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Recent Court Opinions – March 2016

Public Entity Cannot Allow Apparent Low Bidder Opportunity to Cure Bid Irregularity Post-Bid Day; Inclusion of Additional Information Not Required by Bid Instructions Does Not Make Bid Nonresponsive

DeSilva Gates Construction challenged the award of a contract to Papich Construction by CalTrans. DeSilva Gates Construction, LP v. Department of Transportation (2015) 242 Cal.App.4th 1409. The bid instructions required that the bidder list subcontractors performing work in excess of ½ of 1 percent of the total bid. Prior to bid day, CalTrans issued an addendum containing material revisions to the contract. Acknowledgement and acceptance of the addendum was required for each bidder.

After submitting its bid to CalTrans, DeSilva submitted a 24-hour subcontractor list, as permitted by the bid instructions. DeSilva’s subcontractor list, however, disclosed a fencing subcontractor that was not identified in the original bid (no fencing subcontractor had been identified). As a result, CalTrans determined that DeSilva’s bid was nonresponsive. Caltrans, meanwhile, had advised the next lowest bidder, Papich, that it had failed to acknowledge and accept the addendum to the contract. Papich responded that it intended to acknowledge and accept the addendum. CalTrans then waived the mistake and determined Papich’s bid to be responsive.

The Court of Appeal first held that DeSilva’s inclusion of the fencing subcontractor in the subcontractor list did not render the bid nonresponsive. The Court reasoned that since the fencing subcontractor was only to perform 1/10 of 1 percent of the total bid, the information was accurate but unnecessary. As a result, because nothing in the Public Contract Code or bid instructions prohibited the disclosure of unnecessary information, the bid was responsive.

On the other hand, the Court of Appeal held that CalTrans’ allowance of Papich to cure its bid irregularity amounted to an unfair advantage. Specifically, by requesting that Papich acknowledge and accept the addendum after the bid date, Papich could have backed out by refusing to comply with Caltrans’ demand – without forfeiting its bid bond.

 

Court of Appeal Upholds Application of Eichleay Formula for Calculating Extended Office Overhead Damages, Modified Total Cost Method for Determining Delay Damages

An electrical and plumbing subcontractor, Enviromental Assessment and Remediation Management, Inc. (EAR), and its surety appealed the trial court’s damages award to the contractor, JMR Construction Corp. JMR Construction Cop. V. Environmental Assessment and Remediation Management, Inc. (2016) 198 Cal.Rptr.47.

JMR filed suit against EAR and its surety for breach of contract and foreclosure of the performance bonds, alleging that EAR had delayed the project and performed deficient work. After the trial, the court awarded JMR field overhead delay damages, home office overhead delay damages, and delay damages associated with the framing and drywall phase of the project.

In determining the home office overhead delay damages, the trial court applied the Eichleay formula. The Eichleay formula is the method approved by the Federal Government to arrive at the fair compensation for unabsorbed overhead costs. Prior to the JMR decision, the Eichleay formula had only been used in federal litigation involving federal projects.

The Eichleay formula follows three steps: (1) find the allocable contract overhead: multiply the total overhead cost incurred during the contract period times the ratio of billings from the delayed contract to total billings during the contract period; (2) find the daily contract overhead rate: divide allocable contract overhead by days of contract performance; and (3) find the amount recoverable: multiply the daily contract overhead rate times days of delay. The Court of Appeal upheld the application of the Eichleay formula, deeming it an appropriate method to compensate “for all the detriment proximately caused” by the breach of the contract.

In determining the delay damages associated with the framing and drywall phase of the project, the trial court applied the modified total cost method. The total cost method calculates damages as the difference between a contractor’s actual cost and its original bid. In the event that some of the costs are deemed unreasonable or were the result of the contractor’s errors, those costs are subcontracted from the damages to arrive at a modified total cost. The Court of Appeal upheld its application to the JMR case, as there was substantial evidence of causation and the calculation was only applied to the framing and drywall phase of the project, not to the entire project.

 

Deadline to Record Mechanic’s Lien Runs from Date of Actual Completion, not Substantial Completion, Court Holds

The Court of Appeal recently confirmed that the deadline to record a mechanic’s lien runs from the date of completion, not substantial completion.   In Picerne Construction Corp. v. Castellino Villas (2016) 244 Cal.App.4th 1201, Picerne agreed to build an apartment complex for Castellino Villas. The project consisted of 11 apartment buildings, separate garages, a clubhouse, and other facilities.

The certificates of occupancy were issued between May 3, 2006 and July 25, 2006. Picerne continued to perform work at the project through August 2006. The owner’s representative executed documents accepting the buildings on August 28, 2006 and September 8, 2006. Picerne recorded a claim of mechanic’s lien on November 28, 2006.

Castellino argued that Picerne’s mechanic’s lien was not filed within 90 days of substantial completion, when the certificates of occupancy were issued. The court, however, rejected this argument, holding that the Legislature defined completion of the work of improvement as actual completion (and three circumstances which are deemed to be equivalent to completion). Civil Code § 8180.

Castellino also argued that each of the 11 buildings was a separate improvement; thus, a different deadline for recording a lien applied to each building. The court, however, also rejected this argument, holding that Castellino had not shown that there was separate title for each building. In addition, the court noted that Castellino had only filed a notice of completion for the entire project, not each individual building.