Legal Corner

Editor's note: Following is the first in a two-part series about the competitive bidding process. Part two will be published in the December issue.

Virtually all public construction contracts are awarded through a competitive bidding process. Although bids often are solicited for private work, a private owner is free to award a contract to whomever he chooses using whatever criteria he desires. However, for public work, a public owner commonly will be required by statute or regulation to award a contract to the responsible bidder who submitted the lowest responsive bid.

If a contractor believes a public agency erred in accepting a bid, he can initiate a bid protest. A bid protest can be filed by a low bidder who was not awarded a contract or another bidder who believes the contractor who won the project did not submit a responsive bid or was not a responsible bidder.

Protests

For federal contracts, if a bidder is unsatisfied with an agency's response to his complaint, a bid protest can be filed with the General Accounting Office (GAO). Per the terms of the Competition in Contracting Act of 1984, GAO has 100 calendar days to resolve protests. Filing a protest generally triggers an automatic stay of an agency's award of a contract unless the agency takes steps to override the stay. Alternatively, a lawsuit can be filed with the U.S. Court of Federal Claims or a U.S. District Court.

For state and local public construction projects, bid protest procedures vary. Typically, a disappointed bidder first seeks to persuade an agency of the merits of his position. If unsuccessful, the contractor will need to file a lawsuit with a local court seeking an injunction and request the court enjoin the agency from proceeding while the court considers the bid protest. If a bid protest ultimately is upheld but the contract already is under way, a successful bid protestor will be able to recover only bid preparation costs. Therefore, a bid protestor needs to file suit promptly and obtain an injunction to cause a contract to be awarded to him.

Responsible bidders

A responsible bidder meets the criteria to be awarded the contract that was bid, such as the necessary technical, managerial and financial capabilities to perform the work. Responsibility criteria also can be used by a public owner to try to select a contractor who is competent to perform the solicited work. A public owner will have a fair degree of, but not unlimited, discretion in determining whether a bidder is responsible.

Factors public agencies consider when determining bidder responsibility include experience; financial capability based on demonstrated financial stability, adequate capitalization in proportion to a project's size, and credit and payment history; management skills; organizational ability to perform solicited work; any disbarment or suspension from eligibility to perform state or federal work; any failure to complete work; present workload and contracts; adequacy of plant and equipment; timeliness; and workmanship quality.

Public agencies now seem to be exercising more discretion to disqualify contractors they deem irresponsible. Prequalifying contractors is becoming more common, and agencies that have had negative construction experiences are taking more steps to evaluate contractors' competencies.

In the 2002 case of L.P. Cavett Co. v. Board of Township Trustees, trustees of Washington Township, Ohio, awarded a construction contract to the second-lowest bidder after reading newspaper accounts and speaking informally with another municipality's council members regarding alleged workmanship problems by the lowest bidder on a previous project. The township did not check any of the lowest bidder's listed references, interview engineers from past projects or conduct a formal hearing. The lowest bidder sought to enjoin the township from disregarding his bid and awarding the contract to the second-lowest bidder.

The contractor claimed an investigation consisting of newspaper accounts and conversations was improper and complained the township had refused to consider that the problems on the previous job were caused by defective specifications rather than poor workmanship.

The trial and appellate courts ruled against the contractor. The Ohio Court of Appeals ruled the township could find the lowest bidder "nonresponsible" without conducting a formal investigation and the township's determination could be based on personal knowledge of purported problems from previous projects even if a formal investigation might indicate previous problems were not caused by the contractor.

An appearance of impropriety also may be sufficient to justify an owner's finding that a bidder does not meet a public agency's responsibility criteria. For instance, in the 2001 case Joseph J. Henderson and Son Inc. v. City of Crystal Lake, an Illinois Court of Appeals ruled that a business relationship between a low bidder and project consultant was sufficient to allow the owner to disqualify the bidder though there may not have been actual impropriety.

However, a public agency cannot use its authority to disqualify contractors who meet the agency's established criteria or select a preferred contractor. In the 2001 case Engineering Contractors Association of South Florida Inc. v. Broward County, a Florida District Court of Appeals struck down the county's prequalification procedure because the county selection committee did not allow some contractors who satisfied all the listed prequalification criteria to submit bids.

In 1999, Broward County amended its procurement code and procedures so only contractors who made the county's short list were eligible to submit sealed bids. To be considered for the short list, contractors who wanted to submit bids were required to submit letters of interest describing their experiences on similar projects; staff and equipment that could be dedicated to a project; bonding capacity; current construction projects; affirmative-action goals; references; and project claims and litigation history during the past five years.

County staff reviewed the letters and assigned each contractor a rating for each factor. Spreadsheets then were sent to a selection committee composed of county commissioners and management-level personnel. The selection committee decided which contractors were on the short list and allowed to engage in traditional competitive bidding.

Five contractors and two professional organizations filed suit stating Broward County violated Florida's statute requiring the award of contracts "to the lowest competent bidder." Several plaintiffs alleged they received acceptable scores but were excluded from the short list.

The Florida District Court of Appeals recognized a public agency is not required to accept the lowest bid and has the discretion to consider a bidder's history, honesty, quality of work, skill and business judgment.

In this case, the court found the county's implementation of its new procurement code violated state law because the evidence was that contractors who were found acceptable still were not allowed to bid. The selection committee could not articulate why numerous contractors were excluded from the short list. This allowed for subjectivity and personal preferences, which the competitive-bidding statute is intended to eliminate.

Responsive bids

The most common issue that has caused disappointed bidders to protest an award is whether competing bids are responsive. Bid documents commonly include a provision stating an owner reserves the right to waive bid irregularities. Disputes frequently arise concerning whether a deviation from bid requirements makes a bid nonresponsive or is a minor irregularity that can be waived.

When determining whether a deviation from bid requirements makes a bid nonresponsive or is a minor irregularity that can be waived, two factors generally are controlling: whether the deviation gave a bidder an advantage over other bidders and whether, as a result of the discrepancy, an owner would not have been able to bind the bidder and its surety to execute the contract if the contractor chose not to do so.

For instance, a bidder who fails to bid on all items or a defect related to the performance bond to be furnished would be considered nonwaivable defects because the bidder would not be legally compelled to satisfy the contract requirements based on his bid. On the other hand, a bid bond that did not include the execution date by the contractor or submission of a bid bond rather than a certified check as bid security have been considered waivable irregularities by GAO and a New Jersey appellate court, respectively.

Disputes concerning bid responsiveness focus on whether a deviation from bid requirements is "material" or "mere informality" and whether the deviation had a substantive effect on the competitive bidding process. For federal contracts, federal acquisition regulations state that for a bid to be considered, it must comply in all material respects with the invitation for bids so bidders stand on equal footing. If a bid fails to conform in a material respect to the invitation for bids, it will be rejected. If the defect is immaterial, the bid still will be responsive.

An immaterial defect or variation from the exact requirements is a defect that can be corrected or waived without being prejudicial to other bidders. When there is a minor informality or irregularity, a federal agency can allow a bidder to cure or waive the deficiency, whichever is to the agency's advantage.

Matters relating to price and scope of work almost always are considered material. In the 1997 case Lovering-Johnson Inc. v. City of Prior Lake, the city of Prior Lake, Minn., issued an invitation for bids that contained the following common provision: "The [City] shall have the right to waive informalities or irregularities in the Bid received and to accept the Bid which, in the [City's] judgment, is in the [City's] best interest."

The bid form required contractors to provide a base bid and 11 alternative bids, which were intended to allow the city to select more or less work to fit within its budget. Alternatives 1 through 4 would be "add" alternatives, and alternatives 5 through 11 would be "deduct" alternatives. The preprinted bid form labeled the alternatives as such. The city chose to make an award based on alternative 11.

The bid form submitted by Rochon Corp., Minneapolis, had plus signs written in front of alternatives 9 through 11 even though the preprinted bid form identified these alternatives as "deduct" alternatives. For alternative 11, Rochon's bid stated "+$21,500."

At the bid reading, Rochon's representative recognized the error and informed an official that the bid was intended to be a "deduct." The city accepted Rochon's explanation and allowed Rochon to change alternative 11 by omitting the plus sign.

The effect of the decision lowered Rochon's bid from $2,625,601 to $2,582,601. Wayzata, Minn.-based Lovering-Johnson's bid was $2,589,700. Lovering-Johnson protested, but the city council voted to award the contract to Rochon.

Lovering-Johnson filed suit, seeking an injunction, which was denied. The trial court concluded the city did not violate Minnesota's competitive-bidding law because Rochon's bid for alternative 11 was a minor clerical error or irregularity that the city was permitted to waive as provided in the bid instructions. Lovering-Johnson appealed.

Lovering-Johnson argued the city had no authority to change Rochon's bid after it had been opened; because the modification affected price, it was a material and substantive change. The Minnesota Court of Appeals agreed, relying on a previous decision made by the Supreme Court of Minnesota.

The Supreme Court of Minnesota's view was that a public agency must determine bid responsiveness at the time a bid is opened. Once a bid is opened, a public entity has no authority to make any material changes or modifications to the bid. This rule applies despite provisions in the bid instructions that allow a public entity to waive irregularities. The issue becomes whether a change or modification to the bid is "substantial," or "material."

The test for determining whether a change or variance is material is whether the change gives a bidder a substantial advantage or benefit not enjoyed by other bidders. Price "or other things that go into the actual determination of the amount of the bid" are material and involve the competitive bid's substance. Therefore, the city did not have the authority to revise Rochon's bid.

In finding against Rochon and the city, the Minnesota Court of Appeals said the city's action violated Minnesota's competitive-bidding law. Because Rochon already had performed the work, Lovering-Johnson was entitled to recover its bid preparation costs.

In 1987, a roofing contractor, Harold J. Becker Co. Inc., Dayton, Ohio, protested an award by the U.S. Postal Service (USPS) to the lowest bidder for the reroofing of a facility in Dayton. The contractor claimed the lowest bid was nonresponsive because the bidder failed to acknowledge receipt of an addendum. The lowest bid was $371,420. Harold J. Becker's bid was $372,776.

USPS' contracting office rejected Harold J. Becker's bid protest on the grounds that the lowest bidder's failure to acknowledge the addendum was a minor informality because the addendum had a negligible effect on price, quality, quantity or delivery of services.

Although there was precedent to reject a low bid as nonresponsive when a bidder fails to acknowledge a material amendment, the failure to acknowledge the addendum was considered immaterial because the work referenced in the addendum was required in the original specifications. An addendum is considered nonmaterial when no substantial additional or different requirements are imposed from those in the original invitation to bid.

Double-check bids

Just as you should check to be sure a bid's dollar amount is accurate before submittal, implement procedures to make sure a bid is fully responsive to the solicitation requirements and all bid forms and the bid bond are completed fully and accurately and do not contain inadvertent errors or omissions.

If you detect a technical problem, ambiguity or discrepancy with the specifications or bid documents, make a written pre-bid inquiry or raise the issue at a pre-bid meeting rather than as part of a bid submittal.

If you believe a public agency improperly has awarded a contract to another contractor, there are procedures available for you to have the bid award evaluated.

Stephen M. Phillips is a partner with the law firm Hendrick, Phillips, Salzman & Flatt in Atlanta.