Commonwealth Court Voids Drug Contract Where Price Was Not A Factor In Contract Award

In March 2011, the Pennsylvania Department of Public Welfare (DPW) issued a Request for Proposals (RFP), under a competitive sealed proposal process, seeking proposals for the supply of pharmaceuticals for its Developmentally Disabled Centers. The pricing structure set out in the RFP provided that the winning vendor would be reimbursed through Medicare, Medical Assistance (MA), or private insurance. Apparently, DPW would not consider price as a factor in its award of the contract.

DPW received four bids and awarded the contract to Diamond Drugs whose proposal was scored the highest. Omnicare filed a protest with DPW and argued that DPW violated the Procurement Code by failing to consider price as an element of the bids when it contracted to purchase pharmaceuticals for which there was no set pricing scheme and where DPW would pay for drugs not covered by Medicare, MA, or a private insurer. Section 513(g) of the Procurement Code requires that a purchasing agency consider price in the competitive sealed proposal process. DPW argued that that its actions were proper because it would pay the same regardless of which vendor won the contract. DPW rejected the protest. Omnicare then appealed to the Commonwealth Court of Pennsylvania.

On May 15, 2013, the Commonwealth Court sustained the protest and voided the contract. The Commonwealth Court first held that the protest was timely as it was filed within seven days after notice of the contract award was posted to the DPW website. The Commonwealth Court rejected DPW’s argument that the protest was untimely because the RFP provided Omnicare with enough information on which to base its bid protest. The Commonwealth Court next held that the contract violated the Procurement Code because DPW will pay directly for non-compensable medications even though it did not consider price as a factor in its award.

The Commonwealth Court wrote:

In doing so, and in failing to consider pricing for non-compensable drugs as an element of the proposals, DPW deprived itself and the offerors of the opportunity to discover whether an offeror could offer better prices for non-compensable drugs than those arrived at by using the MA pricing formula. Given that the offerors’ prices for non-compensable drugs could have differed, DPW violated Section 513(g) [of the Procurement Code] by failing to consider pricing as an element of the proposals.

The Commonwealth Court decision in Omnicare, Inc. v. Department of Public Welfare can be found here.

Posted on June 4, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, Procurement Code Comments Off

Proposed Bill Will Exclude School Work From Separations Act

The Pennsylvania Separations Act was enacted in 1913, a century ago. It requires public entities to solicit separate bids and award separate contracts for plumbing, heating, electrical, and ventilating work that is part of a public construction project where the costs of construction generally exceed $4,000.

In recent years, there have been many efforts in the Pennsylvania General Assembly to do away with the Separations Act or to limit its application. None have been successful. This year, there are again efforts brewing in the General Assembly to exclude school construction from the requirements of the Separations Act, with one bill progressing more quickly than others.

On April 17, 2013, HB324 was reported out of the House Education Committee. This bill amends the Public School Code to provide for the removal of the Separations Act requirements for school construction.

The sponsor of HB324 provides this rationale for his bill:

My legislation will relieve school districts of the mandate to comply with the Separations Act and will give them the flexibility to determine whether a single or multiple prime delivery system provides the most efficient and cost-effective way to complete a project.

It remains to be seen whether this latest effort to amend the Separations Act will be successful.

Posted on May 21, 2013 by Christopher I. McCabe, Esq. in Separations Act Comments Off

Philadelphia Inspector General Shines Spotlight On Use Of MBE Pass-Through

The City of Philadelphia continues its crackdown on abuses in its minority subcontracting program.

On May 6, the Philadelphia Office of the Inspector General (OIG) announced that a former certified, minority-owned business, JHS & Sons Supply Co., was improperly used by ten other prime contractors on City contracts. The OIG previously exposed the improper arrangement between prime contractor William Betz Jr. Inc., and JHS, which resulted in a two-year debarment of the Betz firm. My earlier post on the OIG enforcement action against Betz can be found here.

The ten other contractors identified by the OIG are: Burke Plumbing & Heating, Inc.; Clements Brothers and Sister, Inc.; DMC Environmental Group, Inc.; Buzz Duzz Plumbing, Heating, & Air Conditioning, Inc.; Edward Hughes and Sons, Inc.; Martin Johnson Plumbing and Heating, Inc.; Paragon Contracting; J.J. Magnatta, Inc.; John Stevenson, Inc.; and S. Murawski & Sons. The contracts ranged in value from $100k to $350k. The OIG has reached agreements with eight of these ten prime contractors. JHS has also been removed from the City’s registry of certified, minority-owned contractors.

Inspector General Amy L. Kurland said of her office’s recent action:

It was clear from the beginning that this problem was widespread. These settlements meet our goal of ensuring that companies comply with our antidiscrimination requirements. Our mission is to bring companies into compliance, not to put them out of business.

This latest OIG enforcement action again illustrates the extreme peril that prime contractors face in using “pass-through” entities to satisfy the City’s minority subcontracting requirements. If you think you can get away with it, think again. The City will eventually catch up with you, and by then it will be too late to protect yourself.

Posted on May 9, 2013 by Christopher I. McCabe, Esq. in City of Phila., DBE/MBE/WBE, Phila. Inspector General Comments Off

Amendments to Prevailing Wage Act Proposed

It’s that time of year again, when Republican legislators in the Pennsylvania General Assembly seek to amend the Pa. Prevailing Wage Act. There are now several proposals to do just that, and two bills are farther along in the process than the many others that have been proposed. In April, the House Labor and Industry Committee voted along straight party lines to report out of committee two bills proposing changes to the Prevailing Wage Act.

The first bill, HB796, will raise the threshold amount from $25,000 to $100,000.

The second bill, HB665, will exempt routine road maintenance contracts.

In addition to these two bills, still more bills have been proposed. Here is a small sampling of some of the other bills pending in the General Assembly:

HB1095 would impose a 3-year moratorium on the Prevailing Wage Act.

HB999 would exempt KOZs from requirements of the Prevailing Wage Act.

HB1257 would require at least 51% of a project to be paid with public monies before the Prevailing Wage Act would apply.

It seems likely that this year will see some changes to the Prevailing Wage Act. What those exact changes will be still remains to be seen. Of course, these newest proposed amendments may lead nowhere, as the amendments proposed last year never came to pass.

Posted on May 7, 2013 by Christopher I. McCabe, Esq. in Prevailing Wage Comments Off

Public Bidding 101: Bid Bonds

This post is one in a continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post is the bid bond.

A bid bond is a form of bid security and is typically required to be submitted with all bids for public contracts in Pennsylvania. The instructions on public bids will ordinarily describe the bid bond requirements for the bid in question. These instructions should be followed lest the bid security is insufficient and the bid is rejected for that reason. A bid bond is essentially a guarantee, backed by a surety company, that the bidder will execute the contract if it is awarded to the bidder.

The failure of a bidder to execute an awarded contract will expose the surety on the bid bond to liability. That liability is typically 10% of the bid price. The bidder’s failure to execute an awarded contract may also subject the bidder itself to additional liability if the bid bond amount does not cover the spread between the bidder’s price and the next lowest price. Of course, the public entity must strictly adhere to the bidding requirements and award requirements before it can seek to enforce the bid bond. The failure to do so will likely invalidate any attempt to forfeit the bid bond.

Thus, the Commonwealth Court held in Travelers Indem. Co. v. Susquehanna County Comm’rs, 17 Pa.Cmwlth. 209, 331 A.2d 918, 920 (1975), that where a public entity failed to give written notice of its acceptance and provide the contract documents for execution there could be no forfeiture of the bid bond. Likewise, in Hanover Area School District v. Sarkisian Brothers, Inc., 514 F.Supp. 697 (M.D.Pa.1981), the federal district court held that a public entity’s failure to provide the lowest bidder with all the documents necessary to finalize the transaction as required by the bid instructions precluded recovery on the bid bond.

If you are bidder faced with a forfeiture of a bid bond for failure to execute a public contract you may have an out if the award was not made in accordance with the bidding instructions. As always, you should consult with an experienced attorney for assistance.

Posted on April 26, 2013 by Christopher I. McCabe, Esq. in Public Bidding 101, Surety and Bonding Comments Off

Pa. Board of Claims Retains Exclusive Jurisdiction For State Contract Claims

I recently posted about a not-so-recent December 2011 decision in Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, where the Pa. Commonwealth Court held that it had original jurisdiction to hear state contract claims seeking non-monetary relief. Well, it turns out that the Commonwealth Court was wrong. So, forget everything I wrote.

In a decision issued on March 25, 2013, the Supreme Court of Pennsylvania reversed the Commonwealth Court and held that claims arising from state contracts can be brought only in the Pa. Board of Claims. In its decision, the Supreme Court wrote that:

… we conclude that the Commonwealth Court erred in interpreting Section 1724(d) [of the Procurement Code] so broadly as to sanction original-jurisdiction actions in a judicial tribunal over nonmonetary claims against the Commonwealth.

***

On account of the doctrine of sovereign immunity, however, contractors, bidders, and offerors have limited recourse and remedies. Relative to controversies in matters arising from procurement contracts with Commonwealth agencies, the Board of Claims retains exclusive jurisdiction (subject to all jurisdictional prerequisites), which is not to be supplanted by a court of law through an exercise of original jurisdiction.

The full Supreme Court decision can be found here. The factual background for the Court’s decision can be found in my earlier post.

Posted on April 2, 2013 by Christopher I. McCabe, Esq. in Board of Claims, Court Decisions, Procurement Code Comments Off

Bid Protests 101: Standing and Timing

This is the first in a series of posts on bid protests in Pennsylvania. This post covers standing – who can file a bid protest – and when the protest must be filed.

For contracts awarded by a local entity, such as a township or a school district, a bid protest can be filed in Common Pleas Court only by a taxpayer of the entity awarding the contract. A disappointed bidder, who is not also a taxpayer, cannot file a bid protest with the Common Pleas Court. This rule of standing stems from the bedrock principle that the bidding laws are for the benefit of the public and taxpayers at large, and are not for the benefit of individual bidders. A bid protest on a local contract should be filed as soon as possible after the basis for the protest becomes known. If the contract has been awarded by the local entity, the bidder receiving an award of the contract must be named in the bid protest lawsuit.

For state contracts, the Pa. Procurement Code, at 62 Pa.C.S. § 1711.1, specifies that a bidder or prospective bidder who is “aggrieved in connection with the solicitation or award of a contract” may protest to the head of the purchasing agency in writing. A bid protest on a state contract must be filed within seven days after the bidder knew or should have known of the facts giving rise to the protest. If the protestant is a prospective bidder, the protest must be filed prior to the bid opening. In no event can a protest be filed later than seven days after the date the contract has been awarded. If a taxpayer wants to file a bid protest on a state contract, it can do so, but only by filing suit in the Commonwealth Court.

Bid protests can cover all aspects of the bidding process. Some of my later posts will cover potential areas for bid protests.

Posted on March 28, 2013 by Christopher I. McCabe, Esq. in Bid Protests Comments Off

Disappointed Bidder On State Contract Has No Due Process Rights

In a recent, unreported decision concerning a bid protest for a state contract, the Pa. Commonwealth Court reaffirmed its position that a disappointed bidder for a state contract has no due process rights in connection with the award of the contract. Therefore, the bidder has no right to a hearing on its bid protest. Instead, the bidder has only those protest rights enumerated in the Pa. Procurement Code. The Court ruled that a prior decision finding due process rights was expressly overruled by later enacted legislative amendments to the Procurement Code.

The Commonwealth Court also held that it was proper for the winning bidder to participate in the bid protest.

The Court’s full decision, in Corizon Health, Inc. v. Department of General Services, can be found here.

Posted on March 5, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, DGS Comments Off

DGS Publishes List of Exempt Steel Products

On February 9, 2013, the Pa. Department of General Services finally published in the Pa. Bulletin a list of exempt machinery and equipment steel products, as authorized under section 4(b) of the Steel Products Procurement Act (73 P. S. § 1884(b)).

The DGS notice listing the exempt steel products can be found here. The DGS statement of policy relating to its notice can be found here.

According to the DGS notice, the public has 30 days to submit comments regarding the list. Comments can be submitted in writing to: Deputy Secretary for Public Works, Department of General Services, 18th and Herr Streets, Harrisburg, PA 17125. Comments can also be submitted by e-mail to: ra-steel@pa.gov.

My prior post on the amendment to the Steel Products Procurement Act mandating a list of exempt products can be found here.

Posted on February 19, 2013 by Christopher I. McCabe, Esq. in DGS, Steel Products Act Comments Off

Commonwealth Court Can Hear State Contract Claims For Non-Monetary Relief

[UPDATE: The case discussed in this post is no longer valid. The Supreme Court has overruled the Commonwealth Court.]

Despite common misperception, the Pa. Board of Claims is not the exclusive forum for all state contract claims.

In a decision from December 2011, Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, the Pa. Commonwealth Court held that it has jurisdiction to hear state contract claims seeking non-monetary relief. The decision concerned an RFP issued by the Department of General Services (DGS), on which there were two bidders, GTECH, the incumbent contractor, and its competitor, Scientific Games. Scientific Games was awarded the contract, which it executed (DGS did not execute contract). GTECH then protested. The protest was rejected by DGS and was also found to be in bad faith. Nevertheless, DGS canceled the RFP, stating that the cancelation was in its best interests.

Scientific Games then filed a complaint in the Commonwealth Court, claiming that it had a contract with the state and seeking specific performance of the contract and other non-monetary relief. DGS filed objections to the complaint, arguing that the Board of Claims had exclusive jurisdiction over state contract claims and that Scientific Games had an adequate administrative remedy.

The Commonwealth Court rejected the arguments of DGS that the Board of Claims has exclusive jurisdiction of all claims arising out of state-issued contracts. The Commonwealth Court relied upon a provision in the Pa. Procurement Code concerning the jurisdiction of the Board of Claims which states: “Nothing in this section shall preclude a party from seeking nonmonetary relief in another forum as provided by law.” The Commonwealth Court also held that the administrative remedies did not apply as the relief being sought by Scientific Games was non-monetary in nature.

This decision allows state contractors another potential forum for determination of their contract disputes with the state, provided, of course, that the disputes do not seek a monetary payment from the state.

The full court decision can be found here.