The Construction Advantage – Issue 12

Welcome to the twelfth edition of The Construction Advantage! In this issue, we bring you issues of competitive bidding, more mechanics lien case law, and a ME case of a dismissed appeal. We hope that you enjoy our newsletter, and we welcome any comments on this edition or any of our previous issues. Happy Holidays and a Healthy New Year!

ME Superior Court Affirms Competitive Bidding Requirements

by David Ray

Most lawyers will tell you that a true competitive bidding system is open to all bidders and must provide for an award to the low, responsive and responsible bidder. Generally, this has been interpreted to mean that the method of obtaining and opening bids must be transparent and public and that, when the bids are opened, the contract must be awarded to the bidder with the lowest price (low bid) if the bidder has provided all of the information required in the bid invitation (responsive bid) and has demonstrated the capacity to perform the job (responsible bidder). Despite this legal definition, however, owners often try to reserve some discretion to make a more subjective decision and not award to the bidder with the lowest price. For example, invitations for bids may include statements to the effect that the owner reserves the right to accept the bid which is in the owner’s “best interest.” Does this kind of language relieve the owner from its obligation to award to the low, responsive, responsible bidder? A judge on ME’s Superior Court has decided that it does not; at least when the law requires competitive bidding.

In a decision dated December 1, 2014, Superior Court Justice Nancy Mills affirmed that, for any school construction projects over $250,000, a school district in ME may not refuse to award the project to the lowest bid if the bidder is responsible and the bid is responsive. In Landry/French Construction Company vs. Lisbon School Department, et al., the School Department in Lisbon, ME decided to award a construction contract to the second low bidder despite the fact that the low bidder, Landry/French, was responsible (it had pre-qualified) and that its bid was responsive to the bid invitation. Landry/French challenged the award to the second low bidder and Justice Mills ordered the Lisbon School Department to reverse its decision and award the job to Landry/French as the low, responsive and responsible bidder. Although not defined in the law, the court found that the plain meaning of “competitive bids” meant a system that was public and open to all bidders and, more importantly, a system that required an award to the qualified, low bidder. This decision will undoubtedly be influential in any future bid challenges on school projects in ME. It means that, unless provided a waiver from the ME Bureau of General Services from the requirements of the law, school projects must be awarded on a true competitive bidding system.

Can You Lien Yourself? Sometimes the Answer is, Yes!

by Mike Bosse 

In Peabody-Waterside Development, LLC v. Island of Waterside, LLC, an Illinois Appellate Court concluded that a member of an LLC could rightfully lien its own LLC to collect amounts for grading and site development work. While the concept of liening your own entity may seem strange, in the right set of facts and under most mechanics lien statutes, the answer likely is the same.

Peabody-Waterside was a principal in Island of Waterside, LLC, and had performed sitework on 900 acres of real property in the Village of Marissa, Illinois. When Island of Waterside put the work out to bid, the bids all came in too high, so Island of Waterside elected to have Peabody-Waterside perform the work. When Island of Waterside failed to pay Peabody-Waterside a sum of $4.5 million for the work, Peabody-Waterside recorded a mechanics lien and filed a complaint in court to perfect the lien. The trial court found that the lien was unenforceable because Peabody-Waterside, as a principal of Island of Waterside, was doing work for its own benefit and as a co-owner. The Illinois appellate court disagreed because Peabody-Waterside was a separate legal entity from Island of Waterside, and in this case, was no different than any other third party independent contractor. Its work on the property, the court reasoned, was separate and apart from the fact that it was a principal of Island of Waterside, it was done on an arms-length basis, and was done by Peabody-Waterside because the other bids for the work were too high.

This result does not mean that people can lien themselves under any circumstances. The case is important, however, because it highlights that lien rights may exist for principals of a company that own property when those principals also perform work on that property. Although this case arises under Illinois’ mechanic lien statutes, the result in other states may well be the same, under facts where the entities are separate and the work was done at an arms-length basis.

ME’s High Court Sends Incomplete Case Back to Trial Court

by Asha Echeverria

In Warren Construction Group, LLC v. Reis, 2014 ME 144, — A.3d —, the ME Law Court ruled that the trial court’s failure to rule on Warren’s claims for quantum meruit, and unjust enrichment made Reis’ appeal premature even though the trial court ruled on other claims. The case stems from an agreement between Warren and Reis to make improvements to Reis’ home in Freeport. Warren began work in September 2012 but having not received payment for any work by February 2013, Warren stopped work and filed a mechanic’s lien against the property. Warren ultimately filed a five count complaint against Reis for (1) breach of contract, (2) quantum meruit, (3) unjust enrichment, (4) violation of 10 M.R.S. A. § 113, the ME Prompt Payment Act, and (5) enforcement of a mechanic’s lien under 10 M.R.S.A. § 3251. Upon Warren’s motion, the trial court granted summary judgment in favor of Warren on the counts for breach of contract, violation of the Prompt Payment Act, and enforcement of a mechanic’s lien, but the trial court did not make any ruling on or even mention the quantum meruit and unjust enrichment claims. Following the trial court’s denial of Reis’ motion to alter or amend the judgment, Reis appealed.

The ME Law Court denied the appeal without reaching the merits based on the long standing rule that a party may generally not appeal a decision until final judgment has been rendered (the “Final Judgment Rule”). Prior to a final decision, an appeal is considered interlocutory. Based on previous rulings, which hold that an adjudication by a trial court of less than all claims, including by way of a grant of partial summary judgment, does not terminate the action and does not result in a final decision, the Law Court determined that Reis’ appeal of just three of the five counts was interlocutory. Interlocutory appeals are only permitted under special circumstances. Here, Reis failed to allege any circumstances that would permit an interlocutory appeal and exempt them from the Final Judgment Rule. Therefore, because no final judgment existed in this case, Reis’ appeal was interlocutory and without any exception to the Final Judgment Rule, the appeal was denied on that basis.

We hope that you have found these tips and pointers in the twelfth issue of The Construction Advantage helpful to you in your daily business. Each of the attorneys in our Construction Law Practice is available to answer the day to day questions of your business as you work on projects.