by David Chamberlin, Associate

Preparing a winning bid on a public work project is fraught with risk.  Bidding contractors strive to calculate the lowest viable cost to complete a project while straddling the pressure to produce competitive prices with the promise of profit. Play cautiously with the bid price and the likelihood of an award is lessened.  Push the envelope of what is feasible and the project may be fated a loss from the onset.

A successful reconciliation of these conflicting interests depends in no small measure on the quantity and quality of information available to the bidder.  In recognition of this common-sense observation, California law imposes certain disclosure obligations on the public owner.  For instance, the public owner is required to provide the bidder with accurate plans and specifications.  A public owner is also under a related obligation to disclose to the bidder “knowledge of difficulties to be encountered on [the] construction project.” While adopted in principle, the scope of an owner’s duty to disclose has received uneven treatment by California courts in practice.  Most recently, in Thompson Pacific Construction, Inc. v. City of Sunnyvale (2007) 155 Cal.App.4th 525, the Court of Appeals for the Sixth Appellate District suggested that a public owner has a duty to disclose material information only to the extent necessary to avoid rendering already communicated representations misleading to the bidder.  The message to contractors: the onus is on you to pry knowledge from an owner’s grasp that may be vital to your bid but is unrelated to the accuracy of the representations made in the owner-furnished bid documents.

Background: The Scope of A Public Owner’s Duty to Disclose Information To Bidders

Under California law, it is well-settled that a governmental entity may be held liable for furnishing inaccurate plans or specifications to a bidder.  The contractor is able to recover the extra expenses resulting from owner error based on the theory that the owner has breached an implied warranty of correctness.  Expounding on this implied warranty, the courts have further determined that liability may attach when a public entity misrepresents the nature of the work required of the contractor by failing to disclose information material to formulating a bid price.

In Warner Construction Corporation v. City of Los Angeles (1970) 2 Cal.3d 285, the California Supreme Court recognized three circumstances when liability for a breach of the implied warranty of correctness due to non-disclosure of information may arise: (i) the public entity makes representations to the bidder but fails to disclose facts that materially qualify the representations or otherwise render the representations misleading (also known as promulgating “half-truths”); (ii) the public owner fails to disclose material facts that are known only to the owner, and the owner knows these facts are not known nor reasonably discoverable by the bidder; or (iii) the owner actively conceals material facts from the bidder.

The court in Warner was cautious to explain that these ‘scenarios’ constitute distinct and independent sources of liability.  Thus, a public owner may be sued for issuing plans or specifications that tell only partial (and hence misleading) truths, for withholding material facts from the contractor of which the owner has exclusive knowledge (regardless of what has been represented by the owner in the bid documents), and finally for hiding information from the contractor.

Following Warner, the boundaries between these three potential causes of action became blurred.  For instance, in Weichmann Engineers v. State of California (1973) 31 Cal.App.3d 741, a contractor claimed that the state’s failure to attach certain subsurface test results to the bid documents violated the public owner’s implied disclosure obligations.  The Weichmann court rejected the contractor’s claim, explaining that a public entity is liable for the non-disclosure of bid information in one of two situations: (1) when the disclosure is necessary to ensure an affirmative representation, i.e., in the form of plans or specifications, is not misleading; or (2) when the information is intentionally concealed.  The court concluded that the state had not communicated any positive representations regarding the disputed test results, nor intentionally concealed the test data, and thus could not be held liable for neglecting to disclose the information.  The Weichmann court signaled to public works bidders that a cause of action premised merely on the non-disclosure of material information exclusively known to the owner, but unrelated to the accuracy of the owner’s plan and specifications, was unlikely to survive legal scrutiny.

In Jasper v. Foothill Junior College of Santa Clara County (1979) 91 Cal.App.3d 1, the court bolstered the Weichmann opinion, holding that “there must be an affirmative misrepresentation or concealment of material fact in the plans or specifications in order for the [bidder] to recover.” The Jasper court refused to encumber a public entity with an obligation to disclose information that, although potentially of substantial importance to the project at hand, failed to expound on specific representations volunteered by the owner.  The Jasper court explained that requiring a public owner to disclose information beyond that which is necessary to adequately explain the bid documents unduly shifts a contractor’s due diligence responsibilities onto the government.

The Welch Decision – A Potential Expansion Of A Public Owner’s Disclosure Obligations

The universe of a public owner’s disclosure obligations, as defined by Weichmann and Jasper, was challenged in Welch v. State of California (1983) 139 Cal.App.3d 546.  The Welch court considered a contractor’s claims for damages against a public owner stemming from the repair of a bridge.  In pertinent part, the Welch court considered whether the owner had a duty to disclose data of tide patterns collected during a different project that predicted the contractor’s ability to perform the repair work.  The Welch court reiterated that Warner had identified three independent causes of action against a public owner for failing to disclose information.  One such cause of action was the non-disclosure of relevant information available only to the owner that addressed issues outside the scope of the specific representations made in the owner plans and specifications.  Although the case was decided on other grounds, the Welch court noted that a public entity could be held liable for merely withholding material information inaccessible to the contractor even if the owner had otherwise communicated complete and accurate bid plans and specifications.

The import of this holding should not be underestimated.  The Welch court indicated that the state could be held liable for failing to disclose the tide data from a prior project regardless of whether the bid documents made a particular reference to such information, so long as that data was not reasonably available to the contractor and materially impacted bid considerations.  This opinion clearly butted up against the holdings of Weichmann and Jasper and signaled a potential expansion of a public owner’s disclosure obligations.

The Thompson Decision: Returning To A Narrow Reading Of A Public Owner’s Disclosure Obligations

In the recent case of Thompson, the municipality of Sunnyvale hired a contractor to build a senior center.  The contractor claimed that Sunnyvale had breached its implied disclosure obligations by failing to provide the proper dimensions for certain structural steel members in its plans and specifications.  This alleged omission prompted inquiries by the metal fabricator, which, in turn, resulted in delays on the project. The trial court instructed that the jury had to make the following findings for the contractor to prevail:

1.    That there was an affirmative misrepresentation or concealment of material fact(s) in the plans and specifications at the time of bid; and

2.    That [the contractor] reasonably relied on the affirmative misrepresentation or concealment of  material fact(s) when it submitted its bid for the [project]; and

3.    That [the contractor] incurred extra work or expenses necessitated by the conditions being other than as represented.

The jury found in favor of Sunnyvale.  The contractor appealed, maintaining that Welch vindicated the right to sue an owner based simply on the non-disclosure of material information within the owner’s exclusive knowledge.  The contractor disputed that a claim for nondisclosure had to involve either a misrepresentation of a communicated fact or result from an intentional effort to conceal.  The Thompson court resisted the argument.  In particular, Thompson relied on case precedent to suggest a “careless” failure to disclose material information is actionable only if the bidder was thereby misled as to some aspect of the project’s plans or specifications.  The Thompson court determined that an owner’s duty to disclosure information must be related to the material contained in the bid documents.

The impact of Thompson is two-fold.  First, it seems prudent for a public works contractor to carefully take into account the scope of the representations made in the bid documents when assessing the required breadth of its own due diligence efforts.  Secondly, a public works contractor should avoid assuming that a public agency will volunteer information of importance to the bidder outside the issues raised in the bid documents.  This, however, does not mean such information is unavailable.  The bidder can inquire with the government as to any relevant information at the public owner’s disposal that may assist in formulating a bid price.  Following Thompson, a bidder may do well to take an old adage to heart: “it can’t hurt to ask.”


The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.
 
Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.