Contractors usually assume that the statutory prohibition on submitting “false claims” refers to inflated invoices, phony change order costs, and the like. However the courts are giving the relevant statutes a broader meaning which public works contractors should take into account. For example, the United States Ninth Circuit Court of Appeals recently ruled that a bidder for a government contract that is found to have knowingly underbid the contract may have liability under the federal False Claims Act (“FCA”). In Hooper v. Lockheed Martin Corporation, 688 F.3d 1037 (9th Cir. 2012), Lockheed was the successful bidder for a contract with the Air Force to automate and modernize software and hardware used to support U.S. space launch operations. The contract was structured as a reimbursable cost plus “award fee” contract, where the contractor would be paid its costs of performing the work, plus “award fees” given at periodic intervals based on overall performance, including factors such as “spending less money than estimated.” Id. at 1041. Because the extent of the work required was uncertain, bidders were to submit their estimated costs of performing the work. Lockheed initially submitted a bid of $439.2 million, and later submitted a “Best and Final Offer” of $432.7 million. Id. at 1042. After the award, the government paid Lockheed more than $900 million for its work.
The California Supreme Court recently ruled that developers – by including an arbitration provision under the Federal Arbitration Act (FAA) in Homeowners’ Association Covenants, Conditions and Restrictions (“CC&R’s”) – may require that construction defect actions be resolved through arbitration rather than by jury trial. In Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, 55 Cal. 4th 223 (2012), California’s high court ruled that such provisions are consistent with the Davis-Stirling Act and that the homeowners’ associations can be bound by the arbitration provision in the recorded CC&R’s.
Labor unions have long been at odds with California charter cities over whether such cities must pay prevailing wages on public works projects. While many charter cities have either not exempted themselves from state prevailing wage laws, or have passed their own prevailing wage laws, other charter cities have no prevailing wage laws for public works projects whatsoever. The building trades have challenged those charter cities which have no such laws. However, the California Supreme Court recently sided with the charter cities on this issue. In State Building and Construction Trades Council of California AFL-CIO v. City of Vista (July 2, 2012, S173586) ___ Cal.4th ___. Relying on 80 years of precedent, the Court held that contract worker wages of locally funded public works are municipal affairs, not of statewide concern, and are exempt from state prevailing wage laws (see City of Pasadena v. Charleville (1932) 215 Cal. 384, 389).
In 2010, the California Legislature enacted Senate Bill (“SB”) 189 to reorganize and simplify the laws governing works of improvement. The bill completely re-writes the statutes which provide for mechanics liens, stop notices and certain construction bonds. These revisions took effect on July 1, 2012. In addition to this reorganization, some substantive changes to the laws governing mechanics’ liens, construction bonds, and stop notices were made. As a result, all of the forms commonly used in the industry, such as the 20-Day Preliminary Notice, Notice of Completion, and Progress/Retention Payment Releases must be changed.
Can a supplier of construction materials be considered a “subcontractor” for purposes of enforcing its claim on a public works payment bond? The answer is “yes” according to a recent decision of the California Court of Appeal. In Eggers Industries v. Flintco, Inc., et al., 201 Cal. App. 4th 536 (3d Dist. 2011), rev. denied (Feb. 15, 2012). The Court affirmed the rule that a “subcontractor’s status as a subcontractor must be determined based on what the subcontractor agrees to do, not what it actually ends up doing,” citing a fifty year-old California Supreme Court decision. In so holding, Eggers provides important guidance regarding the scope of recovery against a public works payment bond permitted by Civil Code sec. 3248 and its replacement, the newly chaptered Civil Code sec. 9554, which takes effect in July 2012.
Contractors who file a bid protest challenging a federal contract award can do so in one of three forums: (1) the agency whose procurement decision is being challenged; (2) the Government Accountability Office (“GAO”); or (3) the Court of Federal Claims (“COFC”). Many federal contractors choose to file protests with the GAO because the GAO represents the middle ground between an agency-level protest and a COFC protest. Typically, a protestor wants to avoid filing a protest in the very agency whose conduct is being protested and wants to avoid the time an expense of filing a protest with the COFC. Additionally, although GAO decisions are non-binding, they have almost always been fully implemented by the Contracting Officer (“CO”) of the applicable agency and have traditionally been given a high level of deference by the COFC. However, a case decided by the COFC this past year may signal the deterioration of high deference afforded to GAO decisions.
Binding arbitration of construction disputes is frequently required by standard industry contracts. For example, the contract forms published by the American Institute of Architects either require or provide an option for arbitration under the Construction Industry Rules of the American Arbitration Association (“AAA”). The latter rules authorize the arbitrator to decide whether the contractual arbitration agreement is enforceable. (See, e.g. Rule 9 of AAA Construction Industry Rules). However some courts have decided this issue should be determined by the courts, rather than the arbitrator.
In 2009, the California legislature amended Section 143 of the Streets and Highways Code and greatly expanded availability of the public-private partnership (“P3”) as a mechanism to finance transportation infrastructure projects. In early 2010, under the authority of the newly amended Section 143, the California Department of Transportation (“CalTrans”) began to implement part of the Presidio Parkway Project (“Project”) as a P3.
By Robert Sturgeon
Parties to construction arbitrations who are disappointed with the arbitrator’s award are often doubly-disappointed to learn that they have very little chance of successfully appealing in a court to overturn the arbitrator’s decision. Because arbitration is intended to be a final and complete alternative dispute resolution process, judicial review of the arbitrator’s award is quite limited. Ordinarily a court may not review the merits of the dispute, or overturn an arbitration award on ground that the arbitrator made legal errors or erred in applying the law to the facts. In general, a court is authorized to overturn an arbitration award only where (i) the award was procured by corruption or fraud; (ii) there was corruption or misconduct by the arbitrator, (iii) the arbitrator exceeded his or her powers, (iv) the arbitrator refused to postpone the hearing despite there being good cause to do so and that prejudices the parties, or (v) the arbitrator failed to disclose potential grounds on which he or she could be disqualified or refused to disqualify himself when there was cause to do so. See, e.g., Cal. Civ. Proc. Code 1286.2.
By Candace L. Matson
In California, the payment of contractors is governed by so-called “prompt payment statutes” which are sprinkled through various legislative codes, and which impose sanctions on the paying party for non-compliance. Progress payments by general contractors to their subcontractors on private and most public works of improvement are governed by section 7108.5 of the Business & Professions Code. Retention payments to subcontractors on public works of improvement are governed by section 7107 of the Public Contracts Code, and on private works of improvement by section 3260 of the Civil Code. In some cases the statutes permit withholding of payments only where there is a “good faith” dispute. But what constitutes “good faith”?