Alaska Supreme Court Opinions made Available by Touch N' Go Systems and Bright Solutions

Touch N' Go, the DeskTop In-and-Out Board makes your office run smoother. Visit Touch N' Go's Website.
  This site is possible because of the following site sponsors. Please support them with your business.
www.gottsteinLaw.com

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Hawken Northwest, Inc. v. State, Dept. of Administration (8/22/2003) sp-5730

Hawken Northwest, Inc. v. State, Dept. of Administration (8/22/2003) sp-5730

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

HAWKEN NORTHWEST, INC.   )
and ADEC, J.V.,                    )    Supreme Court No. S-10455
                              )
               Appellants,         )    Superior Court No.
                              )    1JU-00-839 CI
          v.                  )
                              )    O P I N I O N
STATE OF ALASKA,              )
DEPARTMENT OF            )    [No. 5730 - August 22, 2003]
ADMINISTRATION,               )
                              )
               Appellee.      )
                                                                )

          Appeal  from the Superior Court of the  State
          of  Alaska, First Judicial District,  Juneau,
          Patricia A. Collins, Judge.

          Appearances:  Robert C. Erwin and Roberta  C.
          Erwin,  Erwin  &  Erwin, LLC, Anchorage,  for
          Appellants.   William F. Cummings,  Assistant
          Attorney   General,  and  Bruce  M.  Botelho,
          Attorney General, Juneau, for Appellee.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh,  and Bryner, Justices.  [Carpeneti,
          Justice, not participating]

          BRYNER, Justice.

I.   INTRODUCTION

           Dale  Young/Hawken Northwest, Inc.,  and  ADEC,  J.V.,

(collectively,  Hawken) appeal the Department of Administration's

decision  awarding Hawken $194,097.09 in damages  for  breach  of

contract against the State of Alaska.  Hawken asserts that it  is

entitled  to  significantly  greater  damages  because  the   two

releases  it signed were invalid as a result of economic  duress;

the  construction specifications were ambiguous;  the  department

breached the implied covenant of good faith and fair dealing; and

the  department erroneously denied prejudgment interest.  Because

the  hearing officer's findings and conclusions are supported  by

substantial  evidence and are correct as  a  matter  of  law,  we

affirm the department's decision.

II.  FACTS AND PROCEEDINGS

     A.   Facts

           In  November  1988  the Department  of  Administration

issued  an invitation to bid for a lease of laboratory  space  in

Juneau  for  the  Department of Environmental Conservation.   The

invitation  to  bid provided for an initial ten-year  lease  term

with  options  for  the department to renew  the  lease  for  two

additional  five-year  terms.  Because no  existing  facility  in

Juneau   met   the  specifications  for  laboratory  space,   the

invitation effectively required construction of a new building.

           Hawken  submitted  the lowest bid for  the  laboratory

lease, but the department canceled the invitation to bid in March

1989,  determining that it was in the department's best interests

to  reject  all  bids  without an award.  Hawken  protested,  its

protest  was ultimately upheld, and Hawken was eventually awarded

the contract.

          On July 24, 1989, state contracting officer Walt Harvey

issued a formal notice of the award to Hawken.  Two days later, a

letter from Harvey advised Hawken that the occupancy date for the

new  building would be extended in light of the delay in awarding

the contract and that the department would sign a lease agreement

with   Hawken  when  the  laboratory  was  ready  for  occupancy.

Harvey's letter also reminded Hawken of its obligation to  submit

a  floor  plan within forty-five days and evidence of a financial

commitment  within  sixty days.  Harvey  noted  that  failure  to

comply with these deadlines would be cause for default.

           Hawken's first financing proposal was a lease-purchase

arrangement under which the department would own the building  at

the  end of the lease.  The department rejected this proposal  as

not  complying with the invitation to bid requirements  and  gave

Hawken  an extension of its sixty-day financing deadline.  Hawken

next  submitted a series of proposals for financing through  tax-

exempt  bonds  issued  by various parties.   The  department  was

concerned  about  the  potentially adverse consequences  for  the

department's credit rating posed by this kind of arrangement  and

retained special bond counsel to review the financing proposals.

           On  October 2, 1989, Hawken requested an extension for

the  laboratory  completion date based on  what  it  saw  as  the

department's delay in reviewing the proposed financing documents.

Hawken pointed out that the delay meant that it was now facing  a

fall  start date and winter construction.  The department  denied

the  extension, asserting that any delays resulted from  Hawken's

failure to arrange financing that complied with the invitation to

bid.   Contracting officer Harvey also stated that Hawken  should

have  anticipated increased costs associated with winter when  it

submitted its bid.

            During  this  period  of  financing  negotiations,  a

controversy  arose over whether Alaska's Little Davis-Bacon  Act1

would  apply to the laboratory construction project.  Two  Juneau

labor  unions  filed  a declaratory judgment action  against  the

department  to  establish that the project  amounted  to  "public

construction"  subject  to  Little  Davis-Bacon  prevailing  wage

requirements.2   The department advised Hawken of  the  suit  and

asked  whether  its  bid  included  sufficient  amounts  to   pay

prevailing  wages.   Hawken  responded  that  its  bid  was   not

calculated  based  on  payment of Little  Davis-Bacon  wages  but

included sufficient funds to pay them.

           At  about  the  same  time -  October  1989  -  Hawken

requested that the department sign the laboratory lease  so  that

Hawken   could  pursue  tax-exempt  financing.   The   department

indicated  its reluctance to sign before the building  was  ready

for  occupancy  but  offered to do so in exchange  for  including

lease  provisions  requiring Hawken to indemnify  the  department

against   liability  for  payment  of  Little   Davis-Bacon   Act

prevailing  wages and to release the department from  all  claims

arising   from   alleged  defects  in  the  invitation   to   bid

specifications.  A lease containing these provisions was executed

on November 13, 1989.

           Numerous  construction disputes  regarding  deadlines,

delay,  modifications, and increased costs  occurred  during  the

year   following  the  lease's  signing.   An  especially  thorny

controversy  arose over the building's heating, ventilation,  and

air-conditioning  (HVAC)  system - particularly  the  ventilation

system  for  the  laboratory's  fume  hoods.   Hawken  hired   an

engineering  firm, USKH, to prepare the mechanical  design  plans

for  the laboratory but initially failed to provide USKH with  an

amendment to the contract specifications that required a variable

air  volume  fume  hood  system;3 Hawken sent  USKH  the  amended

specifications only after USKH completed a mechanical design plan

specifying a constant volume ventilation system.  Hawken proposed

USKH's  initial  plan  to the department,  maintaining  that  the

constant  volume system was an improvement over the variable  air

volume  system  specified in the amended invitation  to  bid  and

proposing,  alternatively, that the constant volume system  could

be  modified to work with variable air volume fume hoods.   After

consulting  with  an  engineer,  the  department  rejected  these

proposed  alternatives.   USKH later  redesigned  the  mechanical

plans to provide a variable air volume system, as required by the

amended specifications.

            Meanwhile,  in  November  1989,  Hawken   was   still

attempting  to  secure tax-exempt financing  for  the  laboratory

project  by issuing bonds through a public or non-profit  entity.

Hawken  began negotiating with the City of Kasaan and  determined

that  an  assignment of the department lease from Hawken  to  the

city  would  be required.  On January 31, 1990, Hawken  requested

the  department's  approval  of  the  proposed  assignment.   The

department's special bond counsel reviewed the proposed financing

and   raised   concerns  regarding  the  department's   potential

liability on the bonds.  The Commissioner of Revenue, a member of

the  state bond committee, subsequently advised against approving

the assignment until these wrinkles could be ironed out.

           Hawken  requested an additional extension to  complete

the  laboratory,  expressing frustration  over  the  department's

delay  in approving the proposed bond arrangement; the department

denied   the  request,  responding  that  any  delays  concerning

financing  were  the result of Hawken's proposal  of  alternative

financing approaches that conflicted with the invitation to bid.

            To   resolve  the  department's  remaining   concerns

regarding  the  proposed  bond  financing,  Hawken  obtained   an

irrevocable  letter  of  credit from  Sumitomo  Trust  &  Banking

Company acknowledging that the department had no liability on the

bonds to be issued by the City of Kasaan.  On September 14, 1990,

the  department offered to consent to the assignment of the lease

to  the  City of Kasaan and to extend the occupancy date for  the

laboratory   until  April  30,  1991,  if  Hawken  released   the

department from any claims arising from the delays caused by  its

review of the lease financing proposals.   Hawken agreed to these

terms  and, on September 27, 1990, executed a release  in  return

for  the  department's consent to the assignment of the lease  to

the City of Kasaan.

           Although some preliminary construction work  had  been

done before these financing arrangements were completed, most  of

the  construction work occurred between October 1990 and  October

1991.   The  department accepted occupancy of the  laboratory  on

October 26, 1991.

     B.   Proceedings

           Hawken  filed claims for breach of contract under  the

state  procurement  code on August 27, 1993, asserting  financing

and  construction  damages in excess of  seven  million  dollars.

After  contracting  officer  Harvey  denied  all  claims,  Hawken

appealed to the Commissioner of the Department of Administration.

A  fifteen-day  administrative hearing  was  conducted  before  a

hearing officer.

           In a 106-page decision, the hearing officer found that

a  number of factors had delayed construction: Hawken's inability

to arrange financing that conformed to the original invitation to

bid  specifications and the time consumed by Hawken's efforts  to

arrange  alternative  financing that met  with  the  department's

approval; the need to implement revised mechanical plans for  the

laboratory's   fume  hood  system;  the  need  to   clarify   the

mechanical,  electrical,  and  equipment  specifications  in  the

original  invitation  to bid; severe winter  weather  conditions;

Hawken's  deficient project management; and Hawken's installation

of  a  sprinkler system instead of the originally specified Halon

fire  suppression system.  The hearing officer  also  found  that

both  the  releases  signed by Hawken were valid  and  that  they

effectively   released  all  construction  claims   against   the

department  through September of 1990.  Based on these  findings,

the  hearing officer recommended awarding Hawken only $194,097.09

in  damages, plus prejudgment interest on its award.   On  remand

from  the commissioner, however, the hearing officer reconsidered

the  award of prejudgment interest and concluded that it was  not

legally   permissible.   The  commissioner  adopted  the  hearing

officer's   amended  recommendations,  and  the  superior   court

affirmed  the  department's decision  in  all  respects.   Hawken

appeals.

III. DISCUSSION

     A.   Standard of Review

           We independently review decisions made by the superior

court  as  an intermediate court of appeal.4   When reviewing  an

administrative  decision, we apply our  independent  judgment  to

resolve  questions  of law not involving agency  expertise.5   We

review  agency factfinding under the substantial evidence  test,6

upholding the findings when they are supported by "such  relevant

evidence as a reasonable mind might accept as adequate to support

a  conclusion."7   If  the  agency's findings  are  supported  by

substantial  evidence,  we  "do  not  choose  between   competing

inferences or evaluate the strength of the evidence."8

          B.   Hawken's Releases

           Hawken signed two releases: the first was incorporated

into  the November 13, 1989, Standard Lease Form, and the  second

was the September 27, 1990, Agreement and Mutual Release.  Hawken

argues that both are void because they were signed under economic

duress.

           A signed release agreement may only be invalidated for

economic  duress  when (1) one party involuntarily  accepted  the

terms   of   another,  (2)  circumstances  permitted   no   other

alternative,  and  (3)  the  circumstances  were  the  result  of

coercive  acts by the other party.9  The party claiming  economic

duress  must  prove  all  three prongs by  clear  and  convincing

evidence.10

           The  test  for  the  first prong  simply  requires  an

assertion  of  subjectively involuntary  acceptance.11   Hawken's

claim of economic duress satisfied this prong.12

            The  second  prong's  determination  of  whether   an

alternative  to  accepting the release  terms  was  available  is

objective.13   It  required  Hawken  to  show  that  it  had  "no

reasonable alternative to agreeing" to the department's terms  or

"no  adequate  remedy if the [department's]  threat  were  to  be

carried  out."14  Whether a reasonable alternative existed  is  a

question of fact that depends on the circumstances of the case.15

"An  available  legal  remedy, such as an action  for  breach  of

contract, may provide such an alternative," but may be inadequate

"where  the  delay involved in pursuing that remedy  would  cause

immediate  and  irreparable loss to one's  economic  or  business

interest."16

          Under the third prong, Hawken was required to show that

the department intentionally caused it to enter into the releases

through "wrongful acts or threats."17  Wrongfulness depends on the

circumstances  of the case but may be proved by conduct  that  is

criminal,  tortious, or morally reprehensible.18  In addition  to

proof  of  coercive  acts  by the other party,  the  third  prong

requires  a  causal link between those acts and the circumstances

of the releasing party's economic duress.19

          1.   November 1989 release

           In  November 1989 Hawken agreed to sign a  release  in

exchange  for the department's agreement to sign a lease  on  the

new  laboratory  building in advance of  its  construction.   The

release,   which  was  incorporated  into  the  lease  agreement,

required  that Hawken indemnify the department for Little  Davis-

Bacon  wage claims and released the department from any  and  all

claims by Hawken related to the department's actions or omissions

in soliciting bids under its invitation to bid.

           The  hearing officer found that the 1989  release  was

valid  and not the product of economic duress, ruling that Hawken

had failed to satisfy prongs two and three of the economic duress

test,  because Hawken had other reasonable alternatives  and  the

department  did not engage in coercive conduct or cause  Hawken's

financial instability.

           As to the second prong, the hearing officer noted that

construction had not yet begun when Hawken signed the release and

that  Hawken  had  not  yet entered into any major  subcontractor

agreements.   Because  Hawken  had  made  no  binding   financial

commitments  at  this early stage, the hearing officer  reasoned,

the  company  had failed to prove that executing the release  was

its  only reasonable alternative.  In addition, the officer found

that  Hawken had confirmed that its original bid included  enough

to  pay  the Little Davis-Bacon wages.  The officer decided  that

"[u]nder   these  circumstances,  Hawken  has  not   persuasively

demonstrated that pursuing a contract claim or lawsuit would have

caused  immediate  and  irreparable  loss  to  Hawken's  economic

interests."

           With  regard  to the third prong, the hearing  officer

determined  that the department's conduct did not  amount  to  "a

wrongful   exploitation  of  Hawken's  financial  and  bargaining

position."   The officer found that Hawken derived a  significant

benefit from the release agreement because the agreement required

the  department  to  execute a premature  lease,  which  entitled

Hawken  to  pursue tax-exempt financing.  Thus,  in  the  hearing

officer's  view,  Hawken  received ample  consideration  for  the

release and indemnification.  Moreover, the hearing officer found

no  evidence  of  improper conduct on the department's  part  and

noted, "[e]ven if [the department's] conduct [was] considered  to

be  coercive  or wrongful, there was no causal link between  such

conduct  and  [Hawken's]  financial  condition."   Instead,   the

hearing  officer  attributed  Hawken's  troubled  finances  to  a

stagnant  local economy and difficulties with other projects  and

investments.

          Hawken contends that the hearing officer's findings are

not  supported by substantial evidence.  Hawken asserts  that  it

was  in a severe financial condition, on the verge of bankruptcy,

and   that  its  desperate  situation  was  communicated  to  the

department.   The  company  argues  that  it  would   have   lost

everything  if  it did not agree to sign the release  because  it

could  not build the laboratory without the financing,  which  it

could  not obtain without the signed lease.  Thus, Hawken claims,

it  was  forced to accept the department's terms.   According  to

Hawken,  pursuit  of a contract claim under these  circumstances,

which  the  hearing officer found to be a reasonable alternative,

would have resulted in bankruptcy for the company.

          But substantial evidence supports the hearing officer's

findings  on  the existence of reasonable alternatives.   As  the

hearing officer noted, Hawken had not begun construction, had not

signed  any major subcontracts, and had not yet managed to obtain

approved  financing.  Although Hawken insists that the  financing

it desperately needed depended on the department's willingness to

sign  a long-term lease for the laboratory, the terms of Hawken's

contract obligated the department to lease the building only upon

its  completion.   The release agreement thus required  important

concessions  by both parties: in return for Hawken's  release  of

potential  claims, the department gave up its right to  wait  for

the laboratory's completion before entering into a binding lease.

           Moreover,  while  Hawken's available alternatives  may

well  have  resulted  in further delay, the record  supports  the

hearing  officer's finding that Hawken failed to  establish  that

the  delay  would  have  caused immediate and  irreparable  loss.

Hawken  repeatedly asserts that it would have  been  forced  into

bankruptcy if it had not agreed to the release, but it  fails  to

identify  any substantial evidence to support these assertions.20

Because the hearing officer's finding that Hawken failed to prove

economic   duress  is  not  clearly  erroneous,  we  affirm   his

conclusion that the November 1989 release was validly executed.

           Our  holding  on  this point makes it  unnecessary  to

consider  whether Hawken met its burden of establishing that  the

department  engaged  in  the coercive  conduct  that  caused  its

financial duress.

          2.   September 1990 release

           Hawken  signed the second release in exchange for  the

department's  consent to Hawken's assignment  of  the  laboratory

lease  to  the  City  of Kasaan.  The language  of  this  release

agreement  explicitly acknowledged that Hawken  had  a  potential

claim  against the department for failing to promptly consent  to

the  assignment  and that the department had  a  potential  claim

against Hawken for its failure to deliver the laboratory building

on  deadline.  Under the agreement, the occupancy deadlines  were

extended  and the parties released each other from "any  and  all

claims"  related  to the assignment and lease  amendment  dispute

referred to in the agreement.

           The  hearing officer upheld this release, finding that

Hawken had met its burden of proving involuntariness and the lack

of  a  reasonable alternative but had failed to  prove  that  its

situation was caused by the department's misconduct.  The hearing

officer  found  that  "by September 1990 Hawken's  financial  and

contractual  commitments  to  the  laboratory  project  were   so

substantial  that the delay involved in pursuing a  legal  remedy

would likely have caused immediate and irreparable economic harm,

potentially including bankruptcy."  Moreover, the hearing officer

noted,  Hawken  had  spent  considerable  time  and  expense   in

preparation  for  the bond sale.  Given these circumstances,  the

hearing  officer was convinced that "by the time the bond closing

occurred  in September 1990, Hawken's economic circumstances  did

not permit a reasonable alternative or adequate remedy at law  to

signing the mutual release."

           But the hearing officer remained unconvinced that  the

department coerced Hawken into signing the release by engaging in

wrongful  actions.  The officer found that Hawken's  decision  to

pursue tax-exempt financing was the primary cause of its strained

financial condition and, consequently, that "the circumstances of

Hawken's duress were largely of its own making, not the result of

the  [department's] improper or coercive conduct."  Moreover, the

hearing  officer  found,  the  release  was  not  exploitive;  it

entailed  a  compromise  of substantial  and  genuinely  disputed

claims  by  both  sides:  Hawken released  its  potential  claims

relating  to  the department's delay in approving Hawken's  lease

assignment;  and  by extending the deadline for  completion,  the

department  relinquished its potential claims for Hawken's  delay

in  delivering  a completed building.  Thus, the hearing  officer

found insufficient evidence of misconduct and causation.

           Hawken  challenges these findings as  unsupported  and

clearly erroneous, contending that the release was tantamount  to

a  threat because it was executed on the eve of the bond sale and

the  department knew that Hawken would be forced into  bankruptcy

if the bond sale failed.

           The  department disputes Hawken's characterization  of

the  events preceding the release, contending that Hawken had the

opportunity  to  consult  with counsel  before  agreeing  to  the

release  and  could have changed its mind during the thirteen-day

period  between  the date Hawken notified the department  of  its

agreement and the date of the release's execution.  According  to

the  department,  the  release was simply a  reasonable  business

decision by both parties.

           In  our  view,  the record supports  the  department's

position  on  this  point, which is in accord  with  the  hearing

officer's  findings.   Although  Hawken  presented  evidence   to

support  its  position, the hearing officer could properly  weigh

the  conflicting evidence and decide that its evidence  was  less

credible.

          Hawken also maintains that the department's conduct was

wrongful  because the department knew that the  bond  sale  would

collapse  unless the lease was assigned and took unfair advantage

of  the  situation by demanding the release.  But it  is  unclear

whether  the  department's contract with  Hawken  obliged  it  to

consent  to  the proposed lease assignment.  More  important,  as

already noted, the release was mutual, involving a relinquishment

of substantial claims by both parties. Given these circumstances,

the  hearing  officer could properly find that Hawken  failed  to

prove  any conduct by the department that was criminal, tortious,

or even ethically wrongful.21

           More fundamentally, the hearing officer could properly

find that Hawken failed to prove a clear causal link between  the

department's  opportunistic conduct and  the  circumstances  that

left Hawken with no choice but to agree to the release.  Although

Hawken  insists  that  the department took  unfair  advantage  of

Hawken's  financial  instability, it fails  to  explain  how  the

department's   alleged   misconduct   caused   those    financial

difficulties.  As we have held, "economic necessity - very  often

the primary motivation for compromise - is not enough, by itself,

to void an otherwise valid release."22

           The  facts  in  this case are analogous  to  those  in

Northern Fabrication Co., Inc. v. UNOCAL, where we stated that  a

party "is not allowed to use its financial weakness as a sword to

negate  a  properly  executed release."23  There,  the  plaintiff

seeking  to  void  the  release agreement, Northern  Fabrication,

attributed  problems that led to significant  cost  overruns  and

delays  to the defendant, UNOCAL.24  UNOCAL offered to compromise

by  paying  half  of the cost overrun; after six weeks,  Northern

Fabrication accepted UNOCAL's offer and signed a general release.25

           Alleging  that  UNOCAL knew of Northern  Fabrication's

bankruptcy history, Northern Fabrication argued that the  company

exploited  Northern Fabrication's distressed financial  condition

by  offering  only half of what UNOCAL owed.26   We  nevertheless

upheld  the release, finding that Northern Fabrication had failed

to  establish the third prong of the economic duress test because

it  had  not produced clear and convincing evidence of  either  a

coercive  act on UNOCAL's part or a causal link between  UNOCAL's

conduct   and   Northern  Fabrication's  shaky  finances.27    We

concluded, under those circumstances, that "[c]learly the dispute

with  UNOCAL  contributed  to  Northern  Fabrication's  financial

instability.  However, without evidence that UNOCAL did  anything

criminal,  tortious or even merely wrongful in the  moral  sense,

there  is  no factual dispute on the third prong of the test  for

economic duress."28

           Our holding in Northern Fabrication governs this case.

Like Northern Fabrication, Hawken "may not use the courts to  re-

examine  the  dispute  simply  because  its  financial  situation

limited  its  options  at  the time the  release  was  signed."29

Because  the  record supports the hearing officer's finding  that

Hawken failed to establish either coercive misconduct or a causal

connection, we uphold the hearing officer's conclusion  that  the

September 1990 release was valid.

           Our  affirmance of the hearing officer's findings that

Hawken  failed to prove misconduct or bad faith by the department

in  connection  with  the  1989  and  1990  releases  necessarily

forecloses Hawken's separate claims that the department  violated

the  covenant  of good faith and fair dealing in obtaining  these

releases.

          C.   Ambiguity of the HVAC Specifications

           Hawken  claims various damages in connection with  the

department's insistence that the HVAC system be redesigned to use

a  variable  air  volume  system rather than  a  constant  volume

system, as required by the amended specifications.  Hawken claims

that  the  original construction specifications were "performance

specifications," rather than "design specifications."   According

to  Hawken, this gave it sole discretion to design and  construct

any   type  of  HVAC  system  that  would  meet  the  performance

specifications.   Because  its  constant  flow  system  met   the

specified   performance  standards,  Hawken  alleges   that   the

department should bear the cost of requiring Hawken to change  to

a variable air volume system.

          But the hearing officer concluded that this claim would

be  barred under Hawken's 1989 release, even assuming that it had

legal  merit.  We agree.  The November 1989 lease release covered

all  claims  "directly or indirectly" related to the department's

"actions  or  omissions  in soliciting bids  for  laboratory  and

office  space  under [the invitation to bid]."  Since  the  plain

language  of the release applies to the HVAC claim, our  decision

that the release is valid disposes of the claim.

           Our conclusion on this point also disposes of Hawken's

related  argument  that the department's rejection  of  its  HVAC

design violated the covenant of good faith and fair dealing.

          D.   Implied Covenant Claim

           Hawken  claims that the department used  its  superior

bargaining   position   to   impose   numerous   roadblocks   and

unreasonable demands and maintains that the department's lack  of

cooperation  doubled  the cost of construction  and  cost  Hawken

ownership  of  both  the building and the  lease.   According  to

Hawken, this conduct amounted to a breach of the covenant of good

faith and fair dealing.

           The covenant of good faith and fair dealing is implied

in  every  contract to give effect to the reasonable expectations

of  the  parties,  preventing each party  from  interfering  with

another party's right to receive the benefits of the agreement.30

The  implied  covenant  has both a subjective  and  an  objective

prong.31  "The subjective prong prohibits one party from acting to

deprive  the  other  of  the benefits of  the  contract."32   The

objective  prong requires both parties to act in  a  way  that  a

reasonable person would consider fair.33

          1.   Cancellation of bids

           During  the  interim period between  the  department's

cancellation of the invitation to bid and its reinstatement after

Hawken's protest, the department was engaged in discussions  with

the University of Alaska and the U.S. Forest Service regarding  a

joint  laboratory facility construction project.  Hawken  asserts

that  the department breached the covenant of good faith and fair

dealing by rejecting all bids and secretly using Hawken's bid  as

a benchmark for negotiations regarding the joint laboratory.

           The  hearing officer found this claim to be meritless,

ruling that the department's decision to cancel all bids was  not

made  in  bad  faith and that, in any event, Hawken was  estopped

from asserting this claim by its successful renewal of its bid.

           Although we believe that substantial evidence supports

the  hearing officer's findings, we need not decide the point  on

its  merits,  since  it is barred by the November  1989  release,

which  covers  all claims directly or indirectly related  to  the

department's conduct in soliciting bids.

          2.   Imposition of deadlines

           Hawken  next  claims that the department breached  the

covenant of good faith and fair dealing by stalling its award  of

the  contract and then threatening Hawken with immediate  default

unless  it submitted scale drawings in forty-five days and  proof

of  financing  in  sixty days.  The department responds  that  it

merely  reminded  Hawken  of applicable contractual  deadlines  -

deadlines that Hawken had chosen to accept.

           The  hearing officer rejected Hawken's claim,  finding

that "the [department's] notification of potential default in the

event   of  noncompliance  with  the  [invitation  to  bid]   was

consistent  with  the contract, was not a threat  to  breach  the

contract, and was not done in bad faith."

          We agree.  Substantial evidence supports the finding of

a lack of subjective bad faith, and it was not objectively unfair

for   the   department  to  remind  Hawken  of  its   contractual

obligations.

          3.   Financing delays

           Hawken also maintains that the department breached the

covenant  of good faith and fair dealing by delaying its approval

of   Hawken's  proposal to arrange financing  through  tax-exempt

bonds.    The  hearing  officer  found  the  department's   delay

reasonable  in  light  of  the  bonding  proposal's  novelty  and

complexity.   But  we need not reach the merits  of  this  claim,

since  it is barred by the 1990 release.  After recognizing  that

Hawken had potential claims against the department for failing to

promptly consent to its bond proposal, the 1990 release agreement

expressly  released  the department from  "any  and  all  claims"

related  to this delay.  Our decision upholding the release  thus

disposes of this claim.

          E.   Prejudgment Interest on Hawken's Award of Damages34

          The hearing officer initially recommended that interest

be  awarded on Hawken's damages from the date of the department's

occupancy  of  the  laboratory until paid.  The  Commissioner  of

Administration remanded the matter, directing the hearing officer

to  reconsider  whether the commissioner had authority  to  award

interest  on  a  claim  under the state  procurement  code.   The

hearing officer concluded on reconsideration that Hawken was  not

entitled to prejudgment interest on the damages awarded.   Hawken

challenges this conclusion.

           We  have consistently stated that prejudgment interest

may  not  be  assessed  against  the  state  unless  specifically

authorized   by  legislation.35   "In  other  words,   only   the

legislature   can  waive  the  state's  sovereign  immunity   and

authorize an award of prejudgment interest against the state."36

           Hawken  filed  its claims under the state  procurement

code,37   the  claims  are  "contract  controversies"  under   AS

36.30.620,38  and  they were appealed under AS 36.30.625.39   The

procurement  code  does  not specifically  authorize  prejudgment

interest on awards under these provisions.

           A  provision allowing prejudgment interest  on  awards

against  the  Department of Transportation and Public  Facilities

was added to the procurement code after Hawken filed this suit.40

We  assume for present purposes that this provision would  extend

to  de  facto construction contract claims filed against agencies

other   than   the  Department  of  Transportation   and   Public

Facilities.   Our  conclusion that  the  statute  did  not  apply

retroactively  to Hawken's claim makes it unnecessary  to  decide

the  issue  here.  Hawken asserts that this provision applies  to

all  cases  pending on the provision's effective date.   But  the

legislature  specified  that the prejudgment  interest  provision

would  apply only to "[c]ontroversies for which a claim is  filed

with an agency . . . on or after the effective date of this act."41

Because  Hawken did not file its action on or after the statute's

effective date, the new provision does not apply.

          Since the procurement code does not provide a basis for

Hawken's  prejudgment interest claim, its  claim  could  only  be

granted  if  it  fell  under AS 09.50.280.42   We  have  recently

interpreted this statute in cases similar to Hawken's, concluding

that   it  does  not  authorize awards  of  prejudgment  interest

against  the state in administrative appeals.43  These  decisions

directly  control  Hawken's  claim  and  preclude  an  award   of

prejudgment interest.

IV.  CONCLUSION

          We AFFIRM the department's award.

_______________________________
1AS 36.05.  This act requires that workers on public construction
projects  receive  at  least  the current  prevailing  wage.   AS
36.05.010.
2AS 36.05.010; AS 36.95.010.
3Amendment  1  to  the  invitation to bid, which  the  department
issued  on  December  6,  1988, described  numerous  changes  and
additions to the specifications in the original invitation to bid
and stated, "All fume hoods shall be variable air volume type."
4Anderson  v.  State,  Dep't of Revenue, 26  P.3d  1106,  1108-09
(Alaska 2001); Handley v. State, Dep't of Revenue, 838 P.2d 1231,
1233 (Alaska 1992).
5E.g., Anderson, 26 P.3d at 1109.
6E.g., id.
7Handley,  838  P.2d at 1233 (quotation marks  omitted)  (quoting
Keiner v. City of Anchorage, 378 P.2d 406, 411 (Alaska 1963)).
8Lopez  v.  Adm'r, Pub. Employees' Ret. Sys., 20  P.3d  568,  570
(Alaska 2001); see also Anderson, 26 P.3d at 1109.
9Totem  Marine Tug & Barge, Inc. v. Alyeska Pipeline  Serv.  Co.,
584 P.2d 15, 21 (Alaska 1978).
10Helstrom v. N. Slope Borough, 797 P.2d 1192, 1197 (Alaska 1990).
11Zeilinger  v.  SOHIO Alaska Petroleum Co., 823  P.2d  653,  657
(Alaska 1992).
12See  N.  Fabrication Co., Inc. v. UNOCAL,  980  P.2d  958,  960
(Alaska  1999)  (describing first prong  requirement  as  "almost
meaningless").
13Zeilinger, 823 P.2d at 658.
14Totem Marine, 584 P.2d at 22.
15Id.
16Id.
17Id.
18Id.
19Zeilinger  v.  SOHIO Alaska Petroleum Co., 823  P.2d  653,  658
(Alaska 1992).
20The  record citations in Hawken's brief refer to the following:
testimony that Hawken's owner, Dale Young, was worried about  the
company's finances on an unspecified date; Young's testimony that
his  real  estate  holdings were in danger  sometime  during  the
period  between  December 1988 and March of 1989;  and  testimony
that at the time of the release, there was concern about Hawken's
possible  exposure for the difference in bids if  the  department
canceled  the  award and went with the next lowest bidder.   This
testimony provides only weak support for Hawken's assertion  that
bankruptcy  was  certain if the signed lease  was  not  obtained.
These  after-the-fact expressions of subjective concern  are  not
substantial evidence sufficient to establish clear and convincing
proof of immediate and irreparable economic loss.
21See Totem Marine, 584 P.2d at 22.
22Zeilinger,  823  P.2d at 658  (holding no  economic  duress  by
employer  where  inducement  to  release  claims  was  employee's
burdensome financial circumstances that were of her own making).
23980 P.2d 958, 962 (Alaska 1999).
24Id. at 960.
25Id.
26Id.
27Id. at 961.
28Id.  (quotation marks omitted) (quoting Helstrom  v.  N.  Slope
Borough, 797 P.2d 1192, 1198 (Alaska 1990)).
29Id.
30McConnell v. State, Dep't of Health & Soc. Servs., 991 P.2d 178,
184  (Alaska 1999); accord Restatement (Second) of Contracts  205
(1981)  ("Every contract imposes upon each party a duty  of  good
faith and fair dealing in its performance and its enforcement.").
31McConnell, 991 P.2d at 184.
32Id.
33Id.
34Our  decision  upholding the releases  and  rejecting  Hawken's
implied covenant claims makes it unnecessary to decide any aspect
of  Hawken's  arguments  on damages except prejudgment  interest.
Hawken  acknowledges that the damages issue is  "somewhat murky,"
but asserts that "if th[is] court decides that there is bad faith
or  the  releases are invalid," we should require  a  hearing  to
reconsider damages.  Although Hawken devotes numerous pages to  a
discussion of the specific aspects of damages that it claims were
incorrectly  awarded,  its arguments  appear  to  be  offered  to
establish the need for a remand in the event that Hawken prevails
on either the economic duress or the covenant claims.
35Samissa Anchorage, Inc. v. State, Dep't of Health & Soc. Servs.,
57 P.3d 676, 679 (Alaska 2002); Danco Exploration, Inc. v. State,
Dep't of Natural Res., 924 P.2d 432, 434 (Alaska 1996); Stewart &
Grindle, Inc. v. State, 524 P.2d 1242, 1245 (Alaska 1974).
36Samissa, 57 P.3d at 679.
37AS 36.30.
38AS 36.30.620 provides, in part: "Contract controversies.  (a) A
contractor shall file a claim concerning a contract awarded under
this chapter with the procurement officer."
39AS   36.30.625  provides,  in  part:  "Appeal  on  a   contract
controversy.   (a) An appeal from a decision of  the  procurement
officer  on a contract controversy may be filed by the contractor
with the commissioner of administration . . . ."
40AS   36.30.623   provides,  in  part:  "Interest   on   certain
controversies.  The amount ultimately determined to be due . .  .
accrues  interest at the [statutory] rate applicable to judgments
.  .  . .  In this section, "department" means the Department  of
Transportation and Public Facilities."

41Ch. 98,  4, SLA 2001 (emphasis added).
42AS  09.50.280 authorizes prejudgment interest against the state
for certain contract, quasi-contract, and tort claims covered  by
AS 09.50.250.
43See  Quality Asphalt Paving, Inc. v. State, Dep't of Transp.  &
Pub.  Facilities,  71  P.3d  865, 878-80 (Alaska  2003);  Samissa
Anchorage, Inc. v. State, Dep't of Health & Soc. Servs., 57  P.3d
676,  680 (Alaska 2002); Danco Exploration, Inc. v. State,  Dep't
of Natural Res., 924 P.2d 432, 434 (Alaska 1996).