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Peckham v. Milroy

Court of Appeals of Washington, Division 1
17 P.3d 1256 (2001) (2001)
ELI5:

Rule of Law:

Under Washington's public utility competitive bidding statute, RCW 54.04.070, a public utility district does not engage in illegal contract splitting when it divides a larger project into separate components of 'work.' The district may use its own employees to perform a work component, provided the practice is consistent with 'prudent utility management,' which allows in-house work using materials valued up to $50,000, exclusive of major equipment costs.


Facts:

  • Snohomish County Public Utility District No. 1 (the PUD) regularly undertook electrical substation projects.
  • For these projects, the PUD divided the overall project into separate components: site preparation work and electrical installation work.
  • The PUD contracted with outside companies for the site preparation work.
  • The PUD used its own regularly employed personnel to perform the electrical installation portion of the projects.
  • In performing this in-house electrical work, the PUD purchased and had its employees install individual items of equipment.
  • The National Electrical Contractors Association (NECA), an association of private contractors, believed its members were being deprived of the opportunity to bid on this electrical work.

Procedural Posture:

  • The National Electrical Contractors Association (NECA) filed a complaint for declaratory judgment and injunctive relief against Snohomish County Public Utility District No. 1 (the PUD) in a state trial court.
  • The PUD moved for summary judgment to dismiss NECA's complaint.
  • The trial court granted the PUD's motion and dismissed the complaint with prejudice, but ruled that NECA could file a new action on certain unpleaded claims.
  • NECA (as Appellant) appealed the trial court's summary judgment dismissal to the Court of Appeals of Washington, Division 1.

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Issue:

Does a public utility district's practice of splitting an electrical substation project into separate components, such as site preparation and electrical installation, and using its own employees for the electrical work, violate the competitive bidding requirements of RCW 54.04.070?


Opinions:

Majority - Kennedy, J.

No. The PUD's practice of splitting a project into separate components of work does not violate RCW 54.04.070. The plain language of the statute distinguishes between 'work' and 'project,' allowing a district to perform a specific task or 'work' with its own employees as part of a larger enterprise or 'project.' This is permissible under the 'prudent utility management' exception, which allows in-house work so long as it is an accepted industry practice and material costs do not exceed $50,000 (excluding the value of major equipment). A related statute, RCW 54.04.080, further supports this by explicitly separating 'electrical facility' construction from 'site preparation,' indicating the legislature contemplated such a division of labor.



Analysis:

This decision clarifies the scope of the 'prudent utility management' exception in Washington's public utility bidding statutes, granting public utility districts significant flexibility. By distinguishing between a 'project' and 'work,' the court affirmed that utilities can legally use their own workforce for specialized tasks within larger construction contracts. This ruling narrows the grounds for legal challenges against public utilities, requiring plaintiffs to specifically plead and prove that a utility's actions violate accepted industry practices or statutory cost limits, rather than arguing that project splitting is inherently illegal.

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