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DTCI: Public works statute tested

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By Chris Drewry
drewry-christopher.jpg Drewry

Publicly funded construction projects in Indiana have long been governed by statutes that set forth the procedures by which certain public entities must select the contractors performing the work. The purpose of these statutes is to “safeguard the public against fraud, favoritism, graft, extravagance, improvidence and corruption, and to insure honest competition for the best work or supplies at the lowest reasonable cost.” Angel v. Behnke, 337 N.E.2d 503, 509 (Ind. App. 1975). These design-bid-build statutes generally provide that public construction contracts exceeding certain threshold dollar amounts must be awarded through a competitive bidding process.

At the local government level, public works projects procured by any political subdivision or agency are governed by Title 36 of the Indiana Code, specifically Ind. Code § 36-1-12-1 et seq. This is in contrast to state projects procured by the Indiana Department of Administration under Title 4, other state projects procured under Title 5, or projects procured by the Indiana Department of Transportation under Title 8. The Title 36 public works statute provides that “all public work performed or contracted for by … political subdivisions … and … their agencies” shall be subject to specific bidding procedures and must comply with numerous regulations and specifications. Ind. Code § 36-1-12-1(a).

For instance, contracts for the construction or renovation of school buildings typically must comply with the competitive bidding requirements applicable to public works construction contracts. See Brooks v. Gariup Constr. Co., 722 N.E.2d 834, 839 (Ind. App. 1999), trans. denied; Sch. City of Gary, Ind. v. Cont’l Elec. Co., 273 N.E.2d 293, 296 (Ind. App. 1971). See also 2008 Ind. Op. Att’y Gen. No. 5 (2008) (citing Ind. Code §§ 36-1-2-10 and -13) (“School corporations are political subdivisions for purposes of the public work statute.”)

The types of covered public works projects include the construction, reconstruction, alteration or renovation of a public building, airport facility or other structure that is paid for out of a public fund or out of a special assessment. It also includes the construction, alteration or repair of a highway, street, alley, bridge, sewer, drain or other improvement that is paid for out of a public fund or out of a special assessment. The Title 36 public works statute applies regardless of whether the property upon which the project is to be constructed is actually owned or leased by the political subdivision or agency. Ind. Code § 36-1-12-1.

The Alva Electric case

The coverage and application of the Title 36 public works statute came into question in the very recent case of Alva Electric, Inc. v. Evansville-Vanderburgh School Corp., 2014 WL 1716563 (Ind. 2014). In that case, the Indiana Supreme Court was tasked with deciding whether the specific procedure employed by the Evansville-Vanderburgh School Corporation to renovate one of its buildings violated the Title 36 public works statute requiring competitive bidding.

In 2010, EVSC decided to convert a former warehouse building into administrative offices. However, EVSC subsequently determined that it had insufficient funds to complete or publicly bid the renovations. Thereafter, EVSC contacted contractor Industrial Contractors Inc. about renovating the building and accepting payment for the renovations over time. Specifically, EVSC proposed a plan whereby it would convey the building to a private nonprofit entity (the “EVSC Foundation”) and that entity would then contract with ICI for the renovations without following the competitive bid process.

In early 2011, a group of Evansville-based contractors initiated a lawsuit against EVSC and the EVSC Foundation seeking a declaratory judgment and injunctive relief for an alleged violation of the public bidding statutes under Title 36.

[For purposes of this article, an analysis of the additional claim relating to an alleged violation of Indiana’s Antitrust Act and the court’s discussion of it have been omitted.]

The contractors moved for summary judgment, requesting the trial court declare, among other things, that the project violated public bidding laws, and asking the trial court to void all contracts constituting the transaction and to enjoin any further expenditure of public funds on the project. EVSC and the EVSC Foundation likewise moved for summary judgment to uphold their procurement plan. Following a hearing, the trial court denied the contractors’ motion for summary judgment and determined that the transactions did not constitute a violation of Title 36. The trial court concluded that (1) the EVSC Foundation was the title holder of the building at the time of the renovations, (2) the EVSC Foundation was signatory on the construction agreement with ICI, and (3) payment to ICI, although originating from EVSC, was made from the EVSC Foundation’s bank account.

On appeal, the Indiana Court of Appeals concluded the project did indeed violate the public bidding laws under Title 36 and therefore reversed the trial court’s judgment. See Alva Elec., Inc. v. Evansville Vanderburgh Sch. Corp., 984 N.E.2d 668 (Ind. App. 2013). EVSC and the EVSC Foundation subsequently sought transfer to the Indiana Supreme Court. However, on transfer, the Supreme Court summarily affirmed the Court of Appeals’ opinion holding that the scheme used by EVSC and the EVSC Foundation violated the state’s public building statutes under Title 36.

In so doing, the Indiana Supreme Court clarified that its holding should not be construed to mean that all (or even most) contracts entered into by private entities like the EVSC Foundation for the ultimate benefit of and in cooperation with a political subdivision like EVSC necessarily run afoul of the public work statutes. Rather, in this particular case, the EVSC Foundation’s actions related to the project were clearly such that it was acting on behalf of EVSC, given EVSC’s heavy involvement in and control over the renovation project from its inception to its completion. As such, the Supreme Court affirmed the Court of Appeals holding on the public bidding violation and reversed the trial court’s grant of summary judgment.

Overview of the competitive bidding process

With the Indiana Supreme Court’s decision in Alva Electric, the state’s public works statute and competitive bidding laws were upheld. Pursuant to Section 4 of the Title 36 public works statutes, any local government project (with some exceptions) in excess of $150,000 is going to be covered by the statute. Ind. Code § 36-1-12-4(a)(1). On those projects, the political subdivision or agency must comply with certain procedures.

These procedures are set forth in Section 4 of the statute. To start, the political subdivision or agency must prepare general plans and specifications describing the kind of public work required, while avoiding specifications that might unduly limit competition, file such plans and specifications, and then publish notice in accordance with Indiana Code § 5-3-1 calling for sealed proposals for the public work needed. Ind. Code § 36-1-12-4(b)(1) through (3). The notice must specify the place where the plans and specifications are on file and the date fixed for receiving bids. Ind. Code § 36-1-12-4(b)(4). Depending on the size of the public works project, the period between the date of first publication and the date of receiving bids is limited to no more than either six weeks (if the estimated cost of the project is less than $25 million) or 10 weeks (if project cost is greater than $25 million). Ind. Code § 36-1-12-4(b)(5).

With respect to the requirements of bidders on a given project, the political subdivision or agency must require the submission of a financial statement, a statement of experience, a proposed plan or plans for performing the public work, and the equipment that the bidder has available for the performance of the public work. Ind. Code § 36-1-12-4(b)(6). In addition, the political subdivision or agency cannot require a bidder to submit a bid before the meeting at which bids are to be received. Ind. Code § 36-1-12-4(b)(7). The meeting for receiving the bids must be open to the public, and all bids received shall be opened publicly and read aloud at the time and place designated and not before. Id.

Alternatively, small projects undertaken by a political subdivision or one of its agencies that are estimated to cost less than $150,000 may be constructed by the subdivision’s own employees so long as the subdivision regularly employs persons capable of performing such work. Similarly, if a project is estimated to cost less than $100,000 and is for a local board of aviation or is estimated to cost less than $50,000 and is for a municipal or county hospital, the project may be completed using their own work forces or by following abbreviated procedures for the award. Ind. Code § 36-1-12-3.

Awarding the contract

Under the Title 36 competitive bidding provisions, following the submission of bids, the political subdivision or agency is required to award the contract for public work or improvements to the lowest responsible and responsive bidder. Ind. Code § 36-1-12-4(b)(8). Alternatively, the political subdivision or agency can reject all bids submitted. Id. If the political subdivision or agency awards the contract to a bidder other than the lowest bidder, the board must state in the minutes or memoranda, at the time the award is made, the factors used to determine which bidder is the lowest responsible and responsive bidder and to justify the award. Ind. Code § 36-1-12-4(b)(9); Koester Contracting, Inc. v. Board of Com’rs of Warrick County, 619 N.E.2d 587 (Ind. Ct. App. 1993).

For a bidder to be considered for award of the contract, its bid must be responsive. This is the initial determination by the reviewing owner. In determining whether a bidder is responsive, the political subdivision may consider whether the bidder has submitted a bid or quote that conforms in all material respects to the specifications, whether the bidder has submitted a bid that complies specifically with the invitation to bid and the instructions to bidders, and whether the bidder has complied with all applicable statutes, ordinances, resolutions or rules pertaining to the award of a public contract. Ind. Code § 36-1-12-4(b)(10).

Once the pool of responsive bidders is determined, the next determination is which one is lowest. This is a price-driven analysis. Once the lowest responsive bidder is determined, the third criteria for award must be met. This is whether that bidder is a responsible bidder. In determining whether a bidder is responsible, the political subdivision or agency may consider the ability and capacity of the bidder to perform the work; the integrity, character and reputation of the bidder; and the competence and experience of the bidder. Ind. Code § 36-1-12-4(b)(11). It is worth noting that there are no degrees of responsibility – it is a threshold litmus test. A bidder is either responsible or it is not. If it is determined to be responsible and is the lowest responsive bidder, it should receive the award. The fact that the awarding agency or owner believes that another bidder may be better or more responsible does not change this result.

In addition, the bidder is required to submit an affidavit that the bidder has not entered into a combination or agreement relative to the price to be bid by a person, to prevent a person from bidding or to induce a person to refrain from bidding. Ind. Code § 36-1-12-4(b)(12). The affidavit must also state that the bidder’s bid was made without reference to any other bid. Id.

Also, every bidder must also submit bid security in an amount of not more than 10 percent of the bid amount. Ind. Code § 36-1-12-4.5. In addition, the successful bidder must post a payment bond (see Ind. Code § 36-1-12-13.1) and performance bond (see Ind. Code § 36-1-12-14) on projects of value greater than $200,000. Contracts greater than $200,000 must also contain provisions for a retainage escrow. Ind. Code § 36-1-12-14.

Finally, within 60 days after bids are opened, the political subdivision must award and enter into a contract and provide the successful bidder with notice to proceed. Ind. Code § 36-1-12-6. However, if the project is to be financed through general obligation bonds, this timeframe is extended to 90 days. If the project is financed through revenue bonds, the project must be awarded, a contract must be entered into and a notice to proceed issued within 150 days after bids are opened. Within 15 days before the expiration of any of these dates, the successful contractor may notify the subdivision of its intent to withdraw its bid or extend the time for the award. Id.

Conclusion

Indiana’s competitive bidding statutes are an integral part of public works projects, be it Title 36 local public works or one of the other public works related statutes (under Titles 4, 5, or 8). There are a number of requirements that protect the public and satisfy the purpose for which these statutes were adopted, that being to “safeguard the public against fraud, favoritism, graft, extravagance, improvidence and corruption, and to insure honest competition for the best work or supplies at the lowest reasonable cost.” Behnke, 337 N.E.2d at 509. The Indiana Supreme Court’s recent decision in Alva Electric reinforces the stability of the public works statutes and ensures that government-funded construction projects will continue to be protected by the statutory competitive bidding requirements. In a construction environment in which alternative delivery systems are being considered, such as design-build, multi-prime construction management through an agency construction-manager or the newly enacted construction-manager-at-risk delivery model, the judicial reaffirmation of the ongoing viability of the traditional design-bid-build project delivery process is well timed.•

Chris Drewry is a partner with the construction law firm of Drewry Simmons Vornehm LLP, with offices in Carmel, Indianapolis and Merrillville, Ind. Chris is the chair of DTCI’s Construction Law Section and focuses his practice on construction law and litigation as well as labor and employment law. The opinions expressed in this article are those of the author.

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  1. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  4. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

  5. Brian W, I fear I have not been sufficiently entertaining to bring you back. Here is a real laugh track that just might do it. When one is grabbed by the scruff of his worldview and made to choose between his Confession and his profession ... it is a not a hard choice, given the Confession affects eternity. But then comes the hardship in this world. Imagine how often I hear taunts like yours ... "what, you could not even pass character and fitness after they let you sit and pass their bar exam ... dude, there must really be something wrong with you!" Even one of the Bishop's foremost courtiers said that, when explaining why the RCC refused to stand with me. You want entertaining? How about watching your personal economy crash while you have a wife and five kids to clothe and feed. And you can't because you cannot work, because those demanding you cast off your Confession to be allowed into "their" profession have all the control. And you know that they are wrong, dead wrong, and that even the professional code itself allows your Faithful stand, to wit: "A lawyer may refuse to comply with an obligation imposed by law upon a good faith belief that no valid obligation exists. The provisions of Rule 1.2(d) concerning a good faith challenge to the validity, scope, meaning or application of the law apply to challenges of legal regulation of the practice of law." YET YOU ARE A NONPERSON before the BLE, and will not be heard on your rights or their duties to the law -- you are under tyranny, not law. And so they win in this world, you lose, and you lose even your belief in the rule of law, and demoralization joins poverty, and very troubling thoughts impeaching self worth rush in to fill the void where your career once lived. Thoughts you did not think possible. You find yourself a failure ... in your profession, in your support of your family, in the mirror. And there is little to keep hope alive, because tyranny rules so firmly and none, not the church, not the NGO's, none truly give a damn. Not even a new court, who pay such lip service to justice and ancient role models. You want entertainment? Well if you are on the side of the courtiers running the system that has crushed me, as I suspect you are, then Orwell must be a real riot: "There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always — do not forget this, Winston — always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face — forever." I never thought they would win, I always thought that at the end of the day the rule of law would prevail. Yes, the rule of man's law. Instead power prevailed, so many rules broken by the system to break me. It took years, but, finally, the end that Dr Bowman predicted is upon me, the end that she advised the BLE to take to break me. Ironically, that is the one thing in her far left of center report that the BLE (after stamping, in red ink, on Jan 22) is uninterested in, as that the BLE and ADA office that used the federal statute as a sword now refuses to even dialogue on her dire prediction as to my fate. "C'est la vie" Entertaining enough for you, status quo defender?

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