August 24, 2019

Colorado Court of Appeals: Construction Contract Undeniably for Public Works Project and Bond Required

The Colorado Court of Appeals issued its opinion in Tarco, Inc. v. Conifer Metropolitan District on Thursday, April 25, 2013.

Breach of Contract—Summary Judgment—CRS § 38-26-106.

In this breach of contract action, plaintiff Tarco, Inc., a construction contractor, appealed the district court’s grant of summary judgment for defendant Conifer Metropolitan District (CMD). The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

In 2005, Tarco and CMD entered into a series of contracts for construction projects related to the development of a shopping center. Tarco alleged that the work on two of the contracts was substantially complete and that CMD wrongfully withheld payment on them.

Tarco sued, based on nonpayment, and CMD counterclaimed, alleging material breach by Tarco. After two years of litigation, CMD moved for partial summary judgment, asserting that Tarco couldn’t recover under the contracts because it did not satisfy CRS § 38-26-106 (the bond statute). The district court granted the motion. Tarco did not dispute that it did not provide a bond, and the district court concluded that the bond statute barred recovery by contractors failing to post bond.

On appeal, Tarco argued that the court erred by granting summary judgment. Tarco contended that there was a genuine disputed issue of material fact as to whether the contracts at issue were for “public works” projects. If they were not, they were not subject to the bond statute. The Court of Appeals found there was no disputed issue that the projects were public works. The bond statute applies to “any building, road, bridge, viaduct, tunnel, excavation, or other public works for any . . . political subdivision of the state.” The Supreme Court has interpreted “public works” extremely broadly. The contracts at issue were for the construction of a highway overpass and infrastructure components around the shopping center, including sewers, fire hydrants, retaining walls, paving, and roadways. The Court found these clearly to be public works subject to the bond statute, noting that there was no disputed issue of material fact in this regard.

CMD asserted that the bond statute is a “nonclaim statute” that creates an absolute bar to recovery or destroys the claim for relief itself, thus precluding Tarco’s equitable claims of waiver and estoppel. The Court disagreed. Nonclaim statutes deprive a court of subject matter jurisdiction. The Colorado Governmental Immunity Act (CGIA) is a nonclaim statute. CRS § 15-12-803 in the Colorado Probate Code is another. They are rare. The bond claim statute merely provides that unless a bond is provided, “no claim in favor of the contractor arising under the contract shall be audited, allowed, or paid.” It is not a nonclaim statute, and therefore Tarco’s noncompliance does not preclude its assertion of equitable defenses.

Tarco claimed there was a genuine and material factual dispute as to whether CMD affirmatively waived the bond requirement. CMD countered that, as a special district, it did not possess the power to waive the requirement. The Court agreed that a special district does not possess the power to waive the requirement of the bond statute. CRS § 32-1-1001 provides the express common powers of special districts, but does not include the power to waive the bond requirement. The Court will not imply such a power. Therefore, there was no genuine issue of material fact as to whether CMD waived its rights under the bond statute, because it could not.

The Court concluded that there was such an issue of material fact as to whether the doctrine of equitable estoppel applied to CMD’s conduct. A party asserting equitable estoppel must establish that the party to be estopped knew the facts and either intended the conduct to be acted on or so acted that the party asserting estoppel must have been ignorant of the true facts, and the party asserting estoppel must have reasonably relied on the other party’s conduct with resulting injury. Based on the evidence presented, the Court concluded that Tarco had demonstrated a genuine issue of material fact as to whether the foregoing facts were established. Therefore, CMD was equitably estopped by its conduct from asserting the bond statute as a defense to Tarco’s contract claims. The judgment was reversed as to the determination that the bond statute is a nonclaim statute and as to the dismissal of Tarco’s equitable estoppel claim, and the case was remanded for further proceedings.

Summary and full case available here.

HB 13-1292: Making Multiple Changes to Contracting Requirements for State and Local Government Agencies

On April 2, 2013, Rep. Pete Lee and Sen. Andy Kerr introduced HB 13-1292 – Concerning Modifications to Procurement Requirements for Government Contracts Related to United States Domestic Employment. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Colorado hiring on public works projects. Current law requires a contractor to use at least 80 percent Colorado labor for any public works contract that is financed in whole or in part by state, county, school district, or municipal moneys (Colorado labor requirement). Any violation of the Colorado labor requirement is currently a misdemeanor punishable by fine, imprisonment in county jail, or both. Current law does not specifically require any state entity to enforce the Colorado labor requirement.

As introduced the bill repeals the existing criminal penalties and directs the department of labor and employment (CDLE) to enforce the Colorado labor requirement. In connection with its enforcement duties, CDLE is required to receive complaints about potential violations of the Colorado labor requirement, investigate such complaints, and impose fines for violations.

If a contractor has violated the Colorado labor requirements multiple times, the executive director of CDLE may, in his or her discretion, initiate proceedings to debar the contractor. The general assembly is required to appropriate any revenue from the fines collected by CDLE to CDLE to be used for its enforcement of the Colorado labor requirements.

The bill specifies that the Colorado labor requirement applies to each construction phase of the public works project separately. The governmental body financing a public works project may waive the Colorado labor requirement for a specific type or class of labor for a construction phase of a public works project if there is reasonable evidence to demonstrate insufficient Colorado labor in a specific type or class of labor to perform the work of that construction phase of the project.

Compliance with the requirements of the Colorado labor requirement will be calculated on the total taxable wages and fringe benefits, minus any per diem payments, paid to workers employed directly on the site of the project and who satisfy the definition of Colorado labor.

Nonresident bidder reciprocity. Colorado is one of many states that requires reciprocal treatment for a non-resident bidder who is from a state that offers a preference for resident bidders of that state (non-resident bidder reciprocity). Current law does not require any state entity to enforce the nonresident bidder reciprocity requirements.

The bill clarifies the current nonresident bidder reciprocity law by specifying that in any bidding process for public works in which a bid is received from a nonresident bidder who is from a state that provides a percentage bidding preference, a comparable percentage disadvantage shall be applied to the bid of that bidder.

The department of personnel (DPA) is required to determine which states provide a bidding preference on public works contracts for their resident bidders and to submit a report to the general assembly that includes the list as well as recommendations for the implementation and enforcement of the nonresident bidder reciprocity law. In addition, the bill requires that any request for proposals issued by a state agency or political subdivision of the state include notice of Colorado’s nonresident bidder reciprocity law.

Competitive sealed best value bidding for construction contracts for public projects. Currently, construction contracts for public projects are awarded through competitive sealed bidding. The bill creates a competitive sealed best value bidding process and authorizes construction contracts to be awarded either through the existing competitive sealed bidding process or the new competitive sealed best value bidding process.

The bill requires a contract under competitive sealed best value bidding to be solicited through an invitation for bids that identifies the evaluation factors upon which the award shall be based. The bill specifies certain evaluation factors to be included in the bids.

A contract shall be awarded to the bidder whose bid is determined in writing to be the most advantageous to the state and that represents the best overall value to the state, taking into consideration the price and other evaluation factors set forth in the invitation for bids.

The bill requires the executive director of a governmental agency or the president of an institution of higher education (institution), as applicable, that enters into a construction contract for a public project to disclose to the public the agency or institution’s rationale for selecting the competitive sealed bidding process, the competitive sealed best value bidding process, or the integrated project delivery process, which also currently exists in law, as applicable. The agency or institution is required to post the disclosure on its web site.

Disclosure of outsourcing contract duties by vendor. Current law requires any prospective vendor for a contract from the state for services to disclose where services will be performed under the contract, including subcontracts, and whether any services under the contract or subcontract are anticipated to be performed outside the state or the U.S. The bill modifies current law by requiring prospective vendors to make this disclosure for subcontracts only.

In addition, the bill requires each contract entered into or renewed by a governmental body to contain a clause that requires the vendor to provide written notice to the governmental body if the vendor decides, after the contract is awarded, to subcontract any part of the contract to a subcontractor that will perform such duties in a location outside the state or the U.S.

The notice must include the specific duties that will be outsourced and the reason for the outsourcing. The governmental body is required to provide the written notice from a vendor to the director of DPA (director), and the director is required to post the notice on the official web site of DPA. If a vendor fails to notify the governmental body that is a party to the contract of outsourcing, the governmental body may, in its discretion, void the contract.

Outsourcing of certain contract duties by governmental body prohibited. The bill prohibits a governmental body from awarding a contract to a vendor outside the U.S. that will perform the direct labor necessitated by the contract outside the U.S. Direct labor includes labor that is required to be performed under a contract when the governmental body has a direct business relationship with the vendor performing the contract. It does not include computer systems, including hardware and software that is not specifically designed pursuant to the terms of the contract.

Each prospective vendor that submits a bid or proposal to a governmental body is required to certify that the direct labor covered by the bid or proposal will be performed in the U.S.

A governmental body may submit to the director written request for a waiver of the direct labor requirements. A governmental body shall include in its written waiver request findings of one or more specified circumstances to justify the need for a waiver.

The director is required to post information regarding any waiver allowed on the official web site of DPA, periodically analyze the direct labor services for which waivers are granted to a governmental body, and work with governmental bodies to facilitate the performance of such outsourced direct labor services within the U.S. for future contracts.

Disclose use of foreign-produced iron, steel, and related manufactured goods. The bill requires the contractor for any public buildings or public works project that is funded in whole or in part by state moneys and that costs more than $500,000 to disclose to DPA the five most costly goods incorporated into the contract.

The bill specifies that, in the case of an iron or steel product, all manufacturing must take place in the U.S., and in the case of a manufactured good, a good will be considered manufactured in the U.S. if all of the manufacturing processes for the final product take place in the U.S. In order for a manufactured good to be considered subject to disclosure, the product must be manufactured predominantly of steel or iron.

DPA is required to develop and maintain a list of the 5 most costly goods that are incorporated into each contract and that are not produced in the U.S., as disclosed to DPA.

Public utilities commission consideration of best value metrics in request for proposal process. Currently, the public utilities commission is required to consider certain best value employment metrics when it evaluates electric resource acquisitions. The bill requires that the public utilities commission also consider the best value employment metrics in connection with requests for a certificate of convenience and necessity for construction or expansion of generating facilities, including pollution control or fuel conservation upgrades and conversion of existing coal-fired plants to natural gas plants.

The bill has been approved by the State, Veterans, & Military Affairs, Finance, and Appropriations Committees; it is scheduled for 2nd Reading on the floor of the House.

Since this summary, the bill passed Second Reading with amendments, passed Third Reading, and was assigned to the Finance Committee in the Senate.