HawaiiConstructionLaw.com

UHERO Construction Forecast: Slow, Steady Recovery with Chance of "Derailment"

UHERO issued its Construction Forecast on March 16, 2012. The public summary of the forecast is available here. A summary of the summary is this: the recovery did not happen in 2011, but it appears it may happen in 2012 for a few reasons. First, public construction did not happen in 2011. For whatever reason, public sector spending was only $431 million, but is expected to be more than double that amount in 4 of the next 5 years. This is excluding rail. Second, there is a lot of private permitting going on. Key line from the forecast: "The total value of real non-residential permits will jump more than 40% this year, to more than $1.6 billion and will sustain a similar level of activity through mid-decade. This is roughly in line with the level of permitting in 2005-2006 and represents a significant increase over last year's forecast." Third: rail. If the rail project survives legal challenges and the challenge of the anti-rail sentiment fueling former Governor Cayetano's mayoral campaign, rail related contracts will begin to flourish. Two big and continued risks include the current price of oil and the possibility that the rail project will not go forward. One risk not discussed in the summary is the question of continued military spending in the islands. This was discussed in an earlier post and the general consensus on the issue appears to be that the immediate future of military spending is unclear. Draconian cuts to the defense budget that were part of the budget deal cut in Congress at the end of the budget fiasco at the end of 2011, are set to kick in unless the two parties find a way to reach a compromise. For now, the game of chicken continues, but it does not seem likely that in an election year, either party's representatives would be anxious to explain the pain that will be felt by their constituents should they fail to find some way out of the morass. Thus, the defense budget cuts that may drastically affect Hawaii's military spending budget are still (as of now) hypothetical. We can only hope that they remain that way.

Submitted by Anna H. Oshiro

10th Circuit Case on Bid Protests: No Direct Action Against Project Administrators

Hawaii procurement officers often complain of an inability to weed out unqualified or undependable contractors from the bidding process, and how the hard bid competitive bidding provisions of the procurement code do not allow sufficient discretion to pick the best contractors. There are, however, codified provisions for such "weeding," including findings of no responsibility, prequalification requirements, and the unqualified right to throw out all bids at any time if such is deemed to be in the agency's best interests. While these protections often require up front action on the part of state officials, they are a trade off against otherwise unfettered discretion in the contract award process. And, state actions in accordance with their statutes are almost routinely upheld by the courts. The 10th Circuit decision in Fisher Sand & Gravel Co. v. Giron provides a nice example of such efforts:

Fisher Sand & Gravel Co. ("Fisher") was the low bidder on a highway construction project. The New Mexico Department of Transportation ("NMDOT) recommended Fisher's contract award to the Federal Highway Association. At that point the second lowest bidder ("FNF") began making disparaging comments about Fisher to the NMDOT. They worked. The NMDOT elected to reject Fisher's bid and attempted to award the project to FNF. The Federal Highway Association would not allow it, because FNF was not the low bidder -- Fisher was. In response, the NMDOT elected to throw out all bids and to rebid the job. It did so, and ended up awarding the contract to another bidder -- neither FNF nor Fisher. Fisher sued both the NMDOT and the Project Administrators who had assured Fisher it was going to be awarded the job. Fisher claimed due process violations, presupposing a property right which was denied without due process.

These administrators sought dismissal under the theory of qualified immunity. The district court refused to grant dismissal, holding that Fisher had met the requirements for proceeding with its 1983 action, namely a property right, which the court found in an "implied contract" by and between NMDOT and Fisher when Fisher submitted the low bid on the job, and denial of that property right. On appeal to the 10th Circuit Court of Appeals, the contract administrators argued there could be no such property right because there is no such thing as "implied contracts" with the state. By statute, contracts with the state are unenforceable unless they are in writing. The appellate court agreed. The implied contract was unenforceable, and therefore it could not give rise to a protected property interest. The case was decided March 6, 2012, and is available at 2012 U.S. App. Lexis 4586.

Submitted by Anna H. Oshiro

Cuts to Defense May be Felt by Hawaii Contractors

The U.S. defense budget is being subject to severe cuts, which may be felt even in military strongholds like Hawaii. According to an article in Pacific Business News, "the Pentagon is requesting $8.5 billion for military construction, which is a 29 percent reduction. It’s also asking for just $1.65 billion for family housing, which is a 3 percent decline." Prior posts have discussed the possibility that these cuts may be offset by the Pentagon's Asia-focused strategy, and the possible relocation of troops currently stationed in Okinawa to Hawaii, among other places. These plans remain unclear as of this date.

Procurement Bill Working its Way Through the Legislature

Hearings for House Bill 1671, which relates to the procurement code, are scheduled for
today before the Committee on Public Safety, Government Operations and Military
Affairs. More specifically, HB 1671 is described on the legislature’s Web site
as “[i]mpos[ing] time limits on rendering administrative and judicial review
decisions” and “[l]imiting protests to those that are a minimum percentage of
the contract value.”

More information regarding the HB 1671 can be found here: http://www.capitol.hawaii.gov/measure_indiv.aspx?billtype=HB&billnumber=1671

Contributed by Christi Kudo Chock

 

Colorado Court of Appeals Ties Statute of Repose to Issuance of Certificate of Occupancy.

Appellant Shaw Construction (“Shaw”) was the contractor for the Roslyn Court condominium complex.  Shaw hired a drywall subcontractor and a separate subcontractor to install roofs, gutters, and downspouts. 

The City and County of Denver issued certificates of occupancy for each residential building for various periods, with the last certificate for the project being issued on March 10, 2004.  The project’s architect certified completion of all known remaining architectural items by June 8, 2004. 

The Plaintiff Roslyn Court at Stapleton Homeowners Association (“HOA”) alleged construction defects in the condominium complex.  In 2007, Shaw received a notice of claim from the HOA, under the requirements of Colorado’s Construction Defect Action Reform Act (“CDARA”).  Following the requirements of the act, Shaw and the HOA attempted to resolve their disputes without litigation, until finally, the HOA filed an action against the project developers, and added Shaw as a defendant. Shaw filed an answer and third-party complaint against its drywall and roofing subcontractors, among others, on March 29, 2010, and sent out a statutory notice of claim to these entities the following day. 

The subcontractors moved for summary judgment, arguing Colorado’s six year statute of repose had run on any claims against them.  They argued that substantial completion occurred no later than the date of the final certificate of occupancy, which was on March 10, 2004.  Because the complaint was not filed until March 29, 2010, the claim was time-barred.  Shaw argued that substantial completion did not in fact occur until the architect certified completion on June 8, 2004.  Therefore, the complaint was timely.  Shaw also argued that under the CDARA, the HOA’s notice of claim to Shaw tolled all claims associated with the project, even though Shaw’s subcontractors did not receive notice of the claim until Shaw’s complaint was filed.

The trial court granted summary judgment.   On interlocutory appeal, the Colorado Court of Appeals affirmed the trial court’s findings. 

The court of appeals rejected Shaw’s tolling argument.  Shaw asserted because the CDARA did not require notice to every construction professional involved in the project, the first notice of claim tolled all construction defect claims arising from the project.  Recognizing some ambiguity in the statute, the court nevertheless rejected this assertion as contrary to legislative intent.  The purpose of the CDARA, the court noted, was to establish procedures facilitating out of court resolution of construction defect claims.  Such intent would be entirely thwarted by tolling claims against parties who lacked any notice of the claims being asserted.  Also, parties who received no notice may destroy records or cancel insurance in the mistaken belief that future claims against them were time barred.  Looking at the overall context of the statute in connection with the policies it was designed to implement, the court refused to find that Shaw’s claims against its subcontractors were tolled by the HOA’s notice to Shaw.

As to the issue of substantial completion, the court first found that the last building constructed constituted an “improvement” under the statute of repose, the substantial completion of which triggered the statute of repose.  The court found that substantial completion of that building occurred upon receipt of the final certificate of occupancy.  As the court noted, receipt of the certificate demonstrated that the last unit was habitable.  Shaw did not present any evidence that the subcontractors continued to work on the building after the certificate of occupancy was issued.  Because the architect’s final certificate of completion did not address the final building at issue, but instead completion of surrounding pavements and exterior grounds, it was not dispositive of substantial completion.  Thus, the claims were time barred. 

Shaw Construction, LLC v. United Builder Services, Inc., 2012 Colo. App. LEXIS 172 (Colo. Ct. App. February 2, 2012).

Submitted by Anna Oshiro

Information On Construction Lending Drop Off During Recession

The Star Advertiser reports that construction lending by Hawaii's banks dropped off during the recession by as much as 66%.  "Construction loans made by the state's top seven banks dwindled to $773 million in the fourth quarter of 2011, a 66 percent decline from $2.26 billion at the end of 2007, according to a Star-Advertiser analysis of lending data filed with the Federal Deposit Insurance Corp."  However, construction lending is expected to increase along with demand in 2012. 

Pennsylvania Court Requires Rejection of Nonconforming Bid

In Dragani v. Borough of Ambler and BFI Waste Services of PA, 2012 Pa. Commw. LEXIS 52 (February 6, 2012), a Pennsylvania appellate court addressed the question of noncomforming bids for public works and to what extent such nonconformities could be waived.

The invitation for bids required that each bid be accompanied by a document called the “Consent of Surety”, signed by an officer of a surety licensed to transact business in the Commonwealth of Pennsylvania, listed on the current United States Department of Treasury Circular 570, and with an underwriting limitation at least equal to $20,000,000. 

The Consent of Surety was required at bid time, and pursuant to the invitation for bids, failure to provide the Consent at the time of the bid and in the form required, would preclude a bid from being considered.

However, the invitation for bids also stated that the Borough “reserves the right to accept any Bid. . . when such is deemed by the Borough to be in its best interest.”  The invitation also reserved the right to the Borough to “waive any informality in bids received. . .” 

BFI and Mascaro submitted bids.  BFI included with its bid a Consent of Surety, cover letter, and sample performance bond from Fidelity and Deposit Company of Maryland (“F&D”).  At the time, F&D had an underwriting authority of approximately $16 million dollars.  Mascaro notified the Borough that BFI’s bid did not meet the requirements of the bid invitation in two respects:  first, F&D did not possess sufficient underwriting authority to comply with the bid requirements ($20,000,000).  Second, F&D’s Consent only agreed to provide a performance bond for one rather than the required three years.   BFI responded these defects were nonmaterial and could be cured or waived.  

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Mascaro sought to permanently enjoin award of the contract.  The trial court rejected the bid protest.  On appeal, the appellant asserted the bid defects were material and could not be waived.   The court of appeals agreed.   The court of appeals examined whether the waiver either deprived the Borough of adequate assurance of performance, or whether the waiver would confer a competitive advantage on the noncompliant bidder.  Applying these two inquiries to the case, the court found that the bidder’s failure to include a Consent of Surety from a company with at least $20 million in underwriting authority, was a defect that could not be waived. 

Submitted by Anna Oshiro