Bidders are Entitled To A Due Process Hearing Over Allegedly Incorrect Statements In Public Contract Bids

Bidders are Entitled to a Due Process Hearing Over Allegedly Incorrect Statements in Public Contract Bids

By
Frederick J. Northrop
Attorney at Law

The courts have repeatedly noted that if a bid is not responsive, that fact will usually appear on the face of the bid. Just the same, public entities not infrequently deem alleged inaccuracies in bid documents make the bid nonresponsive even though they rely on facts learned only by investigation, subsequent inquiry, or from protests. Such issues usually center on responsibility, but agencies are required to give bidders notice and allow them to counter claims of nonresponsibility whereas determinations of responsiveness are made by fiat. This ability to both reject the bid and deny the bidder a hearing can result in unfair determinations and even corruption.

The California Court of Appeal has recently addressed these issues in depth, holding that the Irvine Unified School District improperly rejected a bid as nonresponsive and then hamstrung the bidder's ability to obtain any remedy. In doing so it provided a thorough review of the law. Just as importantly, the court held that unequal treatment given to bidders must be given consideration. ( Great West Contractors, Inc. v. Irvine Unified School District (2010) 187 Cal.App.4th 1425).

Background

Bidders on public works contracts in California somewhat frequently make or must answer protests or adverse agency determinations on their bids. One of the perennial problems is whether the issue is one of the bid's responsiveness or the bidder's responsibility.

In general, a bid is responsive if it (1) is a promise to enter into a contract on the terms specified in the bid invitation. (Taylor Bus Service, Inc. v. San Diego Board of Education (1987) 195 Cal.App.3d 1331, 241 Cal.Rptr. 379, review denied; 47 Ops.Cal.Atty.Gen. 129, 130 (1966)).

Public Contract Code Section 1103 defines a responsible bidder as, "a bidder who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity, and experience to satisfactorily perform the public works contract. "

The distinction is an important one, because questions of responsibility tend to be judgment calls invoking agency discretion but requiring the agency to inform the bidder of the evidence against him and afford him a hearing with the right to present evidence that he is responsible before rejecting the bid. (City of Inglewood-L.A. County Civic Center Auth. v. Superior Court (1972) 7 Cal.3d 861, P.2d 601). Agency determinations of responsiveness are generally determined more quickly and bidders are generally only afforded a brief chance to send a letter of response.

Agency staff, especially those seeking to award work to a favored bidder, may prefer to avoid affording bidders such hearings. The Great West case presents one such case in which the school district couched a responsibility determination as one of responsiveness, then made the determination without allowing the bidder a chance to counter the charges. The facts recited at length in the opinion lead one to believe that the District made every effort to deny the low bidder its rights.

In the Great West Contractors case, the school district staff determined that the contractor had falsely answered a question on the bid form. Rather than make a responsibility determination, however, the staff summarily rejected the bid as nonresponsive. Staff then thwarted the contractor's efforts to investigate the bidding process and worked to prevent it from receiving any relief. The Court of Appeal declaimed these actions and sent the matter back for further hearings on the contractor's right to recover damages from the school district.

The Set Up

The Irvine Unified School District put out a call for bids for two school modernization contracts. Bidders first went through a prequalification process pursuant to section 20111.5 of the Public Contract Code. Having been prequalified, Great West placed bids on May 8 and was found to be the lowest bidder on both projects.

The next day another bidder, Construct 1, wrote to the district challenging Great West's bids over an inaccurate statement. The bid forms asked each bidder to answer the following, "Have you ever been licensed under a different name or license number?" In the question, there was a footnote after the word "you" which defined "you" to include a contractor's "owners, officers, directors, shareholders, principals, responsible managing officer (RMO) or responsible managing employee (RME)." Great West answered "No," because, though it had been in some joint ventures, it had not actually done any business under the other licenses and its involvement in them had been minimal and long ago.

The District sent Great West a letter on May 16 informing it that its bids were deemed nonresponsive and did not invite a response. The governing board met on May 20 to award the contracts. Great West submitted letters from itself and its attorney challenging the decision and demanding a hearing. Great West also argued its case before the board, but the board, at staff's urging accepted the staff proposal.

On May 21, Great West's attorney sent a Public Records Act request to the District seeking to review the bids of the contractors who had been awarded the projects. While the District had obviously allowed Construct 1 to view Great West's bid, it dragged its feet and would not allow Great West to see the other bids until the fourteen days later. On May 23 Great West filed a petition for a writ the court to order the District to rescind its awards or show cause why it should not.

The District's response was to enter into the contracts within the week and then issue notices to proceed. Great West applied for a temporary restraining order, but became a victim of court congestion. The hearing for the restraining order was set for June 3. The court did not get around to actually issuing the restraining order until June 12 and then issued it in the form of the alternative writ prayed for-telling the District to either rescind the contracts or show up in court on June 30 to show why it should not do so. Thus, Great West was unable to get the work stopped pending the court's determination.

Meanwhile, Great West's counsel received copies of the bids of the other contractors and discovered that they too had failed to disclose all their related licenses. This, combined with the fact that the District had provided one or both of them with copies of Great West's bid on bid opening while making Great West wait indicated favoritism to Great West and its counsel. The court refused to consider the new evidence, however, because it had not been presented in the petition.

The court denied the writ petition in mid-July, but the District did not submit a judgment until late September. By that time, there was no hope of getting the contract. In early October Great West filed a motion for leave to amend the petition in order to raise the issue of favoritism and seek a money judgment for costs of bid preparation. The court denied the request and Great West appealed.

The Trap Escaped

The District argued that the court of appeal should not rule on the propriety of its actions, because the project was complete and no effective relief could be granted, i.e. that the case was "moot." There is an exception to this rule, however when a case presents an issue of public importance which is capable of repetition yet likely to evade review. The Court found this to be such a case.

"Consider: In public contracts of a short lead-time nature, like the ones here, an initial determination by the public agency that the lowest bid is "nonresponsive" allows for a summary rejection of that bid that may readily preclude effective judicial redress." Even though Great West had diligently pursued its request for a restraining order, it did not get one for several weeks and even then did not get an order requiring the District to cease work."

The court emphasized that because it was so difficult to obtain effective relief through the courts, it was vital that it rule on whether or not the situation presented a case of responsiveness or responsibility. Otherwise public entities would enjoy "unfettered discretion" to avoid awarding contracts to an undesired bidder simply be deeming some answer nonresponsive. Because this would foster corruption and cost the taxpayers money, the Court deemed it a matter of significant public interest.

Non-responsive versus Non-responsible

The District contended that Great West's false answer amounted to a nonresponsive one. The court rejected this reasoning, holding that the fact that the bid was rejected on the basis of a false answer established that the bid was responsive. The court nevertheless went on to note five factor used in determining whether an issue was one of responsiveness or responsibility:

1. The complexity of the problem and the need for subtle administrative judgment. (responsiveness determinations are not a matter of discretion).

2. The need for information received outside the bidding process. (responsiveness does not usually require such information).

3. Whether the issue requires evaluation on a case by case basis (responsibility) or is subject to hard and fast rules (responsiveness).

4. The potential for adverse impact on the bidder's reputation (responsibility).

5. The potential that innocent bidders will be erroneously or arbitrarily disqualified (responsibility).

The court found that all factors weighed toward a responsibility determination such that due process required a hearing. The court noted that a false answer might reflect an attempt to hide the facts, but could also result from inadvertence. The court likewise opined that this determination required an investigation and complex evaluation of the truth and that the determination would be likely to impact the reputation of the bidder.

In the end, the court reversed the trial court decision and likewise instructed the court to reconsider whether or not to permit amendment of the petition.

Conclusions to be drawn

Bidders should take note that while they should always carefully read and follow bidding instructions, they should in particular be sure to complete all parts of the bid package. The Great West case indicates that while a failure to complete a blank can be considered nonresponsive, a false response may not.

Those faced with purported determinations of a nonresponsive bid, should consult with counsel and possibly challenge the determination as one of responsibility based on the five factors noted. Responsibility determinations entail a due process right to examine the evidence and present contrary evidence for determination. The should likewise demand to examine the bids of other bidders for evidence of favoritism in the bidding process.

© 2010 Frederick J. Northrop practices litigation, construction and real estate law as an associate of Last & Faoro. He can be reached at 650-696-8350 or at FJNorthrop@LF-Lawyers.com.