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March 28, 2002

No relief for bid-shopped subs

  • McCandlish case: Prime can’t be sued under subcontractor listing statute
    • By PAUL R. CRESSMAN JR.
    Short Cressman & Burgess

    In an effort to outlaw the practice of bid shopping on public works projects, the Washington legislature enacted RCW 39.30.060, commonly referred to as the subcontractor listing statute.

    Cressman
    Cressman

    The statute requires bidders on public projects to submit with their bid or within one hour after the published bid submittal time, the names of the subcontractors with whom the bidder, if awarded the contract, will subcontract for performance of the work.

    Despite the apparent purpose behind the statute, the Washington Court of Appeals, Division III, recently held that the subcontractor listing statute does not create a cause of action for damages by the listed subcontractor in the event the prime contractor engages in bid shopping and utilizes an unidentified subcontractor. McCandlish Electric Inc. v. Will Construction Company Inc., 107 Wn. App. 85, (Wn. App. Div. 3, 2001).

    The McCandlish case involved upgrades to the city of Leavenworth’s water treatment plant. Will Construction was one of the general contractors that submitted a bid on the project. In submitting its bid to the city, Will complied with the listing statute by listing McCandlish Electric as its designated electrical subcontractor. Will had used McCandlish on prior occasions and had favorable experiences.

    After the bids were opened, Will discovered that its overall bid was approximately $200,000 lower than the next lowest bidder, Utelhoven General Inc. Although not immediately known to all parties, both Will and Utelhoven had listed McCandlish as the electrical subcontractor in their bids.

    The following day, Will informed McCandlish that Will was the low bidder on the project and that it had used McCandlish’s number for the electrical portion of its bid. Will also informed McCandlish that Will’s bid was over $200,000 lower than the next lowest bidder. Because of the difference in the bids, Will advised McCandlish that it would be reconsidering its bid to determine whether or not it would proceed forward with the project. Will asked whether McCandlish could reduce any costs from its electrical bid.

    McCandlish provided Will with some cost saving measures in an attempt to encourage Will to go forward with the city’s contract. McCandlish reasoned that if it did not make the requested concessions, Will would withdraw its bid, and McCandlish would not get the subcontract. At the time, McCandlish did not know it was also the listed electrical subcontractor on Utelhoven’s bid.

    Shortly thereafter, the city officially awarded the contract to Will, and a notice of award was signed.

    The day after Will accepted the project, Will orally informed the city it had made a mistake when it listed McCandlish as the electrical subcontractor for the project. Will asked the city to allow it to substitute Calvert Technologies for McCandlish as the electrical subcontractor on the project. As justification for the substitution, Will contended that Calvert’s bid came in just minutes before Will’s final bid was due and that Will, in the rush to get the bid submitted, did not have time to make a change to the electrical subcontractor’s name.

    Initially, the city would not allow the substitution but left open the possibility in the event Will was able to resolve the issue directly with McCandlish. Will was unable to do so.

    Notwithstanding its lack of success in resolving the issue with McCandlish, Will renewed its request to the city that it be allowed to substitute Calvert for McCandlish. Around the same time, the city received a letter from Calvert’s attorney, who threatened to file a lawsuit against the city if Calvert was not allowed to act as the electrical subcontractor on the project.

    The city relented and allowed the substitution on the condition that Will agree to hold harmless and indemnify the city from any lawsuit that might arise as a result of the substitution.

    As a result of losing the subcontract to Calvert, McCandlish commenced suit in Chelan County Superior Court pleading a violation of RCW 39.30.060, the subcontractor listing statute. Although McCandlish convinced the trial court that Will had engaged in bid shopping, Will was able to convince the court to dismiss McCandlish’s claim at the close of its case.

    The court agreed with Will that under the listing statute as drafted, McCandlish had no remedy against Will. McCandlish appealed.

    In the appeal, McCandlish argued that the listing statute provides a remedy to an aggrieved subcontractor by virtue of language in the statute that requires the prime contractor to list the subcontractor with which the bidder “will subcontract” for performance of that portion of the work.

    Alternatively, McCandlish argued that a remedy should be implied from the purpose behind the statute, i.e. the prevention of bid shopping on public projects. McCandlish’s position was further supported by briefs filed by various construction industry trade groups. The Court of Appeals was not convinced and denied the appeal.

    In reaching its decision, the appellate court noted that an earlier version of the listing statute which was not adopted by the Legislature contained language that expressly prohibited the substitution of a listed subcontractor and provided for penalties against prime contractors who engaged in bid shopping. Because the statute as adopted did not include these provisions, the court ruled that the Legislature had not intended that there be a remedy for listed subcontractors who were not utilized by the prime contractor.

    The court concluded, therefore, that McCandlish’s only remedy was to sue for injunctive relief to prevent the city from entering into a prime contract with Will. Because McCandlish had not exercised this option, it had no recourse. In fact, McCandlish did not know prior to Will executing the contract with the city that Will did not intend to utilize McCandlish.

    McCandlish petitioned the Washington Supreme Court for discretionary review, but its petition was denied.

    As a result of the Court of Appeals’ decision in McCandlish, subcontractors should be aware that they have no right to sue a prime contractor for its violation of the listing statute. Furthermore, in the event of an improper substitution, the subcontractor’s only recourse is to sue for injunctive relief before the municipality contracts with the prime contractor at issue. It is highly unlikely that a subcontractor will be aware of a prime contractor’s intent not to utilize it prior to the date the prime contractor signs its contract.

    Paul R. Cressman Jr. is a member of the law firm of Short Cressman & Burgess PLLC where he chairs the firm’s Construction Industry Practice Group. He represents general contractors, subcontractors, suppliers, owners and design professionals involved in both public and private construction projects.


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