Public Bidding 101: Are Proprietary Specifications Permissible?

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On a public bid can a public entity direct a contractor to furnish and install equipment made by only one manufacturer?  This question is raised often by clients who complain when the specifications they are bidding against are viewed as “proprietary” in nature.  Is this legal, they ask?  Can the public entity really limit the specified equipment to a sole manufacturer?  As always, the answer is, “it depends,” although it is safe to say that all proprietary specifications should be viewed initially as inherently suspect and contrary to the spirit of public and competitive bidding.

The rare, but easy to justify case is where the equipment specified is intended to complement or replace existing unique equipment.  Thus, in Silsby Mfg. Co. v. City of Allentown, 153 Pa. 319, 26 A. 646 (1893), the Supreme Court of Pennsylvania held that the purchase of replacement flues for a patented engine, which could not be bought from any other supplier, was not subject to competitive bidding.  In the same vein, if the public entity could buy such unique equipment without competitive bidding, the public entity will likely be permitted to specify the same equipment in the specifications for a contract to furnish and install the same equipment.

The more common, but harder to justify case is where the equipment specified is clearly proprietary (i.e., made by a sole manufacturer), but where the public entity fails to specify acceptable, alternative equipment, or fails to use the words “or equal” after specifying the base equipment.  In this day and age, it is extremely rare that there are not competing sources for building systems equipment.  Today, major pieces of building equipment (e.g., plumbing or mechanical equipment) are manufactured by a multitude of competing manufacturers, and it is fair to say that all operate in essentially the same manner with the same performance and results. In fact, it is the rare manufacturer who has cornered the market for a piece of building systems equipment.

The only reported court decision in Pennsylvania dealing even remotely with proprietary specifications is Direnzo Coal Co. v. Dep’t of Gen. Servs., 825 A.2d 773 (Pa. Cmwlth. 2002).  In Direnzo, the issue was whether the specified ash content of anthracite coal (12.6%) was unduly restrictive and limiting of competition.  The court rejected the attempt to set aside the procurement, finding:

DGS has discretion to prepare necessary specifications to meet its minimum needs. As addressed above, the change in the maximum allowable ash content from 14% to 12.6% was developed in order to ensure compliance with federal and state regulations pertaining to particulate matter emissions. Therefore, Specification C-80 reflects the legitimate needs of the Commonwealth.

The decision in Direnzo can be found here.

The Pennsylvania Department of General Services Procurement Handbook, Part I, Chapter 13, has this to say about “proprietary specifications”:

Since the purposes for competitive bidding require that all responsible bidders shall have the opportunity to compete, a specification or SOW [statement of work] that has the effect of putting unnecessary obstacles in the way of potential bidders is faulty and illegal. A proprietary specification or SOW has the effect of severely restricting competition.

Recently, I handled a bid protest where the school district specified as “base bid” equipment certain manufacturer-specific pieces of HVAC equipment.  The school district did seek other pricing via alternates and thus agreed that this other “alternate” HVAC equipment would achieve the same result with the same performance as the base bid-specified equipment.  However, rather than specifying all of the HVAC equipment manufacturers as acceptable “base bid” equipment, or using the words “or equal,” the school district elected to favor certain manufacturers over others.  The school district’s attempt to seek alternate pricing for alternative manufacturers proved ineffective where the “base bid” equipment could be purchased only through one manufacturer’s representative and where the representative offered only a lump sum quote for all equipment and refused to provide any “breakout” pricing.  This refusal prevented bidders from providing alternate pricing for alternative heat pumps, as they could not obtain separate pricing for the base bid heat pumps.  Due to the protest I filed, the school district was forced to re-bid the HVAC contract.  This case illustrates the peril of proprietary specification – it is usually not cost effective for the public owner, and it usually limits competition and can lead to higher pricing which is the opposite intent of public bidding.

If you are a contractor faced with a proprietary specification, your best bet is to bring it to the attention of the public owner before bids are due. You should demand the right to offer a substitute that is equivalent to the specified equipment and you should seek to have this substitute equipment accepted as equivalent in all respects.  If this does not work, you should contact experienced counsel who can persuade the public owner of the error of its ways – that the proprietary specification is contrary to the spirit of public bidding and open and fair competition.  Whatever it does, the contractor should not wait until after the bids have been submitted and opened. By then it may be too late.

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Posted on by Christopher I. McCabe, Esq. in Bid Specifications, Court Decisions, Public Bidding 101 Leave a comment