Procurement Case Law – Court Decisions Affecting Procurement

1. Procurement Case Law – Court Decisions Affecting Procurement Virginia Association of Governmental Purchasing Fall Conference October 28th, 2011 KIRK W. BUFFINGTON, CPPO, C.P.M., MBA Acting Deputy Director of Finance City of Fort Lauderdale, FL kbuffington@fortlauderdale.gov 954-828-5144

2. Introduction • Discussion will focus on several court cases from across the Country which have an impact on interpretation of procurement contracts and bid documents.

3. Why

4. Introduction • Finding applicable case law • Trial court decisions are only binding on parties involved • State Appeals court decisions may or may not be controlling – but establish an interpretation • State Supreme Court decisions are always controlling, within the state of proceedings • U.S. Supreme Court Decisions – constitutional issues

5. Gibbs Construction vs. Board of Supervisors, LouisianaState University(447 So. 2d, 90) • Formal bid advertisement required attendance at mandatory pre-bid • One bidder at pre-bid • Gibbs was not present, but submitted low bid • After pre-bid, project architect contacted Gibbs and requested they submit a bid – architect lined through portion of document requiring attendance • Gibbs bid rejected, and bid was awarded to another – Gibbs filed suit**

6. Findings - Gibbs • Court of Appeals – university properly refused to consider bid by Gibbs because the company was not represented at pre-bid, as required in bid documents • Direction by project architect could not override the document requirements*

7. Qualicon Corp v City of Norfolk, VA • Minor technicality or major variation • Building of hypolimnetic aeration system • Following requirement in bidding documents: • Following information shall be included as part of all submittals: 1) detailed drawings and descriptions of all items of equipment, showing all dimensions, parts, construction details, … product data including the make and model of each major item of equipment.” • Major equipment items were defined as “…aerators, in-lake piping, marker buoys, and maintenance boat.”

8. Qualicon Corp v City of Norfolk, VA • Bids opened and PWC (Peters & White Construction) was low bidder • PWC failed to include any information regarding the in-lake piping with its bid • Notwithstanding the PWC Commission, City awarded bid to PWC • Qualicon filed bid protest letter • City rejected protest (PWC’s Commission did not affect the essential competitive elements) • Qualicon filed for judgment in Circuit Court

9. Qualicon Corp v City of Norfolk, VA • Is this a minor defect which can be waived

10. Qualicon Corp v City of Norfolk, VA • IFB required strict compliance • Is City seeking to override clear language requirements of their own IFB • Court is required to reverse an agency’s decision if it is established that the award is not an honest exercise of discretion • VA code defines minor defect of a bid as being a defect that does not affect the price, quality, quantity or delivery schedule for the goods/services

11. Findings • Court reversed award to PWC • Engineering testimony that bidders were aware that submittals were not really required • PWC was intending to submit requirements when PWC was notified by City, on the eve of bids due, that submittals would not be required

12. Harry Pepper & Associates v. City of Cape Coral(352 So. 2d, 1190) • Bid for construction of water treatment plant – required all pump mfg. to be used, must be submitted for approval and acceptance • Gulf contracting submitted bid, but submitted name of mfg. that had not been approved and was not acceptable to engineer • Gulf was apparent low bidder • City engineer contacted Gulf and asked them to indicate they would use acceptable pump mfg. if awarded bid – Gulf did so

13. Harry Pepper (cont.) • Contract awarded to Gulf • Pepper, number two bidder, filed suit, contending change was unlawful • City contended it was a minor irregularity, and in the best interests of the City*

14. Findings – Harry Pepper • Found an unfair atmosphere had been created, as Gulf had everything to gain, and nothing to lose • Gulf was in a position to decide whether it wanted the job bad enough to incur the additional expense of supplying pumps*

15. Peninsula Therapy Center v. VA Dept of Corrections • ITB for providing sex offender treatment • Purpose: competitive sealed bids to obtain treatment for sex offenders • Multiple awards – per person/per session • Services could be provided at DofC, provider’s location, or a combination

16. Peninsula Therapy • First Addendum issued • Determination to term shall be sole discretion of the agency/provider may make recommendations • Second addendum • Determination to terminate shall not be made without conferring w/probation officer in advance. Decision shall be based upon mutual agreement between provider and agency

17. Peninsula Therapy • Notice of Award – Peninsula not listed • Vendor advised that agency found them non-responsive • Part of Peninsula response: “determination to terminate shall be at sole discretion of agency”.

18. Peninsula Therapy • Part to Peninsula's response stated: “if a problem presented does not fall in the staff’s expertise, Peninsula will make appropriate referral”. This issue was not addressed in ITB, and no mention of payment responsibility • Agency found that Peninsula submitted a proposal, not a bid • Peninsula argued that it was providing additional information above the minimum requirement

19. Peninsula Therapy • Peninsula further believed that be signing the declaration that it intended to follow the ITB, made the variances moot, and Peninsula responsive. • Sec 2.2-4301 VA code defines responsive as: a person who has submitted a bid that conforms in all material respects to the Invitation to Bid.

20. Peninsula Therapy • Peninsula further argued that other bidders deviated and these bidders were found to be informalities; these variances consisted of: • Bidders who did not attach bidder certificate were allowed to at later time • Bidder failed to sign/acknowledge addendum • Bidder failed to certify insurance • Bidder failed to provide copy of license • Why was Peninsula non-responsive, and the others not?

21. Peninsula Therapy • Sec 5.13 (c)(1) Vendor’s manual (informality) • A minor defect or variation of a bid or proposal from the exact requirements of the ITB or RFP, which does not affect the price, quality, quantity, or delivery schedule for the good… the procuring agency may, in its sole discretion, waive such informalities or permit the bidder/offeror to correct

22. Accela, Inc., v. Sarasota County • Challenged piggybacking by County • Purchase of software to track land management • County conducted two site visits where software had been implemented • County ‘piggybacked’ on vendor’s (CSDC) most current contract from Wisconsin

23. Accela • From 9 modules to 40 (only 8 common between both) County argued this made the contract “substantially the same” • From $176k to $711k • Implementation from $269k to $688K • 5 YR maintenance from $31K to 179K

24. Accela • “In practice of course, the County (or any agency) and the vendor must draw up a fresh contract. The degree to which this contract can diverge from the other government entity's contract is a significant issue in the present lawsuit.”

25. Accela • Was gov’t arbitrary or capricious in awarding to • Gov’t agency must follow it’s own rules ordinances (City of Hollywood v. Witt) • Terms and scope of new ‘piggybacked’ contract must be substantially the same as original • Cannot use another entity to ‘begin’ negotiation

26. Accela • “…given that the piggyback process contemplated by the Code is intended to be competitive, we cannot agree that the County and CSDC's contract-making process represented a valid manifestation of the piggyback provision. That is, the County was not permitted to use another entity's contracts merely as a “basis to begin negotiations,…”

27. Accela • a public body has wide discretion in soliciting and accepting bids for public improvements and its decision, when based on an honest exercise of this discretion, will not be overturned by a court even if it may appear erroneous and even if reasonable persons may disagree.”Liberty County v. Baxter's Asphalt & Concrete, Inc., 421 So.2d 505, 507 (Fla.1982).

28. Accela • However, we conclude that that County went beyond the bounds of its discretion when it violated its Procurement Code. See Dep't of Transp. v. Groves-Watkins Constructors, 530 So.2d 912, 913 (Fla.1988) (noting that the rule that “an honest exercise of ... discretion cannot be overturned” does not apply when there is a finding of “‘illegality, fraud, oppression, or misconduct’” (emphasis added)) (quoting Liberty County, 421 So.2d at 507).

29. Hewitt Contracting Company, Inc. v. Melbourne Regional Airport(528 So. 2d 122) • Contract for construction work at airport • Date and time for receipt of bids set in advertisement • Hewitt submitted a timely bid as required • Another contractor submitted bid after advertised deadline • This bid was lowest, and ultimately accepted by Airport Authority • Hewitt sued, contending untimeliness of bid submittal disallowed the award to bidder*

30. Hewitt Contracting (cont.) • Trial court upheld right of airport to award to low bidder of their choice • Hewitt appealed this trial ruling to 5th District Court of Appeal*

31. Findings – Hewitt Contracting • Appeals court affirmed ruling of trial court • Airport agency’s legal authority to award a construction contract to a contractor whose bid submission was not timely. • The appellate court found that appellee (airport) has, and should have, the discretion to waive the irregularity of a contractor's untimely bid and to accept the late bid under the circumstances.

32. Dedmond vs. Escambia County Government (244 So., 2d, 758) • Dedmond submitted successful bid for beach concessions – Commission at regular meeting awarded contract to Dedmond • Clerk advised Dedmond, in writing, of contact award • One month later, Commission voted to rescind its award to Dedmond, and to rebid contract • Initial trial court held no binding contract existed as lease had not been executed, and County was within its rights to rescind • Dedmond appealed trial court decision*

33. Findings - Dedmond • Appellant court reversed trial court, and found for Dedmond • Ruling was erroneous • Until acceptance of a bid, bidder is able to withdraw bid, conversely, acceptance of a bid by agency results in a contract, even though formal contract had not been executed*

34. Petroleum Traders Corp, v Baltimore County, MD \

35. When is a contract, a contract Baltimore County is a member of cooperative purchasing group Contract for gasoline and diesel fuel Participating entities would purchase all fuel from successful bidder Counties had option to lock-in a fixed price for fuel over a set period of time, instead of prevailing index Winning bidder would purchase futures to ensure supply at fixed price

36. PTC informed by County that it had won bid and awarded contract • County issued term contract award to PTC signed by Deputy Purchasing Agent “this is notice that contract…has been awarded to you…” • County purchased fuel for a year and a half • Elected to lock in prices for co-op during 3 different periods • Market price rose during each period above locked in price, thus yielding a considerable savings

37. 2005 (Katrina and Wilma) • Prices began to rise • County locked in for 2 additional periods including Dec, 05 to April, 06D • Oil prices then began to fall (significantly) and locked in prices exceeded the available market price • County demanded PTC re-negotiate pricing and PTC refused having already purchased futures • Relationship became adversarial • County continued to order and use of lock in of prices

38. County asked for locked in prices in December, 05, for period April, 06 through December, 06 Prior to purchasing additional futures, PTC requested estimated quantities of fuel and assurances County would honor contract County construed this as a delay and breach of contract County formally terminated contract December 7, 2005 PTC advised County of significant loss this would cause as PTC had purchased the futures as requested. PTC suffered a significant loss and filed suit against County

39. Arguments • What was County’s original argument and justification for termination? • County added an additional argument during initial litigation. What was it?

40. County argued there was never a valid contract • Charter requires that County exec or designee execute commodities contract and that attorney approve as to form. • As neither of these formalities were meant, the contract could not be valid • However the code vests significant authority in the County Agent “to make all purchases for supplies… a power which he may delegate • County was simultaneously arguing that PTC breached a contract, but that no valid contract existed

41. Findings of Trail Jury

42. Martel Constructing v. Montana State Board of Examiners(668 P. 2d., 222) • Successful bidder had failed to acknowledge certain addenda, but was awarded contract, after assurances that bid price included changes required in addenda • Martel (second bidder) filed suit contending failure by bidder to acknowledge addenda made bidder non-responsive • Trial court held in favor of Martel, and ordered State to reject awarded contract • Case was appealed to state supreme court*

43. Findings – Martel • Supreme court reversed lower court • State, in determining qualifications of bidder and ability to perform, are acting in discretionary manner • There was a meeting of the minds between the state and bidder • Successful bidder, in submitting bid bound itself to full performance of contract documents • Failure of successful bidder to make written acknowledgement of receipt of addenda was an immaterial irregularity that could be waived by state • Wide discretion in determining what is best for the agency*

44. Rushlight submitted bid in the amount of $429,444.20., with bid bond Next low bid was $671,000 After opening, Rushlight noted an error in their bid, (omission of $99,225.68), and asked to withdraw bid Bid was awarded to Rushlight, and bid deposit check was cashed Rushlight refused to proceed and sought to recover damages* Rushlight Sprinkler Co., v. City of Portland(219 P. 2d, 732)

45. Rushlight – some facts • 3rd and 4th lowest bids were $673,232 and $684,291 • City officials surmised low bid was too good to be true • Engineer stated bid was “very low”, and a very decided difference between bid and City’s estimate

46. Findings - Rushlight • Court noted that an offer and acceptance are deemed to effect a meeting of the minds, even if offeror made a material mistake, providing acceptor (City) was NOT aware of mistake • But, if acceptor knew of mistake, and if it was basic, or if a reasonable man, should have inferred there was a basic mistake, a meeting of the minds does NOT occur • Bidder must prove that not only was a mistake made, but acceptor had reason to be aware • City was aware of mistake, and sought to take unconscionable advantage of error • Equity is always prepared to grant relief from such situations *

47. Chris Berg v. Alaska DOT(680 P. 2d, 93) • Berg, low bidder, entered price information on wrong line of bid submittal • Mistake did not effect bottom line of bid in any way • State rejected bid as non-responsive • Berg filed suit • District trial court denied Berg’s request for injunction against award, and • Suit was brought to State Supreme Court *

48. Findings - Berg • Supreme court reversed trial court, finding variance was not material and therefore did not compel rejection • Determination of responsiveness of bid is within agency’s discretion, subject to judicial review • Bid error was minor technical defect, not affecting substance of low bid, and therefore it was an abuse of discretion to reject bid on that basis*

49. Fenske Printing v. Brinkman(349 N.W. 2d, 47, South Dakota) • Contract for purchase of legislative printing • Each bidder was required to submit a sample of 50# paper with bid, colors were specifically required to be goldenrod and blue • Low bidder submitted a 50# sample of goldenrod, but a 70# sample of blue • Bid awarded to this bidder • Unsuccessful bidder filed suit claiming low bid was non-responsive*

50. Findings – Fenske • Supreme court held that unsuccessful bidder had not shown that Fenske’s failure to submit two samples of 50# paper gave Fenske any advantage over other bidders, or prevented State from conducting any tests • Failure to show non-responsiveness • In general-unsuccessful bidder has burden of showing successful bidder was non-responsive*