This is the second installment of a two-part blog on bid shopping in public contracts. Part I introduced the Subcontractor Listing Statute, RCW 39.30.060, which requires all general contractors bidding on public works projects of $1 million or more must submit the names of the plumbing, electrical, and HVAC (heating, ventilating, and air conditioning) subcontractors, with whom the prime contractor will contract. Part II discusses actions arising out of the Subcontractor Listing Statute in more detail.
- 1. Subcontractor’s Private Right of Action
Prior to a 2002 amendment to the Subcontractor Listing Statute (discussed below), the Washington Court of Appeals ruled that RCW 39.30.060 did not create a private cause of action for subcontractors. In McCandlish Elec., Inc. v. Will Const. Co., Will Construction submitted a bid to the City of Leavenworth for a public works project.[i] Will listed McCandlish as its electrical contractor. After bids were opened, Will substituted Calvert Technologies (another electrical subcontractor), and McCandlish filed suit against Will for violation of the bid listing statute. During the trial, McCandlish proved that Will had engaged in “bid shopping.” The Court of Appeals held, however, that bid shopping notwithstanding, the Subcontractor Listing Statute did not create a private cause of action for McCandlish. The Court held that because the public bidding statutes are designed to protect the public treasury, allowing a private cause of action would violate public interests by subjecting tax payers to further penalties by paying too high a price for public works contracting. The Court of Appeals did not disagree that Will’s bid shopping was unprofessional or unethical, but held that McCandlish had no right to recover damages.
- 2. 2002 Amendment to the Subcontractor Listing Statute
In June 2002, the Washington legislature amended RCW 39.30.060. As a result of the amendment, a subcontractor now has cause of action against the general contractor and, if it can prove that the substitution was in the furtherance of bid shopping, against the substituted subcontractor. Under the revised statute, McCandlish would have likely won because the Court determined that the substitution was prompted by “bid shopping.” The revised statute, however, still leaves a number of questions unanswered:
- What is the meaning of “bid shopping” and “bid peddling”? The legislature did not define these terms. Construction lawyers will undoubtedly have a field day arguing the nuance of these terms once those issues reach the courts.
- What is the proper measure for damages under RCW 39.30.060? It is difficult to anticipate what damages the listed subcontractor would have against the substituted subcontractor. Presumably, lost anticipatory profits are the upper limit of the recoverable damages. However, because the revised statute does not provide for the award of attorneys’ fees or costs, in many instances, the burden of having to prove the lost anticipatory profits will dissuade subcontractors from pursuing this remedy.
- What are the exclusions to RCW 39.30.060? There are five specific acceptable reasons for substitution (discussed below) exempted under the Subcontractor Listing Statute. However, the statute does not indicate whether these grounds are exclusive. Presumably, the substitution would be allowed on any ground as long as the substitution was not prompted by bid shopping or bid peddling.
- 3. Reasons for Substitution Exempted Under the Subcontractor Listing Statute
As indicated above, Washington’s Subcontractor Listing Statute lists five statutory grounds for substitutions that are allowable: (1) the subcontractor’s refusal to sign a subcontract; (2) bankruptcy or insolvency of the subcontractor; (3) inability of the subcontractor to perform; (4) inability of the subcontractor to obtain necessary licenses, bonding, insurance, or comply with other statutory requirements; and (5) the subcontractor is barred by court order from participating in the project. These exemptions, however, raise further questions.
- Refusal to Sign a Subcontract: Can the general contractor force the subcontractor to sign a one-sided subcontract? If the subcontractor refuses to sign an over-reaching subcontract, is the general contractor free to substitute? Can the subcontractor insist that the general contractor sign a subcontract favorable to the subcontractor?
- Inability to Perform: To what degree must the subcontractor be unable to perform? Must performance be “impractical” or must it be completely “impossible”?
- Inability to Obtain Necessary Licenses, Bonding, Insurance, or Comply With Other Requirements: What licenses, bonds, and insurance are “necessary” for the project? Is a license, bond, or insurance “necessary” because the general contractor wants it or because the owner demands it?
- Barred by Court Order: Is a general contractor exempt if an administrative law judge finds that the subcontractor’s operations are unsafe?
Many of these questions will likely be answered in bid protests and court proceedings over the next few decades. In the meantime, general contractors will have to do their best to negotiate the way through this statutory maze. More bid protests arise out of the Subcontractor Listing Statute than any other single issue. However, subcontractors will likely continue to have an uphill battle when attempting to enforce bids, unless the subcontractor can prove bid shopping or bid peddling.
Comment: The Associated General Contractors of America (“AGC”) resolutely opposes the practices of bid shopping and bid peddling. In 1995, AGC, the American Subcontractor’s Association, and the Associated Specialty Contractors issued this joint statement, stating that “[b]id shopping or bid peddling are an abhorent business practices that threaten the integrity of the competitive bidding system that serves the construction industry and the economy so well.” AGC strongly believes that bid shopping and bid peddling cannot sustain long-term working relationships between general contractors and subcontractors. That having been said, however, AGC has serious reservations about legislative solutions to bid shopping.
[i] 107 Wn. App. 85, 25 P.3d 1057 (2001).