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

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. "Am I bugging you? I don't mean to bug ya." If what I wrote below is too much social philosophy for Indiana attorneys, just take ten this vacay to watch The Lego Movie with kiddies and sing along where appropriate: https://www.youtube.com/watch?v=etzMjoH0rJw

  2. I've got some free speech to share here about who is at work via the cat's paw of the ACLU stamping out Christian observances.... 2 Thessalonians chap 2: "And we also thank God continually because, when you received the word of God, which you heard from us, you accepted it not as a human word, but as it actually is, the word of God, which is indeed at work in you who believe. For you, brothers and sisters, became imitators of God’s churches in Judea, which are in Christ Jesus: You suffered from your own people the same things those churches suffered from the Jews who killed the Lord Jesus and the prophets and also drove us out. They displease God and are hostile to everyone in their effort to keep us from speaking to the Gentiles so that they may be saved. In this way they always heap up their sins to the limit. The wrath of God has come upon them at last."

  3. Did someone not tell people who have access to the Chevy Volts that it has a gas engine and will run just like a normal car? The batteries give the Volt approximately a 40 mile range, but after that the gas engine will propel the vehicle either directly through the transmission like any other car, or gas engine recharges the batteries depending on the conditions.

  4. Catholic, Lutheran, even the Baptists nuzzling the wolf! http://www.judicialwatch.org/press-room/press-releases/judicial-watch-documents-reveal-obama-hhs-paid-baptist-children-family-services-182129786-four-months-housing-illegal-alien-children/ YET where is the Progressivist outcry? Silent. I wonder why?

  5. Thank you, Honorable Ladies, and thank you, TIL, for this interesting interview. The most interesting question was the last one, which drew the least response. Could it be that NFP stamps are a threat to the very foundation of our common law American legal tradition, a throwback to the continental system that facilitated differing standards of justice? A throwback to Star Chamber’s protection of the landed gentry? If TIL ever again interviews this same panel, I would recommend inviting one known for voicing socio-legal dissent for the masses, maybe Welch, maybe Ogden, maybe our own John Smith? As demographics shift and our social cohesion precipitously drops, a consistent judicial core will become more and more important so that Justice and Equal Protection and Due Process are yet guiding stars. If those stars fall from our collective social horizon (and can they be seen even now through the haze of NFP opinions?) then what glue other than more NFP decisions and TRO’s and executive orders -- all backed by more and more lethally armed praetorians – will prop up our government institutions? And if and when we do arrive at such an end … will any then dare call that tyranny? Or will the cost of such dissent be too high to justify?

ADVERTISEMENT