The California Court of Appeals has allowed the second lowest bidders on public construction projects to sue the lowest bidder where it appears that the lowest bidder was only the lowest because it paid its employees less than the established prevailing wage. This is a novel theory for recovery, but may provide for an opportunity to challenge improperly low bids.
Between 2009 and 2012, American Asphalt outbid two asphalt companies on 23 public works projects, totaling nearly $15 million. The two asphalt companies sued American Asphalt alleging that they were the second lowest bidder all 23 construction projects and they would have been the lowest had American Asphalt paid its employees the required prevailing wage. Importantly, the municipality awarding the contracts was not sued by the second lowest bidders. Instead, the second lowest bidders alleged that American Asphalt intentionally interfered with a business expectancy and sought damages from American Asphalt, specifically the profit that they lost by not performing these contracts.
The court ruled that a second lowest bidder may sue the lowest bidder where, but for the wrongful conduct of the seemingly lowest bidder, the second-place bidder would have obtained the contract. The court specifically rejected American Asphalt’s argument that a disappointed bidder has no legally protectable expectancy interest in being awarded a contract.
This case has been appealed to the California Supreme Court and it will take a few months to work its way through the system. But, in the meantime, the case provides a novel argument to challenge a low bidder whose bid fails to comply with the requirements of the bid package.
Take Away: If you lose out on a bid, take a look at the winning bid to confirm that the winning bid complied with all requirements of the bid package, including wages. It may also be of benefit to see whether the winning bid uses employees or a bunch of misclassified independent contractors.