The Construction Advantage

Corporate Formalities: Don’t Blur the Lines!

By: Conor Shankman

The first step to starting a business often involves setting up a corporate entity such as a Corporation or Limited Liability Company (“LLC”). Corporate forms allow business owners to establish a divide between their personal assets and the debts/liabilities of the business. That way, if the business gets sued, or is ultimately unsuccessful, your personal assets remain beyond the grasp of debt collectors.

But, a corporation is like a cat, it requires regular and systematic care, otherwise it will end up biting you. This is exactly what happened in a recent case: TLIG Maintenance Services v. Fialkowski. Here, a homeowner sued a construction company, its sole shareholder, and the shareholder’s boyfriend for breach of contract and mental anguish. The court ultimately entered judgment for the homeowner, thus piercing the corporate veil and holding the shareholder and boyfriend personally liable.

Under certain circumstances, courts will pierce the corporate veil and disregard the protections granted by the corporate form when the business owner with indifference to corporate formality (i.e. the legal separation between business and person). For example, in TGIL Maint. Servs., the court looked to the following factors when it held the contractor his girlfriend personally liable:

• Contractor’s girlfriend was the sole shareholder
• Contractor had no ownership interest in corporation
• Contractor was neither an officer or director
• Corporation bank account opened with girlfriend’s money
• Corporation was undercapitalized and operated as an alter ego of the contractor’s girlfriend
• Corporate bank account was frequently used for personal expenses
• Personal and corporate funds were intermingled
• Corporation failed to keep financial records to account for expenditures
• Girlfriend, as sole shareholder, completely disregarded the corporate form

The simple takeway: ensure that your business is adequately funded at time of formation, properly insured during operation, do not intermingle personal and business funds, and follow proper corporate formalities. If you have been blurring the lines, or have questions about which corporate formalities are important, you might just find yourself personally liable for a business debt.

Late: Not Better Than Never When Bidding on Federal Contracts

By: Meredith Eilers

When the federal government specifies a deadline to submit a proposal, they mean it.

Interested parties seeking to challenge the award or proposed award of a contract for the procurement of goods and services by a federal agency may file a bid protest with the U.S. Government Accountability Office (“GAO”). “Interested parties” are generally bidders who did not win a particular contract. In a word, the GAO is unsympathetic to late bid submittals, even if arguably attributable to unforeseen technological issues. A series of recent bid protest decisions drives home the perils of waiting until the last minute—or in some cases seconds—to submit a proposal. Here are some key takeaways from recent decisions:

1. Evidence of timely mailing, without evidence of timely receipt is insufficient to meet a bidder’s burden

Recent GAO bid protest decisions repeat this popular refrain: “It is an offeror’s responsibility to deliver its proposal to the proper place at the proper time.”

Western Star Hospital Authority, Inc. (“Western Star”) submitted a proposal in response to an RFP issued by the Department of the Army for certain emergency medical services. The RFP deadline was 4:00 p.m. EST, on January 30, 2017. On that date, Western Star sent four proposal documents by email at 2:43 p.m., 2:57 p.m., 3:01 p.m., and 3:06 p.m., respectively. However, the agency asserted that it received the four emails after the 4:00 p.m. deadline. When received, the four emails in the agency’s email inbox were time-stamped 6:00 p.m., 6:05 p.m., 6:06 p.m., and 6:09 p.m. Citing the offeror’s responsibility to ensure that an electronically submitted proposal is received by—not just submitted to—the GAO denied Western Star’s protest. (See Western Star Hospital Authority, Inc., file number B-414216.2 (May 18, 2017); see also Peers Health, file number B-413557.3 (Mar. 16, 2017), an emailed proposal submitted one minute before 12:00 p.m. deadline was untimely where email reached government server at 11:59 a.m., but did not reach the location designated in the solicitation for receipt until 3:49 p.m., and finally, Washington Coach Corp., file number B-413809 (Dec. 28, 2016) agency did not receive proposal because the 1:19:29 p.m. submittal emails exceeded the size limit for the agency’s email system (10MB), and bidder’s same-day attempts to confirm receipt and resolve the delivery failure were already beyond the 2:00 p.m. deadline).

There is, however, an exception for late-received submittals: FAR § 52.212-1(f)(2)(i)(A) allows for a late proposal received before award to be accepted if it was “transmitted through an electronic commerce method authorized by the solicitation” and it was “received at the initial point of entry to the Government infrastructure” no later than 5:00 p.m. on the working day before proposals were due.

2. Even an unexplained delivery failure can be fatal

Ghazanfar Neft Gas LTD (“Ghazanfar”) responded to an RFP issued by the Defense Logistics Agency (“DLA”) for the supply and delivery of diesel products and gasoline to the U.S. Embassy in Kabul, Afghanistan. Ghazanfar submitted its proposal via e-mail on March 13, 2017. The RFP deadline was April 3, 2017. On April 8, 2017, Ghazanfar e-mailed the contracting officer and contract specialist to inquire about the status of their proposal, and to note that they had not received a reply when they submitted the proposal. The April 8 email included Ghazanfar’s March 13 submittal email. The DLA responded on April 10 that it never received the March 13 submittal, or Ghazanfar’s attempted re-submittal on April 10.

Despite evidence from Ghazanfar that the March 13 email had been sent and received internally at Ghazanfar, the GAO concluded that Ghazanfar was unable to meet its burden because the evidence did not demonstrate that DLA received the proposal. The DLA checked email inboxes, junk folders, and message tracing logs, but was never able to find Ghazanfar’s initial submittal. Neither the DLA nor Ghazanfar were able to explain what happened. (See Ghazanfar Neft Gas LTD, file number B-414636 (Jul. 21, 2017).)

3. Seconds matter

Twenty-three seconds late is too late as far as the GAO is concerned. Tele-Consultants, Inc. (“TCI”) attempted to submit its proposal through the Navy’s SeaPort-e portal, as was required by the RFP. Prior to the 2:00 p.m. deadline, TCI had a draft proposal in the system, but TCI’s president attempted to click the “Submit Signed Proposal” both 23 and 34 seconds after the 2:00 p.m. closing date. TCI contacted the agency after the closing date to inform the contracting officer (“CO”) that TCI had submitted the proposal, but the portal had not allowed them to click the submit button. The CO investigated and determined that the system had not malfunctioned in any way that would have prevented an offeror from clicking the “Submit” button prior to 2:00 p.m. TCI did not dispute that it attempted to click “Submit” after the 2:00 p.m. deadline, but argued that its proposal was uploaded to the system—and therefore under the government’s control—prior to the deadline. The GAO concluded that the “Submit” button was an essential step to create the legally-binding proposal, and TCI was therefore late. (See Tele-Consultants, Inc., file number B-414135 (Feb. 27, 2017).

Crying Over a Spilled Construction Project – Hurt Feelings And Emotional Distress Aren’t Recoverable

By: Mike Bosse

In TLIG Maintenance Services v. Fialkowski, decided late last year, the Court of Civil Appeals in Alabama confirmed that construction breach of contract claims, and mental anguish and suffering are not recoverable damages even if they are all real and sincerely held feelings as the result of a bad construction project. This is the law in virtually all jurisdictions and is a reminder that no matter how upset one may be over a construction project, the resulting emotional distress is not likely to be recoverable in a court case.

In this Alabama case, the homeowner purchased her house in Huntsville, Alabama in May of 2007.  After saving a sufficient amount of money over a course of several years to begin some renovation projects, she met with one of her co-worker’s boyfriend who was a contractor. Work on the project began in April of 2013 and proceeded over a period of months, although construction was not occurring every day and the project became stalled. When issues of quality arose, the contractor told the homeowner that he needed more money to complete the work and he was unable to explain where the previous construction payments had gone.

In the subsequent court case and trial, the homeowner was awarded $27,176 in compensatory damages and $15,000 for mental anguish and emotional distress. On appeal, the contractor did not challenge the compensatory damages, but the court concluded that the mental anguish damages were not recoverable. The homeowner testified that as a result of having to pay added monies to fix the project, she had been worried and unable to sleep at night. The court concluded that there were no facts that determine that the house was inhabitable and no evidence that the homeowner’s health or safety was endangered by the defective work. The court said that “although we sympathize with Fialkowski on the frustration, worry, and the added expense that she experienced in this case, we cannot say that they exceed the frustration, worry, and added expense in any given breach of contract case in which damages for mental suffering are not recoverable.” Thus, the court held to the long-standing rule that in a breach of contract case, emotional damages, even if they are real and suffered, will not be recoverable as part of the damage award.