If any of your work involves public bid construction, you should be familiar with the legal principles applicable to public bidding and bid protests. You may find yourself in a situation where you don't believe the low bidder has met the bid solicitation requirements or, conversely, another bidder may be challenging your bid and seeking to have the public agency throw out your low bid.
For example, say a solicitation is issued for reroofing a portion of a local high school. You probably think you have a good chance of landing the job at a decent price because the job is close to you, you're familiar with the school and you have ideas how the job can be done efficiently.
On bid day, you submit your sealed bid for $265,500, which is a tight price but a price you believe can result in a profitable job for you. To your dismay, you learn at the bid opening that you were the second-lowest of nine bidders and the low bid, from an out-of-state contractor, was $252,000. You are not familiar with the low bidder and don't recall seeing a representative of the low bidder at the mandatory pre-bid conference and walk-through held at the high school two weeks earlier. You ask to review the bid form and bid bond submitted by the low bidder and see the bid bond was signed by a representative of the surety but not the contractor.
What can you do?
At this point, you can submit a bid protest requesting the low bid not be accepted by the school district because the bid does not comply with the bid requirements.
Public construction bids are to be awarded to the responsible bidder who submits the lowest responsive bid. A responsible bidder is one who meets the qualifications in the bid documents and has the capability and resources, including experience, qualifications, management, manpower, equipment and capital, to perform the job.
A responsive bid meets the requirements in the bid documents. Qualifying a bid, taking exception to something in the specifications, not fully completing the bid form, or not submitting and signing all the documents that are to accompany the bid make a bid nonresponsive. Not meeting Minority Business Enterprise or Women's Business Enterprise requirements included in the bid solicitation is another example of a bid deviation that could be grounds for disqualifying a bid.
If the low bidder is not responsible or the low bid is nonresponsive, the low bid may be thrown out and the contract would be awarded to the contractor who submitted the next lowest responsive bid and is considered a responsible bidder.
Discretion of public agencies
Public entities are afforded substantial discretion when awarding public contracts. The purpose of public bid laws is to avoid favoritism, fraud and corruption. As court decisions have said many times, public bid laws exist for the benefit of the public—not to protect bidders' financial interests. As long as there is no evidence of favoritism, fraud or corruption, a public entity's decision to award a contract or grant or reject a bid protest usually will be upheld by a court unless the court finds the public entity acted arbitrarily or capriciously or abused its discretion.
The abuse of discretion standard gives the public agency substantial leeway. When courts are asked to review an agency's decision on a bid protest, judges routinely state they are not going to second-guess the public agency or substitute their opinion for that of the public entity but rather the court's role is limited to determining whether the public agency abused its discretion.
Need to act quickly
Reasons to protest may be:
Some states and local governments have established bid protest procedures that include strict deadlines for submitting a bid protest, and some state statutes and administrative regulations may apply to local government units. Unlike federal government contracts where there are well-established, detailed regulations and procedures governing bid protests, local public agencies and school districts rarely have adopted ordinances or administrative regulations governing bid protests.
If you want to protest a bid, you will want to act before the contract is awarded. Once a public entity has awarded a contract, your likelihood of obtaining the job is all but eliminated even if your bid protest is subsequently found to be well-justified. The objective of your bid protest is to change who is awarded the contract or perhaps prompt a new bid solicitation. A successful bid protest after a contract has been awarded and the job is being performed by another contractor is a hollow victory because you will only be able to recover your bid preparation costs—you will not be able to recover the profits you had hoped to realize had the contract been awarded to your company.
Because relatively few local agencies have established formal procedures governing bid protests, your bid protest is likely to be in the form of a letter to the public entity. Your letter should explain as thoroughly and persuasively as possible the reasons your bid should be accepted or the lower bid of another contractor should be disregarded. Your letter should be accompanied by as much documentation and support for your arguments as you can gather.
You also might request the opportunity to be heard at the public meeting where the contract is scheduled to be awarded. Although you can prepare and present your own bid protest, it is advisable to work closely with an experienced construction attorney who is familiar with the laws applicable to public bidding if you want to maximize your chances of success. Because of the discretion afforded to the public agency, your best chance of prevailing on your protest is at the initial public agency level.
Minor informality or material deviation?
Public bids invariably include a statement that the public agency has the right to waive minor informalities or not make any award. Even if the right to waive minor informalities is not explicitly stated in the bid documents, public agencies have this authority. Most commonly, the issue that arises in bid protests is whether a deviation from the bid requirements is an informality that can be waived or is a deviation from a requirement that affords one bidder an unfair advantage over another or would preclude the public agency from binding the bidder to a bid requirement pertaining to performance of the contract. In other words, is the deviation material or inconsequential?
A discrepancy concerning price, quality, quantity or delivery is generally considered a material error and cannot be waived.
A material error gives one bidder a substantial advantage over others. If a public entity cannot legally bind the bidder to a bid or contract requirement because of the deviation or discrepancy in the bid, the bid typically would be considered nonresponsive. If, for instance, the bidder who submitted the low bid failed to sign or submit a required bid bond so the bidder and his or her surety could not be held liable to the public entity on a bid bond, the deviation would be material and the bid should be disregarded.
A contractor's failure to attend a mandatory pre-bid conference could be valid grounds to discard the contractor's bid. If minutes were distributed to the pre-bid attendees and the minutes clarified various points and were made part of the bid documents in the same manner that pre-bid addenda are sometimes issued before receipt of bids, failure to attend the pre-bid meeting should undoubtedly be classified as a material deviation, making the bid nonresponsive.
Even if there were no minutes issued following a pre-bid meeting, a public agency could disregard the bid submitted by a contractor who failed to attend a mandatory pre-bid meeting. Whenever a mandatory pre-bid conference is included in the bid documents, all those attending should be sure to check their names and company affiliations are properly recorded on the sign-in sheet. If the public entity's records do not reflect the attendance of a contractor's representative at a mandatory pre-bid conference, that contractor's bid might be considered nonresponsive.
For example, if you were the second low bidder for re-roofing the local high school described earlier, you would be on firm ground to protest the school district's potential award to the low bidder who forgot to sign the bid bond (even though the bid bond had been signed by his or her surety) and did not attend the mandatory pre-bid meeting. Each of these deviations would make the low bid nonresponsive.
But what if, despite your protests, the public agency did not promptly throw out the low bid and you fear the public entity might waive the deficiencies to obtain the benefit of the lower bid?
Again, you need to act promptly.
In states that have a formal bid protest procedure, you may have to exhaust administrative remedies before filing a lawsuit. In most states, your next step would be to file a lawsuit in which you ask the court to immediately issue a temporary restraining order to be followed by an injunction, barring the agency from awarding the contract to the low bidder whose bid you believe is nonresponsive.
In some jurisdictions and circumstances, you will file what is called a mandamus action in which you ask the court to order the public agency to take particular action to comply with the law. You will need to prove the bid you are seeking to disqualify deviates in a material way from the bid requirements and that it would be an abuse of discretion for the public agency to waive the deficiencies. If the bid you are challenging is materially nonresponsive, you stand a good chance of having your bid protest sustained and the court will order the nonresponsive bid to be discarded.
Your chances of prevailing in court when you are challenging a low bid you believe to be nonresponsive are better than in most situations where the protesting bidder claims the low bidder is not responsible or the public agency considers you to be a nonresponsible bidder.
Unless a bidder fails to satisfy an objective standard such as not being a licensed contractor in a state that requires licensing, judges rarely override an agency decision regarding whether a bidder is responsible. Cases arise from time to time when a public agency has heard of a complaint, problem or alleged poor performance on an earlier project for a different owner by the apparent low bidder. Courts almost always will defer to the agency's determination of whether the contractor's past performance or present capabilities make the contractor a nonresponsible bidder.
Not responsible
In the 2002 Ohio case Monarch Construction Company v. Ohio School Facilities Commission, Monarch Construction Co., Cincinnati, was the apparent low bidder for the renovation and expansion of a school building for the Tri-Village Local School District, New Madison, Ohio. Peterson Construction Co., Wapakoneta, Ohio, was second. Turner Construction Co., Cincinnati, had been retained to serve as construction manager for the project.
Per the terms of its construction manager agreement, Turner Construction was to investigate the responsibility of bidders and make a recommendation to Tri-Village Local School District. Turner Construction learned Monarch Construction previously had problems on a job with another school district and recommended the Tri-Village Local School District project not be awarded to Monarch Construction. However, Monarch Construction had properly performed four other school construction projects. Based on Turner Construction's recommendation, the Tri-Village Local School District considered Monarch Construction not to be a responsible bidder and awarded the contract to Peterson Construction.
Monarch Construction filed suit seeking a declaratory judgment that the school district's award to Peterson Construction was contrary to law and requested an injunction be issued to prevent awarding the contract and any payment to Peterson Construction. The trial court found the school district's rejection of Monarch Construction's bid was arbitrary because the school district did not weigh the four properly performed contracts against the one that was poorly performed; therefore, the trial court concluded the school district had abused its discretion. The trial court enjoined the school district from awarding the contract to Peterson Construction and ruled the contract had to be awarded to Monarch Construction or rebid.
The school district and Peterson Construction appealed.
The Tenth District Ohio Court of Appeals reversed the decision, ruling the school district was entitled to considerable discretion when determining whether the low bidder was the lowest responsible bidder. The court said the school district was not required to weigh the low bidder's four properly performed contracts against one that was poorly performed. Finding the trial court had improperly substituted its judgment for that of the Tri-Village Local School District and did not afford sufficient discretion to the school district, the Ohio appellate court said because the school district based its decision on information received from Turner Construction, the school district's decision was not arbitrary.
Nonresponsive bids
When a bid protest is based on an alleged nonresponsive low bid, courts may be more rigorous in their evaluation and less deferential to the public agency than in cases where there is some evidence to support the public agency's determination that the low bidder is not a responsible contractor.
In the 2004 case Broadmoor LLC v. Ernest N. Morial New Orleans Exhibition Hall Authority, the Louisiana Supreme Court ruled on the issue of whether a public agency could waive a mandatory pre-bid meeting requirement and other issues regarding bid responsiveness.
In this case, the Ernest N. Morial New Orleans Exhibition Hall Authority wanted to award the Phase IV construction of the New Orleans Convention Center to the low bidder who had submitted a bid of $268,445,500. The low bidder was a joint venture consisting of W.G. Yates Construction Co., Philadelphia, Miss., and Landis Construction Co. LLC, New Orleans, that was formed shortly before bid submittal. The low bid was challenged by the second-lowest bidder, Broadmoor LLC, Metairie, La., who had submitted a bid of $275 million.
Broadmoor submitted its protest to the authority based on alleged "irregularities, deviations and omissions" in the low bid. Specifically, Broadmoor asserted the joint venture's bid was noncompliant because the joint venture failed to include a certificate of insurance or letter of insurability covering builder's risk insurance, failed to attend two mandatory pre-bid meetings and failed to submit the appropriate corporate resolution.
The instructions to bidders required bidders to deliver certificates of insurance or a statement of insurability with their bids to show compliance with insurance requirements. The instructions to bidders went on to say failure to do so may result in the bid being deemed incomplete and nonresponsive.
The insurance requirements required contractors to purchase and maintain builder's risk insurance. Apparently, the joint venture submitted a standard certificate of insurance, which customarily lists commercial general liability, auto liability, umbrella or excess coverage, workers' compensation and employer's liability insurance, and no questions were raised regarding these insurance coverages.
A focus of the bid protest was the joint venture's failure to attach a certificate of insurance covering builder's risk insurance or an affidavit or statement of insurability pertaining to builder's risk insurance.
The advertisement for bids for the project stated two pre-bid conferences would be held at the architect's offices Aug. 22, 2003, and Sept. 5, 2003, and attendance was mandatory.
As of the date of the pre-bid conferences, the joint venture was not formally in existence; the agreement between W.G. Yates Construction and Landis Construction was formally executed Sept. 12, 2003. Because the joint venture was not in existence, Broadmoor argued no representative could have attended the pre-bid conferences. The joint venture contended the joint venture was formed before the date of execution of the written joint venture agreement. Attendance records showed an individual attending the Aug. 22 pre-bid conference signed in as a representative of Yates Construction. No one signed in as the joint venture's representative. Consistent with the argument that the joint venture was formed before execution of the written joint venture agreement, the attendance roster for the Sept. 5 pre-bid conference showed an individual signed in as a Yates/Landis representative.
In response to pre-bid questions, the authority's architect issued an addendum to the contract documents addressed to all holders of the bid documents. The addendum contained pre-bid questions that had been posed to the architect and the architect's responses, including a question asking how bids were to be executed by a joint venture and what documentation would be required. The answer was that if the joint venture was in the form of an entity separate from either of the venture partners, a resolution from that entity was required. If the joint venture was not a separate entity, the bidder must provide a resolution from all joint venturers authorizing the signature on the bid forms.
The W.G. Yates Construction/Landis Construction joint venture was formed as a separate entity. Its bid contained two corporate resolutions, one from W.G. Yates Construction and one from Landis Construction. However, neither resolution mentioned the joint venture; no resolution was submitted by the joint venture; and there was no documentation submitted to verify who was authorized to act on behalf of the joint venture.
Shortly after submitting its bid protest, Broadmoor filed a lawsuit seeking a temporary restraining order, preliminary injunction and permanent injunction seeking to restrain the authority from awarding the contract to the joint venture. The trial court permitted the authority to proceed with the award. Regarding the insurance issue, the trial court found a decision by the authority not to insist on strict compliance with the bid requirement to submit a certificate of insurance or statement of insurability pertaining to builder's risk with the bid was not arbitrary. The trial court judge considered all the other arguments to disregard the low bid to be "nonsubstantial."
Broadmoor appealed, and the appeals court reversed the trial court's ruling. The court of appeals concluded the authority acted arbitrarily and capriciously when accepting the bid from the joint venture. The appeals court said failing to provide a certificate of insurance or letter of insurability regarding builder's risk insurance was a substantive deviation that could not be waived. The court also ruled failure to attend the mandatory pre-bid conferences precluded the joint venture from being considered a qualified responsive bidder.
The joint venture and authority then appealed the court of appeals' decision to the Louisiana Supreme Court. With several justices dissenting, the Louisiana Supreme Court affirmed the court of appeals' decision on each of the three grounds cited in support of the bid protest. The Louisiana Supreme Court ruled the authority abused its discretion when it selected the joint venture's bid as the lowest responsive bid because the authority had impermissively waived the requirements regarding builder's risk insurance, attendance at pre-bid conferences and submission of a resolution concerning the joint venture. The court based its decision on amendments to the Louisiana public bidding statute stating bid requirements shall not be waived by any public entity.
Learning how
Being familiar with the legal principles applicable to bid protests can be a valuable tool if you engage in public bid work. You will be better prepared to defend a bid protest that may be directed at you or to submit your own bid protest when you believe a competitor has gained an advantage resulting from a deviation from bid requirements.
Stephen M. Phillips is a partner with Hendrick, Phillips, Salzman & Flatt, Atlanta.
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