Court Holds Discretionary Immunity Protects Governmental Entity from Tort Liability in Accepting or Rejecting Bids for Public Works Projects

The Nevada Supreme Court held recently that a Boulder City engineer's requirement that a low-bidding general contractor replace a particular subcontractor before the City would accept the bid was an action falling under discretionary immunity and precluded liability against the City for tortious interference of the subcontractor's contract.  City of Boulder City v. Boulder Excavating, Inc., 124 Nev. Adv. Op. 65 (Sept. 11, 2008).  Over a period of several years, Boulder Excavating, Inc. ("BEI"), as a general contractor, secured several accepted bids with Boulder City for public works projects.  In 2000, however, a dispute between BEI and Boulder City over a road construction project occurred and was resolved by protracted arbitration proceedings, after which both parties claimed to have prevailed.

In late 2000 or early 2001, Boulder City solicited bids for the multimillion dollar Veteran's Memorial Park public works project.  McComb Construction, a general contractor, submitted the lowest responsive and responsible bid.  McComb's bid, however, included BEI as a subcontractor.  Boulder City's engineer, Scott Hansen, requested that McComb seek permission to replace BEI with another subcontractor before accepting McComb's bid.  McComb complied with the request, and the City awarded McComb the project.

BEI then brought suit against Boulder City and Hansen for, among other things,  (1) intentionally interfering with the contractual relationship between McComb and BEI; (2) conspiring to evade the public bidding requirements of NRS Chapter 338; and (3) denying BEI of its rights to perform subcontract work.  BEI's claims against Boulder City were based on Hansen's conduct as Boulder City's primary government actor.  The district court found that Hansen was immune as a governmental actor under NRS 41.032(2).  However, despite Hansen's immunity and that the claims against Boulder City were based on Hansen's actions, the court did not find Boulder City immune.

On appeal, the Nevada Supreme Court concluded that the district court erred.  If Hansen was protected by NRS 41.032(2)'s discretionary immunity as a governmental actor, the agency for which he acted was also protected.  Accordingly, the Supreme Court held that Boulder City was also immune because "Hansen was engaged in discretionary acts as defined by NRS 41.032(2), and because he was acting pursuant to his statutory authority in selecting subcontractors under NRS 338.141."

A potential footnote landmine:
In footnote 22, the Supreme Court addresses an argument of BEI that immunity should not be extended to Boulder City on BEI's claim of intentional inference with contract because "governmental actors are not entitled to immunity for illegal intentional acts or acts taken in bad faith."  In addressing this argument, the Court concluded that because Boulder City had not accepted McComb's bid at the time of Hansen's actions, there was no contract with which to interfere.  "[A] putative subcontractor named in a public works bid has no protected property interest in the public works contract because no cognizable claim to damages can arise before an award is made."  In reaching this conclusion, the Court rejected BEI's argument under Clark Pacific v. Krump Constr., Inc., 942 F. Supp. 1324 (D. Nev. 1996).

In Clark Pacific, the Nevada Federal District Court concluded that a "psuedo contract" exists between the general contractor and a subcontractor after the public entity awards the project to the general but before a formal contract is signed between the general and the sub.  The Clark Pacific court did not address BEI's argument on the issue of whether some sort of contractual relationship exists between the general and the sub before the public entity awards the contract to the general.  Therefore, the Nevada Supreme Court is correct that Clark Pacific does not apply to BEI because BEI was substituted before Boulder City had awarded the contract to McComb.  The Court, however, did not need to go so far as to say that, for a subcontractor, "no cognizable claim to damages can arise before an award is made."  The Court's statement forecloses any possible claim for damages by a subcontractor before the public entity awards project.  Depending on future cases that come before the Court, this may become one of those footnotes that the Court retreats from and limits to the facts of this case.

For a full copy of the case:  http://www.nvsupremecourt.us/documents/advOpinions/124NevAdvOpNo65.pdf.