Bidder’s Response To RFP Does Not Create Contract

In an unpublished opinion issued in November 2012, in a case brought by two disappointed bidders involving contracts awarded in 2002, the Commonwealth Court revisited some core principles of public bidding which are worth repeating.

The underlying facts concerned an Request for Proposals issued by Hazleton Area School District for school bus transportation contracts. The school district awarded the contracts, not to the lowest bidders, but to other bidders based upon the model year of the buses proposed for the contracts. The low bidders sued and challenged the award and also asserted a tortious interference claim against the competing bidders.

As a preliminary matter, the Court noted that the low bidders’ standing as taxpayers did not also give them a cause of action for breach of contract or tortious interference. Taxpayer standing does not translate into a claim for damages.

The Court first held that the bidders’ response to the school district’s RFP did not create a binding contract with the school district. The bidders argued that the circulation of the RFP constituted a unilateral contract offer which was accepted by the school district. The Court rejected this position and reiterated the long-standing rule in Pennsylvania that an invitation to bid or an RFP is merely an invitation for an offer and is not an offer itself. Rather, the bid is the offer which the public entity is free to accept or reject. Thus, the Court held that the issuance of the RFP did not bind the school district to award the bus contracts to the low bidders.

Second, the Court held that there was no interference by the other competing bidders with the low bidders’ “prospective” business relationship with the school district. The competing bidders were free to ask the school district to consider the age of the buses in making its decision to award the bus contracts. This sort of conduct was privileged and could not subject the other bidders to a tortious interference claim by the disappointed bidder.

The moral of the story? Bid protests are not easy to win, especially where the bid protests are based on unwarranted extensions of the law and where counsel argue points that have no support in public bidding law and muck up their clients’ claims with silly theories like tortious interference with contract.

The decision in Yurcho v. Hazleton Area School District can be found here.

Posted on July 11, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions Comments Off

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

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

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

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.

Posted on February 5, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Board of Claims, Court Decisions, DGS, Procurement Code Comments Off

When A Claim Is Not A Claim

When is a claim not a claim? When it’s not.

In K-B Offset Printing, Inc. v. Department of General Services, a not-so-recent unreported decision, the Pa. Commonwealth Court held that a letter sent by a contractor to the Pa. Department of General Services and asserting entitlement to more than $1 million in contract underpayments did not constitute a “claim,” as that term is defined in the Pa. Procurement Code. As a result, the contractor was barred from pursuing its claim before the Pa. Board of Claims due to its failure to exhaust administrative remedies. (Under the Procurement Code, a contractor must first file a claim with the contracting officer before it can proceed before the Board of Claims, and the claim must be filed within six months of the date it accrues.)

A five-year contract between K-B Offset Printing and the state had expired in May 2011. An audit by K-B discovered that K-B was entitled to additional compensation, due to contractual price adjustments that were to occur every six months but were never implemented. In June 2011, K-B sent a letter to DGS demanding the underpayments. While DGS conceded that it had not made the necessary price adjustments, DGS refused to recognize the K-B claim to additional payments, basing its decision on its belief that K-B’s claims were barred by a six-month statute of limitations.

K-B then filed a claim with the Board of Claims. DGS objected, claiming that the Board lacked jurisdiction because K-B did not first exhaust its administrative remedies by filing a claim with the contracting officer. The claim was then dismissed by the Board of Claims. On appeal, the Commonwealth Court accepted DGS’s argument that K-B’s claim was not ripe because K-B did not first file a claim with the contracting officer before it proceeded with filing its claim with the Board of Claims. The Commonwealth Court held that K-B’s June 2011 letter was not a “claim,” and that K-B’s claim for the additional payments did not accrue until DGS sent the July 2011 letter which stated that DGS would not make any further payments. The Court rested its holding on a rule of the Supreme Court that a “claim” does not accrue until a claimant is affirmatively notified that it will not be paid by the Commonwealth.

At first blush, the court’s reasoning appears to be a monumental splitting of hairs. K-B sends a letter to DGS demanding more than $1 million as a matter of right under a contract. That looks and sounds like a claim. DGS then sends a letter conceding that it goofed on the pricing adjustments, but refusing to pay any more money to K-B due to a legal technicality. That looks and sounds like a denial of a claim. Nonetheless, the Commonwealth Court holds that a “claim” must still be filed with the contracting officer, even if such a claim is identical to the first letter and is doomed to ultimate failure. However, the first letter was not a claim because at that time DGS had not yet stated that would not pay K-B the underpayments. Until that statement was made by DGS, there was no “claim” that could be filed and pursued.

The moral of the story? File the paperwork, and dot your i’s and cross your t’s, even if the claim is pre-destined to be rejected and doomed to failure. The Commonwealth Court has now made it abundently clear that even a pointless gesture must be pursued in order to perfect a claim before the Board of Claims.

The K-B Offset court decision can be found here. Read it and be forewarned.

Posted on January 17, 2013 by Christopher I. McCabe, Esq. in Board of Claims, Court Decisions, DGS, Procurement Code Comments Off

Public Bidding 101: The RFP

This post is another in my continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post is the Request for Proposal (RFP) and whether, and to what extent, the general rules of sealed, competitive bidding apply to RFPs.

An RFP is a type of invitation to bid. It is typically used where the public entity seeks to enter into a contract in the area of professional services – such as architectural, engineering or legal services. This is because contracts for those services are not governed by the rule of lowest responsive, responsible bidder, and in fact can be awarded, in many instances, without any competition whatsoever and to a bidder whose bid is not the lowest in price.

In Malloy v. Boyertown Area School Bd., 540 Pa. 308, 657 A.2d 915 (1995), a seminal case in this area, the Pennsylvania Supreme Court described the reasons why the “low bid” rule does not apply to professional services contracts:

For those contracts for which the distinctiveness and quality of service is the paramount concern, there exists a special relationship between the property owner and the contractor. In these types of contracts, the contractor owes a special duty of loyalty to the property owner because the contractor in essence becomes the property owner’s agent and, therefore, must act in good faith and always in the furtherance of the property owner’s interests vis-à-vis the other contractors on the project.

The Supreme Court’s statement nicely summarizes why professional services contracts are not subject to the low bid rule. There is an element of trust in such contracts, and this element is not necessarily assumed by the bidder whose bid is the lowest. So, the public entity has discretion in the award of such contracts and can seek to enter into such contract through an RFP process.

However, once the public entity embarks on a course of bidding, even via a more informal RFP process which does allow for negotiation, it is bound to “adhere to that procedure throughout the procurement process.” In Lasday v. Allegheny County, 499 Pa. 434, 453 A.2d 949 (1982), another seminal case in this area, Allegheny County solicited proposals under an RFP for operation of a newstand and gift shop concession. The RFP stated that separate proposals to operate only the newstand would not be accepted. Nonetheless, Allegheny County then allowed one proposer to make such a proposal and to grant the concession to that proposer on the basis of its proposal, without also allowing the existing operator an opportunity to submit such a proposal. The Supreme Court held that this was improper and held that, once an RFP process is undertaken, it must be adhered to in all respects in accordance with its instructions and guidelines.

If you are a respondent to a public RFP, consider these rules carefully, and remember that the public entity cannot act contrary to the instructions of its own RFP.

Posted on November 20, 2012 by Christopher I. McCabe, Esq. in Court Decisions, Public Bidding 101 Comments Off

Commonwealth Court: Offer to Negotiate Renders Proposal Non-Responsive

Recently, the Commonwealth Court of Pennsylvania had occasion to reiterate a long-standing rule of public bidding that offering counter-terms in a bid will render the bid non-responsive and will result in rejection of the bid.

In 2011, the Pa. Department of General Services issued an RFP for a design build contract for a power plant to serve a new State Correctional Facility. The RFP sought competitive, sealed proposals. Pepco Energy Services, Inc., submitted a proposal in response to the RFP, but stated that it expected to be afforded an opportunity to negotiate the terms of the contract documents. DGS sought clarification from Pepco regarding its expectation of contract negotiations and further informed Pepco that the contract terms were non-negotiable. Nonetheless, Pepco restated that it expected to negotiate contract terms. In response, DGS rejected Pepco’s bid as non-responsive on grounds that it contained “conditional” language.

Pepco filed a protest with DGS asserting that, because contract negotiations were contemplated as part of the RFP process, DGS erred in finding that its proposal was non-responsive. DGS rejected the protest and Pepco filed an appeal with the Commonwealth Court.

On appeal, DGS argued, in part, that Pepco’s alternate language would have allowed it to negotiate the contract terms, whereas the other prospective proposers submitted their proposals based on an understanding that the contract terms were non-negotiable, thus giving Pepco an unfair advantage, and violating long-standing case law requiring all bidders to be treated equally under a common standard. The Commonwealth Court upheld the DGS decision, and found that Pepco had no right to negotiate the terms of the contract documents, either before DGS found it to be a responsible bidder, or before DGS made a decision as to which proposal was most advantageous.

The lessons here? First, in a competitive sealed bidding situation, the contract forms are set in stone and are not subject to further negotiation. They are issued on a “take it or leave it” basis. To hold otherwise would undermine the basic rule of a level playing field in public bidding. Second, read the RFP! If it states that the contract documents are non-negotiable, then they are non-negotiable, no ifs, ands, or buts. Including a statement that the bidder would like to negotiate the contract terms is only an invitation to be rejected as non-responsive.

The decision in PepcoEnergy Services, Inc. v. Department of General Services can be found here.

Posted on August 7, 2012 by Christopher I. McCabe, Esq. in Bid Responsiveness, Court Decisions, DGS Comments Off

No Contract Formed Where Contractor Uses Subcontractor Quote on Public Bid

If a prime contractor bids to a public entity, uses a quote from a subcontractor, and identifies the subcontractor in its bid, is a contract formed between the prime and the sub if the public entity awards a contract to the prime? In Pennsylvania the answer is NO, according to a recent Commonwealth Court decision.

In Ribarchak v. Municipal Authority of the City of Monongahela, a prime contractor submitted a bid to a public authority, and identified a specific subcontractor in its bid. The public authority accepted the prime’s bid and awarded it a contract. The prime later substituted the named subcontractor with another subcontractor. The named subcontractor then sued for breach of contract, claiming that a valid contract had been formed with the prime when the prime included the sub in its bid and when the authority accepted the prime’s bid. The trial court rejected this claim, and the Commonwealth Court affirmed.

The Commonwealth Court followed the reasoning of many other jurisdictions that have rejected the notion that a contractor’s use of a subcontractor’s quote constitutes acceptance of the quote. The Commonwealth Court held that there must be affirmative evidence that the prime expressly accepted the subcontractor’s quote before a contract can be formed. The Commonwealth Court decision can be found here.

While this case concerned the public contracting context, it would seem that the rule is equally applicable in the private contracting context. A hat tip to my friend and former colleague Wally Zimolong who brought this decision to my attention in his blog Supplemental Conditions.

Posted on June 4, 2012 by Christopher I. McCabe, Esq. in Court Decisions Comments Off

Renegotiation Of Prices For Contract Extension Held Unlawful; Competitive Bidding Required

Recently, in Hanisco v. Township of Warminster, the Commonwealth Court ruled that Warminster Township improperly negotiated new pricing for an extension of a waste services contract. The Court held that the township should have let the new contract by competitive bidding.

While the general rule is that a municipality may extend and renew public contracts without the need for competitive bidding, to do so the municipality must specify in the original bid requirements that the contract can be renewed or extended and under what terms. If the specifications do not spell out this allowance, then the contract must be competitively bid again when it expires.

The problem in Hanisco was that, while the original 5-year waste contract allowed for two 1-year extensions, the prices for the two 1-year extensions were already set by the contract. But in 2009, rather than adhering to these fixed prices, the township and the contractor, knowing that the prices were higher than in the marketplace, privately negotiated more favorable pricing for the two 1-year extensions in the form of a “rebate.” This new pricing required an amendment to the contract to reflect the better pricing and to permit the township to exercise the renewal option.

In Hanisco, the Court framed the issue as follows:

The issue before this Court is whether the prices for the waste services provided by [the contractor] set forth in the 2005 Contract for the two, one-year options for 2010 and 2011 could be privately renegotiated by the parties or whether such a renegotiation required public, competitive bidding pursuant to Section 3102(a) of the [Pennsylvania Second Class Township] Code.

The Commonwealth Court held that the conduct of the township and the contractor was improper:

… the option in the instant case contained the essential terms, including price, and was a part of the competitive bidding process. This price term was definite and not open for future negotiation. Indeed, the option here was even more definite than that in Bevilacqua, where the term of the option remained open for negotiation based on the value of the improvements the concessionaire made. Here, because the Township did not exercise the option in accordance with its terms but, instead negotiated a new price, the Township and [the contractor] entered into a new contract that became subject to the Code’s mandatory public bidding requirements.

The evil which the Commonwealth Court addressed in Hanisco is the opportunity for favoritism when a municipality negotiates in private for a contract that should be competitively bid. While the township officials may have believed that they were acting in good faith, in order to get the best deal they could for their constituents, in reality by not putting the contract out for bid the township would not know if it could have achieved even greater savings.

As the Commonwealth Court stated:

The overarching public policy encompassed by the public bidding requirements must take precedence to ensure the integrity of the process, its transparency and fairness, and to engender a greater sense of trust in government among the citizen taxpayers. While we understand that the Township wanted to provide savings to its constituents, the decision not to advertise its waste services contract for competitive bidding has prevented the parties from knowing whether greater savings could have been achieved had the contract been rebid pursuant to the Code.

The Hanisco decision can be found here.