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.

Public Bidding Hall of Fame: Kratz v. Allentown

This post is one of a continuing series which will highlight significant Pennsylvania court decisions in the area of public bidding. The decision highlighted here concerns bidder responsibility.

In Kratz v. Allentown, 304 Pa. 51, 155 A. 116 (1931), the City of Allentown undertook the construction of a sanitary filtration plant on an island in the Lehigh River. The project called for 110,000 tons of crushed stone. The specifications did not require that the stone come from any particular quarry, but bidders were required to designate the quarry from which the stone would be supplied. The specifications also designated the size, quality, etc., of the stone.

Hoch Contracting Company submitted a low price of $1.69 per ton for stone from the Keck quarry. F.F. Hausman submitted a price of $1.78 per ton for stone from the Ziegenfuss quarry.

Allentown rejected the low bid of Hoch Company on grounds that the stone was from an inferior quarry. This decision was challenged. The trial court rebuffed Allentown’s rejection of the low bid, and on appeal the Supreme Court affirmed. In the course of its opinion, the Supreme Court revisited the principles of bidder responsibility and the requirement that public officials conduct a thorough investigation before rejecting a bidder as non-responsible.

The Supreme Court first noted the criteria for determining a responsible bidder as follows:

… the courts have uniformly held that the question of who is the lowest responsible bidder is one for the sound discretion of the proper municipal authority, and does not necessarily mean the one whose bid on its face is lowest in dollars, but includes financial responsibility, also integrity, efficiency, industry, experience, promptness, and ability to successfully carry out the particular undertaking, and that a bond will not supply the lack of these characteristics. At the same time it is held that to award the contract to a higher bidder capriciously without a full and careful investigation is an abuse of discretion which equity will restrain. Where a full investigation discloses a substantial reason which appeals to the sound discretion of the municipal authorities, they may award a contract to one not in dollars the lowest bidder. The sound discretion, which is upheld, must be based upon a knowledge of the real situation gained by a careful investigation. [citations omitted]

In rejecting the Hoch bid, Allentown did not conduct any real investigation into the quarry where Hoch intended to obtain the required stone. The Supreme Court chastised Allentown’s public officials, noting that they were required to conduct a real investigation before rejecting a bidder as non-responsible:

… the proof on both sides was that stone from the Keck quarry and from the Ziegenfuss quarry were of equal quality and fitness. The reasons assigned for rejecting the Hoch Company bid was not the quality of the stone, nor the financial responsibility of the company. The city council, however, acting on the report of their engineers, appeared to have some slight doubt as to whether a sufficient quantity of stone to fill the contract could be secured from the Keck quarry. This report by the engineers was made without any sufficient investigation to determine the quantity of recoverable stone in that quarry, and, when Professor Payrow, of Lehigh University, an authority upon the subject, who had made a careful investigation, offered his report to the city engineer, showing 500,000 tons of suitable stone in the Keck quarry, the latter refused to examine it, remarking that it was no more than a piece of paper. The engineers as agents of the city made no proper investigation of the Keck quarry, nor did the city council. The rejection of that quarry with at most a perfunctory investigation was an abuse of discretion. [citations omitted]

The Kratz v. Allentown decision is nearly always cited in cases involving bidder responsibilty. The first takeaway of this decision is that bidder responsibility is vested within the sound discretion of the public officials. The second takeaway of this decision is that the public officials must truly inquire into the responsbility of a bidder before deciding to reject the bidder as unqualified or non-responsible.

Posted on July 5, 2012 by Christopher I. McCabe, Esq. in Hall of Fame Decisions Comments Off

Public Bidding Hall of Fame: Gaeta v. Ridley School District

This is one in a series of posts which will highlight significant Pennsylvania court decisions in the area of public bidding and contracts. The first decision highlighted concerns waiver of bid defects.

In Gaeta v. Ridley School District, 567 Pa. 500, 788 A.2d 363 (2002), the low bidder submitted as bid security a B-rated bid bond, whereas the bid instructions had required an “A-rated” bid bond. However, the school district waived the apparent bid defect and allowed the bidder to substitute an A-rated bid bond for the B-rated bid bond. The school district’s decision was challenged as a violation of the basic rules of public bidding.

On appeal, the issue was whether the school district could waive the defect in the low bidder’s bid. The Supreme Court of Pennsylvania rejected the taxpayer challenge, and upheld the bid bond substitution because no competitive advantage was conferred on the low bidder and because the bid bond did not affect the performance of the contract as the bid bond would ultimately be replaced by a performance bond.

In Gaeta, the Supreme Court announced a new test for waiver of bid defects. Under the test announced in Gaeta, a municipality is permitted to waive a bid defect where the waiver will not deprive the municipality of an assurance that the contract would be entered into, performed, and guaranteed according to its specified requirements, and where the waiver will not place one bidder in a position of advantage over the other bidders or will not otherwise undermine the necessary standard of competition.

The waiver test in Gaeta has been applied in numerous case since Gaeta was decided.