Geoffrey J. McConnell
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City of Lewiston and Idaho Procurement Law
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.
Geoff McConnell, Meuleman Mollerup attorney, to Present at Idaho AGC Annual Conference in Sun Valley: "Case Law Update - Recent Court Cases Affecting the Construction Industry"
BOISE, ID – July 30, 2011 – Meuleman Mollerup LLP attorney Geoff McConnell will be a featured presenter at the Idaho Associated General Contractors’ Annual Summer Outing at the Sun Valley Resort in Sun Valley, Idaho on August 5, 2011. Mr. McConnell will present a seminar titled, “Case Law Update – Recent Court Cases Affecting the Construction Industry.”
Geoff McConnell is a partner with the law firm Meuleman Mollerup LLP focusing his practice in the areas of construction law, business law and litigation, and government contracts. He has been recognized by Mountain States Super Lawyers since 2009 for his expertise in Construction Litigation and Government Contracts. He has 25 years of experience in trial representation of owners, contractors, and design professionals in lawsuits and other disputes on public and private construction projects ranging in size from $1,000,000 to $220,000,000. He has assisted in the preparation of claim packages and risk assessments resulting in the settlement of disputes ranging in size from $100,000 to $14,000,000 without the need for costly and extensive litigation. Mr. McConnell is licensed to practice law in Idaho, Utah and California.
The construction attorneys at Meuleman Mollerup have a long history of active membership in the Idaho Associated General Contractors. The firm supports Idaho AGC’s core purpose as the advocate for the commercial construction industry in Idaho.
Meuleman Mollerup LLP was founded in 1981 as boutique law firm focusing on Business Law, Construction Law and Real Estate Law. Focusing the firm’s scope of practice enables our attorneys to develop the experience and expertise to provide the highest quality of legal representation at a reasonable cost to our clients.
More information is available online at www.lawidaho.com.
Business Law ● Real Estate Law ● Construction Law
Litigation ● Employment Law ● Estate Planning/Probate
Building Legal Solutions for Your Business
Joint Checks - Making Payment in a Difficult Economy
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)
Duty to Defend Carries Many Costs
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
2007 AIA Construction Document Changes May Affect Your Business
(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
Geoffrey J. McConnell
PROFESSIONAL RECOGNITION
- Mountain States Super Lawyers 2009-2011
- Best Lawyers in America 2008-2012
- Fellow, Litigation Counsel of America
- Martindale-Hubbell "AV" Peer Review Rated
AREAS OF EXPERTISE
CONSTRUCTION LAW / LITIGATION
- Contract negotiations, litigation, arbitration and mediation
- Trial representation of owners, general contractors, subcontractors, and design professionals in lawsuits and other disputes on public and private construction projects ranging in size from $1,000,000.00 to $220,000,000.00
- Preparation of contract forms and general conditions including conventional and design/build construction and design services forms for nationwide owner/developers, contractors and design/builders
- Mechanic's lien claims and surety bond claims
- Preparation of claim packages and risk assessments resulting in the settlement of disputes without the need for costly and extensive litigation. Projects analyzed include multi-prime, fast-track prison construction projects, wastewater treatment facilities, federal government projects, and multi-use institutional facilities.
BUSINESS LITIGATION
- Business and real property disputes
- Representation of business entities in significant and contested debt collection actions
- Representation of real estate developers in all manners of disputes concerning the development of property
PROFESSIONAL EXPERIENCE
1993 - Present: Partner, Meuleman Mollerup LLP
1987 - 1993: Gibbs, Giden, Locher & Turner, Los Angeles, California
Licensed to practice law in Idaho, California and Utah
BUSINESS AND INDUSTRY ACTIVITIES
- Idaho State Bar
- The State Bar of California
- Utah State Bar
- American Bar Association, Section on Public Contract Law and the Forum on the Construction Industry
- LEGUS, International Network of Law Firms
- Litigation Counsel of America, Fellow, Trial Lawyer Honorary Society
- Frequent lecturer before the Associated General Contractors of America, the National Electrical Contractors Association, the Sheet Metal and Air Conditioning Contractors' National Association, ASHRAE and the National Association of Women in Construction (NAWIC)
PUBLICATIONS
- Contributing author: The Design/Build Process, ABA Publications, 1997.
- Contributing author: Fifty State Public Construction Contracting, Wiley Law, 1996.
- Co-author: Recent Legislation Affecting the Construction Industry, The Construction Lawyer, Volume 25, No. 4, Fall 2006.
COMMUNITY INVOLVEMENT
- Recreation Unlimited, adaptive ski program
EDUCATION
- University of the Pacific, J.D., 1986
- Bucknell University, B.A., 1983
