Sixth Circuit Affirms "Disappointed Bidder" Rule, Upholds Dismissal of Bid Protest

On May 22, 2008, the 6th Circuit Court of Appeals upheld the grant of summary disposition in favor of the City of Detroit, and against the low bidder on a DWSD project, and affirmed the "disappointed bidder" rule in Michigan.

"We reviewed the law surrounding standing and disappointed bidders in Club Italia Soccer & Sports Org., Inc. v. Charter Twp. of Shelby, 470 F.3d 286 (6th Cir. 2006). Club Italia held that absent a statutory exception, "a disappointed bidder does not have standing before this court." Id. at 293. Cases prior to Club Italia consistently refused to allow disappointed bidders to bring claims for violations of the bidding procedures. [citations omitted] A bidder who, in addition to seeing his bid rejected, is disqualified from bidding on future projects may have standing, [citations omitted] but EBI cannot obtain standing this way because EBI was not disqualified from bidding on future projects.

* * *

"United of Omaha [v. Solomon, 960 F.2d 31, 34 (6th Cir. 1992)] is particularly fatal to EBI's claims because it held that a disappointed bidder must show that "it was actually awarded the contract at any procedural stage or that local rules limited the discretion of state officials as to whom the contract should be awarded." United of Omaha, 960 F.2d at 34. EBI cannot meet this test because it was never awarded the contract and because [Detroit Mayor] Kilpatrick has unlimited discretion in awarding contracts in order to comply with the EPA consent decree. Like the bidder in United of Omaha, EBI was "obviously disadvantaged" by the government's actions, id. at 35, but it nevertheless "retained only a unilateral hope of being awarded the contract, not a right to it." Ibid. A "unilateral hope" does not create standing."

See, EBI-Detroit, Inc. v. City of Detroit, 2008 U.S. App. LEXIS 11043, *18-21 (6th Cir. Mich. 2008). The trial court's ruling was reported in an earlier post.

[Update: The official cite for this case is EBI-Detroit, Inc. v. City of Detroit, 279 Fed. Appx. 340 (6th Cir. 2008) ]

New Law Passed to Boost Set Asides for Disabled Veteran Contractors

On May 21, 2008, Michigan's Governor Granholm signed S.B. 751 into law as PA 133 of 2008. The new law takes effect immediately. As noted in an earlier post, the new law amends the Management and Budget Act to increase the goal for contract set asides for disabled veterans from 3% to 5%.

Material Deductions Bill Voted Out of House Tax Policy Committee

AGC of Michigan reports in its May 14, 2008 Midweek Briefing that H.B. 6031, the House version of S.B. 1217, was voted out of committee following testimony by AGC Member, Patrick Cebelak, Controller for Granger Construction.

As noted in an earlier post, S.B. 1217 is designed to correct problems with the Michigan Business Tax as it affects construction contractors.

H.B. 6031 would amend the Michigan Business Tax (MBT) Act to amend the definition of "purchases from other firms" as it applies to general building contractors, heavy construction contractors, and construction special trade contractors that do not qualify for a small business credit under Section 417. For those companies, the definition would apply to "any construction materials or supplies directly purchased by the firm for a construction project." These purchases would, then, not be counted in the gross receipts tax base.

Circuit Court Retains Jurisdiction Over $15,000 Contract Claim, Even When Lien Claim is Dismissed

Section 118(1) of the Michigan Construction Lien Act requires that an action to foreclose a construction lien be brought in the circuit court for the county where the real property is located. For smaller liens, this provision overcomes the requirement that claims in circuit court exceed $25,000. Thus, a lien claimant can pursue a foreclosure action in circuit court even where the amount in controversy is less than $25,000.

But what happens if the claim of lien is dismissed? Does this divest the circuit court of jurisdiction over the remaining claims, and require that the case be remanded to the district court? In a recent unpublished decision, the Michigan Court of Appeals considered this issue, and held in the negative. The remaining claims can proceed to trial:

"As a rule, when a court of competent jurisdiction becomes possessed of a case, its authority continues until the matter is finally and completely disposed of, and no court of co-ordinate authority is at liberty to interfere with its action."

Maidaniuc v. Country Pond, L.L.C., 2008 Mich. App. LEXIS 861 (Mich. Ct. App. Apr. 29, 2008). A copy of the slip opinion can be found here.

How to Verify that a Payment or Performance Bond Complies with Michigan's Public Bond Statute

Note: An updated version of this article was posted August 16, 2019 on our firm's website blog here. 

Michigan's public works bond statute (MCL 129.201, et seq) requires that a principal contractor furnish a payment and performance bond executed by a surety authorized to do business in Michigan. Many contracts also require that the general contractor furnish payment and performance bonds, which are executed by a surety listed on Treasury Circular 570.

If you receive a contractor's payment and performance bond, how do you know whether it complies with these requirements? How do you check on a bonding company whose name doesn't sound familiar? How you verify the financial strength of a surety?

There are 3 easy ways to verify basic information about a surety --

Michigan

The State of Michigan, Office of Financial and Insurance Regulation (OFIR) maintains an online database of insurance companies that are registered to conduct business in the State of Michigan. The search interface is somewhat confusing, but if you search using the last field on the form, you should be able to find the surety you are looking for. If you don't find the surety, it means they are not registered to conduct business in Michigan. Take this finding as a red flag.

For insurance companies that are registered to conduct business in Michigan, you get the usual information about state of incorporation, and registered agent. Here's a sample report for Hartford Fire Insurance Company, a surety that is active in Michigan.

Treasury Circular 570

Treasury Circular 570 is a list of acceptable sureties on federal bonds maintained by the U.S. Department of Treasury. A surety that isn't on this list is probably very small, or one that should not be accepted or relied upon. It raises a red flag in my mind when I don't find a surety on this list.

Michigan law generally provides little recourse to potential bond claimants in the event that a contractor fails to furnish a bond, or furnishes one that fails to comply with the statute. Failure to furnish a bond that comports with the statute, however, would probably be grounds for an owner to terminate a general contract.

A.M. Best Company

A.M. Best issues financial-strength ratings measuring insurance companies’ ability to pay claims. If the contract requires that a surety bond be furnished by a surety with a particular rating (ie., AA or B+), you can verify this rating online through A.M. Best.


Update: My colleague Angie Greenslade referred me to the A. M. Best website. It provides information on the current financial strength of insurance companies, including sureties. Thanks Angie!