High Court Bars Suits Over Lost Contract Profits

The California Supreme Court ruled unanimously Monday that companies that lose public contracts despite having the lowest bids cannot sue for lost profits.

In doing so, the court reversed a Court of Appeals decision in favor of a verdict that gave a construction firm $350,000 for lost potential profits.

The company, Kajima-Ray Wilson, submitted the lowest bid to build the Red Line Hollywood-Highland station and tunnels in the Los Angeles subway system. But a bid-evaluation rule that was later thrown out by the court resulted in the $69-million job being improperly awarded to another firm, Tutor-Saliba-Perini.

Kajima appealed the decision but, while the issue was pending, Tutor-Saliba substantially completed construction, according to the Supreme Court. Because it was too late for a court to have Kajima do the work, the company sought to win in court the profits it claimed it would have made.

But the Supreme Court said that amount was speculative and would hurt the public by forcing it to pay twice for the same project--once to the company that actually did the work, and once to the company that should have won the contract.

“Permitting a recovery of lost profits ‘unduly punishes the taxpaying public,” while providing an unfair windfall to bidders like Kajima ‘for effort they did not make and risks they did not take,’ ” Justice Janice Rogers Brown said in the court’s opinion, in which she quotes from another appellate court ruling.

The court said, however, the firm could win $44,869 in costs associated with preparing the bid. That money will be paid by the Los Angeles County Metropolitan Transportation Authority.

Brown wrote that allowing that limited form of damages would provide important leverage on public officials to award contracts properly.