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Sub Listed in Contractor's Bid but Substituted Out Not Entitled to Judicial Review, Connecticut Supreme Court Rules
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August 6, 2007
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By Gregory K. Holness
Thelen LLP
The Connecticut Supreme Court recently ruled that a subcontractor listed in a general contractor's bid to a public agency cannot use the courts to challenge the approved substitution of another subcontractor. Ferguson Mechanical Co. v. Department of Public Works, 282 Conn. 764, 924 A.2d 846, (2007).
O&G Industries submitted a bid to the Department of Public Works that listed Ferguson as the mechanical subcontractor. After the bids were opened and O&G was found to be the apparent low bidder, O&G and Ferguson negotiated all terms of the proposed subcontract except the cost of bonding. O&G offered to reimburse the subcontractor for its payment and performance bonds based upon the surety's invoice to Ferguson's insurance broker. Ferguson wanted the reimbursement to be based on the invoice it received from the broker.
When the impasse could not be resolved, O&G asked the department to approve substitution to a subcontractor that would sign the proposed subcontract agreement. Ferguson learned of this action when the department approved the general contractor's request.
Ferguson filed a petition with the department protesting its approval of the substitution, and the department held an "informal conference" under a procedure required by statute at which Ferguson and O&G outlined their respective positions. The presiding officer denied the protest, and the commissioner upheld the decision.
Ferguson then sought redress from the courts. In response, the department filed a motion to dismiss on grounds that the court lacked subject matter jurisdiction because the subcontractor did not have standing to bring such an action. The trial court granted the motion to dismiss, finding the listed subcontractor was not an aggrieved person authorized to bring an appeal under the Uniform Administrative Procedure Act, as set forth in Connecticut General Statutes §4-166, et seq. Ferguson appealed the decision, and the Connecticut Supreme Court transferred the appeal from the Appellate Court.
Before the Supreme Court, Ferguson argued that unlike a typical disappointed subcontractor, the fact that Ferguson had been listed in O&G's bid provided it "a statutory entitlement akin to a property interest," which meant it was aggrieved by the department's decision approving the substitution. The department countered that its denial of the petition did not constitute a final decision under the UAPA, and, therefore, the listed subcontractor could not possibly be aggrieved. The Connecticut Supreme Court found the latter argument more persuasive.
Noting that it may review subject matter jurisdiction at any time and that it would lack discretion to consider the merits of the case without such jurisdiction, the court held that the UAPA provides that a person who has exhausted all administrative remedies and who is aggrieved by a final decision may appeal to the courts. "Even if we were to assume, for the purposes of this opinion, that the plaintiff had a legal right or privilege as a listed subcontractor on the winning bid, the plaintiff still cannot prevail unless the department was statutorily or regulatorily required to determine the plaintiff's legal right or privilege... in a hearing."
In the court's mind, the dispositive question was whether the department was required by statute or regulation to hold a hearing on Ferguson's protest in contrast to some other, less formal procedure. To answer this question, the court compared the "relative formality" of a UAPA hearing where definite issues of fact and law are tried and where the parties have a statutory or regulatory right to be heard by the agency to the department's process in response to Ferguson's protest, which was labeled as a grievance procedure and required "quick, informal and conclusive conferences rather than hearings" to avoid delays, which could increase costs and jeopardize the state's ability to proceed with needed public works projects.
The court also noted that neither the competitive bidding statutes nor the regulations promulgated by the department required that a hearing be held.
The court also distinguished other agencies' procedures in which the Legislature specifically required hearings or expressly provided for judicial review of agency decisions by labeling such decisions as contested cases. The court concluded that the Legislature had not intended listed subcontractors in Ferguson's position to have access to the courts if their petitions were denied because such intervention would detract from the primary purpose of the public bidding statutes, which is to promote the efficient completion of public works projects.
Because the department was under no statutory or regulatory mandate to conduct a hearing on Ferguson's protest, there was no agency determination in a contested case. Consequently, the listed subcontractor was not aggrieved so as to entitle it to judicial review of the department's decision on the petition. Therefore, the trial court's dismissal of Ferguson's action was sustained.
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For more information about the issues covered in this report, please contact Gregory K. Holness in our Hartford office at 860-275-6425 or at gholness@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2007 Thelen LLP
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