Public Bidding Hall of Fame: Kratz v. Allentown

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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.

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Posted on by Christopher I. McCabe, Esq. in Hall of Fame Decisions Leave a comment

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