California's 4th District Court of Appeal opinion filed on Aug. 31, 2010 will likely be viewed as the leading "bid protest" case for public construction projects Great West Contractors Inc. v. Irvine Unified School District,2010 DJDAR 13815. The opinion will assume that prominent role for at least three reasons. First, the court comprehensively reviewed and analyzed the 26 reported California public contracting bid cases relating to responsiveness or responsibility issued over the past 94 years. Second, the court's analysis brings clarity to the often confused issues of bid "responsiveness" and bidder "responsibility," how to distinguish between the two, and the importance of the distinction. Third, this decision marks the first California bid case to address the issue "of how the statutory mandate that public contracts be awarded to the lowest responsible bidder [can] be readily circumvented," at great financial cost to the public, by basing rejection of a bid on responsiveness when the correct determination is one of responsibility.
The Irvine Unified School District solicited bids for two school modernization projects. On May 8, 2008, the bids were opened and Great West was the apparent low bidder for both projects.
Within 24 hours of the bid opening, another bidder obtained copies of the bid submitted by Great West and immediately filed a bid protest. The protest asserted that Great West inaccurately answered the question whether it had ever been licensed under a different name or number. Great West provided only its current license number on its bid.
The District's staff investigated the bid protest and advised Great West that staff would recommend to its Board to reject Great West's bids on both projects as "non-responsive" because its investigation had revealed that Great West failed to disclose associated licenses. Great West's response explained that it had operated only under the license number listed on it bids and that it had never performed work under the other licenses revealed in the investigation. Furthermore, Great West disputed that its bid was non-responsive, asserting that the "essence of the District staff's proffered rejection…goes to the question of Great West's responsibility," which entitled Great West to a hearing.
At the May 20 board meeting, staff recommended finding Great West non-responsive and awarding the contracts to bidders who submitted higher bids ($500,000 higher on one project and $300,000 higher on the other). The Board adopted these recommendations.
The following day, Great West sent a written request to the District to obtain copies of the bid documents submitted by the bidders who had been awarded the contracts. Counsel for the District responded that he "would need to check" to see if Great West could inspect the document within 10 days.
On May 23, Great West filed suit arguing that it should have received the contract awards. While the judicial challenge was pending, the District and its contractors signed the contracts, which established the start date of the projects as June 3. On June 2, Great West applied for a temporary restraining order, and a hearing was set for June 3. Also on June 2, the District informed Great West that it would provide copies of the requested bid documents on June 4, the day after the temporary restraining order hearing. The trial court heard the matter on June 3 and issued its decision on June 12. It ordered the District to either rescind the contract awards and award to the lowest bidder or appear in court on June 30 to explain why not.
Twenty days after its request, Great West finally received copies of the winning bids and discovered that the parties who had received the contract awards were, in Great West's view, also guilty of omitting associated licenses from their bids. At a July 3 hearing, Great West raised the apparent discrepancy in treatment and claimed it resulted from either favoritism or corruption. The trial judge determined that she would not consider this new information and therefore was "not going to find corruption or favoritism."
The trial court issued a minute order on July 15 holding that Great West's bid was non-responsive, and even if Great West were entitled to a due process hearing (because the alleged defect concerned responsibility), the only relief available would be to afford such a hearing, not to award the contract. As a general rule, a wrongfully rejected bidder's potential monetary damages are limited to the cost of preparing its bid. However, Great West did not request this remedy.
In October, Great West petitioned the court for leave to amend its motion to add a claim for money damages based on the lack of a hearing combined with the apparent favoritism shown the winning bidders. By this point, the work had been completed and Great West's original requested relief was moot. In a minute order issued on Dec. 19, Great West's motion to amend was denied.
Responsiveness focuses on the bid – not the bidder. A bid is responsive if it promises "to do what the bidding instructions demand" and can be "determined from the face of the bid." A determination whether a bid is responsive can "usually" be determined without outside investigation or information. A ruling of non-responsiveness allows a public agency to summarily reject a bid and does not entitle a bidder to a hearing.
On the other hand, a determination of non-responsibility entitles the bidder to a hearing providing certain minimal elements of due process before the District can reject the bid. Responsibility focuses on the bidder – not the bid. A responsible bidder "is one who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity, and experience to satisfactorily perform the public works contract." (Public Contract Code Section 1103.)
By October 2008, however, Great West conceded that its request to be awarded the contract was moot because the work had been completed. The District argued that the court should not proceed. The court disagreed because the non-responsive versus non-responsible issue is a classic example of an issue capable of repetition yet likely to evade review. In public contracts with a short lead-time, as here, an initial determination that the bid is "non-responsive" allows for summary rejection that may readily preclude effective judicial redress. Here, within a month, the case was effectively over, as far as any practical possibility that the lowest bidder might actually obtain the contract. This case is an example of how the statutory mandate that public contracts be awarded to the lowest responsible bidder could easily be circumvented: The agency simply deems some aspect of the winning bidder's bid package to be "non-responsive" in order to award the contract to the next (and perhaps favored) bidder.
The District further argued against the court's continued review since Great West did not allege any "systematic practice" of favoritism and "harming the public fisc" (treasury). The court disagreed. As to favoritism, the District gave one bidder access to its rivals' bids immediately, but "hemmed and hawed" in giving Great West similar access. The District used the delay to prevent the trial court from considering whether those rivals were guilty of the same offense that ostensibly prompted the rejection of the lowest bidder's bid. In terms of harm to the public fisc, "[t]he sweaty haste with which the District consummated the contracts with the higher bidders, contrasted with the delay with which it honored the lowest bidder's request for records, are all susceptible of at least an inference that the fix was in not to award the contracts to Great West."
The Court analyzed the bid protest under the five-factor test for determining whether an alleged defect goes to responsibility established in D.H. Williams Construction Inc.] v. [Clovis Unified School District (2007) 146 Cal.App.4th 757. Was the problem complex, requiring subtle administrative judgment? A failure to disclose associated licenses may be the result of simple oversight, or it may be done intentionally by a contractor to hide past shoddy work. Such a determination is complex and requires some administrative judgment.
Was information from outside the bid required for a determination? Great West's bid was responsive on its face. In order to determine whether the information provided was false, the District had to investigate outside the bidding process.
Was the question susceptible to an objective determination, or was it better handled on a "case-by-case" basis? A failure to disclose associated licenses is properly "suited to a hearing, fact-finding and administrative judgment, rather than summary rejection based on" the review of staff.
Was there a potential for "adverse impact on the professional or business reputation of the bidder?" The allegation of Great West's dishonestly only underscores the fact that the rejection here went to non-responsibility, not non-responsiveness.
Were potentially innocent bidders subject to arbitrary or erroneous disqualification from public works contracting? Rejecting a bid for failing to disclose associated licenses can serve as a conduit for favoritism. Here, the rejection "smells of a concerted effort by the District to find some reason, any reason to reject."
The District's reason for asking for all associated licenses went directly to a valid concern – to determine whether the contractor had a history of shoddy workmanship. The court concluded that this concern raised the issue of bidder responsibility, not responsiveness, and the District should have conducted a hearing before rejecting Great West's bid.
The judgment was reversed and the case was remanded with instruction to allow Great West to amend its petition to state a prayer for relief for its bid preparation costs.
Rachel Gardunio and Randy Parent are attorneys in the San Francisco office of Liebert Cassidy Whitmore. The firm represents educational institutions in the areas of facilities, bidding and business.
Reprinted and/or posted with the permission of Daily Journal Corp. (2010).