BILL ANALYSIS �
AB 457
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Date of Hearing: March 22, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 457 (Wagner) - As Introduced: February 15, 2011
SUBJECT : Public works contracts: relief for bidders.
SUMMARY : Entitles a bidder who successfully challenges a
public works award determined to be invalid to receive
compensation for incurred costs and attorney's fees.
EXISTING LAW :
1)Provides for the licensing and regulation of contractors by
the Contractors State License Board.
2)Authorizes competing bidders to protest the award of a public
works contract utilizing the competitive bidding process.
3)Authorizes a public works project that was competitively bid
and challenged upon award, to proceed under contract, pending
final decision of the challenge. If the contract is
determined invalid due to a defective competitive bidding
process that the public entity is responsible for, the
contractor shall be paid reasonable costs, excluding profit.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "The
intent is not to obtain any attorney's fees for successfully
challenging an illegal or wrongful award decision? the intent is
to push local agencies to follow existing laws and award jobs
that should be awarded to the lowest responsible bidder as the
law intended? The attorney's fees would only be awarded if the
contractor prevailed in court against the agency."
Background . A contractor awarded a public works contract
through the competitive bidding process may enter into a
contract and begin performing work even if the contract award is
challenged, pending a final decision. If the contract award is
invalidated due to a defective competitive bidding process
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solely caused by the awarding public entity, the contractor is
entitled to reimbursement of all reasonable costs incurred,
excluding profit, up to the date the contract was determined
invalid. The contractor's reimbursable costs include furnished
labor, equipment, and materials and services.
This bill allows a competing bidder who successfully challenges
a contract award determined to be invalid, to be entitled to
costs and attorney's fees incurred in pursuing the challenge.
The sponsor cites the appellate court case, Great West
Contractors (GWC), Inc. v. Irvine Unified School District
(District) (2010) 187 Cal.App.4th 1425, as a recent example
where a competing bidder was successful in proving that a
contract award was unjustly awarded. GWC was the lowest bidder
on two school modernization projects by approximately $500,000
and $300,000, respectively. The bid form asked if the bidder
had ever been licensed under a different name, to which GWC
answered "no". The District speculated that the answer was
false, rejected GWC's bid as non-responsive, and awarded the
contract to another bidder. The appellate court ruled that the
bid was inappropriately denied as non-responsive because GWC
had, in fact, complied literally with the bid request. The
appellate court determined that if the District wanted to deny
GWC the contract award for providing a false answer, then such
denial was due to non-responsibility (instead of non-responsive)
and GWC should have been granted an opportunity to respond and
afforded a hearing to determine non-responsibility. Since GWC
was afforded neither, the case was remanded to determine relief.
Regardless, GWC lost the contract and taxpayers paid at least
$800,000 more for work performed on the two modernization
projects because the District inappropriately favored a higher
bidder. This bill entitles bidders who successfully challenge a
contractor to receive monetary compensation for costs and
attorney's fees incurred in challenging a contract award.
Suggested Committee Amendments . The following amendments are
reciprocal in nature and allow public entities to recover costs
and attorney's fees incurred in defending contract challenges,
when a contract is determined to be valid. This would mirror
the provisions of this bill on behalf of taxpayers and public
entities and reduce the number of frivolous challenges to
contract awards by bidders who are either upset with losing a
contract award despite a public entity's compliance with the
competitive bidding process.
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On page 1, strike out lines 5 to 7, inclusive, strike out page 2
and insert:
contract, both of the following shall apply:
(a) If the contract is later determined to be
invalid due to errors or omissions of the public entity,
a bidder who successfully challenges the intended or
actual award of that contract shall be entitled to
recover costs and attorney's fees incurred in pursuing
that challenge.
(b) If the contract is later demined to be valid, a
public entity that successfully defends the intended or
actual award of that contract shall be entitled to
recover costs and attorney's fees incurred in defending
that challenge.
Support . According to the sponsors, "Under current law, a
contractor who prevails against a public agency can only receive
their costs for bidding on the project; meaning that there is
absolutely no reason for a contractor to pay an attorney to
challenge a public agency since the costs come totally out of
the contractors' pocket and there's nothing gained in doing so!
Consequently, public agencies, knowing there are no
repercussions to flagrantly violating the existing competitive
bidding laws, continue to do so with impunity?
"The intent of this legislation is to make public agencies think
more seriously about complying with existing bidding laws. If
approved, attorney fees would be awarded only if the contractor
prevailed in a court of law against the public agency? It's the
hope of the sponsors that no attorney's fees will ever be paid
out due to this measure; meaning, that all public agencies will
ensure that their bidding process complies with all laws and
regulations and provides that the lowest responsible bidder is
awarded the job as intended!"
Opposition . According to the coalition of local public
agencies, "AB 457 would do the following: Encourage
unsuccessful bidders on public works projects to challenge a
contract as a way to get around well-settled limitations to the
recovery of costs associated with preparing bid packages; spur
meritless bid protest and litigation that will only delay the
construction and delivery of much-needed infrastructure projects
such as schools and roads; increase construction costs as a
result of construction delays; and, divert scarce public funds
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and taxpayer dollars away from public infrastructure projects
into courtrooms."
According to the California Association of Sanitation Agencies
(CASA), "Strict guidelines detail how public agencies, including
CASA member agencies, award contracts. Existing law allows a
bidder to challenge the award of a contract of a public agency,
and often large public projects have multiple bid protests,
slowing down the progress of the projects. AB 457 would
encourage meritless bid protests and increase construction costs
as a result of the construction delays."
REGISTERED SUPPORT / OPPOSITION :
Support
Engineering Contractors' Association (co-sponsor)
California Chapter of the American Fence Association
(co-sponsor)
California Fence Contractors' Association (co-sponsor)
Flasher Barricade Association (co-sponsor)
Marin Builders' Association (co-sponsor)
Opposition
Association of California Healthcare Districts
Association of California Water Agencies
California Association of Joint Powers Authorities
California Association of Sanitation Agencies
California Special Districts Association
California State Association of Counties
California's Coalition for Adequate Housing
Desert Water
Los Angeles Unified School District
Regional Council of Rural Counties
Riverside County Schools Superintendents' Association
Three Valleys Municipal Water District
Urban Counties Caucus
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301
AB 457
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