FAILING TO EMPLOY WBEs OR MBEs IDENTIFIED BY CONTRACTOR IN SECURING AWARD IS NOT FRAUDULENT
In October 2022, an Appellate Court in New York ruled that a general contractor’s failure to employ the WBEs and MBEs it identified in securing an award from the State of New York for construction of a bridge did not amount to an act of fraud. Tutor Perini Corporation v. State of New York, 2022 NY Slip Op 05556 (2nd Dept. 2022).
In Perini, the State of New York sought to dismiss Perini’s claim for extended overhead costs on the project by arguing that it was fraudulently induced into awarding the contract to Perini since it failed to employ the WBEs and MBEs it originally identified to meet the requirement that 18% of the work be performed by minority and women owned subcontractors.
The Appellate Court, in rejecting the State’s arguments, concluded that because Perini met the 18% goal through other MBEs and WBEs, “the contract was ultimately performed in a legal fashion”. Accordingly, even if Perini mispresented the fact that certain subcontractors would be utilized to meet this goal, its failure to hire them resulted in no harm to the State since the goal was achieved with different subcontractors.
As noted by the Appellate Court, under New York law a construction contract “may be unenforceable if it is the product of collusive bidding… or involved a bribery or kickback scheme…which may affect the contract price and the amount due.” Here, since Perini’s failure to use the minority or women owned subcontractors it notified the State it would employ did not ultimately affect the contract price or amount due, it could not be rescinded based upon fraud in the inducement. This is even though the Court acknowledged that two of Perini’s executives were indicted for allegedly employing “front” minority and/or women owned subcontractors.
About the author: George Marco is an attorney practicing in the field of construction law. He also holds a Bachelor of Science in Mechanical Engineering and was previously employed as a Project Manager for a public improvement contractor.
Disclaimer: This article is for informational purposes only and not intended to serve as legal counsel.