Have you ever wondered what rules govern the award of public contracts by the Philadelphia Gas Works (PGW)? Believe it or not, the answer to this question requires analysis of an ancient Philadelphia Gas Commission document that is more than 50 years old!
PGW is a collection of assets owned by the City of Philadelphia (City) that are used to manufacture and deliver natural gas to citizens residing within the City’s borders. PGW is managed by a non-profit entity, the Philadelphia Facilities Management Corporation (PFMC), pursuant to a 1972 agreement between the City and PFMC. The agreement is itself is authorized by Ordinance No. 455, enacted by the Philadelphia City Council in 1972. The Gas Commission has general oversight over the management and operation of PGW by PFMC.
Regarding PGW contracts, the 1972 ordinance and agreement provide at Section VIII:
Except in the purchase of unique articles or articles which for any other reason cannot be obtained in the open market, competitive bids shall be secured, pursuant to procurement standards adopted and promulgated by the Gas Commission, before any purchase, by contract or otherwise, is made or before any contract is awarded for material and supplies, construction, alterations, repairs or maintenance or for rendering any services to Company other than professional services or for the purchase of any other item, thing or service, and the purchase shall be made from or the contract shall be awarded to the lowest responsible bidder.
Effective June 1, 1963, before the 1972 agreement was executed and approved, the Gas Commission promulgated the following rule for competitive bidding:
Sealed bids shall be used for all purchases and sales in excess of $10,000. Serialized return envelopes with preprinted numbers in sequence shall be given to all bidders with the price quotation form and related specifications. All bids must be received in these envelopes. Invitations to bid shall be sent at least one week prior to bid opening to at least three potential bidders who are qualified technically and financially to submit bids, or in lieu thereof a memorandum shall be kept on file showing that less than three potential bidders so qualified exist in the market area within which it is practicable to obtain bids. All bids received shall be opened at a predetermined time and place designed in the bid document. The Gas Commission shall be notified of each proposed purchase or sale at least one week prior to the bid opening and the Commission may extend the date for bid opening if deemed necessary.
The complete 1963 Gas Commission rule can be found here.
Recently, a bidder filed a lawsuit against PGW alleging that it was improperly excluded from bidding for a PGW contract. PGW argued that it had followed the 1963 rule, and had even invited nine bidders, more than the stated minimum of three bidders. The bidder argued that the rule was arbitrary and improperly limited competition. While the lawsuit did not result in the sought-after injunction, there are good grounds, in my view, to pursue issuance of a permanent injunction, or even an appeal to the Commonwealth Court on grounds that the Gas Commission rule, if still followed by PGW, amounts to an unauthorized, ad hoc pre-qualification process.
For example, who decides on the three bidders who are invited to submit bids? How are potentially qualified bidders notified and selected by PGW for a bidding opportunity? How does a bidder ask, or even know to ask, to be put on a list of potentially qualified bidders? Suppose that, year in and year out, PGW invites the same three paving contractors for its paving work, and no other qualified paving contractors are ever invited to bid, let alone informed that there is a bidding opportunity? How can this be permissible? How are City taxpayers well-served by a rule under which PGW can arbitrarily exclude multiple, qualified bidders? If this rule effectively allows the same three bidders to be invited to bid, over and over, while excluding many other qualified bidders, the rule is a recipe for potential corruption, fraud, or favoritism, not to mention higher prices for what is indisputably public work.
A key principle of public bidding is that a public entity cannot generally exclude bidders from submitting a bid under the guise of a “pre-qualification” program. One of my earlier posts – found here – addressed the question when a public entity can exclude bidders under such a program. The answer is never, unless there is statutory authority for the program and then only if the program is administered in a non-arbitrary fashion.
So, is the Gas Commission rule legal?
There seems no question that the PGW rule amounts to an ad hoc, pre-qualification process. The 1963 rule essentially locks out qualified bidders who are not “pre-qualified” by PGW. Moreover, while there might be ten qualified bidders, PGW only needs to invite three under the 1963 rule; thus, the rule arbitrarily limits competition by vesting unbridled discretion with the PGW officials overseeing a public bidding process. What is more remarkable is that it is unclear how a bidder is added to PGW’s list of qualified bidders, or how PGW determines to remove a bidder from the list of qualified bidders and then to notify the bidder, if at all.
While the 1963 rule does seem to allow PGW to pre-select only three potential qualified bidders, the selection process is not expressly authorized by any statute. Furthermore, the selection process does not appear to be publicized or open for any potentially qualified bidder to participate, has no defined standard against which to measure a bidder’s qualifications, and, finally, permits PGW to arbitrarily limit the number of bidders to three. A secret, pre-selection process is anathema in the law of public bidding. For these reasons, I believe that the 1963 Gas Commission rule is, on its face, an improper and anti-competitive rule of public bidding.
From a cursory review of PGW’s website, it seems that PGW’s requests for proposals are in fact publicized for all to see, and that vendors can even sign up by email to be notified of bidding opportunities. So, it is unclear whether PGW has a truly open bidding process, in which all potentially qualified bidders can respond and participate, without prior exclusion, or whether PGW still pre-determines which bidders are actually invited to submit bids for contract awards. If in fact PGW no longer adheres to the 1963 rule, then the Gas Commission should rescind the rule and enact a new, truly open competitive rule, and PGW should then openly describe its public bidding procedures so that all potential bidders are aware of them and can freely participate for the benefit of City taxpayers.
If you need assistance on this topic, call or email me for a free consultation.
Christopher I. McCabe, Esq.
