The Construction Advantage
In this new edition of The Construction Advantage, Mike Bosse reports on asbestos liabilities, Asha Echeverria reviews a forum selection clause for subcontractors in California, and Mike Hodgins covers when “may” trumps “shall” in public bid proposals.
The End is Not Really Near for Asbestos Liabilities in the United States
A case in California, decided in mid-January, is a reminder to all of us that asbestos still plays a heavy role in the construction industry. In Hernandezcueva v. E. F. Brady Company, a California Court of Appeals concluded that a drywall company could be liable for its use of asbestos containing drywall and joint compound even though it did not manufacture the asbestos-containing products. The company was simply within the stream of commerce, meaning that it purchased the products from suppliers and used them in construction.
The E.F. Brady case concerned construction for a project for the Fluor Corporation in the early 1970s. E.F. Brady submitted a bid to install fireproofing, metal stud framing, and drywall and selected the drywall and joint compound materials based upon the general contractor’s plans and specifications. Brady installed drywall made by Kaiser Gypsum and used Kaiser Gypsum and Hamilton joint compound over the course of the construction project. E.F. Brady also became aware in 1972 or 1973 regarding the potential hazards of the use asbestos in construction.
The plaintiff was born in 1968 and worked at the Fluor Corporation as a janitor from 1992 to 1995, well after the construction was completed. During the time of his employment, however, areas of the complex were remodeled including walls that were continuously under repair that had been part of the original construction project in the early 1970s. The plaintiff had duties which included cleaning up the drywall debris and rubbish from the renovation.
In 2011, Mr. Hernandezcueva was diagnosed as suffering from mesothelioma, a disease that can be caused by asbestos, which affects the outside lining of the lungs and is almost always fatal. Although the court concluded that parties involved in the passive transfer of a defective component of a product to an ultimate consumer usually are not subject to strict products liability, the California court held that the drywall subcontractor could be liable because its material costs constituted 25% of its total bid (versus labor) and E.F. Brady had regularly used these products in its operation. The court held that “that ongoing relationship was sufficient to command the personal attention of Kaiser and Hamilton representatives to E. F.’s concerns regarding their products.” Meaning, E.F. Brady was in a position that it could have had leverage over its suppliers as to what they were using as component parts in their products, and thus, the court reasoned, there was a basis to find E.F. Brady liable to the plaintiff. The court surely was also influenced by the fact that E.F. Brady had also discovered in the early 1970s the potential hazards surrounding the use of asbestos in construction.
This case is an important reminder that asbestos is still heavily prevalent in construction projects that were constructed literally decades ago, and that even now companies are still being sued in connection with those projects. Although we prefer to think of asbestos as something existing in the past, the reality is that we that we likely are nowhere near the end of the story regarding the use of asbestos in our history.
California Expands Forum Selection Knock Out
Under California law, Cal. Civ. Proc. Code § 410.42, out-of-state contractors are precluded from requiring California subcontractors to litigate certain contract disputes outside of California in the contractor’s home state. The law renders “void and unenforceable” a forum selection clause between a contractor and a subcontractor, with principal offices in California, if the related public or private construction was in California. In Vita Planning & Landscape Architecture, Inc. v. HKS Architects, Inc., 240 Cal. App. 4th 763 (2015), the California court defined “subcontractor” to mean an entity that was “awarded a portion” of the principal contract that did not have a direct contractual relationship with the owner. Based on this definition, the Court ruled that not only construction contractors but also design entity, Vita Planning & Landscape Architecture, Inc., served as a “subcontractor,” as defined under the statute, on the luxury hotel project in Mammoth Lake, California. Therefore, the exclusive forum selection clause requiring litigation in Texas was void and unenforceable under California law and the matter would proceed in California court.
When “May” Trumps “Shall” in Public Bid Instructions
We all know it is important to follow the instructions to bidders in public bid proposals, or risk the rejection of a competitive bid. A case from Alaska demonstrates when “may” has greater impact than the word “shall” in the context of a public bid dispute.
Silver Bow Construction v. State of Alaska involved bidding on a project to perform exterior renovations to the Governor’s residence in Juneau. The bid instructions included language that:
“The maximum number of attached pages… for Criteria Responses shall not exceed: 10 pages.” (emphasis added).
The same paragraph of the instructions also warned that:
“Criteria Responses which exceed the maximum page limit or otherwise do not meet requirements stated herein, may result in disqualification.” (emphasis added).
Four companies submitted bids- Two complied with the page limits, and two exceeded the page limits. The bid was awarded to the company that most exceeded the page limit, with a 15 page response. After the bid was accepted, one company that complied with the seemingly mandatory page limit appealed the decision. The Superior Court and the Supreme Court of Alaska both found that the contract was properly awarded because the 15 page response did not create a “substantial advantage” to the successful bidder that had the effect of a restriction on competition.
An obvious answer, and one that was addressed by the Court, was the rationale that the use of the word “may” gave the Division of General Services the discretion to award the contract to Alaska Commercial Contractors, even though the page limit was mandatory. Such discretion is frequently relied upon by public owners. However, a careful analysis of the other factors, as performed by the Division and the Courts, shows that it would not be wise to rely upon that discretion alone. First, each of the four bidders had some deficiency in their bids- whether excess pages or unqualified subcontractors- that could have disqualified the bids. That put all bidders on a level playing field. Also, despite the additional pages, a word count on the responses showed that Alaska Commercial’s document contained 5,773 words, whereas the “shorter” proposal from Silver Bow contained 6,226 words. The greater number of pages alone did not provide more substance. Further, Alaska Commercial scored higher on all technical criterion, and was rated the best bid overall for the goals of the project.
The lesson: Even if the contractor may rely upon a public entity’s discretion to accept or reject all bids, it is still the substance of those bids that wins the award.
On April 30, 2016, Asha Echeverria is speaking at the ABA Forum on Construction Law 2016 Annual Meeting held in Nashville, TN. She is on a panel with Forum peers sharing personal experiences from a unique perspective.