In the July/August 2021 issue I wrote about the 10-year history of the case of Maryland State Highway Administration v. Brawner Builders.
When that column was written, the Maryland Court of Appeals had not yet decided the pending appeal of this case. In August, the court decided the appeal holding that mere pre-approval/pre-qualification is not a “procurement” creating claim rights for a pre-approved supplier against the state. This holding does not change the rights of a bidder to protest an approval or qualification determination. This case is notable not because of the final result, but for the precedent it did not set and the limitation preserved.
This case involved a claim by a subcontractor asserted directly against the Maryland State Highway Administration (SHA), when it should have been asserted as a claim passing-through the prime to the SHA. Under the doctrine of sovereign immunity, it’s good to be the king. Subject only to certain exceptions in every state, suits cannot be brought against the government. In construction projects, that exception is the existence of a contract directly between the state (or state agency) and the contractor/supplier.
In this case, the subcontractor/supplier argued that it had a contract with SHA because of SHA’s pre-approval of the supplier’s operations, and the SHA’s separate approvals (both before production and by an inspector for the state during production) of the supplier’s precast noise barrier wall segments for use in SHA projects. The SHA’s approvals were both general for potentially any future SHA project and for the specific project at issue in this case. Through six rounds before a logical progression of decision-makers, boards, and courts, the supplier succeeded once with its argument.
Ultimately, the Maryland Court of Appeals held that mere pre-approval by a state agency to provide labor or materials to the state for a current, future, potential, or actual project does not create an enforceable agreement between the pre-approved provider and the state. Without an enforceable agreement, the supplier had no contractual claim rights against the state and there were no other exceptions to sovereign immunity. The supplier was subject to the claims process under the contract between the prime contractor and the state.
The supplier was not shooting in the dark with its argument. Relying upon Maryland statutes, the supplier argued it had an enforceable agreement with the SHA because a procurement contract is “an agreement in any form entered into by a procurement agency for . . . the acquisition of services, construction, construction-related services, or engineering services.” Using this definition, the supplier logically argued the SHA’s approval of “engineered concrete mix designs, structural engineering of the noise wall panels and posts” constituted a procurement contract. Afterall, is not the engineering of mix designs and noise wall panels the “acquisition of . . . engineering services”?
In this case, the answer was no because the Court of Appeals reasoned the SHA “procured nothing by [merely] certifying [subcontractor] as a pre-approved supplier of noise barriers.” Although the supplier received pre-approval, the state received nothing in return.
Although not expressly stated, the supplier’s argument could be applied to other approvals by the state, but with the same results. For example, the state’s issuance of a building permit does not create rights against the state for damages or injury arising from the permit issuance. This is true even when an approval was mistaken and caused monetary losses to others (Petition of Angela Taylor, No. 2119, Maryland Court of Special Appeals, May 7, 2019). In Taylor, the City of Baltimore, Maryland approved a building permit for a homeowner with only a 30-ft setback and not the requisite 40-ft setback. Relying on the city’s approval, the homeowner constructed an addition within the setback zone. Only after much legal effort and expenses was a variance granted. The homeowner had no right of action against the city for having mistakenly approved the building permit.
Like Taylor, the Brawner case preserved the contractual exception to sovereign immunity. Under that exception, only when the state opens the door through the creation of an enforceable agreement may a claimant walk through (either directly or indirectly) and, even then, only when every procedural step is strictly followed (e.g., timely written notice). Part of the rationale behind sovereign immunity is that a wider door of exceptions could unnecessarily drain the coffers that should be used for the good of the public. Nevertheless, the king should be benevolent.