Can a public entity include in its bid instructions the right to recover its legal fees from a bidder if the bidder’s bid protest lawsuit is unsuccessful? In the course of providing advice recently to a client, I came across the following clause in a bidder’s qualification statement:
By submission of any Bid, the bidder agrees that in the event its bid is rejected by the Owner for any reason and such rejection is contested by the bidder through the commencement of legal proceeding, whether in law or equity, the Owner shall be entitled to an award of reasonable attorneys’ fees and costs if the Owner’s rejection of the bid is upheld, affirmed, or otherwise not set aside.
Is this clause even enforceable? In my opinion, such a clause is patently unenforceable as against public policy. It is also a brazen attempt by a public entity to prevent a good faith bid challenge and keep its public bidding process out of the public eye.
First, under PA law, other than on PA Commonwealth contracts, only a taxpayer of the public entity has standing to sue to contest a public bid. Because a taxpayer is not a party to the bid process, this clause cannot be applied to a taxpayer lawsuit to protest the bid.
Does it make a difference if the taxpayer bringing the lawsuit is also a bidder? In my opinion, the answer is no. The bidder’s suit is still brought as a taxpayer, and the bidder should not be treated any differently than an ordinary taxpayer.
It is important to note that public bids are subject to special rules of transparency and fairness, which are designed to prevent fraud, corruption, collusion, and arbitrariness in the award of public bids. Because the highlighted clause seeks to penalize a bidder who files a legal protest but is unsuccessful, the potential penalty – the prospect of having to pay the public entity’s legal fees – might well act as a deterrent to a good faith lawsuit that would serve to expose fraud, corruption, collusion, and arbitrariness in the bidding process. For that reason, in my view, the clause is decidedly against public policy.
If you need assistance with a public contracting issue, feel free to call or email me. I’ll be happy to assist in anyway possible.
Christopher I. McCabe, Esq.
