Third Circuit Affirms Decision On DRPA Bridge Contract But Reverses Judicial Award Of Contract To Low Bidder

The U.S. Court of Appeals for the Third Circuit recently affirmed a N.J. federal district court decision which found that that the Delaware River Port Authority (DRPA) had acted improperly in rejecting the low bidder for a painting contract for the Commodore Barry Bridge. My original post on the DRPA case can be found here.

In 2016, the DRPA rejected Alpha Painting & Construction Company, Inc.’s low bid and awarded the contract to Corcon, Inc., the second low bidder. After its protest was denied, Alpha sued the DRPA to rescind the award to Corcon. The district court found that the DRPA’s actions were arbitrary and capricious, and ordered the DRPA to award the contract to Alpha. The DRPA appealed.

On appeal, the Third Circuit agreed with the district court, finding in a lengthy opinion that the DRPA’s decision to reject the low bidder was irrational, arbitrary, and capricious. However, the Third Circuit held that district court went too far in directing the DRPA to award the contract to Alpha. Instead, the Third Circuit remanded the case for entry of a more limited injunction, stating:

Here, DRPA arbitrarily removed Alpha from contention for the Phase 2 contract. Accordingly, Alpha should be restored to competition and DRPA should evaluate Alpha’s bid and affirmatively determine, per its guidelines, whether Alpha, the lowest bidder, is a “responsible” contractor.

Posted on July 27, 2017 by Christopher I. McCabe, Esq. in Court Decisions, DRPA Comments Off

Federal Judge Criticizes Mystery Procurement Practices Of Delaware River Port Authority

A recent federal court decision rescinding a $17.8 million bridge painting contract award to the second low bidder ripped the cover off Delaware River Port Authority (DRPA) procurement practices that were “shrouded in mystery and obscured from public scrutiny.” Although applying New Jersey law, the reasons underlying the decision of Judge Noel L. Hillman of the U.S. District Court for New Jersey are equally applicable to Pennsylvania bidding disputes.

In May 2016, the DRPA issued a bid for a painting contract for the Commodore Barry Bridge. Seven bids were received. Alpha Painting & Construction Company was the low bidder, with a price of $17,886,000; Corcon, Inc., was second with a price just $10,200 higher. Six weeks later, the DRPA rejected Alpha’s bid as “not responsible” for two reasons: Alpha’s bid was missing OSHA 300 forms, and Alpha did not have reported EMF (experience modification factors) scores that reflect a contractor’s workers’ compensation experience on prior jobs. The DRPA then awarded the contract to Corcon.

After the DRPA denied Alpha’s protest, Alpha sued the DRPA for an injunction rescinding the award to Corcon and ordering an award to Alpha. After three days of testimony, Judge Hillman determined that the DRPA’s stated reasons for the rejection of Alpha’s bid were arbitrary and capricious, and ordered the DRPA to award the contract to Alpha. Read more

Posted on October 25, 2016 by Christopher I. McCabe, Esq. in Bid Responsiveness, Court Decisions, DRPA Comments Off

Bad Faith Finding Does Not Mandate Award Of Attorney Fees And 1% Penalty

If a public owner breaches its payment obligations to a public contractor and acts in bad faith in doing so, is the public contractor automatically entitled to an award of its attorney’s fees and a 1% penalty under section 3935 of the Procurement Code?

In a recently published opinion, the Supreme Court of Pennsylvania has ruled that such an award is discretionary, not automatic, reversing a 2014 Commonwealth Court decision which had held that a bad faith finding entitled the contractor to recover its attorney’s fees and the 1% penalty. Read more

Posted on August 17, 2016 by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Comments Off

Oral Promise To Pay Subcontractor Ruled Enforceable Against School District

In a departure from the usual rule, but not surprising given the facts of the case, the Commonwealth Court of Pennsylvania recently enforced a subcontractor’s claim for payment against a public owner.

In 2009, West Allegheny School District terminated Flaherty Mechanical Contractors, LLC, the prime contractor on a school alterations project, for failure to pay various subcontractors. After the termination, to prevent further delay, the school district asked F. Zacherl, Inc., the sheet metal subcontractor, to return to the project and complete the work remaining under its subcontract with Flaherty.

Zacherl orally agreed with school district, provided it was paid its then outstanding invoices. These invoices were paid, and Zacherl completed its work, but the school district made no further payments for either the work Zacherl had performed for Flaherty or the work Zacherl performed for the school district. Zacherl sued Flaherty’s surety and the school district for payment. The trial found in favor of Zacherl, with the surety liable for payment for Zacherl’s work for Flaherty, and the school district liable for Zacherl’s work for the school district. The school district appealed. Read more

Posted on July 7, 2016 by Christopher I. McCabe, Esq. in Court Decisions, Public School Code Comments Off

Procurement Code Protest Allowed Where Late Filing Was Due To Extraordinary Circumstances

Under the Pa. Procurement Code, a protest must be filed within seven days after the protestant knew or should have known of the facts giving rise to the protest. If the protest is untimely, it will be rejected. Recently, in a published opinion and in a departure from the usual rule, the Commonwealth Court decided that equitable principles would allow a late-filed protest to be considered.

The case concerned Pa. Department of Transportation (PennDOT) inspection contracts on which Bureau Veritas (BV), the protestant, had submitted a statement of interest. PennDOT ranked BV fifth in its statement of rankings. BV learned of the rankings on November 13, 2014. Seven days later, on November 20, 2014, BV filed a protest, but the email of its protest was rejected by PennDOT’s computer server due to improper formatting of the file attachment. On November 21, 2014, BV learned of the email rejection and promptly re-sent the email with the proper formatting of the file attachment, eight days after the publication of the rankings. PennDOT rejected BV’s protest as untimely and on the merits. BV then argued that it should be allowed to file its protest nunc pro tunc (literally, “now for then”). PennDOT issued a final determination rejecting the protest, as well as the request that the protest be considered nunc pro tunc. BV appealed to the Commonwealth Court. Read more

Posted on June 2, 2016 by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, PennDOT, Procurement Code Comments Off

Contractor & Subcontractor Payment Act Does Not Apply To Public Projects In Pennsylvania

In a recent decision, the Supreme Court of Pennsylvania has held that the Pa. Contractor and Subcontractor Payment Act (“CASPA”) does not apply to a construction project where the owner is a governmental entity. CASPA is a Pennsylvania statute governing payments to contractors and subcontractors on construction projects located in Pennsylvania. CASPA typically applies to private development projects, whereas the Pa. Procurement Code’s Prompt Pay Schedules apply to state or local public works projects.

Posted on September 3, 2015 by Christopher I. McCabe, Esq. in Court Decisions, Public Works Payment Rules Comments Off

Participation By Awardee In Bid Protest Hearing Not Improper Under Procurement Code

In two, not-so-recent decisions involving bid protests filed under the Pa. Procurement Code, the Commonwealth Court of Pennsylvania has held that it was not improper to allow the awarded vendor to actively participate in the protests.

In the two cases, the aggrieved bidders filed protests with the Pa. Department of Corrections challenging awards for a contract for a secure telephone system for inmates housed at Department facilities. In each case, the Secretary permitted the contract awardee to participate in the bid protest. In one protest, the awardee was permitted to file a reply to the bid protest.

On appeal, the bidders argued in each case that the contract awardee’s participation in the protest and hearing was unlawful because, under section 1711.1 of the Procurement Code, the only proper parties to a protest are the protestant and the contracting officer, and the awardee may not participate because, under the statute, it is not an enumerated party to a protest.

The Commonwealth Court flatly rejected this argument, finding that there was no abuse of discretion in allowing the contract awardee to participate in the protest. This decision makes perfect sense. The Procurement Code itself, at section 1711.1(e), provides that the person deciding the protest “may request and review such additional documents or information he deems necessary to render a decision and may, at his sole discretion, conduct a hearing.” This could certainly include information from the vendor who has been awarded the contract. In addition, as the Court noted, the Department of General Service’s Procurement Handbook permits such participation where “substantial issues are raised by the protest.” Furthermore, by comparison, in an equity action filed to protest and enjoin a local contract award, the contract awardee is deemed to be an indispensable party and must be included in the proceeding.

So, if you intend to protest a bid or contract award under the Procurement Code, you are hereby forewarned: be prepared to fend off arguments by both the agency soliciting your bid and the entity who has been awarded the contract.

The two Commonwealth Court decisions can be found here and here.

Posted on August 27, 2015 by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, Procurement Code Comments Off

Extra Work Claim Against School District Does Not Require Written Change Order Or Adherence To Section 508 Of Public School Code

Long-standing precedent in Pennsylvania required a contractor’s change order claim against a public entity to be supported by a written change order and strict adherence to the contract requirements and any applicable public law.

For claims against school districts, all of that changed in 2007 with the Commonwealth Court’s decision in James Corp. v. North Allegheny School District, 938 A.2d 474 (Pa.Cmwlth.2007). In James Corp. the Commonwealth Court allowed an extra work claim in the absence of a formal written change order and held that Section 508 of the Public School Code of 1949 (requiring affirmative vote of a majority of all the members of a school board for contracts) did not bar the claim.

And now the decision in James Corp. has been re-affirmed by the Commonwealth Court. On March 6, 2015, the Commonwealth Court issued a formal opinion in East Coast Paving & Sealcoating, Inc., v. North Allegheny School District, a case involving a change order claim based on a directive to perform work without a formal written change order, and cited its decision in James Corp. as binding precedent. In East Coast Paving, the Commonwealth Court stated:

With respect to the School District’s argument that a change order was a necessary condition to payment, our holding in James Corp. v. North Allegheny School District, 938 A.2d 474 (Pa.Cmwlth.2007), is binding precedent. Notably, it involved the School District as the defendant and the very same contract language invoked here by the School District.

The Commonwealth Court also rejected the school district’s argument that Section 508 was an insurmountable obstacle to the contractor’s extra work claim:

In its second issue, the School District argues that the trial court erred in concluding that the School District authorized East Coast to do the soft spot repair work. The School District contends that a change to a contract “must be approved by affirmative vote of the school board members and the approv[al] must be reflected in the minutes or record as provided by Section 508 of the Public School Code, 24 P.S. § 5–508.” School District Brief at 15. According to the School District, the School Board did not approve the soft spot repair work.

The School District made this argument in James, and we rejected it there. We explained:

We reject [the School District’s] argument [that] Section 508 of The Public School Code of 1929, Act of March 10, 1929, P.L. 30, as amended, 24 P.S. §§ 5–508 (requiring school board approval for increases or decreased to indebtedness), bars [the contractor’s] claim for payment of additional work. Testimony established [the School District] considered the work part of the contract; thus, further school board approval was unnecessary.

James, 938 A.2d at 478 n.12. Moreover, we explained:

[The School District], having directed [the contractor] to perform the additional work asserting it was required by contract, cannot now disavow liability for costs incurred by claiming [the contractor] did not have written authorization [from the School Board].

Id. at 487.

The record established that the School District required East Coast to do the soft spot repair work. The School District does not argue that the soft spot repairs were not necessary. As in James, it was not necessary for the School Board to approve, specifically, the soft spot repair work. The School Board approved the paving project and its completion by East Coast, and that is all that was required by Section 508.

Thus, at least for the time being, and at least with respect to contractor claims against school districts in Pennsylvania, a contractor does not need a formal, written change order in order to pursue a claim for extra work performed at the direction of an official or employee of the school district. Moreover, Section 508 of the Public School Code is not a legal impediment to these claims. This is more than welcome news for contractors doing business with school districts across the Commonwealth of Pennsylvania. Of course, contractors are advised to consult with experienced counsel when faced with these types of claims.

The Commonwealth Court decision in East Coast Paving can be found here.

Posted on March 23, 2015 by Christopher I. McCabe, Esq. in Court Decisions, Public School Code Comments Off

Commonwealth Court Again Holds That Penalty Award Is Mandatory On Finding Of Bad Faith

[NOTE: The Commonwealth Court decision reported in this post has been overruled by the Supreme Court. See my new post on the Supreme Court’s July 2016 ruling that a finding of bad faith does not mandate an award of fees and penalties.]

In a recent, unpublished opinion, in the case of Klipper Construction Associates, Inc. v. Warwick Township Water and Sewer Authority, the Commonwealth Court of Pennsylvania affirmed its recent holding in A. Scott Enterprises, Inc. v. City of Allentown (Oct. 2014), and has held again that a finding of bad faith on the part of a public agency in withholding payment from a public contractor mandates the award of a penalty. This is from the Court’s decision:

Contractor’s assertion that the trial court erred in failing to award any penalty is correct. As noted above, a finding of bad faith requires the trial court to make a penalty award under Section 3935(a) of the Prompt Pay Act. A. Scott Enterprises, Inc., __ A.3d at __, 2014 WL 5335358 at *7. We must therefore reverse the trial court on this issue.

What is “bad faith”? Section 3935(a) of the Procurement Code has this to say about bad faith:

An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. An amount shall not be deemed to have been withheld in bad faith to the extent it was withheld pursuant to section 3934 (relating to withholding of payment for good faith claims).

The takeaway? If you are a public contractor denied payment by a public entity and can show bad faith – arbitrary or vexatious conduct – on the part of the public entity, then you will be awarded a penalty which might be as high as 1% per month on the amount owed. If you are the public entity and are withholding payment from the contractor, then you must fully comply with section 3934 of the Procurement Code to avoid a finding of bad faith.

The Commonwealth Court decision can be found here. My earlier post on the A. Scott Enterprises case can be found here.

Posted on December 31, 2014 by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Comments Off

Commonwealth Court Rules That Award Of Fees And Penalty Is Mandatory On Finding Of Bad Faith

In a recently published opinion, the Commonwealth Court has held that a finding of bad faith by a public entity in refusing to make payment to a public contractor mandates the award of attorney’s fees and the statutory penalty of 1% per month.

In 2009, the City of Allentown (Allentown) awarded a road paving contract to A. Scott Enterprises (Scott). After mobilization, the job was suspended when a pile of contaminated dirt was discovered at the job site. Scott resumed some of its work and then left the job site while the parties negotiated Scott’s costs. The parties were unable to agree on payment for the additional costs to deal with the job suspension and the contaminated soil.

Scott then filed suit to recover its losses on the project, and was awarded damages of $927,299. The jury also found that Allentown breached the contract and acted in bad faith in refusing to make payment to Scott for its contract damages and suspension costs. However, despite the finding of bad faith, the trial court refused to award Scott attorney’s fees, the statutory penalty of 1% per month, and pre- and post-judgment interest. Scott appealed to the Commonwealth Court.

On appeal, Allentown argued that an award of fees and penalties was discretionary with the trial court. The Commonwealth Court rejected Allentown’s arguments, and held that the jury finding of bad faith mandated an award of fees and penalties to Scott:

The purpose of the Procurement Code is to “level the playing field” between government agencies and contractors. See Pietrini Corp. v. Agate Construction Co., 2006 PA Super. 140, 901 A.2d 1050, 1055 (Pa. Super. 2006). It advances this goal by requiring a government agency that has acted in bad faith to pay the contractor’s legal costs, as well as an interest penalty. Otherwise, the finding of bad faith is a meaningless exercise with no consequence for the government agency found to have acted in bad faith. We conclude that Section 3935 of the Procurement Code requires the imposition of attorney’s fees and the statutory penalty upon a jury’s finding of bad faith. See City of Independence v. Kerr Construction Paving Company, Inc., 957 S.W.2d 315, 321-23 (Mo. Ct. App. 1997) (holding that Missouri’s procurement code’s use of “may” regarding penalty interest and attorney’s fees means “shall” and upon finding of bad faith by jury, trial court must award such damages, even though the extent of damages is a matter for the discretion of trial judge).

On the question of when the public agency must make payment to the contractor, the Commonwealth Court had this to say:

There was conflicting evidence on the exact amount the City owed Contractor. However, the City had an obligation to make a good faith effort to pay for Contractor’s suspension costs and to pay those invoices it did not challenge. 62 Pa. C.S. §3932. If the City disputed the amount of a suspension invoice, it was required to so notify Contractor, withhold the disputed amount and pay the remainder of the invoices. Instead the City paid nothing.

While the Commonwealth Court held that an award of fees and penalties was mandatory, the amount to award is within the trial court’s discretion. The case was remanded to the trial court for a hearing to determine the award of reasonable attorney’s fees.

The takeaway from this decision is that public agencies have a clear duty to determine what is owed to a contractor and to pay that amount. They cannot simply throw up their hands and refuse to make any payment because there is a dispute over some items of work. The Commonwealth Court’s holding strengthens the hand of public contractors in Pennsylvania, and puts public agencies on notice that the Procurement Code has real teeth and that they will be held accountable for bad faith conduct in refusing to make proper and timely payment to their contractors

The Commonwealth Court’s opinion can be found here.