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

Reminder: E-Verify Now The Law For Public Works Contracts In Pennsylvania

Effective January 1, 2013, E-Verify is now in place for employment verification for public works contracts in Pennsylvania. My earlier post on E-Verify can be found here.

The Pa. Department of General Services (DGS) has a new page on its website that details the E-Verify requirements and provides a link to a new employment verification form created by DGS for use by public works contractors and subcontractors. The new DGS page can be found here.

The new DGS regulations (4 Pa. Code. Chapter 66) can be found here.

Posted on January 2, 2013 by Christopher I. McCabe, Esq. in E-Verify Comments Off

Former Philadelphia School Superintendent Ackerman Directed Award of No-Bid Contract

According to a recent Inquirer article, the Philadelphia School Reform Commission has concluded that former Philadelphia School Superintendent Arlene C. Ackerman directed Philadelphia School District staff to award a controversial $7.5 million no-bid contract for surveillance cameras to a small minority-owned firm in 2010. The Philadelphia Inquirer article reporting the SRC’s conclusion can be found here.

My earlier post on the lawsuit which was filed by the company which lost the contract can be found here. This news should bolster the chances of the company in its lawsuit against the School District.

Posted on December 27, 2012 by Christopher I. McCabe, Esq. in Phila. School District Comments Off

City of Phila. Contractors Pay $400K To Settle Alleged Violations of M/W/DSBE Contracting Requirements

The City of Philadelphia has once again taken enforcement action in connection with its M/W/DSBE contracting requirements.

Under a no-fault settlement agreement signed with the City on December 13, 2012, two City contractors, Aramark Correctional Services and Strother Enterprises, Inc., have agreed to pay a total of $400,000 to settle the City’s claim that the companies circumvented the City’s minority-business requirements and anti-discrimination policies by submitting inaccurate invoices to the City for payment under food services contracts with the Philadelphia Prisons.

The City’s investigation confirmed that Strother was a City-certified MBE and performed actual work in connection with the Prison food services contracts, and that the arrangement between Aramark and Strother did not increase the amounts paid by the City under the Prison food services contracts. Nonetheless, the City found that Aramark overreported the participation of Strother on the food services contracts. The City alleged that, instead of paying at least 20% of the contract value to Strother, as specified in the contract, Aramark, through the use of a circular billing arrangement, in effect paid Strother approximately 4% of the contract value, an overstatement of more than $2 million.

This is the fourth enforcement action taken by the City this year. My posts on the City’s earlier enforcement actions can be found here, here and here.

If you are a City contractor and you think you can evade the City’s M/W/DSBE contracting requirements, think again! The City’s Inspector General is deadly serious about enforcing the City’s M/W/DSBE contracting rules. If you violate them, you will eventually get caught. When that happens, you will pay a hefty price. Don’t make that mistake! Get sound legal advice before you proceed down a path of no return and potential debarment and significant fines and penalties.

The executive summary of the settlement can be found here. The settlement agreement can be found here.

Posted on December 18, 2012 by Christopher I. McCabe, Esq. in City of Phila., DBE/MBE/WBE Comments Off

Public Bidding 101: Rejection of All Bids

This post is another in a continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post concerns the rejection of all bids by the public entity.

There are many times that a public entity solicits bids, only to reject all of the bids and conduct a re-bidding. The reasons for a rejection of all bids may be due to the bid prices exceeding a preliminary construction estimate, or due to a non-responsive, but extremely attractive, low bid that can be easily corrected on a re-bidding, thereby ensuring that the pubic entity gets the best price available. Clients often ask me whether this is allowed and what they can do to challenge this type of conduct. Their concerns stem, in part, from the exposure of their bids and their prices which many fear leads to a competitive disadvantage on the re-bidding. Unfortunately, there is little to stop such conduct.

First, bidders themselves have no standing to complain of such conduct. Only a taxpayer can complain and sue to stop such conduct. Second, there is really no legal basis to stop such conduct. If a statute allows it, or if the bidding instructions permit it, which is almost always the case, a public entity is free to reject any and all bids, for good reason or for no reason.

In Weber v. City of Philadelphia, 437 Pa. 179, 262 A.2d 297 (1970), a seminal case in the area of public bidding, the Pennsylvania Supreme Court noted:

“…if a municipality, in connection with competitive bidding, is empowered to do so, it may reject any and all bids in the absence of fraud, collusion, bad faith or arbitrary action…”

As the Supreme Court noted in Weber, the only limitation on the public entity’s power is where such decision is influenced by fraud, collusion, or is committed in bad faith, or constitutes arbitrary action. But these are high hurdles to surpass and I have never encountered a situation where a court has enjoined the rejection of all bids.

So, if a public entity decides to reject all bids, there is very little that anyone can do about it. For additional enlightenment on this topic, the Weber case can be found here.