General Contractor’s Recovery for Invalidation of Contract Limited if Contractor Was on Notice of Statutory or Regulatory Violation

Earthmovers of Fairbanks, Inc. v. Dept. of Transp. & Public Facilities, 765 P.2d 1360 (Alaska 1989)

In this case, the Supreme Court of Alaska considered as a case of first impression what remedy is appropriate for a contractor who is awarded a public contract that turns out to violate a statute or regulation.  The facts concerned Earthmovers of Fairbanks (EM), the apparent low bidder for a public project.  When a discrepancy was discovered in the second lowest bid and corrected as permitted by the applicable Standard Specification, the state agency awarded the project to the second lowest bidder.  EM sued and won a permanent injunction.  EM also prevailed on appeal, and the contract was awarded to EM on April 27.  However, on April 30, the Supreme Court of Alaska reversed itself and on May 1, it entered a stay.  Subsequently, EM sued the state agency for damages. 

The court considered what damages, if any, should be awarded to EM in equity.  It noted that where contracts are let in a manner which contravenes the purpose of competitive bidding, courts have declared them to be void.  Under such circumstances, an agency can be estopped from denying the validity of a contract if its agent acted in an “irregular” fashion, technically or procedurally.  However, if the contractor was on direct notice that the procedures violated statutory or regularly requirements, the contractor’s recovery will be limited.  Because EM was on direct notice, the court concluded that EM was entitled only to its actual mobilization costs, and not all the costs associated with equipment standby time.

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