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Public Agency Not Subject to 60-Day Limit

22 Aug 2016 00:00:00 -0800

Claims by a public agency seeking a court’s help in undoing a contract, because one of the parties to the agreement had a conflict of interest, are not time barred, a California appellate court has ruled. The 60-day validation statute does not apply, but, rather, the Government Code section that authorizes a four-year period for an interested party to bring suit to void a contract made in violation of the law does.

Two public agencies and a water company in Monterey County entered into a series of agreements to collaborate on a water desalination project. As the final agreement was being considered for approval by the Monterey County Water Resources Agency, one of its directors revealed for the first time that he had had a consultant agreement with the business that was selected as the project General Manager and was paid to advocate for the agreements. The director resigned and was later convicted of a felony violation of Government Code section 1090, a willful violation of the law.

More than two years later, California-American sued Monterey and the other water agency, Marina Coast Water District, to have the contracts declared void under section 1090. Eventually, Monterey filed a cross-complaint also seeking to have the agreements declared void under section 1090. Marina, alone, sought to “defend” the contracts by contending that the section 1090 claims were time barred because no party had sought to have the contracts declared void within 60 days of their execution as required by the validation statutes.

Government Code section 1090 is the powerful anti-conflict of interest statute that declares that any contract made by a government entity in which a member of the board or council of the entity has a financial interest is void. A related statute, section 1092, authorizes an interested party to bring suit to have a contract made in violation of the law voided, and provides a four-year period to bring such a lawsuit from the time of the discovery of the conflict.

A quite separate group of statutes create a process known as “validation.” Under these validating proceedings (CCP § 860 et seq.), a public agency may file a legal action to have a court determine the validity of any matter enacted by the agency. The validation process has a 60-day window and, even if the agency does not file an action seeking validation, a challenge must be filed within that same 60-day period or the validation is deemed to occur.

The tension, if not outright conflict, between section 1092’s four-year statute of limitations and the validation statutes’ 60-day window is evident. The First District Court of Appeal held that the validation statutes do not apply to a government entity who is a party to the contract. Therefore, Monterey’s lawsuit was timely because it was filed within the four years statute of limitations provided for in section 1092. The court went on to find that the director clearly had a prohibited financial interest in the contracts and they were accordingly void.

Of greater significance to future section 1090 litigation is what the court had to say about the conflict between section 1092 and the validation statutes, even ignoring its express language exempting a public agency. The court suggested, without deciding, that the validation statutes’ 60-day window should not apply to any action under section 1090.

Why does this matter? Two reasons. First, any party to a contract made in violation of section 1090 may bring suit within four years to have it declared void. Thus, a private entity who is a party to a contract, like the private water company in this lawsuit, may bring an action under section 1092 seeking to have a contract declared void. However, only a public agency contracting party is exempt from the validation statute, and its 60-day window, by the express terms of the statute. So, if the validation statutes do not apply to a section 1090 lawsuit, the private entity may seek to sue outside the 60-day window. Second, and more significantly, some appellate courts have recognized that taxpayers or citizen taxpayer groups have standing to sue under section 1092 to have a contract declared void, and even to name the public entity as a defendant. Here again, if the short validation 60-day window does not apply, these parties may sue within four years and this will serve to foster and promote this type of litigation.

If you have any questions about this opinion or how it may impact your agency, please contact the attorney author of this Legal Alert listed to the right in the firm’s Municipal Law practice group, or your BB&K attorney.

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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

City Slapped Down on anti-SLAPP Claim

03 Jun 2016 00:00:00 -0800

In a decision that illustrates government entities’ limits of the anti-SLAPP process, an appellate court rejected the City of Carson’s use of the statute in defending against a broken contract claim. Carson hoped to lure an NFL franchise (or two) to town by developing a sports and entertainment complex, including a football stadium. To that end, the City entered into an exclusive agency agreement with Richard Rand and his Rand Resources to negotiate with the NFL for the franchise designation and stadium development. The relationship between the City and the mayor eventually soured, however, over an unrelated dispute.

Rand later alleged in a state court lawsuit against the City that the City violated the agreement and allowed Leonard Bloom and his company to begin to act as its agent and representative in negotiating with the NFL. The City and Bloom responded by filing an anti-SLAAP motion, asserting their communications regarding the proposed development of the NFL fell within the “public interest” portion of the statute.

The Legislature enacted the anti-SLAPP statute (CCP §425.16) in the 1990’s to provide an expedited pre-trial process to eliminate unmeritorious civil actions filed primarily to chill the exercise of political rights, such as the rights to free speech and to petition the government in connection with a public issue. Under this law, a defendant may move to have an action dismissed upon showing that the plaintiff’s cause of action arises from an act by the defendant in furtherance of the defendant’s right of petition or free speech in connection with a public issue. If established, the plaintiff must then demonstrate a likelihood of prevailing on the claim. Government entities soon deployed the anti-SLAPP process to ward off unmeritorious lawsuits challenging governmental decisions and actions, and the courts found that they were “persons” under the law and that government entities have “speech interests” as “governmental speakers.”

The trial court granted the anti-SLAPP motion and dismissed most of Rand’s lawsuit. He appealed. In a decision in Rand Resources v. City of Carson et al.on May 31, the Court of Appeal reversed the trial court’s order dismissing the various causes of action in Rand’s lawsuit. The court focused its analysis on what constitutes “an issue of public interest” under the statute. Critically, the court noted that, while the development of an NFL-worthy stadium and obtaining a team franchise for the City was a matter of “substantial public interest,” Rand’s lawsuit was predicated on commercial conduct, and in particular, who would represent the City in those negotiations. The court concluded that the identity of the City’s representative was not a matter of “public interest,” which must “go beyond the parochial particulars of the given parties.”

This decision demonstrates the limits of the anti-SLAPP process when deployed by a government entity. That is to say, not every act of a government entity is a matter of “public interest” under the statute, as that would sweep in a wide array of actions and decisions not comprehended by the law. As the appellate court observed, “[t]he part is not synonymous with the greater whole.” Thus, while there is great deal of fanfare and public interest in attracting an NFL franchise and developing an NFL stadium, the nitty gritty aspects of the deal are hardly what attracts and holds public interest.

If you have any questions about this opinion or how it may impact your local agency, please contact the attorney authors of this Legal Alert listed to the right in the firm’s Municipal Law practice group, or your BB&K attorney.

Please feel free to share this Legal Alert or subscribe by clicking here. Follow us on Twitter @BBKlaw.

Disclaimer: BB&K legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

CSDA Call to Action: SB 885

15 Mar 2016 00:00:00 -0800

The California Special Districts Association has issued a “Call to Action” regarding SB 885. If enacted, the legislation would further limit design professionals’ liability when providing services to public agencies. Specifically, SB 885 would limit design professionals’ duty to defend public agencies.

For purposes of SB 885 a design professional includes a licensed architect, licensed landscape architect, licensed land surveyor, registered professional engineer, and businesses offering any of these services provided by these types of design professionals.

More information on the legislation and ways to make your opinions heard can be found on the CSDA page here.

If you have questions about the proposed legislation, please contact one of the attorney authors of this Legal Alert listed to the right in the Special Districts practice group, or your BB&K attorney.

Please feel free to share this Legal Alert or subscribe by clicking here. Follow us on Twitter @bbklaw.

Disclaimer: BB&K legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

FAST Act Authorizes $305 Billion in Transportation Spending Over Five Years

17 Dec 2015 00:00:00 -0800

The Fixing America’s Surface Transportation Act, signed into law by Pres. Barack Obama, authorizes approximately $305 billion in federal highway and transit spending over the next five years for transportation projects. The Act provides much needed certainty for states, transit agencies and other local agencies to move forward with critical transportation infrastructure projects.

Below is a summary of some of the largest components of the approximately 1,300-page FAST Act, in addition to a more extensive breakdown of funding provided for in the Act.

Block Grants Surface Transportation Program: By converting the Surface Transportation Program to a block grant program, the Act seeks to increase state and local agency control over transportation decisions. The Act focuses a larger share of funding from the Surface Transportation Program toward more populated urban areas and establishes a Tribal Transportation Self-Governance Program under which Indian tribes may receive and administer transportation funds. Complementing the FAST Act, the Department of Transportation is also encouraging the use and development of advanced smart transportation technologies and transit-oriented development through grant programs and initiatives, as we recently discussed in a BBKnowledge post.

Funds Public Transit: It is estimated that $11.8 billion is authorized for programs administered by the Federal Transit Administration, with that amount rising to $12.6 billion in 2020. The FAST Act focuses on transit safety and ensuring a state of good repair for transit systems, in addition to providing funding for the Capital Investment Program administered by the FTA, which includes New Starts. However, the limitation that federal full funding grant agreements be limited to 60 percent is included in the Act.

Further, recognizing how costly vehicle procurements can be for transit agencies, the Act supports cooperative procurements. The FAST Act also establishes a pilot program for cooperative procurements to be administered by eligible nonprofit entities. In taking advantage of such opportunities, it will be important for agencies to review and understand the guidelines for such programs and make sure the necessary legal terms are included in any procurements and contracts.

Emphasizes Role of Rail and Freight Movement: The Act largely emphasizes the importance of our nation’s freight system and the existing strains that need to be addressed. The Act authorizes a new competitive grant known as the Nationally Significant Freight and Highway Projects program, which provides $800 million in funding for 2016, rising to $1 billion in 2020. Eligible applicants for the NSFHP grant include states or groups of states, municipal planning organizations for urban areas and public authorities with a transportation function, such as a port authority. Further, the Act provides resources for the continued update of the National Highway Freight Network.

Provides Clarity in Surface Transportation Project Financing: The Act encourages DOT to ensure all available funding mechanisms are being utilized for transportation projects. In furtherance of this goal, the Act establishes the National Surface Transportation and Innovative Finance Bureau to provide assistance and communicate financing and funding opportunities to eligible entities, and promote innovative financing best practices while reducing costs and risks to taxpayers in the construction and delivery of projects. With regard to large capital projects exceeding $1 billion, federal monies may not be obligated until an applicant demonstrates the ability to meet the non-federal share for the grant.

The Act also encourages the use of low-interest loans provided for rail projects through the Railroad Rehabilitation and Improvement Financing Program. Knowing the Act does not provide enough federal grant monies for all the projects necessary to provide the update and modernization needed to bring the country’s transportation infrastructure up to speed, we anticipate seeing an increase in use of such low-interest funding programs in the future, in addition to the increased use of public-private partnerships for the completion of future transportation projects.

Modernizes Project Delivery and Environmental Oversight: The Act continues the goals of streamlining the environmental review and permitting process, and eliminating duplicate reviews by allowing one lead agency to coordinate the environmental review process under the National Environmental Protection Act.

Embraces Continued Development of New Technologies: The Act continues to support research into the roll-out of autonomous vehicle technologies and requires the Department of Transportation to designate, within the next year, highway corridors where electric charging and hydrogen, propane and natural gas fueling stations and infrastructure should be built. The Act also adds the deployment of low- or zero-emission vehicles to the list of transportation projects eligible for research funding provided under the Act.

While there is always room for improvement and the need remains for a serious discussion on how to fund future transportation projects beyond 2020 (i.e. whether to raise the gas tax or implement a revenue creating alternative), the passage of the FAST Act is a welcome development for states, local governments, planning agencies and our transit providers.

Click here for more additional information on funding included within the Act.

Due to the size and breadth of the FAST Act, we look forward to providing more information on funding opportunities and issues that focus on the trends and best practices coming out of the many transportation and infrastructure projects that will be kicking off across the country. In the meantime, Best Best & Krieger’s transportation and infrastructure attorneys and Government Relations team look forward to assisting agencies in taking advantage of funding opportunities for transportation projects made possible by the FAST Act, assisting in successfully delivering projects, from planning and procurement to construction and project close-out, and helping communities prepare for the introduction of smart technologies, such as automated vehicles into our nation’s transportation network.
For more information, contact the author of this Legal Alert listed at right in the firm’s Government Relations Services group, or your BB&K attorney.

Disclaimer: BB&K legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

2014 Legislative Highlights

29 Apr 2015 00:00:00 -0800

INTRODUCTION

The 2014 Legislative session was notable for the continued inability of the Legislature to resolve a series of high profile real property related issues that were carried over from previous sessions. This inability persisted despite the existence of Democratic Party supermajorities in both houses and indicates either the intractable character of these issues or the existence of divisions on these issues within the Democratic Party. Most likely both factors played a role in the Legislature's ineffectiveness.

One of the most prominent of these issues was reform of the California Environmental Quality Act ("CEQA"). Although there was a general recognition that CEQA reform could be important to facilitate development activity in California, the 2014 session was nevertheless relatively quiet with respect to new CEQA legislature in comparison to the last two years. A total of thirty-one bills relating to CEQA were introduced in the 2013 session, with six bills eventually signed into law. In 2014, only fifteen bills were introduced and only twelve of them were actually new bills, with only five bills eventually being signed into law. The most notable of these bills, AB 52, establishes a new and powerful role for California Native American Tribes in the CEQA process by adding several provisions to CEQA dealing with impacts on "tribal cultural resources." Of course, this is not the type of CEQA reform desired by those who want to streamline the CEQA process to facilitate development.

A second issue of continued concern was how the Legislature would address the void left by the dismantling of California's five billion dollar per year redevelopment programs that took place in 2012. Although Governor Brown vetoed a number of bills meant to address this problem, he did sign legislation that expands the existing mechanisms of infrastructure financing districts to provide tax-increment financing authority for capital improvement projects, many of which may overlap with projects once carried out by redevelopment agencies. While this is only a partial fix, it appears to be as far as the Governor is willing to go in resurrecting what was previously considered an essential development financing tool.

The third major issue of continued concern was Proposition 13 reform. These reform efforts have been a continuing occurrence for many years now. In 2014, these efforts took a different turn, which nearly resulted in the enactment of a historic compromise agreement (AB 2372) regarding change of ownership abuses. However, in the end, this reform effort also failed in the waning hours of the 2014 Legislative session. The expectation is that this issue will resurface in 2015 as both parties prepare for the 2016 election.

To read the entire article in the Spring 2015 California Real Property Journal, click here. First published in the California Real Property Journal, a quarterly publication of the Real Property Section of the State Bar of California. Reprinted with permission.

Losing Bidders Can Sue When Winners Don't Pay Prevailing Wages

13 Mar 2015 00:00:00 -0800

The second-place bidder on a government contract has a cause of action for intentional interference with prospective economic advantage against the winning bidder if the contract was awarded as a result of -wrongful conduct. In the recent case of Roy Allan Slurry Seal v. American Asphalt South Inc., 2015 DJDAR 2014 (Feb. 20, 2015), the 2nd District Court of Appeal held that plaintiffs could state that cause of action if the winning bidder was able to submit a lower bid because it illegally paid its workers less than the prevailing wage.

Most public works contracts must be awarded to the lowest responsive bidder, provided the lowest bidder meets the minimum qualifications necessary to perform the work. Unlike private developers, public agencies usually have no discretion to choose a preferred contractor or to determine the contractor who is most qualified or provides the best value. Bids must be submitted under seal, with all of the bids opened at once. After the bid opening, a public agency only has two options: award to the lowest responsive, responsible bidder or reject all of the bids. There is no opportunity for further negotiations, and details of each bid, such as the budgeted costs and anticipated profits, are not revealed.

The purpose of this system is to create competition — to give every bidder an equal chance to perform public work, and therefore protect the public's financial interests. Of course, the system only works if everyone plays by the rules.

In Allan, the plaintiffs alleged that another contractor — the winning bidder on 23 separate public works projects — did not play by the rules. The defendant, American Asphalt South Inc., was awarded the 23 contracts, totaling more than $14.6 million, to apply slurry seal to public roads. The second lowest bidder on all 23 contracts was either Roy Allan Slurry Seal, Inc. or Doug Martin Contracting, Inc. The plaintiffs combined their cases and sued American Asphalt in five counties — Los Angeles, Riverside, San Bernardino, Orange and San Diego, yielding different results to various demurrers. The cases were all combined on appeal.

…

To read the full article in the Daily Journal, which ran March 13, 2015, click here (subscription required).

Court of Appeal Issues Decision Clarifying the Applicability of Prevailing Wage Law to Offsite Fabrication of Materials

30 Sep 2014 00:00:00 -0800

The California Court of Appeal has ruled that fabrication of materials for a public works project is not subject to California’s prevailing wage law if it occurs at a “permanent, offsite manufacturing facility, the location and existence of which is determined wholly without regard to the particular public works project.” In Sheet Metal Workers’ International Assn., Local 104 v. Duncan, published Aug. 27, Russ Will Mechanical, Inc. was the heating, ventilation, and air conditioning subcontractor contracted to perform the HVAC component for a community college district project.

As part of the public works project, Russ Will fabricated sheet metal for various HVAC components at a permanent offsite facility it had operated for more than a decade. An employee of Russ Will filed a complaint with the Department of Industrial Relations claiming he should have received prevailing wages for his work fabricating sheet metal at the offsite facility. Following the DIR’s administrative review of the matter, DIR’s final coverage determination concluded that Russ Will was not required to pay prevailing wages. Local 104, which had participated in the DIR proceedings, then filed a petition for a writ of mandate in court challenging the final DIR coverage determination. Local 104’s petition was granted, and the court returned the matter to the DIR. Russ Will then appealed.

The Court of Appeal’s decision clarifies and solidifies the rule consistently set forth in past DIR coverage determinations that prevailing wage requirements do not apply when the offsite fabrication takes place at a permanent, offsite manufacturing facility, where the location and existence of the facility has no relationship to the public works project in question. While this decision could be appealed to the California Supreme Court, for now, the Sheet Metal Workers’ International decision provides certainty that the payment of prevailing wages is not required in relation to a public agency’s direct purchase of materials for a public works project from a permanent offsite manufacturing facility, so long as the facility’s existence is not reliant on, or otherwise related to, the public works project.

For more information about this case and how it may impact your agency, please contact one of the attorney authors of this legal alert in the Education, Special Districts or Municipalpractice groups, or your BB&K attorney.

All California Contractors and Subcontractors Involved with Public Works Projects Now Required to Register With State by March 1, 2015

10 Jul 2014 00:00:00 -0800

The California Legislature has imposed a new registration requirement for contractors and subcontractors involved with public works projects. Senate Bill 854, passed late last month, created a registration program, effective July 1, 2014, to fund the Department of Industrial Relations’ monitoring and enforcement of prevailing wage laws.

The registration period is open now, and contractors and subcontractors wishing to work on a public works project must be registered by March 1, 2015. For public agencies/awarding bodies, the new law requires that all public works projects with bids due after March 1, 2015, or awarded on or after April 1, 2015, use only registered contractors and subcontractors. The bill also requires awarding bodies to include notice of the registration requirement in their bid invitations and bid documents. In addition, public agencies must also file notice of their public works projects using DIR approved forms.

Registration is completed through an online application and requires a non-refundable $300 fee to be paid by the contractors and subcontractors. The registration process requires contractors to:

provide workers’ compensation coverage to its employees
hold a valid Contractors State License Board license
have no delinquent unpaid wage or penalty assessments
not be subject to federal or state debarment

Contractors must pay an annual renewal fee by July 1 of each year. The registration form is located on the DIR’s website at http://www.dir.ca.gov/DLSE/dlsepublicworks.html.

To help awarding bodies and contractors comply with the new requirements, the DIR will post a database of registered contractors and subcontractors on its website. While non-registered contractors may not be awarded public works contracts after the effective date, inadvertently listing an unregistered subcontractor on a bid will not necessarily invalidate that bid. In addition, the registration requirement does not apply to private jobs that are determined to be public works after the contract has been awarded.

The new registration system replaces the previous requirement that awarding bodies pay for costs to monitor and enforce compliance with prevailing wage laws for certain public works projects. Registration and renewal fees will go into the State Public Works Enforcement Fund, which provides for the administration of contractor registration, monitoring and enforcement of prevailing wage laws, and the enforcement of Labor Code violations on public works projects by the DIR.

For more information on the new public works contractor registration requirement and its potential impact on public works projects, please contact the authors of this e-alert listed at right, an attorney in the firm’s Public Contracts and Construction group or your BB&K attorney.

California Authorizes Alternative Procurement Method for Public Construction Projects

07 Apr 2014 00:00:00 -0800

Effective January 1, 2014, all California counties are expressly authorized to use the “construction management at risk” project delivery method (CMAR) for any building projects over $1 million. This alternative procurement process has been in use by the private sector and other public agencies for many years. The CMAR project delivery method offers both benefits and risks for the project owner, which should be carefully evaluated.

Proponents of CMAR commonly cite the following benefits for the owner: the opportunity to select the contractor who will lead the project based on factors other than price; getting a contractor’s perspective during design; and a known price that is not automatically subject to increase on account of design deficiencies. Unlike design-build, the owner utilizing CMAR retains control of the entire design process.

Risks to the owner and criticisms of CMAR include the up-front cost of preconstruction services and the need for the agency to have sufficient expertise to evaluate cost proposals and assess the final project accounting. Agency staff also have to understand that the construction manager under a CMAR agreement is not a typical “agency” construction manager who works on the owner’s behalf. Some agencies choose to retain an owner’s representative to act on the owner’s behalf during the project, which increases overall project cost.

No project delivery method is fool-proof. One important key to a successful CMAR project is a contract that clearly identifies the risks the owner is shifting to the construction manager. Another is training the owner’s staff to use the contract to enforce those responsibilities.

Public Contract Code Section 20146 (SB 328) adds counties to the ranks of local public agencies that the Legislature has expressly authorized to engage a licensed contractor who provides preconstruction services and construction administration to deliver the project for a fixed construction cost. The CMAR contract can be awarded to the “lowest responsible bidder” or based on “best value.”

On a CMAR project, the owner retains the construction manager during (or before) design. The construction manager provides a contractor’s perspective during design, assists in value engineering, and performs quality control to reduce common design problems such as coordination and constructability issues. The construction documents are divided into “trade packages” suitable for competitive bidding as separate contracts. The construction manager selects the trade contractors through procedures established by the county, and is responsible for scheduling, coordinating and completing the project for a guaranteed maximum price.

The construction manager is typically paid a fixed sum for its preconstruction services and receives a fee, calculated as a percentage of hard construction cost, for services during construction. The construction manager may also provide site services for the project, such as security and sanitation, and may, in some cases, perform portions of the work. If it does so, payment for that work may be in addition to the fee.

The overall price for construction of the project, either a lump sum or guaranteed maximum price, is usually established late in the design phase or after all trade contracts have been bid. That price should change only if the owner modifies the project, if regulatory changes increase the cost of the work, or if unexpected site conditions appear.

For further information about CMAR and whether it is appropriate for your project, please contact one of the attorney authors of this legal alert listed at right in the Public Contracts and Construction practice, or your BB&K attorney.

Protecting Your Agency from Contractor Claims, Implementing the California False Claims Act and Public Works Contracting Lessons Learned

27 Mar 2014 00:00:00 -0800

This event discussed lessons learned the hard way and their application to assist anyone responsible for managing public works contracts in California. Helpful tips to utilize the California False Claims Act were also covered. Techniques for avoiding claims or contractual provisions that protect public agencies along with how to handle and manage claims once they are submitted were presented.

When:
March 27, 2014

Where:
Sheraton Grand Sacramento Hotel
1230 J Street
Sacramento, California 95814

BB&K Speaker:
Scott Campbell, Partner (Los Angeles, CA)

For more information about the event, please visit the League of California Cities website.