State Highway Admin v. Brawner Builders

Md. State Highway Administration v. Brawner, No. 1643, September Term 2019, Argument Date: 11/6/20 Procurement Law A subcontractor is entitled to make a contract claim against a procurement agency only if there is a direct contract between the claimant and that agency. The subcontractor had a contract with a contractor to provide materials on a state highway project. Although the state agency had approved the materials the subcontractor would use in state highway noise barrier wall, that did not suffice to create a contract between the subcontractor and the agency. As such, the subcontractor did not have standing to present a claim against the agency.

The mere approval of a company’s product as being acceptable for a project does not make that company a procurement contractor with standing to make a claim. Timeliness In construction contracts, a contractor must file written notice of a claim against a procurement agency within 30 days after the basis for the claim is known or should have been known and the support for the claim itself must be filed within 90 days after submission of the notice of the claim. The subcontractor alleged the contractor was obligated to pass through its complaints to the procurement agency. The court affirmed the decisions of the Maryland State Board of Contract Appeals to dismiss the claim as untimely because the contractor failed to file a written pass-through notice with the 30 days.

Circuit Court for Baltimore City Case No. 24-C-19003208 REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1643 September Term, 2019 MARYLAND STATE HIGHWAY ADMINISTRATION v. BRAWNER BUIILDERS, INC. Beachley, Gould, Wilner, Alan M. (Senior Judge, Specially Assigned), JJ. Opinion by Wilner, J. Filed: December 18, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic.

Suzanne Johnson 2020-12-18 15:41-05:00 Suzanne C. Johnson, Clerk This case arises under the State procurement law. The State Highway Administration (SHA) rejected claims filed by appellees Brawner Builders, Inc. (Brawner) and Faddis Concrete Products, Inc. (Faddis) on the grounds that (1) Faddis had no procurement contract with SHA and therefore had no standing to file a procurement claim, and (2) the claims filed by Brawner and Faddis were untimely. In an appeal by appellees, the Maryland State Board of Contract Appeals (MSBCA) agreed with SHA on both of those issues and entered a Summary Decision affirming SHA’s rejection of the claims. In a judicial review action, however, the Circuit Court for Baltimore City had a different view.

It concluded, (1) as a matter of law, that Faddis did have a procurement contract with SHA and was entitled to file a claim, and (2) that there was a genuine dispute of material fact as to whether the claims were timely. It therefore vacated the MSBCA summary decision and remanded the case for a hearing on the merits of the claims. Before us is SHA’s appeal from that judgment. We shall reverse the Circuit Court judgment and remand with instructions to affirm the MSBCA order.

BACKGROUND The project that spawned this dispute was the construction of a 0.38-mile noise barrier wall along a stretch of I-95 in Howard County. Noise abatement measures along State highways are required both for Federal funding of highway construction projects and by State law. As a result, in August 2011, SHA issued a Highway Noise Policy that set forth substantive requirements for precast concrete products and a procedure for SHA certification of plants producing those products. Pre-approval of a plant by SHA was required in order for a manufacturer to be eligible to bid on SHA highway projects.

Certification was good for one year, subject to renewal following an annual inspection of the plant and subject also to the manufacturer continuing to operate the plant in conformance with the SHA specifications through a Quality Control Plan. SHA charged a cost reimbursement fee for the cost of inspection and certification. Pursuant to that process, SHA, at some point, certified Faddis’s plant in Downingtown, Pennsylvania as “Qualified for Sourcing on State Projects” and included that plant on its list of pre- approved manufacturers of noise barrier systems. The prime contract for the construction of the 0.38-mile section (Contract No. H02485126) was entered into with Brawner on November 19, 2012.

That contract, for whatever reason, was not placed in evidence in the court proceeding and therefore is not included in the record. In February 2013, Brawner and Faddis entered into a subcontract, evidenced by a purchase order, for Faddis to furnish 40,910 noise wall panels and three access doors. All materials and work were required to be in conformance with the conditions and specifications pertaining to the prime contract. The purchase order was contingent on SHA approval of Faddis as a supplier and made clear that Brawner was obligated to pay for all products ordered, produced, and shipped regardless of any payment to Brawner by SHA.

There were to be no set-offs. Brawner reserved the right 2 to cancel the subcontract if Faddis was in breach of any of its obligations, including the performance or delivery of non-conforming work or materials. In September 2013, Faddis furnished SHA with a sample panel which, on September 27, SHA approved for use on the project. Based on that approval, Faddis began manufacturing the panels for Brawner to erect pursuant to its (Brawner’s) contract with SHA.

SHA employed an outside agency to furnish inspectors to assure compliance with the SHA standards, one of whom was Nick Patras. Mr. Patras was stationed at Faddis’s Downingtown plant for the purpose of inspecting panels destined for the SHA project. No panels were to be shipped without his approval. It appears, at least from SHA’s perspective, that Mr. Patras was not doing his job properly, and he eventually was dismissed.

In March 2014, SHA’s Office of Materials and Technology concluded that panels manufactured by Faddis after November 27, 2013 contained aggregate from an unapproved source, which was a violation of the noise barrier standards, and, as a result, the required strength of the panels could not be determined. Investigations led the Assistant Division Chief for Field Operations (Christopher Gale) to conclude, among other things, that, throughout the production of the panels, Faddis had (1) failed to provide adequate documentation of the source material for the exposed aggregate panels, (2) altered cylinder test data to reflect values higher than what the material actually achieved, (3) used a mix design that did not meet SHA specifications, and (4) was extremely uncooperative about making changes to meet specifications. 3 On May 2, 2014, SHA’s District Engineer, David Coyne, informed Brawner of those conclusions and requested a response as to how Brawner intended to remedy the problem. Faddis was not copied on that letter. Brawner’s project manager responded six days later, on May 8, that the problem was not Brawner’s to remedy, that it involved instead “a breakdown in the fabrication, inspection, and acceptance procedure at an SHA pre-approved concrete precast facility.” The letter requested a temporary partial shutdown of the project and advised that Brawner was reserving its rights to extended contract performance, including monetary compensation.

Brawner added that “we are not requesting either at this time but reserve our right to do so should it become necessary.” On May 9, in a letter to Kevin Iddings, Faddis’s Operations Manager, Mr. Gale set forth in detail the concerns of SHA, which included failure to provide adequate documentation regarding the exposed aggregate material used in the panels, mixing concrete “of inconsistent and questionable quality,” failure to comply with Faddis’s own Quality Control Plan, and using a coarse aggregate from an unapproved source that was not in conformance with Maryland Department of Transportation standards. The letter gave notice that further purchases were suspended for 180 days during which Faddis would be required to take certain specified remedial action. On May 21, Mr. Iddings responded to the points made by Mr. Gale, asserting that, although Faddis “disagree[d] with many of the representations made in the SHA letter,” it remained committed to resolving the outstanding issues to SHA satisfaction. 4 Exacerbating the situation, on June 9, 2014, SHA’s Chief of Concrete Technology Division, Michelle Armiger, sent e-mails to officials at the Virginia and Pennsylvania Departments of Transportation advising them of the problems SHA had been having with Faddis and asking whether they had experienced similar issues. Ten days later, the Director of SHA’s Office of Materials Technology sent an e-mail to those agencies clarifying that the issues mentioned by Ms. Armiger were in dispute, that there was an administrative process in which SHA and Faddis were engaged, and there had been no final determination by SHA.

The next event in this drama consisted of three letters from Faddis on June 23, 2014. One was to SHA’s District Engineer, David Coyne, which stated that it supplemented “notices of claims previously submitted by Brawner,” and advised that SHA’s action had “impacted Faddis as it specifically relates to the contract between Faddis and Brawner” (emphasis added) and had resulted in losses for which “Faddis reserves the right to recover damages for all costs including those related to the idling of Faddis’s plant and equipment and interferences with other contracts and Pennsylvania’s and Virginia’s Departments of Transportation.” Faddis insisted that SHA “take immediate steps to abate the harm to Faddis and address these claims and impacts due to its directions and actions.” The second letter was to Brawner, asking that it provide Faddis with “the notice of claim letter” sent to SHA related to the contract between SHA and Brawner and that it furnish SHA with a copy of “this letter which serves to supplement the prior notice and 5 advise the SHA” of continuing damages. The letter did not identify the alleged notice of claim letter to which it referred. The third letter was from Faddis’s attorney, Paul Logan, to Scott Morrell, the Assistant Attorney General who represented SHA.

In that letter, Mr. Logan took issue with the conclusions reached by SHA as specified in Mr. Coyne’s May 2 letter to Brawner, contended that SHA had acted precipitously and without legal or factual justification, and insisted that (1) all suspensions be lifted, (2) Faddis’s panels be accepted, and (3) the project be deemed complete with no liquidated damages or penalties. Mr. Morrell responded the next day through an e-mail advising Mr. Logan that any procurement claim against SHA had to be filed with the SHA procurement officer by Brawner – the prime contractor with which SHA had a contractual relationship – and that any tort claim had to be filed in accordance with the Maryland Tort Claims Act. The next event occurred on July 16, 2015, when Faddis filed a civil action against Brawner in the U.S. District Court for the Eastern District of Pennsylvania. That action later was transferred to the U.S. District Court for the District of Maryland.

The Complaint was based on Brawner’s failure to “pass through” Faddis’s claim to SHA, thereby precluding Faddis’s claim from being considered by SHA. In that regard, the Complaint alleged that, at all relevant times, “Faddis had a direct contract with Brawner, but no direct contract with SHA” that, in accordance with COMAR regulations, “where claims are being pursued on behalf of suppliers and subcontractors, the claim must be initiated by the prime contractor” and that “Brawner was obligated to pass through all of 6 Faddis’s claims against the SHA and not impede the rights of Faddis to recover the damages it sustained.” Although Faddis alleged that it was entitled to damages due to SHA’s wrongful interference with Faddis’s status as an approved and prequalified supplier, the action was solely against Brawner; SHA was not a party to the action. On August 11, 2015, counsel for Brawner sent a copy of the Federal Complaint to SHA’s District Engineer who, on August 21, acknowledged receipt and accepted it as a Notice of Claim by Brawner. The Federal case was settled and dismissed on December 7, 2017.

The record before us does not reveal the terms of the settlement. No action was taken by SHA on the claim. On May 31, 2018, counsel for Faddis, on behalf of both Faddis and Brawner, requested that SHA issue a written decision on the pending claims. When SHA declined to do so, Faddis and Brawner filed an appeal with MSBCA on September 6, 2018.1 Through a Motion for Summary Disposition, SHA argued that: (1) Except for “contract claims” permitted under the State Finance and Procurement Article (SFP) and implementing regulations in COMAR, SHA enjoys the State’s sovereign immunity; 1 As SHA explains in its brief (p. 8, notes 1 and 2), where a claim satisfying the Code and COMAR requirements for a procurement claim is filed, the procurement agency is required to issue a written decision within 180 days after receipt of the claim.

If it fails to do so, the failure may be “deemed” a denial that may be appealed to MSBCA. See SFP § 15-219(g)(2). At issue in such an appeal, if raised, is whether the claim was a cognizable one that was timely filed. 7 (2) Only a person having a contract with a procurement agency may file a contract claim, and Faddis, as a mere subcontractor with Brawner, does not have that status; (3) Even if it did have that status, having settled its Federal suit against Brawner, Faddis has received a recovery for any contract damages due to SHA’s conduct, and any damages sought as a result of having contacted the Pennsylvania and Virginia departments would not be in the nature of a contract claim; and (4) Brawner was a procurement contractor that could have filed a claim on behalf of Faddis but failed to do so timely. Faddis and Brawner acknowledged that only a procurement contractor may file a procurement claim, but, inconsistently with Faddis’s position in the Federal action, they claimed that Faddis was a procurement contractor entitled to file a claim directly and that it did so.

They based that argument on Faddis’s pre-certification by SHA and the agency’s approval of Faddis’s panels for use in SHA construction projects, which meant that it was, in effect, agreeing to purchase those panels. They asserted that Brawner had given notice of Faddis’s claim in the May 8, 2014 letter and that the forwarding of the Complaint in the Federal action on August 11, 2015 constituted the claim itself. MSBCA rejected that argument. It noted that, under COMAR 21.10.05.06D(2), it was authorized to grant a proposed summary decision – the administrative equivalent of a summary judgment entered by a court – if it finds, after resolving all inferences in favor of the party against whom the motion is made, that there is no genuine issue of material fact and that the moving party is entitled to prevail as a matter of law. 8 As noted, the Board cited two grounds for its decision: first, that, as a subcontractor, Faddis had no standing to make a direct claim against SHA; and second, that Brawner’s pass-through claim on Faddis’s behalf was untimely.

With respect to the first issue, citing its earlier decision in Appeal of Jorge Company, Inc. MSBCA No. 1339 (1982), it concluded: “Faddis does not have a written ‘procurement contract’ with Respondent. Accordingly, Faddis does not have standing to file a contract claim directly with Respondent. Any contract claim Faddis had concerning the Project had to be filed as a pass-through claim by Brawner on behalf of Faddis.” With respect to timeliness, the Board found that Faddis had actual knowledge of a claim at least by June 23, 2014, as evidenced by its letter to Brawner on that date, in which it expressly asked Brawner to forward the letter to SHA to supplement what it believed was a prior notice filed by Brawner. As noted, at the time, Faddis accepted the premise that any claim by it had to be passed through by Brawner.

That required that notice to SHA of such a claim be presented by July 24, 2014 (30 days later). The Board rejected Faddis’s argument that Brawner’s letter of May 8, 2014, in response to SHA’s letter of May 2, could constitute the actual filing of a claim, noting that the letter merely reserved Brawner’s right to file a claim some time in the future. The Board found that the pass-through claim on behalf of Faddis was not filed until August 11, 2015, long past the deadline. In the judicial review action, the Circuit Court correctly identified the principal issue as being whether Faddis had a procurement contract with SHA.

The court regarded 9 that as an issue of law subject to de novo review. It turned to the definitions of “procurement” and “procurement contract” in SFP §§ 11-101(n) and (o).2 In relevant part, “procurement” means the process of buying or otherwise obtaining supplies, services, construction, construction related services and includes “the solicitation and award of procurement contracts and all phases of procurement contract administration.” With exceptions not relevant here, “procurement contract” means “an agreement in any form entered into by a State Executive Branch agency authorized by law to enter into a procurement contract] for procurement.” The court construed the relationship between Faddis and SHA as falling within the ambit of those definitions. It arrived at that conclusion not just on Faddis’s supply of panels for this particular project but on the premise that it had been approved as “a qualified source of its product for a multitude of purposes, not just the project that is before the board in this dispute.” That, the court said, constitutes “an independent procurement contract” founded on its “entitle[ment] to be possibly selected for use in a contract with the State through another contractor.” On that premise, the court held that the Board erred as a matter of law in its determination that Faddis was not a procurement contractor entitled to file a claim directly with SHA. 2 At the time of those events, those definitions were codified as subsections (m) and (n) of § 11-101. Effective October 1, 2019, they were re-codified respectively and without textual change as subsections (n) and (o) due to a new definition in subsection (e) that required the relettering of subsequent definitions.

We shall use the current designations. 10 Turning then to the issue of timeliness, the court concluded that the Board inappropriately weighed evidence on whether there was timely notice of Faddis’s claim. In reaching that conclusion, the court relied on Engineering Mgt. v. State Highway, 375 Md. 211 (2003) for the proposition that “there should be a full hearing on the merits, where the issue of untimely notice is a