Citation: 417 Mass. 207
Parties: NORFOLK ELECTRIC, INC., & others1 vs. FALL RIVER HOUSING AUTHORITY.
County: Suffolk
Hearing Date: December 9, 1993
Decision Date: March 7, 1994
Judges: LIACOS, C.J., WILKINS, NOLAN, LYNCH, & GREANEY,
JJ.
In an action seeking a declaration under G. L. c. 231A that the defendant
housing authority was bound to follow the Commonwealth's competitive bidding
laws governing the construction of public buildings in awarding a contract for
the renovation of an existing low income housing development, this court
determined that declaratory relief was appropriate notwithstanding the
plaintiffs' failure to avail themselves of the administrative review procedure
afforded by G. L. c. 149, Section 44H, where the parties had stipulated to the
facts and exhibits; where the position of the Department of Labor and
Industries was clearly in opposition to the plaintiff's position, and it would
have been futile for the plaintiffs to seek relief from the department; and
where resolution of the issue was in the public interest. [209-211] A public
housing authority was not acting as a Federal agent, so as to excuse it from
compliance with the requirements of G. L. c. 149, Sections 44A-44H, the
Commonwealth's competitive bidding statute governing the construction of public
buildings, when it renovated a housing project that it owned, with Federal
funds awarded to it through the Comprehensive Grant Program developed under 42
U.S.C. Section 14371 (1988), where receipt of Federal funds, without more, does
not suffice to convert a local housing authority into an agent of the Federal
government [213]; where the housing authority, and not the Federal government,
had the day-to-day control of the operations and the modernization of the
housing project [213-214]; where Federal law (24 C.F.R. Section 85.36 [b]
[1993]) required compliance with G. L. c. 149, Sections 44A-44H [214-215]; and
where State law (G. L. c. 121B, Section 11) did not provide to the contrary
[215-218].
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1 Gilbert & Becker Co., Inc.; Montle
Plumbing & Heating Co.; A & A Window Products, Inc.; and Associated
Subcontractors of Massachusetts.
Page 208
CIVIL ACTION commenced in the Superior Court Department on June 25, 1993.
The case was heard by John L. Murphy, Jr., J., on a statement of agreed facts. The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
Peter J. Gagne (Joseph M. Corwin with him) for the plaintiffs.
William G. Camara for the defendant.
GREANEY, J. The plaintiffs in this action are an association of subcontractors
and four individual subcontractors who bid on, and perform, public building
construction.2 In the Superior Court, the
plaintiffs sought a declaration under G. L. c. 231A (1992 ed.), that the
defendant, Fall River Housing Authority (authority), was bound to follow the
Commonwealth's competitive bidding laws governing the construction of public
buildings, see G. L. c. 149, Sections 44A-44H (1992 ed.), in awarding a
contract for the renovation of Hillside Manor, an existing low income housing
development, located in Fall River. The plaintiffs also sought to enjoin the
authority from awarding a contract in violation of the Commonwealth's
competitive bidding laws. A judge in the Superior Court entered a preliminary
injunction barring the authority from proceeding under bid documents issued in
violation of G. L. c. 149, Sections 44A-44H. After a nonjury trial, another
judge in the Superior Court concluded that the Commonwealth's competitive
bidding laws did not apply to a renovation project wholly funded by the Federal
government. Judgment was entered for the defendant and the plaintiffs appealed.
We transferred the case to this court on our own motion. We conclude that the
authority must comply with G. L. c. 149, Sections 44A-44H, in awarding the
contract for the renovation of Hillside Manor.
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2 A subcontractor, which has the right to
be considered as a subbidder on a contract for the construction of a public
building, has standing to challenge the award of a construction contract
alleged to violate G. L. c. 149, Sections 44A-44H (1992 ed.). See Quincy
Ornamental Iron Works, Inc. v. Findlen, 353 Mass. 85, 86-88 (1967).
Page 209
1. Facts. The parties' statement of agreed facts and exhibits indicate that the
authority issued bid documents in June, 1993, for the renovation of Hillside
Manor. The renovation project (designated Mass. Project 6-3) consists of the
rehabilitation and modernization of residential apartments, construction of a
community center, rehabilitation of an existing maintenance building, and the
adaptation of an existing structure as a storage facility. The estimated cost
of the project is between $5,000,000 and $10,000,000. The United States
Department of Housing and Urban Development (HUD) has agreed to provide funds
to the authority equal to the cost of the renovation contract through the
Comprehensive Grant Program developed under 42 U.S.C. Section 14371 (1988 &
Supp. III 1991). This Federal legislation has as its primary purpose the
improvement of "the physical condition of existing public housing
projects." 42 U.S.C. Section 14371(a)(1). Grants awarded through the
Comprehensive Grant Program are subject to Federal regulations promulgated by
HUD.
It is agreed that the bid documents issued by the authority do not comply with
the requirements of G. L. c. 149, Sections 44A-44H. The documents fail to
require: filed subbids in various statutory subtrade categories, see G. L. c.
149, Section 44F (1); general contractor certificates of eligibility, see G. L.
c. 149, Section 44D (1) (a); and that general bids be submitted in accordance
with the statutory bid form, see G. L. c. 149, Section 44E (2). Due to the
pendency of this appeal, construction on the project apparently has not
commenced.
2. Jurisdiction. As an initial matter, this court's jurisdiction must be
addressed.3 General Laws c. 149, Section
44H, outlines an administrative procedure before the Department of Labor and
Industries (department) for resolution of a question concerning the
applicability of the competitive bidding
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3 Neither party questioned the court's
jurisdiction over this matter. The judge properly raised the issue on his own
volition. See Litton Business Sys., Inc. v. Commissioner of Revenue, 383 Mass.
619, 622 (1981).
Page 210
provisions to a contract for a public building.4 The plaintiffs did not file a formal protest with the
department before seeking declaratory relief in the Superior Court. As a
general rule, a party's failure to exhaust administrative remedies precludes
resort to a court for declaratory relief. See Ciszewski v. Industrial Accident
Bd., 367 Mass. 135, 140-141 (1975); East Chop Tennis Club v. Massachusetts
Comm'n Against Discrimination, 364 Mass. 444, 446-451 (1973). In certain
circumstances, exceptions to the general rule have been recognized. In cases
where resort to an administrative agency obviously would be futile, and there
is no fact-finding function for the agency to perform, a court may exercise
jurisdiction despite a plaintiff's failure to exhaust administrative remedies.
See Construction Indus. of Mass. v. Commissioner of Labor & Indus., 406
Mass. 162, 166-167 (1989); Ciszewski v. Industrial Accident Bd., supra at 141;
Belfer v. Building Comm'r of Boston, 363 Mass. 439, 441-442 (1973).
It was appropriate for the judge to exercise jurisdiction in this case. The
parties have stipulated to the facts and exhibits. The judge found that, during
the demolition phase of the project, the plaintiffs unsuccessfully sought
relief from the department on the ground relied on in this appeal. The judge
also noted that, in several recent decisions concerning other construction
projects, the department has concluded that a local housing authority
constructing a project with Federal assistance is an agent of the Federal
government, and, therefore, exempt from compliance with the requirements of the
Commonwealth's competitive bidding laws. The department's
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4 General Laws c. 149, Section 44H (1992
ed.), provides, in pertinent part, as follows:
"[T]he commissioner of labor and industries or his designee shall enforce
sections forty-four A to forty-four H, inclusive . . . . [The commissioner]
shall have all the necessary powers to require compliance therewith including
the power to institute and prosecute proceedings in the superior court to
restrain the award of contracts and the performance of contracts in all cases
where, after investigation of the facts, he has made a finding that such award
or performance has resulted in violation, directly or indirectly, of the
provisions of said sections forty-four A to forty-four H, inclusive . . .
."
Page 211
position is clear, and it obviously would be futile for the plaintiffs to seek
relief from the department. The question whether the competitive bidding laws
apply to public construction projects funded by the Federal government is a
matter of public interest, which affects the rights of subcontractors beyond
those involved in the present controversy. See Construction Indus. of Mass. v.
Commissioner of Labor & Indus., supra at 167. That question, as it applies
to Hillside Manor, is one of law. Moreover, additional delay in the renovation
of public housing should be avoided whenever possible. The case is properly
before us.
3. The judge's decision. As has been indicated, the trial was based on a
statement of agreed facts and exhibits. Over the plaintiffs' objection, the
judge also accepted in evidence two letters from David Myers, chief of HUD's
technical services branch in the Boston regional office. The first letter,
dated March 4, 1993, concerned the "demolition phase" of the Hillside
Manor renovation. With respect to procurement, that letter stated: "All
references to State bidding requirements will be removed from said
specification, especially filed sub-bids are not required."
The second letter, dated July 1, 1993 (after the authority issued the bid
documents for the construction phase of the Hillside Manor renovation project),
was sent to "provide [the authority] with guidance on the subject of
procurement, specifically the State regulations for filed sub-bidders."
Myers informed the authority that procurement associated with demolition,
construction, or rehabilitation at Hillside Manor must comply with the Federal
procurement regulations in 24 C.F.R. Section 85.36 (1993), and the provisions
of HUD Handbook 7460.8, REV-1 (Jan. 1993). The letter then quoted from a
decision of the department, Carpenters Union Local No. 49 vs. Lowell Hous.
Auth. (July 18, 1988), in which the department concluded that "[w]hen . .
. a housing authority is functioning exclusively as an agent of the federal
government, with only federal and no state funds on a federally controlled
project in a federally operated building with tenants from a federal tenancy
list, that housing authority is
Page 212
not acting as an instrumentality of the Commonwealth or a political subdivision
of the Commonwealth," and, consequently, the Commonwealth's competitive
bidding laws do not apply. On the basis of this decision, Myers's letter
informed the authority that it too was acting as an agent of the Federal
government, and did not need to comply with the Commonwealth's competitive
bidding laws in awarding the contract for the Hillside Manor renovation.
Apparently relying on Myers's letter of July 1, 1993, the judge concluded that
"the documents submitted in the instant action disclose that [the
authority] is functioning exclusively as an agent of the federal government,
using only federal funds (that must be segregated for the project) on a
federally-controlled project in a federally-operated building with tenants from
a federal tenant list. Under these circumstances, the [authority] is not acting
as an instrumentality of the Commonwealth or a political subdivision of the
Commonwealth within the meaning of [G. L.] c. 149, Section 44A."
The July 1, 1993, letter cannot support such a conclusion. The paragraph of the
letter on which the judge appears to have relied was a quotation from a
department decision pertaining to a wholly different project which is located
in another city.5 No other document
before the judge confirmed that Hillside Manor is "federally
operated" or "federally controlled," or that tenants are
selected from a "federal tenant list." The agreed exhibits are to the
contrary. The Annual Contributions Contract6 between HUD and the authority
-------------------------
5 That decision indicates that the
building in Lowell being renovated was a Federal building and that
"tenants living in the federal building are selected from a different list
than are tenants living in the state-owned buildings." Funds for the
renovation came from HUD, but not through the Comprehensive Grant Program. In
its decision, the department stressed that its conclusion that the
Commonwealth's competitive bidding laws did not apply depended on the wholly
Federal character of the project. We express no opinion as to whether this
decision was correct.
6 Under 42 U.S.C. Section 1437c (1988
& Supp. II 1990) the Secretary of HUD is authorized to make annual
contributions to public housing agencies to assist in the development,
acquisition, or maintenance of low income housing. 42 U.S.C. Section
1437c(a)(1). The Secretary is directed to "embody the provisions for such
annual contributions in a contract guaranteeing their payment." Id. The
authority entered an Annual Contributions Contract with HUD in 1962. An
October, 1992, amendment to the contract provided for HUD assistance to the
authority, through the Comprehensive Grant Program, for modernization of
existing public housing.
Page 213
identifies the authority as the owner of public housing in Fall River developed
with HUD assistance. The bid documents for the construction project also
identify the authority as the owner of Hillside Manor, and they indicate that
the authority has operational control of the renovation of Hillside Manor.
Whether the authority acts as a Federal agent, so as to excuse it from
compliance with the requirements of G. L. c. 149, Sections 44A-44H, when it
renovates a housing project that it owns, with Federal funds awarded to it
through the Comprehensive Grant Program, is a question of law, open for our
resolution on this record. See Cox v. New England Tel. & Tel. Co., 414
Mass. 375, 384 (1993). It is obvious that the receipt of Federal funds, without
more, does not suffice to convert a local housing authority into an agent of
the Federal government. In our opinion, HUD's regulations, binding on the
agency, require that State procurement laws be followed in renovation projects
funded through the Comprehensive Grant Program. No provision of State law
excuses a housing authority from complying with the Commonwealth's competitive
bidding laws when it renovates a development owned by it, unless the receipt of
Federal funds is conditioned on compliance with Federal requirements
superseding, or in conflict with, the provisions of G. L. c. 149, Sections
44A-44H.
4. Receipt of Federal funds. "The Federal Government in no sense controls
`the detailed physical performance' of all the programs and projects it
finances by gifts, grants, contracts, or loans." United States v. Orleans,
425 U.S. 807, 816 (1976), quoting Logue v. United States, 412 U.S. 521, 528
(1973). A State housing authority is not a Federal agent merely because it
receives Federal funds, is subject to audit by the Federal government, and must
comply with Federal standards and regulations. Orleans, supra at 815. It is a
Federal
Page 214
agent only if "its day-to-day operations are supervised by the Federal
Government." Id.
Federal legislation concerning subsidized housing "is superimposed upon
and consciously interdependent with the substructure of local law relating to
housing." Kargman v. Sullivan, 552 F.2d 2, 11 (1st Cir. 1977). State
governments and local authorities retain a significant measure of control over
the administration of, and policies pertaining to, public housing. See Attorney
Gen. v. Brown, 400 Mass. 826, 829-831 (1987). This is particularly true with
respect to renovation projects funded through the recently developed
Comprehensive Grant Program, which has among its basic goals the provision of
"considerable discretion to [public housings authorities] to decide the
specific improvements [to existing public housing stock], the manner of their
execution, and the timing of the expenditure of funds," 24 C.F.R. Section
968.301 (2) (1993), and the allocation of "greater control in planning and
expending funds for modernization, rehabilitation, maintenance and improvement
of public housing developments," 24 C.F.R. Section 968.301 (5) (1993), to
public housing authorities. A public housing authority participating in the
Comprehensive Grant Program develops its own five-year plan for the
modernization of its existing stock of public housing, and it assumes
responsibility for spending Federal grant funds in compliance with this plan.
See 24 C.F.R. Section 968.305 (1993). As a participant in the Comprehensive
Grant Program, the authority, and not HUD, has day-to-day control of the
operations and modernization of Hillside Manor. The authority cannot be said to
be acting as an agent of the Federal government as the United States Supreme
Court has defined the term. See United States v. Orleans, supra at 815-819.
5. HUD regulations. The applicable procurement provision of 24 C.F.R. Section
85.36 (b) (1993), provides: "Grantees and subgrantees will use their own
procurement procedures which reflect applicable State and local laws and
regulations, provided that the procurements conform to applicable Federal law
and the standards identified in this section." The HUD handbook referenced
in Myers's letter of July 1, 1993,
Page 215
states, as to procurement: "[Housing authorities] are also required to
follow applicable State or local laws on procurement . . . . If State or local
law is stricter than Federal standards, then State or local law will
apply." The parties agree that the provisions of G. L. c. 149, Sections
44A-44H, are more stringent than the otherwise applicable Federal
standards.
Regulations properly promulgated by a Federal agency have the force of law.
Their application may not be waived at will by an agency's personnel. See
United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260, 265 (1954);
Montilla v. INS, 926 F.2d 162, 166-167 (2d Cir. 1991); California Human Dev.
Corp. v. Brock, 762 F.2d 1044, 1049 (D.C. Cir. 1985); 3 J.A. Stein, G.A.
Mitchell & B.J. Mezines, Administrative Law Section 13.03 [1] (1977 &
Supp. 1993). In this instance, 24 C.F.R. Section 85.36 (b), referred to as the
"common rule" for grantees, was promulgated by HUD in 1988, at the
direction of the Federal Office of Management and Budget. 53 Fed. Reg. 8034,
8068 (Mar. 11, 1988). It is not contended that the regulation, which would seem
to mandate compliance with the Commonwealth's competitive bidding laws, was
promulgated improperly or was beyond the scope of HUD's authority. Federal law
thus requires compliance with G. L. c. 149, Sections 44A-44H, unless State law
provides to the contrary.7 As a final
point, we examine that issue and conclude that it does not.
6. The effect of G. L. c. 121B. Section 11. The authority argues that it is an
agent of the Federal government based on G. L. c. 121B, Section 11 (b) (1992
ed.), which enumerates certain powers of housing authorities. That legislation
provides, in pertinent part: "Each [housing authority] shall have . . .
the
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7 It appears that Myers's two letters to
the authority, admitted in evidence by the judge, relied on legal decisions of
the department to the effect that the Commonwealth's competitive bidding laws
did not apply to a renovation or construction project of a local housing
authority, when the project was supported by Federal funds. At the time, it was
reasonable for Myers to rely on the department's decisions as accurate
statements of our law. We do not view these letters as an attempt to waive
applicable Federal regulations.
Page 216
following powers . . . (b) To act as agent of, or to cooperate with the federal
government in any clearance, housing, relocation, urban renewal or other
project which it is authorized to undertake . . . ."
In Commissioner of Labor & Indus. v. Lawrence Hous. Auth., 358 Mass. 202
(1970), relying in part on G. L. c. 121B, Section 11 (b), this court concluded
that a local housing authority was permitted to act as a Federal agent for
purposes of acquiring public housing developed by the "turnkey"
method,8 and that, when a housing
authority did so, the department lacked the power to require the housing
authority to comply with the Commonwealth's competitive bidding and minimum
wage laws. Id. at 210. A housing authority desiring to acquire public housing
through the turnkey program was obligated to comply with the Federal
regulations governing the program. The regulations governing the program set
the salaries and wages of those employed in the construction of a turnkey
project. Id. at 208-209.
It was reasoned in the Lawrence Hous. Auth. opinion that, where Federal
regulations defined a program, and where those regulations conflicted in
certain respects with otherwise applicable State standards, "the
Legislature intended that local housing authorities be able to take advantage
of any available Federal assistance in developing low-rent projects." Id.
at 209-210. The power conferred on a local housing authority to act as an agent
of the Federal government, and to cooperate with the Federal government in any
housing project, see G. L. c. 121B, Section 11 (b), was considered sufficiently
broad to excuse compliance with State standards, if insistence on those
standards would preclude participation in a
-------------------------
8 Under this program, a private developer
acquired land and prepared plans for a public housing development. If the
housing authority and HUD approved those plans, the developer proceeded with
construction. The housing authority then purchased the property from the
developer, with HUD funds, on the completion of construction. Commissioner of
Labor & Indus. v. Lawrence Hous. Auth., 358 Mass. 202, 204-205 (1970). The
program was designed to reduce the cost of constructing public housing by
freeing the builder from procedures imposed on a housing agency undertaking a
comparable project. Id. at 207 n.6.
Page 217
Federal program. Id. at 210 & n.11. In Commissioner of Labor & Indus.
v. Boston Hous. Auth., 345 Mass. 406 (1963), a similar conclusion was reached.
Where compliance with the Commonwealth's minimum wage laws would have
conflicted with budgetary requirements of the Federal Public Housing
Administration (the predecessor of HUD), and led, perhaps, to a loss of Federal
funding, it was decided that the Legislature, by permitting a local housing
authority to cooperate with the Federal government, and to receive Federal
funds and loans, intended to excuse the authority from compliance with
otherwise applicable provisions of State law. Id. at 415.
In contrast to the situations described in the preceding cases, the Federal
regulations for the Comprehensive Grant Program contemplate compliance with
State procurement laws in the States which have standards as stringent as, or
more stringent than, Federal standards. This court has observed frequently that
the Commonwealth's competitive bidding laws serve important goals. They enable
"the awarding authority [to] obtain the lowest price among responsible
contractors, [and] to establish an open and honest procedure for competition
for public contracts." Modern Continental Constr. Co. v. Lowell, 391 Mass.
829, 840 (1984). See James J. Welch & Co. v. Deputy Comm'r of Capital
Planning & Operations, 387 Mass. 662, 666 (1982); Interstate Eng'g Corp. v.
Fitchburg, 367 Mass. 751, 757-758 (1975).
The provisions of G. L. c. 149, Section 44A, make clear that the Legislature
did not intend to permit public instrumentalities to avoid compliance with
competitive bidding laws solely on the basis of Federal involvement. Section
44A (2) states quite directly that every contract for construction of a
building by a public agency shall be awarded in accordance with the procedures
set out in Sections 44B-44H. Section 44A (3) adjusts certain deadlines to
accommodate the need for Federal approval, when it is necessary to obtain such
approval. Exceptions to the application of G. L. c. 149, Sections 44A-44H, are
few, and those that exist are narrowly and carefully drawn. See G. L. c. 149,
Section 44A (4) and (5) (a). We do not think
Page 218
that the Legislature intended to permit a local housing authority to rely on G.
L. c. 121B, Section 11 (b), to classify itself as a Federal agent based solely
on the receipt of Federal funds, and so evade compliance with the competitive
bidding laws when the relevant Federal regulations explicitly direct that State
procurement laws should be followed.
7. Relief. The judgment is vacated. The case is remanded to the Superior Court
for the entry of a new judgment pursuant to G. L. c. 231A, declaring that the
authority must comply with the provisions of G. L. c. 149, Sections 44A-44H, in
connection with the contract for Mass. Project 6-3, and for the grant of such
other relief as may be determined to be appropriate.
So ordered.
Page 219
End Of Decision