Geoffrey J McConnell (7)
Click here to print: The City of Lewiston and Idaho Procurement Law
Given an Inch, Sometimes Government Takes a Mile
By Geoff McConnell
(as published in the Idaho Construction Review)
From time to time, some governmental entities abuse their authority and behave as if the law does not apply to their actions. Unfortunately, more often than not, the victims of their abuse are private businesses with lesser bargaining power. The story below describes recent abuse by the City of Lewiston which was ultimately overturned by the Idaho Supreme Court.
Prior to 2005, the statutes governing the procurement of goods and services by local public entities (school districts, highway districts, cities, counties, etc.) were located throughout the Idaho Code. No uniformity existed. In large part, the only common principle that applied to competitive bidding was that contract awards were made to the lowest responsible bidder.
In 2005, the legislature enacted a uniform law governing the procedures by which local public entities purchase goods and services. In an effort to eliminate varying and sometimes conflicting statutes relevant to public procurement (and to eliminate varying and conflicting court decisions pertaining to those statues), the legislature enacted a uniform set of laws to be followed by virtually all public entities in the state.
In creating a single set of procurement statutes, the legislature codified the traditional means of competitive bidding and an alternative means of competitive bidding utilizing pre-qualification of bidders. The effort was collaborative and included input from the contracting community. In the end, it appeared that both the interests of the public entities and the interests of the contracting community were served as the legislature created a statutory scheme which provided: (1) a traditional means of competitive bidding; and (2) a method utilizing subjective criteria by way of pre-qualification.
Most public entities adhered to the new statute without difficulty. In large part, most public entities continued to award projects to the lowest bidder as they had traditionally done for years. A few public entities prequalified contractors pursuant to the statute.
Unfortunately, some public entities attempted to exploit what they perceived to be a loophole in the law. Instead of awarding jobs to the lowest bidder or going through the prescribed pre-qualification process, a few public entities sought to award projects on a completely subjective basis without regard to the statutory requirements. The City of Lewiston was one of those entities.
On Wednesday, November 2, 2011, the Supreme Court issued a decision rebuking Lewiston’s attempt to ignore statutory constraints and award contracts on the basis of the City’s subjective criteria. Rather than following the law, Lewiston invited bids without pre-qualifying prospective bidders for the City’s golf-course construction project, then, after-the-fact, the City decided to subjectively determine which bidder was most qualified, from the City’s standpoint. In essence, the City simply selected the bidder that it wished to do business with, without regard to the law. The 2005 law provides that a public entity may award contracts to the lowest pre-qualified bidder. However, Lewiston acted as if the law permitted it to subjectively select the winning bidder after-the-fact without regard whether the contractor had submitted the lowest bid amongst bidders pre-qualified by the City.
The City believed the statute permitted the City to qualify bidders in any manner the City saw fit, at any time, and even to permit a favored bidder to modify its bid after-the-fact. The district court in Lewiston supported the City’s decision, ruling that the law permitted public entities to award contracts to bidders without regard to price.
The Supreme Court in Hillside Landscape Construction vs. City of Lewiston corrected the City’s attempt to disregard the law. The Supreme Court held that the 2005 law did not give license to public entities to award contracts to whomever they wished. Rather, the Court held that public entities may pre-qualify bidders using the criteria set forth in the statute (and then award to the lowest pre-qualified bidder), or the public entity may simply award contracts to the lowest bidder without pre-qualification, unless the apparent low bidder is clearly not acceptable due to something like demonstrated irresponsibility on other projects, or licensing issues, or significant bid irregularities.
The Hillside case re-affirms the interpretation of the 2005 statutes as they were understood by the contracting community and the majority of public entities throughout the state. From time to time rogue public entities will exercise their power in ways far beyond their statutory authority. Fortunately, our judicial system still has the power to curb those transgressions.
By Geffrey J. McConnell
Paying subcontractors during difficult financial times is more worrisome and complicated than in a healthy economy. Many subcontractors are undercapitalized and subcontractor insolvency is a real concern. Accordingly, general contractors and owners are rightfully concerned that downstream suppliers and sub-subcontractors receive payment for work performed and materials supplied to Idaho construction projects.
Should a sub-subcontractor or a material supplier go unpaid, mechanics lien claims and payment bond claims inevitably ensue. The likelihood of paying twice for work performed or materials installed is increased as subcontractors become less and less solvent. In order to ensure that sub-subcontractors and material suppliers receive payments for their services and materials, contractors (and owners) commonly issue joint checks payable both to the subcontractor and the sub-subcontractor/material supplier. By making a payment by way of a joint check, the general contractor (or owner) can rest assured that so long as the amount of the payment is equal to or exceeds the sum due, potential lien and bond claims are discharged.
Numerous courts, although no Idaho decisions, have held that per the “Joint Check Rule” a check made payable jointly to two payees is presumed to be satisfactory of the amount due the lower-tier payee. The “Joint Check Rule” is enforceable even where the material supplier/sub-subcontractor does not actually receive full payment from its subcontractor. For example, in circumstances where a supplier endorses a joint check but the subcontractor nevertheless fails to provide any of the check proceeds to the supplier, courts have held that by endorsing the check and turning the same over to the subcontractor, the payor has satisfied the payee’s lien and bond claim rights.
Naturally, it is very tempting to simply start writing joint checks to subcontractors and their lower-tier suppliers and sub-subcontractors when a subcontractor’s credit becomes questionable. Absent an agreement to accept joint checks, however, a subcontractor is not obligated to accept payment by way of joint check. Rather, the subcontractor can simply refuse the joint check tender, and demand that payment be made directly to the subcontractor without any other payees on the check. For that reason, joint check arrangements have become more widespread, even at the outset of the project.
For example, a joint check arrangement at the owner’s sole option is provided in the 2007 edition of the AIA general conditions (the A201 document). The language of the AIA joint check arrangement may not be ideal, as it requires action on the part of the architect and a prerequisite failure on the part of the contractor to make payment prior to the contemplated issuance of joint checks. The AIA language may not be satisfactory in a circumstance where a subcontractor’s (or contractor’s) insolvency is imminent, but the subcontractor (contractor) has not yet failed to make a downstream payment. Moreover, the AIA language may not be satisfactory where the project architect is not involved in progress payments. Additionally, the AIA language directly pertains to owner joint checks to a contractor. The language does not specifically pertain to contractor joint checks to a subcontractor.
From the payor’s standpoint, most joint check arrangements should eliminate an architect’s involvement, and eliminate the failure to make a downstream payment as a prerequisite. Like the AIA document, join check arrangements should be optional on the part of the payor, and not mandatory. Adequate join check arrangements are fairly easy to draft.
Writing joint checks is a drastic measure on any project and is generally disfavored by all upper-tier payees. Nevertheless, it may be wise to include optional joint check arrangements in contracts as a matter of course because it may be quite difficult to obtain the consent of a nearly-insolvent upper-tier payee at a time when a joint check arrangement is most needed. For example, it is not hard to foresee that a nearly-insolvent subcontractor may be very motivated to apply progress payments to discharge lines of credit for which the company owner is personally liable rather than make payments to suppliers and sub-subcontractors. A nearly-insolvent subcontractor may be very reluctant to execute a joint check agreement at a time when lower-tier lien and bond claims are most likely.
Under circumstances in which a subcontractor is unwilling to accept joint checks, the contractor (or owner) may still protect the project from lien claims and bond claims by making direct payments to the lower-tier sub-subcontractors and material suppliers, and obtaining a release of the lien/bond claim in return. This practice will not prevent a potential claim from the subcontractor that the contractor (or owner) overpaid but it may have the desired result where there is no bona fide claim about the adequacy of the work performed (or material supplied). A subcontractor can certainly claim that the amounts paid to the lower-tier payee were not due, and therefore this practice is not without risk. Nevertheless, in the case of a subcontractor teetering on the brink of insolvency, it may be a better practice to be potentially liable for paying some of the bill twice than being potentially liable for paying all of the bill twice.
During periods of a difficult economy, think about whether you should incorporate a joint check arrangement into subcontracts. If you find yourself in a situation with an insolvent subcontractor and no joint check arrangement, your choices are not great. In that situation, contractors (and owners) may consider making direct payments to lower-tier payees to minimize lien and bond claims.
Geoff McConnell is a partner at the lawfirm Meuleman Mollerup LLP, focusing his practice in the areas of construction law, commercial litigation, and business law. Mr. McConnell can be contacted at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . More information on the web at www.lawidaho.com
(Published in the Idaho Construction Review, May 2010)
Imagine a situation where your business did everything right, and yet it was sued. Then imagine the situation where the Judge and jury agreed with your position and found that you were not negligent, and yet still held you liable for another party's attorney fees.
While that predicament may sound hard to believe, it is an accurate reflection of the law as it pertains to the duty to defend. The duty to defend is the duty to hire legal counsel and possibly expert witnesses and provide a legal defense to a party being sued by another. The duty to defend is different from the duty to pay for someone else's defense. It is also different from the duty to indemnify -- an obligation to hold another party harmless from claims brought by others.
The duty to defend and the duty to indemnify are often found in written construction contracts. These clauses started appearing in construction contracts because general contractors wished to insulate themselves from liability from claims related to work performed by subcontractors. In the 60's and 70's general contractors began to act more in the capacity of construction managers who did not self-perform work, but rather coordinated the work of other trade contractors.
The reasoning behind a general contractor's request for indemnity is fairly simple: the general contractor did not actively do anything negligent; rather it was likely the subcontractor who installed the work that was actively negligent.
To account for this situation, general contractors began writing indemnity clauses in their subcontracts, demanding that subcontractors indemnify general contractors for many claims brought by third-parties, regardless of whether the subcontractor was negligent or not.
This indemnity obligation (that is, the obligation to pay for or otherwise discharge claims brought by third-parties) was viewed as bad public policy by the Idaho State Legislature if the party demanding indemnification could ask that it be indemnified from its own sole negligence. In 1971, the Legislature responded by passing a law indicating that a contract clause in a construction contract attempting to require one party to indemnify another party from that party's sole negligence is void and unenforceable. For example, a general contractor would not be able to require its subcontractor to indemnify the general contractor from the general contractor's sole negligence.
However, the obligation to indemnify (or insulate another from liability) is different from the obligation to provide a legal defense. Thus, a non-negligent party can be called upon to defend another party, who actually may be negligent. Moreover, the non-negligent party can be held liable for the fees and costs incurred by the negligent wrongdoer if the non-negligent party does not provide the legal defense. In other words, a wrongdoer may recover its legal defense costs from an innocent party, if the contract between the parties provides that one party will provide a defense.
The decision to demand that another party defend claims brought by a third-party may not be as simple as it might appear. The party that has the duty to defend has the right to select the defense and the lawyers.
Even though the court may uphold a wrongdoer's right to be defended by an innocent party, it may not be wise under the circumstances. For example, it may be unwise to demand that a minimally negligent subcontractor provide a defense to a minimally negligent general contractor. In such a circumstance the jury verdict in the case defended by the subcontractor may quite possibly result in a finding of no negligence on the part of the subcontractor and a finding of negligence (and liability) on the part of the general contractor!
Additionally, a contractor's demand that another contractor provide it with a legal defense to a claim which is not insurable (such as a claim for lost profits due to alleged construction defects) may also be a mistake. To compel a party with potentially limited resources to provide a defense to an uninsured claim may actually result in a worse situation than had the claim been managed by the first contractor from the outset.
These issues can be addressed by drafting contract language which imposes a duty to pay for the defense, instead of a duty to defend. The irony remains however, that under a "duty to defend" clause, the non-negligent party must provide a legal defense to one who may very well be negligent.
Geoff McConnell is a partner at Meuleman Mollerup LLP, focusing his practice in the areas of construction law, commercial litigation, and business law. Mr. McConnell can be contacted at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . More information on the web at www.lawidaho.com
(Published in the Idaho Business Review, January 2008)
For over 100 years, the American Institute of Architects (“AIA”) has published form contracts for use in the construction industry. AIA form contracts and general conditions are widely used in connection with private construction projects, and AIA documents are also used in many Idaho public works construction projects. Periodically, (typically every ten years or so) the AIA revises its documents. In the Fall of 2007, the AIA revised its documents and this article will focus on a few of the revisions made.
In the past, a great many of the AIA documents have been a collaborative effort with more than a dozen industry organizations representing contractors, subcontractors, engineers, and owners. Previously, the AIA sought and received the endorsement of the Associated General Contractors (“AGC”) organization for one of the industry’s fundamental documents, the AIA A201, General Conditions of the Contract for Construction.
However, in 2007 the AIA contract documents were not endorsed by the AGC. AGC’s chief executive, Stephen E. Sandherr, stated in a letter to the AIA, “…Considering that the AIA A201 has received AGC’s endorsement for the past 50 years, I was taken by the consistently strong message [by AGC members against endorsing] the revised A201. …[O]ur membership expressed grave concerns that the new 2007 edition of the A201 significantly shifts risks to General Contractors and other parties outside of the design profession. …This approach starkly contrasts with the more collaborative and innovative direction of our rapidly changing industry. …Consequently, our membership concluded that the A201 does not positively serve the industry as a standard document because it does not fairly balance risk amongst all parties.” This debate could be the subject of a separate article, but suffice it to say that the AIA and the AGC did not collaborate on key 2007 construction documents.
Some of the significant changes in the 2007 documents are: Mandatory Arbitration is Out. In the new AIA A201 document, perhaps one modification stands out from all the rest. Despite the fact that the AIA has incorporated an arbitration clause in its documents for over 100 years, mandatory arbitration is no longer contained in the AIA A201 document. Traditional litigation now becomes the default way to settle a dispute, unless the parties have actively chosen arbitration. In the past, arbitration was the preferred method of dispute resolution, but as of 2007, arbitration becomes a secondary option that the parties must opt for.
Other changes to the A201 and other documents include modifications to the role of the Initial Decision Maker, consequential damage waiver, increased liability exposure regarding hazardous materials, and time limits on claims. Members of the Construction Specification Institute have expressed concerns over the 2007 A201 lack of definition of the term “RFI” – request for information or request for interpretation – a potentially fuzzy area that, if suggested language contained in the A511 were to be included in the Supplementary General Conditions, could lead to reimbursement for the Architect’s time to review such questions. A detailed discussion of these changes and others is beyond the scope of this article, but changes need to be reviewed prior to contract execution.
The new AIA A401 Contractor-Subcontractor Agreement form includes changes that will have a noticeable effect on the way subcontractors conduct business. Mediation and binding dispute resolution provisions are covered in Article 6, which provides a detailed path by which mediation will be made. Any claims not settled by mediation will fall to the form of binding dispute resolution chosen at the onset of the contract -- arbitration, litigation, or other. Also new in the 2007 A401 is inclusion of an additional insured requirement. This provision has raised the concern of the American Subcontractor Association, which states in its website: “ ‘Additional insured’…their [those two words] inclusion can result in numerous headaches for subcontractors, their presence should always immediately signify increased costs and more exposure to claims and loss.” Additionally, Article 11.3 of A401 increases the period of time contractors have to pay subcontractors from three working days to 10 working days after the contractor receives payment from the owner.
Also, Article 12.2 of A401 states, “Acceptance of final payment by the Subcontractor shall constitute a waiver of claims by the Subcontractor, except those previously made in writing and identified by the Subcontractor as unsettled at the time of final application for payment.” In other words, subcontractors need to make sure their paperwork is in order and all claims have been submitted in writing before accepting that final payment.
Geoff McConnell is a partner at Meuleman Mollerup LLP, focusing his practice in the areas of construction law, litigation, and business law. Mr. McConnell can be reached at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . More information on the web at www.lawidaho.com
The Idaho Supreme Court recently clarified the standards for determining whether individuals employed to do specialized construction work are employees or independent contractors for the purpose of unemployment insurance in Idaho. In Excell Construction, Inc. v. State of Idaho Dept. of Labor, decided in June, the Court held that a sheetrock contractor may be able to classify certain of its workers as independent contractors rather than employees and thus avoid paying unemployment insurance taxes, etc., on their behalf. The Court's decision expanded the basis upon which a worker could be classified as a contractor and not an employee. The Court emphasized that the distinction between employees and independent contractors depends upon the amount of control exercised by the employer over the details of the "employee's" work and whether, based upon the circumstances surrounding each worker's employment, the worker can be characterized as carrying on an independently established trade, business, profession, or occupation.
In the decision, a drywall contractor permitted its drywall hangers and tapers to elect whether they wished to be treated as employees or independent contractors. For those who elected employee status, the contractor deducted taxes and social security from their paychecks and paid unemployment insurance taxes to the State. The contractor made no such deductions and payments for those who elected independent contractor status. The Idaho Department of Commerce and Labor determined that the hangers and tapers were in fact employees for the purpose of the unemployment insurance statute and ordered the contractor to pay past taxes and penalties. The Idaho Industrial Commission affirmed that determination.
The Supreme Court reversed the Commission's conclusion that the contractor exerted more control than one would expect over a non-employee. The Court, however, sent the case back to the Commission to determine whether the hangers and tapers were engaged in an independently established business, trade, occupation, or profession. The Court suggested, at least implicitly, that while the issue of control may be determined on a company-wide basis, the "independent business" inquiry requires a more narrow review of the facts surrounding the work performed by each individual, or clearly-defined group of similarly-situated individuals.
The Court emphasized that the "independent business" inquiry requires an individualized determination. The Court indicated that evidence disregarded by the Commission on one basis was nevertheless important in making an "independent business" inquiry. For instance, in determining that the contractor retained too much control to classify the hangers and tapers as independent contractors, the Commission disregarded evidence that at least three of the installers had independent businesses registered with the State because it found that those three instances were outweighed by "the rest of the evidence." The Supreme Court held that evidence disregarded for one purpose was nevertheless relevant to whether each of those individual workers were in fact engaged in an independently established business.
The Court's analysis is informative for employers in structuring relationships with workers under unemployment insurance statutes. The Court's opinion may encourage contractors to treat more workers as independent contractors. Given the high costs associated with compliance with many government-mandated programs, including indirect administrative costs, it is not surprising that many employers are willing to explore new ways of structuring relationships with their workers. In Excell, a drywall contractor was able to convince the Supreme Court that despite the presence of a number of facts which are consistent with an employer-employee relationship, it may nevertheless be permissible to treat workers as independent.
However, the costs associated with trying to ensure that any specific business structure will pass muster under the statute might be as high as or higher than the costs of paying unemployment insurance taxes and complying with the other statutory requirements. For example, workers may likely qualify as independent contractors by having them bid on each job and by entering into individual subcontracts for each project, and further by only employing those who have state-sanctioned independent businesses. Of course this no doubt raises the cost of the work to the employer/contractor and limits the number of workers who are eligible to compete for any given job. In effect, while the Excell case certainly increases the likelihood that a given worker may be considered an independent contractor, the costs of ensuring that status may not be significantly different than the indirect costs of hiring and maintaining an employee.
Geoff McConnell is a partner at Meuleman Mollerup LLP, focusing his practice in the areas of constructionlaw and litigation, and commercial litigation and business law. Mr. McConnell can be reached at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . On the web at www.lawidaho.comFrom time to time, in the midst of a project, it becomes apparent that design mistakes may significantly increase a contractor's costs of completion. One's natural response may be to seek relief from the culpable architect or engineer. In Idaho, however, the courts have consistently rebuffed direct claims by contractors and others with whom the design professional does not have a direct contractual relationship. Idaho's current legal position is not universal, as an increasing number of jurisdictions permit direct claims against design professionals.
Recently, the state Supreme Court in Pennsylvania expressly held that general contractors could directly sue an architect for additional construction costs caused by the architect's defective plans. The court held that an architect who makes a negligent misrepresentation (defective drawings) can be found liable to a contractor who is likely to rely upon the misrepresentation. In support of this expansion of tort liability, the court noted that design professionals, who are "in the business of providing information to others, should expect contractors to rely on this information, and it is reasonably foreseeable that economic damages are feasible if the representations were defective." These expectations, reflecting "modern business realities" where there are less "generalists" and businesses are compelled to rely on experts, were sufficient, the court reasoned, to impose liability on architects (and engineers) for economic harm resulting from a reliance on their designs-regardless of the parties' relationship.
At this point, outside the "narrow confines of a professional relationship involving an accountant," Idaho does not recognize a cause of action for negligent misrepresentation and has, in recent years, declined to expand its scope.
Idaho courts have yet to make many exceptions to the rule that there can be no recovery for "economic loss" against a party with whom one has no contractual relationship. While exceptions are made for "special relationships," including those with architects, the Idaho Supreme Court has stated they will only apply deviations to "an extremely limited group of cases."
The ramifications of this rule in Idaho create the possibility for inconvenient consequences. Since contractors are currently precluded from bringing suit against the design professionals at fault, they are compelled to sue the owner directly regardless of whether the owner caused the damages. As a result, the owner can be compelled to answer for claims which are not of their making.
Under the circumstances, in order for an owner/developer to more fully protect itself, certain measures should be taken to ensure that the design professionals remain responsible. Among other things, a design professional should agree to appear in the same forum (court or arbitration) as the owner and contractor if a dispute should develop. Many pre-printed contracts with design professionals provide that in the event of a dispute they will not be a party to a dispute with the contractor, but will only agree to arbitration solely with the owner. Owner/developers should also insist that their design professionals carry malpractice insurance with adequate coverage, both in dollars and in time (malpractice coverage is usually limited to claims made within a certain time after substantial completion of a project). Additionally, owner/developers should review their contracts, as sometimes design professionals attempt to limit their liability to the amount of their fee.
In conclusion, unless and until Idaho contractors are able to bring direct actions against design professionals who are responsible for additional projects costs, owner/developers will remain the targets of claims which may ultimately be the fault of others. As such, it will remain necessary for owner/developers to take appropriate measures to protect themselves.
Geoff McConnell is a partner at Meuleman Mollerup LLP, focusing his practice in the areas of construction law and litigation, and commercial litigation and business law. Mr. McConnell can be reached at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . On the web at www.lawidaho.comIn a curious decision issued in December 2004, the Idaho Supreme Court in Quality Interiors v Pacific West Construction, Inc., held that Quality Interiors was to be paid for work it had performed on the Bannock Regional Medical Center project. The project required a public works license, even though Quality Interiors had neither the required public works license nor a signed contract from Pacific West Construction, Inc. The decision should be carefully considered by both contractors and subcontractors regarding public works contracts.
PacWest was the general contractor on a public works project and had used a bid from Quality, which indicated the bid covered work described in two sections, Sections 09260 and 09511. PacWest maintained that the work under a third section, Section 09111, was part of Quality’s bid and sent a proposed unsigned subcontract to Quality Interiors. At a later date, Quality signed the subcontract but did not return it to PacWest.
Quality commenced work on February 1, and sometime prior to March 8 the parties debated whether Section 09111 was included. No agreement was reached. On March 8, PacWest learned that Quality had no public works license and indicated that Quality could continue work “as PacWest employees.” The following week, a dispute arose again over Section 09111 and Quality ceased working on the project with approximately two weeks left to completion of its work.
Two points of the Supreme Court’s decision are noteworthy. First, it easily decided that a contract had been formed, even though the parties had neither signed a written contract nor agreed as to whether Section 09111 was included. Second, the Court found a way to require payment to Quality even though it determined the contract was “illegal and void.”
On the first issue, the Court followed existing Idaho law holding that a contract is formed when a subcontractor starts work with the general contractor’s approval, even though a written contract is contemplated by the parties but not signed.
The unusual feature of the case is the Court’s treatment of the illegality of the “contract.” The issue was not raised by either party and, therefore, not considered by the trial court. Idaho Code § 54 1901 requires every contractor or subcontractor performing work on a state or local government-owned project have a public works construction license. Idaho Code § 54 1902 makes it unlawful to perform such work without a public works license. Therefore, the Court ruled that the “contract” constituted an agreement to perform an illegal act, was void, and could not be enforced by the Court.
The Court then reasoned that it would be a harsh result to let PacWest receive the benefit of Quality’s work, including payment by the Hospital for such work, even though the contract was illegal. It allowed Quality to recover under what it termed “an unjust enrichment theory,” which would limit Quality to recovering an amount necessary to put it in the position it was in before it performed the work. The Court held that that recovery would include the value of the work performed and, apparently, could include other costs incurred by Quality, but could not include an element of profit related to work on the project.
Contractors and subcontractors should carefully consider the first issue on all projects. Once more the Supreme Court has ruled that it is quite easy for a contractor and subcontractor to reach an agreement with no clear mutual understanding as to the nature, scope or price of the work to be performed, and with no written contract in place. It is fairly clear that if a subcontractor starts work with the consent of the general contractor, some kind of contract exists, even though its terms may only be decided by a court at the end of an expensive lawsuit.
The Court’s decision on the second issue is also instructive. In Idaho, a contractor’s license is only required to perform work on a public works project (work performed for the State, county, city, school districts and other governmental units created by the State). A license is required for all subcontractors, even though the general contractor on a public works bid is only required to list the name and license of the subcontractors performing electrical and mechanical work. Consequently, a subcontractor submitting a bid for a project for which he is not licensed (including a contract with a price which exceeds his class of license) is at risk that at least part of his payment will be denied by the general contractor, even if the general contractor accepts the bid knowing that the subcontractor is unlicensed.
There is a second and greater danger for both parties. In its decision, the Supreme Court specifically indicated that its decision did not apply to a situation where the governmental unit refused to pay based upon the illegal conduct of the general contractor and an unlicensed subcontractor in performing work on the project. There is a significant risk that the State may be allowed to refuse to pay the general contractor either in full or for the value of the work performed by the unlicensed subcontractor.
It is critical that all subcontractors are properly licensed on public works projects.
Geoffrey McConnell is a partner at Meuleman Mollerup LLP, practicing in the areas of construction law and litigation, and commercial litigation and business law. M. McConnell can be reached at 208.342.6066, or by email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it