An Alternative to Bid Protests – California Court Allows Second Low Bidder to Sue Low Bidder Directly

In Roy Allan Slurry Seal, et al. v American Asphalt South, Inc. (2/20/2015), the court held that if a low bidder is only able to secure the bid by paying its workers less than the required prevailing wage, then second low bidder is entitled to bring a direct law suit against the low bidder.

The broader facts are as follows. From 2009 to 2012, American Asphalt outbid Roy Allan Slurry Seal and Doug Martin Contractor on 23 public works projects valued at more than $14.6 million. The disappointed contractors, Allan and Martin, later jointly sued American Asphalt, contending that they would have been the low bidders on those projects if American Asphalt’s bid had included labor costs based on the statutorily required prevailing wage. American moved to dismiss the claims, arguing that that Allan and Martin did not have the required existing relationship and reasonable probability of being awarded the contracts to show intentional interference with prospective economic advantage. After various conflicting lower court rulings on the issue, the matter was eventually presented to the California Court of Appeals, whichdenied the motions, stating:

The second-place bidder on a public works contract [may] state a cause of action for intentional interference with prospective economic advantage against the winning bidder if the winner was only able to obtain lowest bidder status by illegally paying its workers less than the prevailing wage... if the plaintiff alleges it was the second lowest bidder and therefore would have otherwise been awarded the contract, because that fact gives rise to a relationship with the public agency that made plaintiff’s award of the contract reasonably probable.

The usual course of action in a case such as this would be for the second low bidder to file a bid-protest with the awarding authority, or to challenge any subsequent bid based upon such conduct. However, this carries strong implications as the same principle could allow a second low bidder to sue the low bidder directly any time that it can show that that a low bidder knowingly used cut corners to secure the bid. For example, contractors who commit wage-hour violations may be subject to challenge from the second low bidder, contending that they carried a lower labor number than appropriate in their bid. If the second low bidder can show that the difference allowed the winning contractor to secure the bid, the contractor may be subject to significant liabilities.