract.
“Public-works contracts are a unique species of commercial dealings,” Corrigan said. "In awarding the contracts, the public entities could give no preference to any bidder based on past dealings and were required to accept the lowest responsible bid." She said the plaintiffs' hope for a relationship with the contracting entities was intentional, not probable.
Corrigan also disagreed that allowing claims like theirs to go forward would add "an extra disincentive to discourage unscrupulous contractors" from violating prevailing-wage laws, as the appeals court had said earlier. According to Corrigan, the contracting area is already highly regulated.
"This is a tremendously important decision not only for contractors who bid on public-works projects in California but also for the public agencies [which] award these contracts and the citizens of California who ultimately pay for the projects," said Cerritos-based attorney Scott K. Dauscher, who represented American Asphalt, in an online posting.
But Irvine-based attorney David Klehm, who represented the plaintiffs, told ENR that the contractors are "small, family-owned businesses hanging on by their fingernails." The State Building and Construction Trades Council of California filed an amicus brief supporting the plaintiffs.
"This will have a huge impact on California public works," Klehm said. "It will weaken compliance with prevailing-wage rules to be the lowest bidder. On some jobs, the differential is significant. Wage theft is a huge problem in California. But the court is saying, 'We'll leave enforcement of prevailing wages to the agencies.' "
Meanwhile, in the Legislature, Democratic assembly members Rob Bonta and Susan Talamantes Eggman have introduced a bill that, for the first time in the U.S., would require public agencies to take into consideration the “social costs” of greenhouse-gas emissions when calculating the lowest bid on an infrastructure project.
The legislation, AB 262, would require construction bidders on publicly funded projects to calculate the cumulative amount of specified greenhouse-gas emissions that would be produced in manufacturing a project's construction materials, such as cement, steel, manufactured wool and glass.
“By focusing the buying power of California’s budget, of which approximately $10 billion goes to infrastructure each year, AB 262 will help ensure a thriving market exists for low-carbon industrial products,” said Bonta.
Each bid's materials-emission total would be put into a still-to-be-developed formula, adjusting the final bid price for public agencies to consider when awarding projects.
In addition to environmental groups, some producers and labor unions support the bill, which also would take into account emissions produced in the transportation of materials.
Robert LaVenture, director of United Steelworkers, District 12, said in a statement: "The carbon advantages of energy-efficient production will advance the state’s climate goals while maintaining good, family-supporting manufacturing jobs.”
Under the bill, all prospective bidders on state projects would be required to disclose in their bids the cumulative amount of direct and indirect emissions generated in the manufacture of "eligible" materials. Asphalt would begin to be included in 2021, according to legislators.
But said attorneys Anthony J. Samson and Erika Norman of Arnold & Porter Kaye Scholer in a Feb. 15 Law 360 analysis: "Although not expressly stated, AB 262 also has an economic objective of making California companies, and in some cases US companies, more competitive for state contracts. Because the bill would impose a premium on eligible materials manufactured with less stringent environmental protocols and transported long distances to the project site, foreign bidders (or bidders that source eligible materials not made in California or in the United States) may be at a disadvantage if the bill takes effect."
They add that "notwithstanding the bill’s stated environmental objectives, the undefined formula to be applied by state departments makes it relatively unclear as to whether and how the bill would, in fact, result in a reduction in GHG emissions."
The Associated General Contractors of California says it is still trying to understand how the bill would be implemented. “We will also be looking at what stakeholders [public agencies] think about it and will have a position as the bill makes its way through the process,” said Sophia Taft, an AGC spokeswoman.
The bill, now before the assembly's Natural Resources and Accountability and Administrative Review committees, must be acted on by the full Legislature by Sept. 8.