City of Phila. Retains Firms for $6.5 Billion Airport Expansion Project

The City of Philadelphia has selected a joint venture of three companies to manage the planning and construction of a $6.5 billion and 12- to 15-year expansion project at the Philadelphia International Airport. The lead firm is CH2M HILL, a Denver-based engineering and construction firm with offices in Philadelphia. The management contract is valued at $25 million for the first four years. The Philadelphia Inquirer article on the selection can be found here.

Posted on June 7, 2012 by Christopher I. McCabe, Esq. in City of Phila. 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

Philadelphia School District Sued Over Contract Award To Minority Firm

The Philadelphia School District has been sued by a suburban, white-owned firm which lost out on a School District contract in favor of a minority-owned firm. The Philadelphia Inquirer has reported that the firm, which lost a $7.5 million surveillance-camera project after former Philadelphia School Superintendent Arlene C. Ackerman allegedly intervened on behalf of a minority-owned firm, has filed a federal civil rights lawsuit against the School District and Ackerman.

The firm may have an uphill battle in its suit. It is well-established that disappointed bidders have no standing to sue public entities for lost profits due to the loss of a contract award. Moreover, the federal courts have held that disappointed bidders have no claims for due process violations for alleged bidding irregularities because the bidders themselves have no personal or property rights in the lost contract.

On the other hand, if the firm can establish that, but for the actions of Ackerman and due to the race of its owner or the race of the owner of the minority-owned firm, it would have obtained the contract, it may be able to prevail against the School District. This suit in such case would be no different that the challenges to minority “set-aside” laws which were viewed as quotas and which were struck down by the courts. If successful, the suit will result in an award of attorney’s fees in favor of the firm.

The suit is the fourth brought against the district in the aftermath of the decision to award an emergency, no-bid contract to a minority-owned firm to install surveillance cameras in 19 city schools the state had deemed dangerous. The School District justified bypassing its normal bidding requirements by calling the camera installation an “emergency.”

The Philadelphia Inquirer article can be found here. An Inquirer article on a whistleblower suit by a former School District official arising out of the same contract award can be found here.

Posted on June 1, 2012 by Christopher I. McCabe, Esq. in Phila. School District Comments Off

Should Disappointed Bidder Be Allowed to Recover its Bid Preparation Costs?

In Pennsylvania, a general rule of public bidding is that a disappointed bidder cannot recover lost profits or other costs for the reason that the bidding laws are for the benefit of the taxpayers and not the bidders themselves.

But what of the disappointed bidder, whose bid is wrongfully rejected but where injunctive relief is denied to the taxpayer who has sought such relief? If it is later determined that the taxpayer was indeed correct, but it is too late for the wrongful decision to be undone and for the contract to be awarded to the bidder instead, or at least enjoined, should the disappointed bidder be allowed to recover, if not its lost profits, at least its bid preparation costs?

In the case of Meccon, Inc. v. Univ. of Akron, the Ohio Supreme Court held in 2010 that, when a rejected bidder establishes that a public entity violated competitive-bidding laws in awarding a public contract, the bidder may recover reasonable bid preparation costs as damages if (a) the bidder promptly sought, but was denied, an injunction to suspend work on the project, pending resolution of the bid dispute, and (b) it is later determined that the bidder was wrongfully rejected and injunctive relief is no longer available.

The Ohio Supreme Court’s reasoning in support of its decision is powerful:

If, for instance, a rejected bidder alleges that a public authority failed to comply with competitive-bidding laws and promptly seeks injunctive relief to delay the public-improvement project pending resolution of the dispute, denial of the requested injunctive relief means that determination of the allegation of wrongful conduct by the public authority will not take place until much later in the litigation. Under our precedent, once the public-improvement work commences or is completed, the rejected bidder will not be able to perform the public contract even if the bidder demonstrates that its bid was wrongfully rejected. In such circumstances, the wrongfully rejected bidder is left with no remedy for the public authority’s unlawful conduct, and injunctive relief will no longer serve to deter the public authority’s unlawful conduct.

Of course, this rule has never been applied by the Pennsylvania courts. The general rule here is that only injunctive relief is available and only if sought by a taxpayer. The disappointed bidder itself has no standing as a bidder to seek any relief against a public entity for the reason that the bidding laws are for the benefit of the taxpayers and general public.

In view of the Ohio decision, there may come a time that such a limited claim is asserted on behalf of a disappointed bidder. To allow such a claim, the rule on standing would need to be modified in Pennsylvania.

There are numerous instances where injunctive relief is denied to a taxpayer, but where there is a strong claim that the public entity acted in a wrongful manner (thereby harming the interests of the public, the taxpayers, and the participating bidders). And certainly, for many large public works projects, the costs of preparing a bid, for what the bidder believed would be a fair and open process, can be quite significant. If such costs cannot recouped and the public entity faces no threat of injunctive relief, how are the interests of taxpayer served, especially where the bidder is a taxpayer itself?

If the bid process is found to be unfair and wrongful, but if injunctive relief is no longer available, there is no real deterrent to the public entity if it chooses to repeat its same conduct on future bids. In such a case, should the potential remedy be limited solely to injunctive relief for a taxpayer, even where such relief is unavailable as a practical matter, because the project has already commenced, and where the bidder, in reliance upon what was expected to be a fair and open process, has expended significant costs? In such a case, it could be argued that a limited exception to the standing rule should be carved out to permit the disappointed bidder to at least recover its bid preparation costs.

The Meccon decision can be found here.

Posted on May 29, 2012 by Christopher I. McCabe, Esq. in General Comments Off

Public Bidding 101: Bid Mistakes and Bid Withdrawals

This post is one in a continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post is bid mistakes and withdrawal of bids. I am often asked whether a bidder can withdraw its bid due to a mistake in price. The answer is not so simple.

Typically, public bids are binding on the bidder for 60 days after bid opening, unless the bidder and the public entity execute a written consent for a longer period. If the bids are not accepted within that time frame, or if a contract is not executed within 60 days of the contract award, the bidder is permitted to withdraw its bid and escape liability on its bid and its bid security or bid bond. Otherwise, the bidder is legally bound by its bid, and cannot withdraw its bid, unless it can satisfy the stringent requirements for a bid withdrawal. Read more