Christopher I. McCabe, Esq.

Contract Award Is Not A Contract, But Bidder May Pursue Claim For Damages For Posting Of Bonds

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When is a contract award a contract? Virtually never.  Rather, a contract award is just that – an award.  It is not a binding contract and imposes no obligation on the public entity.  In the words of Billie Jean King, a contract award is as fleeting as victory.

Recently, in the case of Allan A. Myers LP v. Montgomery County, the Commonwealth Court of Pennsylvania re-affirmed this long-standing principle of public contracting law.  In 2011, Montgomery County issued a request for proposals for roadwork.  After rejecting a bid from another bidder, the Montgomery County Commissioners adopted a resolution accepting the bid of Allan A. Myers LP (Myers).  Later, when the contract award to Myers was challenged by the rejected bidder, the County Commissioners adopted a second resolution rescinding the award to Myers.  Thereafter, Myers filed suit, seeking damages for breach of contract.  The trial court rejected the claim, holding that merely awarding a contract does not create a binding obligation on the public entity to actually execute a contract.

On appeal to the Commonwealth Court, Myers argued that a contract was formed when the County Commissioners adopted the resolution accepting the bid and awarding a contract to Myers.  Myers also argued that it was entitled to pursue damages for the costs related to procuring the required bonds under a non-contractual theory of recovery.  The Commonwealth Court rejected the appeal by Myers, holding that the Second Class County Code governed the award of the contract to Myers and required a signed, written contract (and not simply a resolution).  The Commonwealth Court followed the seminal case of Crouse, Inc. v. School District of Braddock, 19 A.2d 843 (Pa. 1941), where the Supreme Court reasoned that:

When a municipal body advertises for bids for public work and receives what appears to be a satisfactory bid, it is within the contemplation of both bidder and acceptor that no contractual relation shall arise therefrom until a written contract embodying all material terms of the offer and acceptance has been formally entered into. The motion whose adoption is evidenced by the minutes of the school district in the instant case meant merely that the proposal was accepted subject to the preparation and execution of a formal contract or subject to the motion being rescinded before the contract was executed. A preliminary declaration of intention to enter into a formal contract, which was all the motion adopted amounted to, did not in any way limit the school directors’ freedom of future action.

Thus, Montgomery County was free to rescind the award to Myers without liability for breach of contract.  The first lesson here is that the public entity holds virtually all of the cards in the public bidding and contracting context.  Until a formal public contract is signed and executed, there is no contract.  It’s as simple as that.

On the other hand, the Commonwealth Court gave Myers a green light to pursue its claim for damages from having to post bonds in order to preserve its contract award.  In its Complaint against Montgomery County, Myers had alleged that the procurement of the bonds impaired its “ability to seek or to secure other contracts and work which required bonds.” Of course, how strong this claim is remains to be proven.

Significantly, to my knowledge, this is the first time that an appellate court in Pennsylvania has allowed the potential recovery of damages related to the rescission of a public contract award.  Normally, a disappointed bidder has no right to recover damages, and the Commonwealth Court reiterated this long-standing rule by advising Myers that it could not seek damages for any expenses related to procuring the bonds in connection with its bid as these expenses would have been incurred by all bidders. See J.P. Mascaro & Sons, Inc. v. Bristol Township, 505 A.2d 1071, 1073 (Pa. Cmwlth. 1986)(a disappointed bidder has sustained no injury which entitles him to redress in court).

So, the second lesson here is that, if you receive a contract award, and post the necessary bonds, and the contract award is then rescinded, you may be able to recover damages relating to the posting of the bonds.  Of course, such a claim will be exceedingly difficult to prove.

The decision in Allan A. Myers LP v. Montgomery County can be found here.

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions Leave a comment

Commonwealth Court Finds Ambiguity In Bid Spec Creates Bidding Defect Requiring A Re-Bid

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Does an ambiguous bid specification create an unlevel playing field?  The answer has almost always been yes, and a recent Pennsylvania Commonwealth Court decision reiterates that long-standing principle of public bidding law.

In 2011, Allegheny County and the City of Pittsburgh sought bids for a contract to process recyclable materials.  Greenstar Pittsburgh, LLC (Greenstar), a disappointed bidder, brought suit, along with an individual taxpayer, to enjoin the contract award to Pittsburgh Recycling Services (PRS) and to compel issuance of a new bid.  Greenstar argued that language in the bidding specifications was open to more than one reasonable interpretation and provided PRS with an unfair advantage in the bidding process.  The trial court agreed, and determined that the following language in the bid specification was ambiguous:

3.3 QUALIFICATIONS OF BIDDERS

The Contractor’s facility shall be located within a fifteen (15) mile radius from the City’s Department of Public Works . . . located at 30th and A.V.R.R.

The bidding specifications included numerous references to the Contractor’s “processing facility” and a “receiving site.”  As a result, the trial court concluded that Section 3.3 was ambiguous because the word “facility” could reasonably be used to denote either “other receiving site” or the “Contractor’s processing facility.”

On appeal, the Commonwealth Court affirmed the trial court’s decision.  In affirming the trial court, the Commonwealth Court first noted the law governing ambiguity in public bidding specifications:

Our Supreme Court has also recognized that the common standard required to ensure free and fair competition among bidders extends to the form as well as the substance of an invitation to bid for a public contract. In Guthrie v. Armstrong, 303 Pa. 11, 154 A. 33 (1931), the Court concluded that: “The form of the contract is often as vital as anything involved in the transaction, and, unless bidders are on an equality as to knowledge of its proposed provisions, there may be a great advantage to a bidder who has a certain understanding with which the public authorities may agree, over a bidder whose understanding is otherwise.” 303 Pa. at 18, 154 A. at 35. Where a public authority has issued an invitation to bid with provisions subject to more than one reasonable interpretation, while the authority may not have acted in bad faith, the effect may be the same: the common standard is eroded and the public authority can no longer ensure that the public has gained the benefit of fair and just competition among bidders. … As with an ambiguous contract provision, if a provision in bidding specifications is subject to more than one reasonable interpretation, the ambiguous provision must be interpreted against the drafter.

In affirming, the Commonwealth Court agreed that it was reasonable to interpret Section 3.3 to mandate the contractor’s processing facility or the contractor’s other receiving site to be located within the specified 15 mile radius, and concluded that Section 3.3 was ambiguous on its face. Because of this ambiguity, the Commonwealth Court recognized that the pool of bidders interested in participating in the bidding process could be impacted:

We are left to speculate how many potential bidders failed to participate in the bidding process because they did not have the interpretation shared by [Allegheny County and Pittsburgh] and PRS and instead shared the same reasonable interpretation of Section 3.3 made by Greenstar.

The hallmark of public bidding is a level playing field, and ambiguous bid specifications are an inherently unleveling force.  Greenstar recognizes this.  So, if you are a bidder encountering an ambiguous bid specification which can affect, e.g., how you compute your bid price, or whether you are qualified to bid, you have encountered an unlevel playing field.  In such case, it is extremely likely that your bid protest will be successful.

The decision in Greenstar Pittsburgh LLC v. Allegheny County can be found here.

A hat tip to my friend and former colleague Wally Zimolong, Esq., who brought this case to my attention and who also blogged about it at his blog Supplemental Conditions.

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Bid Responsiveness, Bid Specifications, Court Decisions Leave a comment

City Of Philadelphia Contractor Charged With Mail Fraud

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Add yet another contractor to the list of victims of the investigative prowess of the City of Philadelphia’s Office of the Inspector General (OIG).

On May 19, 2014, as a result of an OIG investigation, the U.S. Attorney’s Office charged Airmatic, Inc., a woman-owned, Malvern-based firm doing business with the City of Philadelphia, with defrauding the City of approximately $556,633.03.  It is alleged that Airmatic supplied “unapproved, off-contract products” to various City departments in violation of its contracts with the City.  If convicted, Airmatic faces a maximum possible sentence of five years of probation, a $500,000 fine, or twice the pecuniary gain/loss, a $400 special assessment, and restitution to the City of Philadelphia.

The takeaway on this latest prosecution against a City contractor?  If you are thinking of pulling a fast one by the City, don’t.  You will get caught, and you will be punished.

The FBI press release on the charges against Airmatic can be found here. The Information against Airmatic can be found here.  The Philly.com article on the charges against Airmatic can be found here.

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Posted on by Christopher I. McCabe, Esq. in City of Phila., Phila. Inspector General Leave a comment

Commonwealth Court Decides Telwell Appeal And Finds Board Of Claims Has No Jurisdiction To Hear Loan Claim

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On April 2, 2014, the Commonwealth Court of Pennsylvania decided the appeal in the case of Telwell, Inc., against the Public School Employees’ Retirement System (PSERS) and affirmed the decision of the Board of Claims that it lacked jurisdiction to hear the underlying claim which arose from a loan made by PSERS to Telwell.

In reaching its decision, the Commonwealth Court recognized that the Board of Claim still retained broad jurisdiction to hear “contract” claims, even where the underlying contracts are not made pursuant to the Procurement Code:

Based upon the expansive construction of the Board’s jurisdiction, which gives effect to the public policy of providing a method of redress to those who contract with the Commonwealth, this Court recently concluded that the Board has jurisdiction over contracts made with a Commonwealth agency, even if the contracts are not made pursuant to the Code.

Nonetheless, the Commonwealth Court was compelled to rule against Telwell on its claim against PSERS finding that the Procurement Code was unambiguous in excluding claims related to loans:

Given the clear and unambiguous language of Section 102(f.1), this Court is constrained to hold that the Board does not have subject matter jurisdiction over the Restated Claim.

The Commonwealth Court, however, handed Telwell a partial victory when it remanded the matter to the Board of Claims with instructions to transfer the Telwell claim against Grandbridge Real Estate Capital LLC to the Court of Common Pleas of Philadelphia County.  Grandbridge is a private entity without sovereign immunity and was the servicer on the loan to Telwell.

My earlier post on the Telwell v. PSERS dispute can be found here.

The Commonwealth Court decision can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code Leave a comment

Public Bidding Hall of Fame: Yohe v. Lower Burrell

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This post is one in a continuing series intended to highlight significant Pennsylvania court decisions in the area of public bidding.  The decision highlighted here concerns the core purpose of public bidding requirements.

In 1965, the Pennsylvania Supreme Court decided Yohe v. Lower Burrell, 208 A.2d 847 (Pa. 1965).  In Yohe, the City of Lower Burrell had sought to award exclusive contracts for garbage collection.  Six persons, including the taxpayer plaintiff, were asked to enter into three year contracts under which each would be granted the exclusive privilege to collect garbage in a specified district and to collect fees not to exceed a monthly maximum of $1.50 from each home serviced.  No direct payments would be made from the city’s treasury.

A taxpayer sued to challenge the city’s actions, arguing the the Third Class City Code required competitive bidding.  The trial court dismissed the complaint, holding that the statutory bidding requirements applied only where a city made payments of more than $1,000 and that no such payments by the city were involved.  An appeal was taken.  The issue on appeal was whether the city could award exclusive contracts for the collection of garbage without first advertising for bids where each contract involved sums in excess of $1,000 to be paid, not from the city treasury, but directly by city residents.

The Supreme Court disagreed with the trial court and reversed, stating first as follows:

Bidding requirements ‘are for the purpose of inviting competition, to guard against favoritism, improvidence, extravagance, fraud and corruption in the awarding of municipal contracts, and to secure the best work or supplies at the lowest price practicable, and are enacted for the benefit of property holders and taxpayers, and not for the benefit or enrichment of bidders, and should be so construed and administered as to accomplish such purpose fairly and reasonably with sole reference to the public interest.’  (Footnotes omitted.)  10 McQuillan, Municipal Corporations §  29.19, at 266-67 (3d ed. 1950).

The Court then found that it made no difference that the city itself was not making a direct payment to the garbage collector:

The need for bidding requirements is just as compelling in the instant case where the garbage collector is compensated directly by the recipients of his service as it is when the recipients pay for service through the conduit of the municipal treasury.  In each case, regardless of who makes the final payment, it is the taxpaying citizen who provides the necessary funds and whose interest must be protected.  The provisions of the Third Class City Code in issue here were enacted to insure that protection.  We cannot interpret those sections in a way which would substantially emasculate their protective objectives and thereby encourage the objectionable practices which the Act seeks to eliminate.  The language of the Act compels the interpretation that competitive bidding is required on these contracts even though the money comes directly from the taxpayers rather than from the city treasury.

The Yohe decision has been cited numerous times in public bidding cases, and its language regarding the purpose of public bidding has stood the test of time.  The Yohe holding is also significant for another reason – if a government entity is making a contract, it’s likely to be viewed as a public contract, one that must meet the requirements of public bidding and public contracting, even if the public treasury is unaffected.

The Yohe decision can be found here.

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

Who Can Be Excluded From Public Bidding?

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When a public bid is issued, can a municipality refuse to accept or open bids from any bidder it chooses?

The answer is, yes and no.  In some cases, a municipality may engage in a pre-qualification process and exclude certain bidders, provided that one is mandated or allowed by statute or ordinance.  On the other hand, where there is no statutorily prescribed pre-qualification process, a municipal official cannot exclude certain persons from bidding under the guise of a “pre-qualification” program.  Two not-so-recent cases illustrate this point very nicely.

In Flaherty v. Allegheny Contracting Industries,  Inc., 6 Pa. Cmwlth. 164, 293 A.2d 639 (1972), the City of Pittsburgh advertised for bids for the supply of asphalt.  The city refused one contractor’s bids and returned them on three occasions.  The Mayor then advised the contractor that its name was being stricken from a list of responsible bidders, and that its future bids would be returned unopened. When the contractor’s subsequent bid was returned unopened, the contractor filed suit for mandamus to have its bid opened.  The trial court rejected attempts by the city to have the case dismissed.  On appeal, the Commonwealth Court also rebuffed the city’s efforts, ruling as follows:

The lower court was also correct in holding that the Mayor and the Director of Public Works had a clear legal duty to receive the bids, to open them and read them aloud.  There is nothing in the statute and Ordinance, quoted above, which would authorize the Mayor to institute, by his own initiative, a prequalification procedure under which he could disqualify a prospective bidder.

The Court in Flaherty held that there was a mandatory, ministerial duty to receive and open all bids that were in proper form and timely received. Thus, an order of mandamus could issue.  The Flaherty case can be found here.

In Harris v. City of Philadelphia, 299 Pa. 473, 149 A. 722 (1930), a bidder filed for an injunction against the City of Philadelphia to prevent the award of a contract to a bidder who had been selected under a prequalification plan.  The plan at issue in Harris effectively sanctioned a “favorites” list.  As the Supreme Court stated: “It [the ordinance] further specifies that the answers received shall be scrutinized by the director of the department which is to supervise the performance of the contract, and, if he is satisfied, the prospective bidder’s name shall be placed on what is known as the ‘white list’ of that contract.”

For obvious reasons, this “white list” proved objectionable to the Supreme Court:

It is obvious that [this plan] nevertheless opens wide the door to possible favoritism.  The awarding director can place upon the white list the name of any intending bidder whom he chooses to approve, however irresponsible in fact, and that decision is not reviewable.  On the other hand, he may compel all bidders, who are not favorites of his, to go to the expense of an appeal to the board, which will have before it only the answers to the questionnaire by those the awarding director has excluded from bidding, with no way of knowing whether or not their plant, equipment, experience, and financial standing are superior or inferior to those of the bidders whose names the director has placed on the white list.  This might well result in everybody being excluded except those who are personal or political friends of the awarding director, or whom he knows are conspiring together to seemingly bid in competition, but in reality to destroy all competition; and it certainly would result in giving the contract to one of the favored bidders, if his bid happened to be the lowest of those actually received, though he was not in fact, a responsible bidder, or no more responsible than those who were not permitted to submit bids and might have offered to do the work for a less sum.

Not surprisingly, the Supreme Court found that the prequalification plan at issue in Harris was fatally flawed.  This decision rested on the longstanding rule which was stated as follows:

Following all of our cases, therefore, we again lay down the rule that all bidders on a municipal contract must be accorded the same treatment, for not otherwise can the requirements of the statute be complied with.  The city may, as heretofore she has done, accept and schedule all bids, and then, if acting in good faith, refuse to award the contract to one who is the lowest bidder, because he is not the ‘lowest responsible bidder.’  Or she may, as she is now attempting to do, determine in advance who are responsible bidders, and refuse to receive bids from those who, after treating all alike, she determines are not in that class.  But she may not impose conditions on one prospective bidder, which are not imposed upon all; nor may she enforce a method by which, through favoritism, one person may be conclusively authorized to bid on a pending contract, while another, equally as responsible and perhaps more so, is wholly excluded from even submitting a bid.

The rules from Harris and Flaherty are clear.  All persons are entitled to respond to a public bid, without exception, unless a prequalification process has been duly authorized.  And any prequalification process must apply equally to all interested bidders, and cannot allow for favoritism or cronyism.

If you are a qualified contractor whose bid was timely but was refused, or who was denied pre-qualified status, you should contact experienced counsel immediately to have the bidding process halted until a ruling can issue mandating the acceptance and opening of your bid.

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Posted on by Christopher I. McCabe, Esq. in Bidder Responsibility, Court Decisions Leave a comment

DGS Issues 2014 List Of Exempt Steel Products

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The Pennsylvania Department of General Services has issued its annual list of machinery and equipment steel products which are exempt under the Pa. Steel Products Procurement Act.  The list for 2014 can be found here.

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Posted on by Christopher I. McCabe, Esq. in Steel Products Act Leave a comment

Schuylkill Products Officers Sentenced To Prison And Ordered To Pay Restitution Of $119 Million For DBE Fraud

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In the criminal fraud case involving Schuylkill Products, Inc., and the U.S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program (see my earlier post here about this case), the former Schuylkill Products vice presidents in charge of sales and marketing and field operations received lengthy prison sentences and were ordered to pay restitution of $119 million.

The official press release on the sentencing can be found here.  This is from the press release:

“The sentences handed down today, in what is the largest reported DBE fraud case in USDOT history, serve as clear signals that severe penalties await those who would attempt to subvert USDOT laws and regulations,” said Doug Shoemaker, OIG Regional Special Agent in Charge. “Preventing and detecting DBE fraud are priorities for the Secretary of Transportation and the USDOT Office of Inspector General. Prime contractors and subcontractors are cautioned not to engage in fraudulent DBE activity and are encouraged to report any suspected DBE fraud to the USDOT-OIG. Our agents will continue to work with the Secretary of Transportation; the administrators of the Federal Highway, Transit, and Aviation Administrations; and our law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes throughout Pennsylvania and the United States.”

According to U.S. Attorney Peter J. Smith, the DBE fraud lasted for over 15 years and involved over $136 million in government contracts in Pennsylvania alone. SPI, using Marikina as a front, operated in several other states in the Mid-Atlantic and New England regions. Although Marikina received the contracts on paper, all the work was really performed by SPI personnel, and SPI received all the profits. In exchange for letting SPI use its name and DBE status, Marikina was paid a small fixed-fee set by SPI.

This latest news is just more proof, if any was ever needed, that DBE fraud does not pay.  Contractors working on federally-funded highway projects should be especially wary of trying to sidestep the strict DBE rules that govern such projects.  Doing so, as shown by these sentences, can have serious and life-altering consequences.

If you are a contractor working on a federally-funded highway project, and have questions concenrning the US DOT DBE program, feel free to contact me.  I’ll be happy to answer any questions you have.

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Posted on by Christopher I. McCabe, Esq. in DBE/MBE/WBE Leave a comment

PA Public Contracts Quoted In The Philadelphia Inquirer

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I’m happy to report that PA Public Contracts was quoted today by business reporter Joseph N. DiStefano in his Philly Deals column in the business section of The Philadelphia Inquirer.

The column, “Is state in the clear in loan dispute?”, discusses the Telwell, Inc. v. PSERS Board of Claims decision which I blogged about here.  The Inquirer article can be found here (a subscription may be required) or here.

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Posted on by Christopher I. McCabe, Esq. in General Leave a comment

Ryco Steel Products Procurement Act Lawsuit Settled For $429,000

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In December 2013, the Pa. Attorney General’s Office announced a settlement of the Pa. Steel Products Procurement Act lawsuit with the McKeesport-based Ryco companies and their owners.  The firm and its owners will pay $429,000 to settle the lawsuit, and must comply with a seven-year injunction to guarantee that violations of the Steel Act do not occur again.

The official AG press release can be found here.

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Posted on by Christopher I. McCabe, Esq. in Steel Products Act Leave a comment