Public agencies have little, if any, discretion when awarding public contracts because they are required to award the contract to the lowest bidder, subject to certain minimum qualifications.  These limitations are designed to protect the public and its financial interests, not the bidders.  Losing bidders typically can contest the award only by challenging the bid itself via bid protest, or the bidding process.

A California Appellate Court recently held that second-lowest bidders on public contracts may sue the successful lowest bidder for intentional interference of prospective economic advantage when the lowest bidder won the contract only because it paid its workers less than the wages required by law.  In Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 234 Cal. App. 4th 748 (2015), plaintiffs alleged they would have been awarded public contracts worth almost $15 million if defendant had not decreased its costs by illegally underpaying its workers.  Assuming the facts to be true, the court found that plaintiffs’ allegations were sufficient to create a cause of action against the winning bidder who paid less than prevailing wage.

Consequentially, contractors who fail to pay the prevailing wage may now be liable under tort law in addition to prevailing wage laws.  The court’s holding is limited to losing bidders who can show that they were the actual and lawful lowest bidders.  Because the court did not address the issue of proof, it remains unclear how losing bidders might prove that they would have been the lowest bidder, and that the winner illegally underpaid workers at the time of the bid.

Amanda Beckwith, co-author of this acrticle, is a summer associate in Sheppard Mullin’s San Francisco office.