Arnco Construction v. Barnhart

Filed 8/14/06 Arnco Construction v. Barnhart CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Subcontractor Arnco Construction, Inc. (Arnco) appeals from the judgment entered in favor of respondents, general contractor Douglas E. Barnhart, Inc. (Barnhart) and its surety, Liberty Mutual Insurance Company, and Mesa Union School District (the District), on Arnco's suit for breach of a contract and to enforce a stop notice (Civ. Code, § 3098). Arnco contends the trial court erroneously concluded that the Subletting and Subcontracting Fair Practices Act (Pub. Contract Code,^[1] § 4100 et seq.) (the Act), which dictates the procedures a general contractor on a public works project must follow when seeking to remove a subcontractor listed in the original bid, does not apply to this dispute because Barnhart did not submit a bid as contemplated by the statute. Arnco further contends the court erred in concluding that Arnco was not entitled to lost profits for a portion of the work that was awarded to another subcontractor, and in finding that respondents were the prevailing parties. We affirm.

FACTS AND PROCEDURAL HISTORY

In March of 2003, the District and Barnhart entered into a "lease-leaseback" agreement (LLB) pursuant to Education Code section 17406^[2] for the construction of improvements to the Mesa Union School in Somis. The LLB allowed the District to negotiate a guaranteed maximum price (GMP) for the project without advertising for bids from other contractors or otherwise engaging in a competitive bidding process. Pursuant to the LLB, Barnhart was to establish a final GMP after soliciting proposals for the project from prospective subcontractors. The LLB further provided that Barnhart was to solicit such proposals either pursuant to the Public Contract Code provisions that generally apply to contracts awarded by school districts (§ 20110 et seq.), or pursuant to "an informal bidding process established by Barnhart, subject to the District's approval which shall not be unreasonably withheld." Barnhart was also required to "submit a listing of proposed Subcontractors to the District for the District's review." The LLB also provided that the District could terminate the agreement if Barnhart failed to comply with the listing requirement.

In accordance with the LLB, Barnhart solicited bids pursuant to an informal process approved by the District. On April 26, 2003, Arnco submitted a proposal to perform the site clearing, earthwork, and paving portions of the project for a total price of $76,000. Arnco submitted a revised proposal of $74,250 on June 12, 2003. That proposal included a standard form of conditions providing, among other things, that "[i]n the event Arnco is required to institute any action to collect any amounts due or to enforce any of the terms of this contract, [Barnhart] shall pay reasonable attorney or collection fees for it."

Another subcontractor, California Land Clearing, also submitted a proposal to perform the site-clearing portion of the project. Because the site-clearing work needed to begin before Barnhart's negotiations with Arnco were completed, and Arnco was currently engaged in work as subcontractor to Barnhart on another school construction project, Barnhart awarded the site-clearing portion of the project to California Land Clearing.

On August, 31, 2003, Arnco submitted a revised proposal which eliminated the site-clearing portion of its bid. Arnco also included a provision providing that "[m]inor root" removal was included in its bid, but that the price would increase by $5,000 if Arnco encountered "[s]tumps and major root[s]" that had not been removed by California Land Clearing. After the District notified Barnhart that all costs incurred on the project had to be segregated between funds provided by the State of California (which were available only for new construction) and those received from local bonds (which could be used for the renovation of existing buildings and grounds), Barnhart instructed all of the potential subcontractors to revise their proposals accordingly. Arnco submitted its revised proposal on September 24, 2003. Four days later, Arnco sent Barnhart a fax confirming that it would begin work on the project pursuant to the verbal authorization of Barnhart's project manager, Wayne Spencer, as provided in "Arnco's Revised Proposal/Contract of 8-31-03 & Allocation of 9-24-03." Spencer signed and returned the document to Arnco as requested, with a handwritten notation stating: "Contract will be issued for rough grading. Other items will be held as alternates."

Arnco worked on the project until October 21, 2003, when it became necessary to defer further work until December. The following day, Arnco submitted a bill to Barnhart for $44,417, which included $5,000 for major tree roots and stumps that Arnco had allegedly encountered in performing the earthwork portion of the work. Barnhart disputed Arnco's claim regarding the tree roots. Additionally, because Arnco's bill did not segregate between the two sources of available revenue, Barnhart requested a revised billing. Arnco thereafter submitted revised billings on October 31, and November 11, 2003, neither of which complied with the allocation requirement. Arnco never signed and returned the standard form subcontract that Barnhart had issued.

In November of 2003, Barnhart determined that Arnco was owed a total of $17,149 on the subcontract, and requested that Arnco revise its billing accordingly. Arnco refused. In an effort to resolve the dispute, Barnhart issued Arnco a check for $23,938, which was almost $7,000 more than Barnhart believed Arnco was entitled to under their subcontract. In the meantime, Arnco notified Barnhart that it would not return to work unless Spencer was replaced. Barnhart declined to replace Spencer and repeatedly told Arnco that it was obligated to complete the project, but Arnco never returned to work.

On February 20, 2004, Arnco filed a complaint against respondents alleging causes of action for, among others, breach of contract, enforcement of a stop notice, and

recovery on a stop notice release bond. Arnco did not assert a claim under

sections 4107^[3] and 4112^[4] of the Act. Nevertheless, in its trial brief Arnco claimed that Barnhart had "los[t] any defense it might have had to this action" by failing to "comply with the subcontractor designation requirement" of section 4107.

After a court trial was held on July 7, and 8, 2005, the court issued an intended statement of decision finding that (1) Arnco's subcontract with Barnhart consisted of Arnco's August 31, 2003, proposal, its September 24, 2003, price allocation, and the countersigned September 28, 2003, facsimile that incorporated those documents; (2) Arnco was not entitled to the $5,000 it claimed for major root removal because it had not encountered such roots; (3) Arnco had failed to submit a billing that adequately demonstrated the work it had actually completed on the project; (4) Arnco had failed to submit a billing that complied with the allocation requirement; (5) Arnco was not entitled to any further payment from Barnhart, and had received almost $7,000 more than it was owed; and (6) Arnco had voluntarily and improperly refused to continue working on the project. The court rejected Arnco's argument regarding the application of section 4107. The court reasoned that the LLB was governed by Education Code section 17406, which provides an express exception to the bidding requirements of the Act, and that the subcontractor listing requirement of section 4107 therefore did not apply. The court also found that Barnhart was entitled to recover its attorney fees from Arnco as the prevailing party pursuant to the provision in Arnco's proposal and Civil Code section 1717.

Arnco failed to timely object to the statement of decision, and judgment in favor of respondents was entered on September 13, 2005.

DISCUSSION

I.

The Subcontractor Listing Requirements of the Act do Not Apply to This Dispute

Arnco's primary contention on appeal is that the trial court erred in finding that the subcontractor listing requirements of the Act did not apply here because the District did not "take" or "advertise" for bids from contractors as contemplated by the Act. Read in context, the court's statement of decision cannot be construed to disclaim the Public Contract Code in toto. Rather, the court merely rejected Arnco's argument that Barnhart was required to comply with the provisions of the Act, which are contained within that code, regarding the listing of subcontractors with the District. But Arnco did not allege a statutory cause of action under the Act. (See R.J. Land & Associates Const. Co. v. Kiewit-Shea (1999) 69 Cal.App.4th 416, 421 [recognizing a private cause of action under section 4107].) Arnco's complaint merely alleges that Barnhart breached the subcontract; no violation of the Act is alleged, nor is it otherwise alleged that Barnhart failed to comply with the provisions of the Act regarding the listing of subcontractors with the public entity.

In any event, the trial court correctly found that the subcontractor listing requirements of the Act did not apply to the public works project at issue here. Those requirements only apply where the public entity has taken bids for a project. (§ 4104 [providing that "[a]ny officer, department, board or commission taking bids for the construction of any public work or improvement shall provide in the specifications prepared for the work or improvement . . . that any person making a bid or offer to perform the work, shall, in his or her bid or offer, set forth . . . [t]he name . . . of each subcontractor who will perform work . . . in an amount in excess of one-half of 1 percent of the prime contractor's total bid" (italics added)]; § 4107 [governing the right of a contractor "whose bid is accepted" to replace or substitute subcontractors listed in the original bid].)

The LLB entered by the District and Barnhart was authorized by Education Code section 17406, which provides an express exception to the competitive bidding process contemplated by the Act for school districts contracting for the construction or improvement of school facilities. (Ed. Code, § 17406, subd. (a) [providing that "the governing board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the term thereof" (italics added)].) Although Barnhart was obligated under the LLB to provide the District with a list of the subcontractors it ultimately hired to work on the project, it had no independent statutory obligation to do so. Because the District did not "take" or "advertise" for bids, the provisions of the Act that apply under such circumstances are plainly irrelevant to this dispute.^[5]

II.

Lost Profits

Arnco also complains that the trial court erred in concluding that Arnco was not entitled to lost profits or interest. According to Arnco, the court should have found that Barnhart had contracted with Arnco to perform the site-clearing portion of the project because it implicitly concluded that Arnco's June 12, 2003, proposal, in which Arnco offered to perform that portion of the work, was part of the contract. This contention is without merit. No reasonable interpretation of the parties' agreement, or the trial court interpretation thereof, would lead to the conclusion that Barnhart contracted with Arnco to perform the site-clearing work. Indeed, Arnco submitted revised proposals eliminating that portion of the work because it was understood that Arnco's obligations on another project prevented it from proceeding with the site-clearing.

We also agree with respondents that Arnco never raised this claim of lost profits in the trial court. Rather, Arnco merely argued that it was entitled to lost profits for the work remaining on the project when it ceased work in October of 2003. While Arnco claims "the record is replete with evidence of requests for compensation for the site-clearing and demolition work," it fails to refer us to such evidence. Instead, Arnco merely cites its two proposals predating Barnhart's decision to award that portion of the work to California Land Clearing, and the record belies its claim that the issue was "expressly discussed" in its trial brief. We also reject Arnco's invitation to consider the issue as one involving a pure question of law, because the issue is not purely legal. In any event, the claim hinges on the wholly unsupported premise that Barnhart had no right to award the site-clearing work to another subcontractor.

With regard to Arnco's claim that it was also entitled to interest on Barnhart's delayed payment pursuant to a provision in Arnco's proposal, Arnco ignores the fact that it caused that delay by refusing to submit a billing that complied with the allocation requirement imposed by the District. Arnco also overlooks the court's finding that Arnco was paid approximately $7,000 more than it was owed under the subcontract. Moreover, Arnco failed to submit any meaningful breakdown of the work for which it was claiming payment. Arnco also fails to explain why Barnhart was obligated to pay anything as long as Arnco refused to sign the form subcontract. Under the circumstances, Arnco was not entitled to any prejudgment interest.^[6]

The judgment is affirmed. Respondents shall recover their costs on appeal. NOT TO BE PUBLISHED.

PERREN, J.

We concur:

YEGAN, Acting P.J.

COFFEE, J.

Henry J. Walsh, Judge

Superior Court County of Ventura

______________________________

Law Offices of Scott Green, Scott Thomas Green and James B. Devine for Plaintiff and Appellant.

Marks, Golia & Finch, LLP, Robert J. Marks and Rachel F. Tait for Defendants and Respondents Douglas E. Barnhart, Inc., Liberty Mutual Insurance Company and LM Insurance Corporation.

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^[1] Statutory references are to the Public Contract Code, unless otherwise noted.

^[2] Education Code section 17406 provides in pertinent part that "[n]otwithstanding Section 17417, the governing board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the term thereof, and provides that title to that building shall vest in the school district at the expiration of that term. The instrument may provide for the means or methods by which that title shall vest in the school district prior to the expiration of that term, and shall contain such other terms and conditions as the governing board may deem to be in the best interest of the school district." (Subd. (a).)

^[3] Section 4107 provides in part: "A prime contractor whose bid is accepted [for a public works project] may not: [¶] (a) Substitute a person as subcontractor in place of the subcontractor listed in the original bid, except that the awarding authority, or its duly authorized officer, may, except as otherwise provided in Section 4107.5, consent to the substitution of another person as a subcontractor in any of the following situations: [¶] (1) When the subcontractor listed in the bid, after having had a reasonable opportunity to do so, fails or refuses to execute a written contract for the scope of work specified in the subcontractor's bid and at the price specified in the subcontractor's bid, when that written contract, based upon the general terms, conditions, plans, and specifications for the project involved or the terms of that subcontractor's written bid, is presented to the subcontractor by the prime contractor. . . . [¶] (3) When the listed subcontractor fails or refuses to perform his or her subcontract. . . . [¶] Prior to approval of the prime contractor's request for the substitution, the awarding authority, or its duly authorized officer, shall give notice in writing to the listed subcontractor of the prime contractor's request to substitute and of the reasons for the request. The notice shall be served by certified or registered mail to the last known address of the subcontractor. The listed subcontractor who has been so notified has five working days within which to submit written objections to the substitution to the awarding authority. Failure to file these written objections constitutes the listed subcontractor's consent to the substitution. [¶] If written objections are filed, the awarding authority shall give notice in writing of at least five working days to the listed subcontractor of a hearing by the awarding authority on the prime contractor's request for substitution."

^[4] Section 4112 provides that "[t]he failure on the part of a contractor to comply with any provision of this chapter does not constitute a defense to the contractor in any action brought against the contractor by a subcontractor."

^[5] Arnco also argues that Barnhart engaged in "bid shopping" by taking bids from other subcontractors, such as California Land Clearing, and that the subcontractor listing requirements of the Act are expressly intended to prevent that evil. (§ 4101.) Respondents correctly note that accepting numerous bids does not, in and of itself, constitute bid shopping. Indeed, it would be absurd to conclude that it does, because the purpose of competitive bidding is to foster competition among several bidders. Rather, "[b]id shopping occurs where the general contractor uses the lowest bid received to pressure other subcontractors to submit even lower bids." (Valley Crest Landscape, Inc. v. City Council (1996) 41 Cal.App.4th 1432, 1438.) There is no evidence, or even an allegation, that Barnhart disclosed Arnco's bid to other prospective subcontractors.

^[6] In light of the foregoing, we necessarily reject Arnco's contention that the court erred in concluding that it was not the prevailing party.