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California Appeals Court Upholds Right of School Districts to Avoid Competitive Bidding – Glass & Goldberg | Financing, Property & Bankruptcy Law
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California Appeals Court Upholds Right of School Districts to Avoid Competitive Bidding

California Appeals Court Upholds Right of School Districts to Avoid Competitive BiddingA California appeals court has affirmed the statutory right of state school districts to award construction contracts without competitive bidding. The ruling upholds the statutory authority of California Education Code section 17406 that provides:

“The governing board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the term thereof, and provides that title to that building shall vest in the school district at the expiration of that term. The instrument may provide for the means or methods by which that title shall vest in the school district prior to the expiration of that term, and shall contain such other terms and conditions as the governing board may deem to be in the best interest of the school district. “

In Los Altimos Unified School District v. Howard Contracting, Inc. before the Fourth Appellate District of the California Court of Appeals, the plaintiff school district entered into a lease-leaseback agreement with a different contractor. In this type of agreement, a school district may lease its property to a developer for a minimal amount. The developer then completes the construction project and returns the property to the school district. Most of these lease-leaseback agreements are conducted without competitive bidding.

The school district filed a complaint in order to validate the lease-leaseback agreement. Howard Contracting answered the complaint with a challenge that such an agreement is “unconstitutional, unconscionable, illegal, and a theft of public funds.” A trial court granted the plaintiff’s motion for summary judgment, and the defendant filed a notice of appeal.

In its ruling for the school district, the appeals court noted that the evidence showed the school district had complied with the requirements of section 17406, and that the defendant had offered no evidence to challenge that proof at any time during litigation. Instead, the court said, the defendant was seeking to challenge the validity of section 17406.

Relying on a prior interpretation of section 17406 by the California Attorney General, the court found the statute to be plain, explicit and unambiguous in allowing school districts to enter into legal-leaseback agreements without competitive bidding.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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