Disappointed Bidders on Public Projects

Recently, the Michigan Court of Appeals released its decision in Cedroni Associates, Inc. v Tombilson, Harburn Associates Architects & Planners, Inc. (docket # 287024, released 11/16/10) which provides new avenues for the disappointed low bidder to challenge the bid process on governmental projects.

The case involved a construction project within the Davison Community Schools. An architectural firm (Defendants “THA”) assisted the school by reviewing, evaluating, and investigating the bids and bidders. Based on THA’s advice, the school district bypassed the Plaintiff contractor’s low bid and instead awarded the contract to the second lowest bidder.

The disappointed contractor brought a tortuous interference claim against THA claiming that THA had been untruthful and inaccurate in its negative portrayal of the contractor’s capabilities to do the project. The key finding in the case was that the objective criteria within the school district’s policies and project manual could be sufficient to create a valid business expectancy on the part of the contractor. This was true even though the policies and manuals gave the school discretion to reject “any and all bids.”

I think the potential impact of this decision could be very significant. At minimum, governmental entities and those involved in the approval process will need to look very closely at bid awards and should have compelling reasons to reject low bids.

The Powerful Remedies of the Builders Trust Fund Act

It’s a typical scenario- a subcontractor or supplier is owed money from a contractor but hasn’t perfected a right to a construction lien. The subcontractor or supplier think they are out of luck and are stuck with an uncollectable breach of contract claim against an empty corporation. However, the Builders Trust Fund Act (“BTFA”), MCLA 570.151 et. seq. can provide an extremely powerful remedy for the unpaid client.

In general, the BTFA makes it illegal for a contractor to take money from an owner of a project and use it for other purposes than first paying subcontractors, suppliers and laborers on the project. In addition to potential criminal liability, a civil claim under the BTFA can provide for:
1. Individual liability of participating corporate officers;

2. A debt that is non-dischargeable in bankruptcy; and

3. At least a decent argument for treble damages under Michigan’s conversion statute.
A very good discussion of individual liability and non-dischargeability is set forth in the recent case of In re Patel, 565 F3d 963 (CA 6 2009).