The California Supreme Court has filed a ruling that will leave lasting impacts on how special districts and other local governments contract for public works. In the case of Los Angeles Unified School District v. Great American Insurance Company (LAUSD), filed last week, the Court ruled that a public entity may be required to pay extra compensation to a contractor if it knew, but failed to disclose, material facts that would affect the contractor’s bid or performance.

CSDA joined the LAUSD case in an amicus curiae brief filed jointly with League of California Cities and California State Association of Counties. The case stems from a 1999 contract that Los Angeles Unified School District entered into with Hayward Construction Company (Hayward), to correct defects and complete a project it had initially contracted to another company for the construction of an elementary school. After beginning work, Hayward encountered unanticipated costs and sought additional compensation from the school district, claiming that the district had not disclosed the relevant cost factors.

In its ruling, the Court outlined four criteria that all must be met in order to determine that a public entity must provide relief for nondisclosure:

  1. The contractor submitted its bid or undertook to perform without material information that affected performance costs
  2. The public entity was in possession of the information and was aware the contractor had no knowledge of, nor any reason to obtain, such information
  3. Any contract specifications or other information furnished by the public entity to the contractor misled the contractor or did not put it on notice to inquire
  4. The public entity failed to provide the relevant information

As the LAUSD case worked its way through the Court, Assembly Bill 983 and 815 were introduced in 2007 and 2009 respectively by Assembly Member Fiona Ma (D-San Francisco) to address the legal concerns at issue via legislation. CSDA and a number of other local government advocates opposed this legislation, which was sponsored by the Associated General Contractors of California. Governor Arnold Schwarzenegger vetoed AB 983 in 2008. Earlier this year Assembly Member Ma dropped AB 815.

While CSDA is still analyzing the ramifications of the LAUSD case, the ruling appears to have resolved the need for legislation and avoided some of the most significant concerns raised by CSDA regarding AB 983 and AB 815. CSDA will continue to monitor this issue and keep its members updated.  You may read the ruling here in its entirety.