Commonwealth Court Decides Telwell Appeal And Finds Board Of Claims Has No Jurisdiction To Hear Loan Claim

On April 2, 2014, the Commonwealth Court of Pennsylvania decided the appeal in the case of Telwell, Inc., against the Public School Employees’ Retirement System (PSERS) and affirmed the decision of the Board of Claims that it lacked jurisdiction to hear the underlying claim which arose from a loan made by PSERS to Telwell.

In reaching its decision, the Commonwealth Court recognized that the Board of Claim still retained broad jurisdiction to hear “contract” claims, even where the underlying contracts are not made pursuant to the Procurement Code:

Based upon the expansive construction of the Board’s jurisdiction, which gives effect to the public policy of providing a method of redress to those who contract with the Commonwealth, this Court recently concluded that the Board has jurisdiction over contracts made with a Commonwealth agency, even if the contracts are not made pursuant to the Code.

Nonetheless, the Commonwealth Court was compelled to rule against Telwell on its claim against PSERS finding that the Procurement Code was unambiguous in excluding claims related to loans:

Given the clear and unambiguous language of Section 102(f.1), this Court is constrained to hold that the Board does not have subject matter jurisdiction over the Restated Claim.

The Commonwealth Court, however, handed Telwell a partial victory when it remanded the matter to the Board of Claims with instructions to transfer the Telwell claim against Grandbridge Real Estate Capital LLC to the Court of Common Pleas of Philadelphia County. Grandbridge is a private entity without sovereign immunity and was the servicer on the loan to Telwell.

My earlier post on the Telwell v. PSERS dispute can be found here.

The Commonwealth Court decision can be found here.

Posted on May 15, 2014 by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code Comments Off

Public Bidding Hall of Fame: Yohe v. Lower Burrell

This post is one in a continuing series intended to highlight significant Pennsylvania court decisions in the area of public bidding. The decision highlighted here concerns the core purpose of public bidding requirements.

In 1965, the Pennsylvania Supreme Court decided Yohe v. Lower Burrell, 208 A.2d 847 (Pa. 1965). In Yohe, the City of Lower Burrell had sought to award exclusive contracts for garbage collection. Six persons, including the taxpayer plaintiff, were asked to enter into three year contracts under which each would be granted the exclusive privilege to collect garbage in a specified district and to collect fees not to exceed a monthly maximum of $1.50 from each home serviced. No direct payments would be made from the city’s treasury.

A taxpayer sued to challenge the city’s actions, arguing the the Third Class City Code required competitive bidding. The trial court dismissed the complaint, holding that the statutory bidding requirements applied only where a city made payments of more than $1,000 and that no such payments by the city were involved. An appeal was taken. The issue on appeal was whether the city could award exclusive contracts for the collection of garbage without first advertising for bids where each contract involved sums in excess of $1,000 to be paid, not from the city treasury, but directly by city residents.

The Supreme Court disagreed with the trial court and reversed, stating first as follows:

Bidding requirements ‘are for the purpose of inviting competition, to guard against favoritism, improvidence, extravagance, fraud and corruption in the awarding of municipal contracts, and to secure the best work or supplies at the lowest price practicable, and are enacted for the benefit of property holders and taxpayers, and not for the benefit or enrichment of bidders, and should be so construed and administered as to accomplish such purpose fairly and reasonably with sole reference to the public interest.’ (Footnotes omitted.) 10 McQuillan, Municipal Corporations § 29.19, at 266-67 (3d ed. 1950).

The Court then found that it made no difference that the city itself was not making a direct payment to the garbage collector:

The need for bidding requirements is just as compelling in the instant case where the garbage collector is compensated directly by the recipients of his service as it is when the recipients pay for service through the conduit of the municipal treasury. In each case, regardless of who makes the final payment, it is the taxpaying citizen who provides the necessary funds and whose interest must be protected. The provisions of the Third Class City Code in issue here were enacted to insure that protection. We cannot interpret those sections in a way which would substantially emasculate their protective objectives and thereby encourage the objectionable practices which the Act seeks to eliminate. The language of the Act compels the interpretation that competitive bidding is required on these contracts even though the money comes directly from the taxpayers rather than from the city treasury.

The Yohe decision has been cited numerous times in public bidding cases, and its language regarding the purpose of public bidding has stood the test of time. The Yohe holding is also significant for another reason – if a government entity is making a contract, it’s likely to be viewed as a public contract, one that must meet the requirements of public bidding and public contracting, even if the public treasury is unaffected.

The Yohe decision can be found here.

Posted on April 22, 2014 by Christopher I. McCabe, Esq. in Court Decisions, Hall of Fame Decisions Comments Off

Who Can Be Excluded From Public Bidding?

When a public bid is issued, can a municipality refuse to accept or open bids from any bidder it chooses?

The answer is, yes and no. In some cases, a municipality may engage in a pre-qualification process and exclude certain bidders, provided that one is mandated or allowed by statute or ordinance. On the other hand, where there is no statutorily prescribed pre-qualification process, a municipal official cannot exclude certain persons from bidding under the guise of a “pre-qualification” program. Two not-so-recent cases illustrate this point very nicely.

In Flaherty v. Allegheny Contracting Industries, Inc., 6 Pa. Cmwlth. 164, 293 A.2d 639 (1972), the City of Pittsburgh advertised for bids for the supply of asphalt. The city refused one contractor’s bids and returned them on three occasions. The Mayor then advised the contractor that its name was being stricken from a list of responsible bidders, and that its future bids would be returned unopened. When the contractor’s subsequent bid was returned unopened, the contractor filed suit for mandamus to have its bid opened. The trial court rejected attempts by the city to have the case dismissed. On appeal, the Commonwealth Court also rebuffed the city’s efforts, ruling as follows:

The lower court was also correct in holding that the Mayor and the Director of Public Works had a clear legal duty to receive the bids, to open them and read them aloud. There is nothing in the statute and Ordinance, quoted above, which would authorize the Mayor to institute, by his own initiative, a prequalification procedure under which he could disqualify a prospective bidder.

The Court in Flaherty held that there was a mandatory, ministerial duty to receive and open all bids that were in proper form and timely received. Thus, an order of mandamus could issue. The Flaherty case can be found here.

In Harris v. City of Philadelphia, 299 Pa. 473, 149 A. 722 (1930), a bidder filed for an injunction against the City of Philadelphia to prevent the award of a contract to a bidder who had been selected under a prequalification plan. The plan at issue in Harris effectively sanctioned a “favorites” list. As the Supreme Court stated: “It [the ordinance] further specifies that the answers received shall be scrutinized by the director of the department which is to supervise the performance of the contract, and, if he is satisfied, the prospective bidder’s name shall be placed on what is known as the ‘white list’ of that contract.”

For obvious reasons, this “white list” proved objectionable to the Supreme Court:

It is obvious that [this plan] nevertheless opens wide the door to possible favoritism. The awarding director can place upon the white list the name of any intending bidder whom he chooses to approve, however irresponsible in fact, and that decision is not reviewable. On the other hand, he may compel all bidders, who are not favorites of his, to go to the expense of an appeal to the board, which will have before it only the answers to the questionnaire by those the awarding director has excluded from bidding, with no way of knowing whether or not their plant, equipment, experience, and financial standing are superior or inferior to those of the bidders whose names the director has placed on the white list. This might well result in everybody being excluded except those who are personal or political friends of the awarding director, or whom he knows are conspiring together to seemingly bid in competition, but in reality to destroy all competition; and it certainly would result in giving the contract to one of the favored bidders, if his bid happened to be the lowest of those actually received, though he was not in fact, a responsible bidder, or no more responsible than those who were not permitted to submit bids and might have offered to do the work for a less sum.

Not surprisingly, the Supreme Court found that the prequalification plan at issue in Harris was fatally flawed. This decision rested on the longstanding rule which was stated as follows:

Following all of our cases, therefore, we again lay down the rule that all bidders on a municipal contract must be accorded the same treatment, for not otherwise can the requirements of the statute be complied with. The city may, as heretofore she has done, accept and schedule all bids, and then, if acting in good faith, refuse to award the contract to one who is the lowest bidder, because he is not the ‘lowest responsible bidder.’ Or she may, as she is now attempting to do, determine in advance who are responsible bidders, and refuse to receive bids from those who, after treating all alike, she determines are not in that class. But she may not impose conditions on one prospective bidder, which are not imposed upon all; nor may she enforce a method by which, through favoritism, one person may be conclusively authorized to bid on a pending contract, while another, equally as responsible and perhaps more so, is wholly excluded from even submitting a bid.

The rules from Harris and Flaherty are clear. All persons are entitled to respond to a public bid, without exception, unless a prequalification process has been duly authorized. And any prequalification process must apply equally to all interested bidders, and cannot allow for favoritism or cronyism.

If you are a qualified contractor whose bid was timely but was refused, or who was denied pre-qualified status, you should contact experienced counsel immediately to have the bidding process halted until a ruling can issue mandating the acceptance and opening of your bid.

Posted on April 8, 2014 by Christopher I. McCabe, Esq. in Bidder Responsibility, Court Decisions Comments Off

DGS Issues 2014 List Of Exempt Steel Products

The Pennsylvania Department of General Services has issued its annual list of machinery and equipment steel products which are exempt under the Pa. Steel Products Procurement Act. The list for 2014 can be found here.

Posted on April 4, 2014 by Christopher I. McCabe, Esq. in Steel Products Act Comments Off

Schuylkill Products Officers Sentenced To Prison And Ordered To Pay Restitution Of $119 Million For DBE Fraud

In the criminal fraud case involving Schuylkill Products, Inc., and the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program (see my earlier post here about this case), the former Schuylkill Products vice presidents in charge of sales and marketing and field operations received lengthy prison sentences and were ordered to pay restitution of $119 million.

The official press release on the sentencing can be found here. This is from the press release:

“The sentences handed down today, in what is the largest reported DBE fraud case in USDOT history, serve as clear signals that severe penalties await those who would attempt to subvert USDOT laws and regulations,” said Doug Shoemaker, OIG Regional Special Agent in Charge. “Preventing and detecting DBE fraud are priorities for the Secretary of Transportation and the USDOT Office of Inspector General. Prime contractors and subcontractors are cautioned not to engage in fraudulent DBE activity and are encouraged to report any suspected DBE fraud to the USDOT-OIG. Our agents will continue to work with the Secretary of Transportation; the administrators of the Federal Highway, Transit, and Aviation Administrations; and our law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes throughout Pennsylvania and the United States.”

According to U.S. Attorney Peter J. Smith, the DBE fraud lasted for over 15 years and involved over $136 million in government contracts in Pennsylvania alone. SPI, using Marikina as a front, operated in several other states in the Mid-Atlantic and New England regions. Although Marikina received the contracts on paper, all the work was really performed by SPI personnel, and SPI received all the profits. In exchange for letting SPI use its name and DBE status, Marikina was paid a small fixed-fee set by SPI.

This latest news is just more proof, if any was ever needed, that DBE fraud does not pay. Contractors working on federally-funded highway projects should be especially wary of trying to sidestep the strict DBE rules that govern such projects. Doing so, as shown by these sentences, can have serious and life-altering consequences.

If you are a contractor working on a federally-funded highway project, and have questions concenrning the US DOT DBE program, feel free to contact me. I’ll be happy to answer any questions you have.

Posted on February 4, 2014 by Christopher I. McCabe, Esq. in DBE/MBE/WBE Comments Off

PA Public Contracts Quoted In The Philadelphia Inquirer

I’m happy to report that PA Public Contracts was quoted today by business reporter Joseph N. DiStefano in his Philly Deals column in the business section of The Philadelphia Inquirer.

The column, “Is state in the clear in loan dispute?”, discusses the Telwell, Inc. v. PSERS Board of Claims decision which I blogged about here. The Inquirer article can be found here (a subscription may be required) or here.

Posted on January 27, 2014 by Christopher I. McCabe, Esq. in General Comments Off

Ryco Steel Products Procurement Act Lawsuit Settled For $429,000

In December 2013, the Pa. Attorney General’s Office announced a settlement of the Pa. Steel Products Procurement Act lawsuit with the McKeesport-based Ryco companies and their owners. The firm and its owners will pay $429,000 to settle the lawsuit, and must comply with a seven-year injunction to guarantee that violations of the Steel Act do not occur again.

The official AG press release can be found here.

Posted on January 16, 2014 by Christopher I. McCabe, Esq. in Steel Products Act Comments Off

Pa. Steel Products Procurement Act Applies To Work Contracted By Private Non-Profit Foundation

Does the Pa. Steel Products Procurement Act apply to a project undertaken by a private non-profit entity for a university under the Pennsylvania State System of Higher Education? According to a recent decision by the Commonwealth Court in the enforcement lawsuit brought by the Pa. Attorney General’s Office against various Ryco, Inc., entities (see my earlier post here about that lawsuit), the answer is yes.

In an opinion filed February 21, 2013, in the Ryco case, in response to objections raised by the Ryco entities, the Commonwealth Court (Judge Colins) has held that the Steel Act does apply to a student housing project undertaken for Indiana University of Pennsylvania (IUP) by the Foundation for the Indiana University of Pennsylvania (Foundation), a non-profit foundation affiliated with IUP.

The Ryco entities had argued that the Foundation was not a “public agency,” that the housing project was not funded with public money, and that the housing project was not bid as public contracts. In rejecting these arguments, the Commonwealth Court noted that the Steel Act does not require the owner to be a public agency, only that the project be a public work. Here, there was no legal question, in the Court’s view, that the student housing project was a public work.

The Commonwealth Court also noted that the Foundation itself was in fact a “public agency” under the Steel Act. The Foundation was created to promote educational purposes, including for the construction of buildings for IUP. The Foundation had been engaged by IUP to finance and construct the student housing project. The Court borrowed from caselaw interpreting the Prevailing Wage Act in finding that, under these facts, the Foundation was a “public agency” for purposes of application of the Steel Act. In the analagous Prevailing Wage Act case, the Court had held that a private, non-profit corporation created by a county for the purpose of building and operating a nursing home was a “public body.”

The lesson here for contractors working on what are potentially public works projects is to understand the full nature of project they are working on (even if they have only a small part of the project) and to think about the ultimate user/owner of the project. Here, it seems quite obvious that student housing for a state university has all of the hallmarks of a public works project to which the Steel Act would typically apply.

The Commonwealth Court’s decision can be found here. A later ruling by the Commonwealth Court in the same Ryco case re-affirmed that the Court’s holdings were as a matter of law, and precluded any further defense by the Ryco entities that the Steel Act did not apply to the student housing project. That later decision can be found here.

Posted on January 14, 2014 by Christopher I. McCabe, Esq. in Court Decisions, Steel Products Act Comments Off

Bid Protests 101: Grounds For The Protest

This is the another in a series of posts on bid protests in Pennsylvania. This post covers the potential grounds for the bid protest.

Based on my experience, there are two primary potential bases for a bid protest. The first concerns a bid’s responsivesness or whether the bid is complete and responsive to the bidding instructions. The second concerns a bidder’s responsibililty or qualifications.

A challenge that a bid is non-responsive will likely be successful if the challenged bid (which has been accepted by the public entity) is materially defective in some way. Is it missing a required form? Are there prices missing? Did the bidder fail to sign its bid? If the protesting taxpayer can show that the winning bid is “defective” in some way, courts will be receptive to a challenge to the award. This type of protest is appealing as it raises the question of an unlevel playing field which is a bedrock principle of public contracting. On the other hand, if the public entity has rejected a bid because it is non-responsive, it is unlikely that a protest by the rejected bidder will be unsuccessful. A court will be extremely hesitant to overrule a finding that the bid is defective.

A challenge to a bidder’s responsibility is difficult to win. Normally, whether a bidder is qualified (responsible) to perform a contract is left to the sound discretion of the public officials. A court will normally err on the side of allowing the public entity to decide these questions on its own. On the other hand, if the public entity has excluded a bidder from the bid, either as part of a pre-qualification process, or an ad hoc basis, on grounds that the bidder is “unqualified,” the disqualified and excluded bidder will have a good chance of success if the bidder can show that it is as qualified as the other permitted bidders, or if the criteria under which the bidder is excluded are unpublished or unevenly applied. Excluding bidders from the bidding process is counter to the notion of competition. The more bidders there are, the better the price will be for the taxpayers.

Besides these two primary bases, a bid protest can raise other aspects of the bid process that were irregular or were not in conformance with the bidding instructions. Did the bid comply with minority contracting requirements? Did a bidder has some sort of advantage over other bidders?

As always, it is advisable to consult with experienced counsel before proceeding with a bid protest.

Posted on December 10, 2013 by Christopher I. McCabe, Esq. in Bid Protests Comments Off

Pennsylvania Bar Institute Sponsors CLE Primer On Mechanics’ Liens And Bond Claims

On Thursday, December 5, 2013, the Pennsylvania Bar Institute (PBI) is sponsoring a continuing legal education course entitled “Primer on Mechanics’ Liens and Bond Claims.”

I will be a presenter, and I am looking forwarding to sharing my knowledge and experiences on the topic of bonds and bond claims on public construction projects in Pennsylvania.

The flyer on the PBI CLE course can be found here.