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Court of Appeal Rules Competitive Bids Not Required for School District Entering Into Lease-Leaseback Contracts for New Facilities

May 16, 2016

The California Court of Appeal hamachinery-1241377_1920s issued a new decision regarding the use of lease-leaseback  agreements for school construction projects.  In the case entitled Mcgee v. Balfour Beatty Construction LLC, (Cal App., 2016 DJDAR 4306) plaintiff McGee brought suit against defendants Balfour Beatty and the Torrance Unified School District. Torrance had entered into lease-leaseback agreements with Balfour Beatty for several construction projects relying on the authority of Education Code section 17406.

In its published decision, the Court highlighted the prior lease-leaseback based appellate decisions in Los Alamitos Unified School District v. Howard Contracting, Inc. (2014) 229 Cal App.4th 1222 (Los Alamitos),  and Davis v. Fresno Unified  School District (2015) 237 Cal App.4th 261 (Davis). Relying significantly on Los Alamitos, the Court in McGee held that Torrance was not required to obtain competitive bids prior to entering into contracts for its new facilities.

The Court however went on to conclude that plaintiff McGee should have been permitted to pursue its separate claim against Balfour on the basis that Balfour may have had an improper conflict of interest under Government Code section 1090. According to the court, such circumstances may arise when a construction firm provides pre-construction services to a school district and then enters into a non-competitively bid construction contract with such school district.

Separately, it should be noted that the State Legislature amended Education Code section 17406 effective January 1, 2016. None of those amendments however provided clarification of the issues that have been in dispute in the Los Alamitos, Davis or McGee litigation. Our office has prepared a separate Legal Alert on those amendments.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677.