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Logo Icon CONSTRUCTION LAW: Public Contract Bidders Cannot Pursue Claims for Intentional Interference With Prospective Economic Advantage

Between 2009 and 2012, defendant outbid plaintiffs on 23 public works contracts to apply slurry seal coating on various roadways in Southern California counties. Plaintiffs jointly sued defendant in all of those counties for intentional interference with prospective economic advantage. In the action in Riverside County, plaintiffs alleged that defendant won six public contracts on which plaintiffs were the second lowest bidder. Plaintiffs allege that defendant submitted intentionally submitted deflated bids because it failed to pay prevailing wage and overtime compensation in connection with those contracts. Plaintiffs further alleged that they had relationships with the contracting entities and would have been the successful bidder but for defendant's conduct.

The trial court sustained defendant's demurrer to the cause of action without leave to amend. However, a divided Court of Appeal panel found plaintiffs' allegations sufficient and reversed the trial court's ruling. Defendant then appealed the matter to the California Supreme Court.

In Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., California Supreme Court Case No. S225398 (February 16, 2017), the California Supreme Court held that an unsuccessful bidder on a public contract cannot meet the pleading and proof elements necessary to prevail on an intentional interference with prospective economic advantage claim. Specifically, the Court considered whether the unsuccessful bidder can meet the requirements of showing an existing relationship with the public agency that contains the probability of an economic benefit to the plaintiff. The Court noted that public contracts are a "unique species of commercial dealings" in which public agencies generally retain a broad discretion to reject all bids. Because the bids were sealed and there were no post-submission negotiations, the public agency could give no preference to any bidder based upon past dealings. The public agency was required to accept the lowest responsive and responsible bid, if any bid was accepted.

The Court further reasoned that plaintiffs could not show an existing economic relationship with the public agency because of the uncertainty as to who would be the lowest bidder and whether the agency would reject all of the bids. The Court further noted that the criteria for responsible and responsive bidders made it speculative for plaintiffs to allege that they would have been awarded the contract but for defendant's illegal conduct.

Accordingly, the Court held that plaintiffs' allegations were insufficient and the demurrer was properly sustained.

The Court's decision in Roy Allan eliminates an unsuccessful bidder's challenge to a public contract award based upon the filing of a tort claim for intentional interference with prospective economic advantage. Thus, contractors who are bidding on public contracts must now only focus upon challenges to the successful bidder's responsiveness and responsibility when protesting the award of a public contract. When making such challenges, the protesting bidder should pay close attention to the awarding entity's bid protest procedures.