The Commonwealth Court recently held that a Project Labor Agreement (PLA) required by PennDOT violated competitive bidding laws codified in the Commonwealth Procurement Code, 62 Pa.C.S.A. §512(g). Allen Myers, L.P. v. Department of Transportation, No. 314 C.D. 2018 (Pa.Cmwlth. January 11, 2019)(en banc). Although the facts which gave rise to the dispute are unusual, the decision is significant because it demonstrates the Court’s willingness to question the justifications relied on by PennDOT (and presumably other agencies) in support of mandating PLAs.
Allen Myers, L.P., an open shop contractor, had recently completed (early and under budget) the first phase of a PennDOT project for improvements on Markley Street, State Route 202 in Montgomery County. For phase 2, PennDOT mandated that the successful contractor enter into a PLA with the Building and Construction Trades Council of Philadelphia and Vicinity, which represented 11 local construction unions. The PLA would have required the successful contractor to hire its entire workforce of tradesmen pursuant to the hiring practices set forth in the labor agreements of each union, but did not require the unions to accept as members the employees of any contractor that bid on the project. Further, there was an exception to the hiring requirement for contractors whose employees were represented by the United Steel Workers (USW): those contractors did not have to hire from the local unions and could employ their own, USW-represented employees.
Allen Myers filed a bid protest under the Procurement Code, challenging the PLA requirement on three grounds: 1) that the PLA was discriminatory because it effectively precluded non-union contractors from bidding and unduly favored contractors affiliated with the USW; 2) the Keystone Report, which PennDOT had relied on as its rationale for including the PLA requirement in the project, was invalid because it did not use objective data and was inherently biased; and 3) that the use of the PLA violated 404.1 of the State Highway Law, 36 P.S. 670-404.1, because a bidder’s union affiliation is not among the statutory criteria for determining a responsible bidder on a highway project. The Secretary of Transportation dismissed Allen Myers’ protest, which then appealed to Commonwealth Court.
The Court began its analysis by reiterating the principles behind competitive bidding statutes: to eliminate fraud and favoritism and to provide common standards to foster fair competition that places all bidders on an equal footing. When the procedures followed by an agency interfere with these principles the courts will intercede to restore them.
The Court then reviewed its jurisprudence addressing PLAs, concluding that it had found them to be appropriate where “time was of the essence” for project completion and where they permitted non-union contractors an equal opportunity to bid by allowing them to employ at least some of their own employees on the project. E.g., A. Pickett Construction, Inc. v. Luzerne County Convention Center Authority, 738 A.2d 20 (Pa.Cmwlth. 1999); Sossong v. Shaler Area School District, 945 A.2d 788 (Pa.Cmwlth. 2008); Glenn O. Hawbaker, Inc. v. Dep’t of General Services, No. 405 M.D. 2009 (Pa.Cmwlth. December 1, 2009).
In light of these factors, the Court determined that the PLA requirement on the Markley Street project violated competitive bidding requirements. It noted that the “exemption for United Steelworkers contractors tilts the playing field” because USW contractors can use their own employees while others must hire their workforce through the local unions. The Court rejected PennDOT’s argument that the PLA was available to all contractors as “lip service to the principle of competitive bidding” because “unlike contractors affiliated with the Local Unions or the United Steelworkers, the nonunion contractor that bids the Markley Street Project cannot use its own experienced workforce.” And because the PLA did not require the Local Unions to accept Allen Myers’ employees as members it “effectively precluded a nonunion contractor, such as Allan Myers, from participating in the bid solicitation.”
The Court next critically examined and rejected PennDOT’s reliance on an “expert’s report” as justification for the PLA. The Court stated that its PLA precedent “did not establish the broad principle that a PLA is appropriate so long as it contains the boilerplate language ‘time is of the essence’ and ‘nonunion contractors may bid’”:
The use of a PLA is permitted where the contracting agency can establish extraordinary circumstances, and PennDOT did not make that demonstration in this case. The Markely Street Project is a long term road improvement, the first phase of which was completed a year ahead of schedule. Nor is there any evidence that there is a labor shortage in the greater Philadelphia area. The Keystone Report’s recommendations did not justify the PLA because it did not identify any extraordinary circumstances surrounding the Markley Street Project that warranted its use.
(Emphasis supplied). Because of the PLA’s inherent unfairness to nonunion contractors and PennDOT’s failure to establish the “extraordinary circumstances” to justify its use, the Court held that the “PLA requirement in the bid solicitation for the Markley Street Project violates competitive bidding” and canceled the bid solicitation.
The most signifcant aspect of the Allen Myers case is the Court’s willingness to examine the justifications for the use of PLAs by contracting agencies. If Commonwealth Court really means that PLAs are warranted only in “extraordinary circumstances,” then the routine use of PLAs for government contracts in the Commonwealth is of dubious validity.
In A. Scott Enterprises Inc. v. City of Allentown, the Pennsylvania Supreme Court held that an award of statutory interest and attorneys’ fees under Section 3935 of the Procurement Code is not automatic even where a jury finds the public owner to have withheld payment in bad faith. Rather, the decision to issue such an award is within a judge’s discretion.
This case arose out of a contract awarded by the City of Allentown to A. Scott Enterprises (ASE) to build a public road in 2009. After the discovery of arsenic contamination on site threatened ASE with additional substantial costs to continue with the project, and attempts to negotiation a continuation of the project failed, ASE sued the city to recover its losses. At trial, ASE presented evidence Allentown was aware of possible contamination when it entered a contract with ASE, and failed to disclose this to ASE or incorporate terms regarding this possibility into the parties’ contract. At trial a jury found the city breached its contract and withheld payments in bad faith, awarding ASE $927,299. When ASE motioned the court for an award of statutory interest and attorneys’ fees, the trial court denied ASE’s request outright, without analysis, stating such an award was unwarranted because ASE’s evidence on damages was “conflicting.”
ASE then prevailed on appeal to the Pennsylvania Commonwealth Court, which had held in 2014 that a bad faith finding automatically entitled a contractor to recover its attorney’s fees and the 1% penalty, because, otherwise, “the finding of bad faith is a meaningless exercise with no consequence for the government agency found to have acted in bad faith.” But the Supreme Court ultimately disagreed.
In reversing the Commonwealth Court’s decision, the Supreme Court held “Section 3935 of the Procurement Code allows—but does not require—the court to order an award of a statutory penalty and attorney fees when payments have been withheld in bad faith. The court’s determinations in this regard are subject to review for an abuse of discretion.” The Court also noted “the instances where a finding of bad faith is deemed not to require a Section 3935 award at all presumably will be rare.”
Ultimately, in this case, the trial court’s reliance on the presence of “conflicting” evidence concerning the contractor’s damages alone was insufficient to support its denial of a Section 3935 award outright. For this reason, the case was remanded to the trial court for reconsideration of ASE’s original motion.
Therefore, although an award of attorneys’ fees and/or the 1% penalty under Section 3935 is not “automatic,” a court still must have a reasonable basis for denying such an award against an agency that withheld payment in bad faith. In A. Scott Enterprises, the Supreme Court declined to articulate a test for lower courts to apply in determining whether to enter an award under Section 3935; thus, trial courts are without guidance to determine whether attorneys’ fees and/or penalties must be assessed.
As a service to its clients and prospective clients, the law firm of Babst Calland will provide a complimentary “year in review” breakfast seminar which will cover an overview of 2013’s significant developments (both statutory and case-law) in the area of construction law. This year’s topics include: CASPA, mechanics’ liens, payment bonds, pipeline construction, the Procurement Code and Public-Private Partnerships (“P3”). The seminar will be held on Tuesday, February 18, 2014 at the Doubletree Hotel in Greentree, beginning with a continental breakfast at 7:30 a.m., followed by the seminar at 8:00 a.m. For more information, please email Matt Jameson. Speakers will include Kurt Fernsler, Matt Jameson, Rick Kalson, Dave White, Nino Legeza, and Dave McKenery.
A recent decision by the Pennsylvania Commonwealth Court casts doubt on the “safe harbor” provision of Pennsylvania’s Procurement Code. Section 3939(b) of the Commonwealth Procurement Code provides, “Once a contractor has made payment to the subcontractor according to the provisions of this chapter, future claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor which has been paid shall be barred.” The clear language of this section of the Procurement Code has provided a complete defense to contractors and their sureties on projects to which the Procurement Code applies when payment can be established. However, in Berks Products Corp. v. Arch Ins. Co., No. 1457 C.D. 2012, the plaintiff-claimant on the payment bond issued by defendant-surety claimed that the language of this particular bond was broad enough to effectively waive the protection of section 3939 of the Procurement Code. The Commonwealth Court found that while the “safe harbor” provisions of the Procurement Code are incorporated by operation of law into the bond, the bond language can waive the protection of that statute. In this case the operative language of the bond provided that the bond will remain “in force and effect” until such time as both the principal and any of its subcontractors makes full payment for any labor or materials supplied for the school project at issue. Based on that language the Commonwealth Court concluded that the principal and surety had waived the “safe harbor” protection of section 3939 of the Procurement Code.
In Pepco Energy Services, Inc. v. Department of General Services, 49 A.3d 488 (Pa. Commw. Ct. 2012), the Commonwealth Court held that the Department of General Services (“DGS”) properly declared Pepco Energy Services, Inc.’s (“Pepco”) proposal to DGS non-responsive based on certain qualifying statements contained in its bid. DGS had issued a Request for Proposal for a Design-Build Contractor for a Combined Heating, Cooling, and Power Plant project to serve the State Correctional Facility in Montgomery County (SCI-Phoenix). In its proposal, Pepco conditioned its proposal on having the opportunity to negotiate certain terms of the agreement with DGS prior to being selected. After seeking clarification of these qualifications from Pepco, DGS rejected Pepco’s proposal as being non-responsive. Pepco pursued a bid protest and ultimately appealed to the Commonwealth Court based on the language in section 513(g) of the Procurement Code, which states that the “responsible offeror” that submits the proposal that is determined “to be the most advantageous” to the owner “shall be selected for contract negotiation.” 62 Pa. C.S. § 513(g).
The Commonwealth Court agreed with DGS and ruled that Pepco’s attempt to negotiate terms of contract prior to selection rendered its proposal non-responsive. This decision represents another step by the Commonwealth Court to fairly implement the request for proposal process contemplated by the Procurement Code.