ILNews

Renovation project raises questions on public bidding

Back to TopCommentsE-mailPrintBookmark and Share
Indiana Lawyer Focus

When the Evansville Vanderburgh School Corp. wanted to turn an old warehouse into an administration building, it utilized a financing method that kept the project from being publicly bid.

The school corporation contended its actions – selling the building to the EVSC Foundation, having the foundation do the renovation, then buying the building back – were within its authority and within the bounds of the state law. The 2011 renovation was not a public project subject to public bidding law, according to the school corporation.

laurin Laurin

Eight contractors disagreed. This is a public work, the companies argued, paid with public funds making it subject to the statutes governing public bidding.

A recent decision by the Indiana Court of Appeals agreed with the contractors. However, the case, Alva Electric, Inc., Arc Construction Co., Inc., Danco Construction, Inc., Deig Brothers Lumber & Construction Co., Inc., et al. v. Evansville Vanderburgh School Corp. and EVSC Foundation, Inc., 82A01-1201-PL-2, highlights how a rise of public-private partnerships is creating confusion when determining what is a public project and what are public funds.

Indeed, in their brief to the Court of Appeals, the construction companies noted while other states have encountered projects that similarly avoid public bidding, no public entity in Indiana has tried to do this.

Sam Laurin, partner at Bose McKinney & Evans LLP, called this case fascinating. Neither he nor his firm is representing any of the parties in this matter.

In his practice, Laurin has represented schools and contractors. Oftentimes disagreements erupt in these public projects over how the process was handled, he said, but to have people arguing the work should have been put up for public bidding is pretty unusual.

The Court of Appeals pointed out the Indiana General Assembly has enacted two ways for school corporations to undertake large construction projects. Both processes, under the public work statute and through lease-purchase agreements, require opportunities for the public to learn about the work and raise questions.

Writing for the majority, Judge James Kirsch held the Evansville Vanderburgh School Corp. and the EVSC Foundation did not follow either of these legislative schemes.

“Instead, they entered into what they contend were six separate transactions to accomplish their goal of renovating the building with public money, yet evading public scrutiny and input,” Kirsch wrote. “School Corporation and Foundation cite to various parts of the Indiana Code to support their contention that each transaction was legal. The fact remains, however, that, notwithstanding the six contracts, this was one transaction – the renovation of a building owned and paid for by School Corporation using public funds.”

The Evansville matter boils down to how all the statutes are read, Laurin said. Intent is irrelevant. If public money is being used to finance a construction project, then it has to be publicly bid. If public funds are not being used in the project, then it does not matter if this financing method was employed to avoid the public bidding process.

Budget crunch

The decision to renovate the building on Walnut Street in Evansville was made for budgetary reasons, according to court documents. Faced with a $6.5 million reduction in annual funding, the school corporation found that consolidating the administrative offices into one location would bring a savings of $517,360 each year.

Court documents also note the school corporation did not have sufficient funds to complete the renovation project.

watt Watt

Representing the corporation, Patrick Shoulders, partner at Ziemer Stayman Weitzel & Shoulders LLP in Evansville, said following the traditional method of requesting bids that the Court of Appeals pointed to would have placed an added burden on taxpayers.

“If the school corporation had done the project in the manner the majority (of the Court of Appeals) prescribed, property taxes would have increased in Vanderburgh County,” Shoulders said.

The contractors dispute that.

Faegre Baker Daniels LLP partner Jon Laramore, one of the attorneys representing the construction companies, said the school corporation’s assertion about saving taxpayers money is impossible to verify because the project was not open for public bidding. The objective of the bidding process is to get the lowest cost and protect against corruption.

Both the school corporation and the foundation maintain the six transactions they engaged in to do this project were authorized by multiple Indiana statutes. According to the Court of Appeals opinion, the corporation selling the building as excess property is covered under I.C. 20-26-7-1 and I.C. 36-1-11-5.5; the foundation purchasing, owning, holding and improving the building is provided for in I.C. 23-17-4-2; and the corporation reacquiring the building from the foundation is allowed under I.C. 36-1-4-5.

Even as it granted summary judgment in favor of the school corporation and the foundation, the trial court conceded the transaction “may smack of ‘favoritism most foul’ or may not pass the ‘smell test.’” Yet, it concluded each individual transaction was “entirely legal and authorized by the statutes.”

Shoulders likewise maintained each step of the financing method was sanctioned by Indiana law, and he noted the dissenting opinion authored by Judge Ezra Friedlander takes the same view.

bidding“The majority opinion calling it one transaction seems to ignore the separate independent statutes,” Shoulders said.

Partnerships

The question of whether the project is public or private is coming to the courts as more and more public-private partnerships are formed for large-scale projects. A hallmark of these cases has been the inconsistent rulings by the courts.

Jennifer Watt, associate at Kroger Gardis & Regas LLP co-authored an article on this topic for the January 2008 issue of the “Surety Claims Institute Newsletter.” Two cases tried before the Minnesota Court of Appeals underscore how a court can be unpredictable in reaching a decision on the same basic public or private question.

In Judd Supply Co., Inc. v. Merchants & Manufacturers Ins. Co., 448 N.W.2d 895 (Minn. Ct App. 1989), a private project that had a large public financing component, the court analyzed the statutes regarding economic development and public works to conclude this was not a public work.

A few years later in Green Electric Systems, Inc. v. Metro. Airports Comm’n, 486 N.W. 2d (Minn. Ct. App. 1992), a project where the public entity shared revenues with the private company, the court ruled it was a public work. This time it did not review the statutes but rather came up with four factors gauging ownership and funding.

While the Evansville case is very specific, Watt thinks it will cause the entities in public-private partnerships to lean toward public bidding on their projects so as not to violate state statute.

That was a motivating factor for the contractors in deciding to press the Evansville case, Laramore said. They did not want the method the school corporation and foundation used to become a road map for other public entities.

Both Gary Dankert, partner at Ice Miller LLP, and Lisa Tanselle, staff attorney at the Indiana School Board Association, said many public agencies are coping with budgets constraints similar to the Evansville school corporation.

They are trying to do more with less and looking for ways to inject private capital into public projects, Dankert said. Still, as this case shows, these entities must be cautious when structuring their relationships.

Tanselle concurred. “I think the lesson of this case is we have to be careful with how creative we get,” she said. “We can’t be too creative even though we’ve got declining budgets.”•
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Do I have to hire an attorney to get co-guardianship of my brother? My father has guardianship and my older sister was his co-guardian until this Dec 2014 when she passed and my father was me to go on as the co-guardian, but funds are limit and we need to get this process taken care of quickly as our fathers health isn't the greatest. So please advise me if there is anyway to do this our self or if it requires a lawyer? Thank you

  2. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  3. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  4. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  5. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

ADVERTISEMENT