Does PA Steel Act Prohibit Public Owner From Specifying Foreign-Made Cast Iron Boiler?

The PA Steel Products Procurement Act requires that all steel products (including cast iron products) supplied on a Pennsylvania public works project must be made from U.S.-made steel. Recently, a school district's contract specified a cast iron boiler manufactured in Europe as the Read more

Disappointed Bidder Lacks Standing To Challenge P3 Contract Award By Non-Commonwealth Entity

In a recent case of first impression, the Commonwealth Court of Pennsylvania has affirmed a lower court ruling that a disappointed bidder lacked standing to challenge a contract awarded by a non-Commonwealth entity under the Public-Private Transportation Partnership Act (P3 Act). In Read more

City Of Allentown Permitted To Use RFP Process For Waste Services Contract

In a decision issued on July 20, 2017, the Commonwealth Court of Pennsylvania upheld the City of Allentown's use of the Request for Proposals (RFP) process in a contract award. In 2015, Allentown issued an RFP for the award of a Read more

Are RFQs Immune From Protest Under The Procurement Code?

If you respond to a Request for Quotes (RFQ) issued by a Commonwealth department or agency, can you protest if the resulting purchase order is awarded to another bidder? According to the Commonwealth's Office of Administration, the answer is no. Read more

Pennsylvania Initiates Disparity Study For Small Diverse Business Program

In June 2017, the Commonwealth of Pennsylvania initiated a disparity study that will provide information to help the Department of General Services (DGS) implement the Pennsylvania's Small Diverse Business Program. The expected completion date for the disparity study is Read more

Bidder Responsibility

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

Pa. Steel Products Procurement Act Applies To Work Contracted By Private Non-Profit Foundation

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Does the Pa. Steel Products Procurement Act apply to a project undertaken by a private non-profit entity for a university under the Pennsylvania State System of Higher Education?  According to a recent decision by the Commonwealth Court in the enforcement lawsuit brought by the Pa. Attorney General’s Office against various Ryco, Inc., entities (see my earlier post here about that lawsuit), the answer is yes.

In an opinion filed February 21, 2013, in the Ryco case, in response to objections raised by the Ryco entities, the Commonwealth Court (Judge Colins) has held that the Steel Act does apply to a student housing project undertaken for Indiana University of Pennsylvania (IUP) by the Foundation for the Indiana University of Pennsylvania (Foundation), a non-profit foundation affiliated with IUP.

The Ryco entities had argued that the Foundation was not a “public agency,” that the housing project was not funded with public money, and that the housing project was not bid as public contracts.  In rejecting these arguments, the Commonwealth Court noted that the Steel Act does not require the owner to be a public agency, only that the project be a public work.  Here, there was no legal question, in the Court’s view, that the student housing project was a public work.

The Commonwealth Court also noted that the Foundation itself was in fact a “public agency” under the Steel Act.  The Foundation was created to promote educational purposes, including for the construction of buildings for IUP.  The Foundation had been engaged by IUP to finance and construct the student housing project.  The Court borrowed from caselaw interpreting the Prevailing Wage Act in finding that, under these facts, the Foundation was a “public agency” for purposes of application of the Steel Act.  In the analagous Prevailing Wage Act case, the Court had held that a private, non-profit corporation created by a county for the purpose of building and operating a nursing home was a “public body.”

The lesson here for contractors working on what are potentially public works projects is to understand the full nature of project they are working on (even if they have only a small part of the project) and to think about the ultimate user/owner of the project.  Here, it seems quite obvious that student housing for a state university has all of the hallmarks of a public works project to which the Steel Act would typically apply.

The Commonwealth Court’s decision can be found here.  A later ruling by the Commonwealth Court in the same Ryco case re-affirmed that the Court’s holdings were as a matter of law, and precluded any further defense by the Ryco entities that the Steel Act did not apply to the student housing project.  That later decision can be found here.

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

Second Tier Subcontractor Recovers On Payment Bond That Waived Safe Harbor Provision

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The Pennsylvania Commonwealth Court recently held in a published opinion that the “safe harbor” provision in the Pa. Procurement Code, which shields sureties from second-tier payment claims where the general contractor has made full payment to its subcontractor, can be waived by contrary language in a payment bond.  This is welcome news for second-tier subcontractors on public works projects.  It is not welcome news for sureties, and will likely result in an immediate revision to “deficient” payment bonds issued on Pennsylvania public projects.

In Berks Prods. Corp. v. Arch Ins. Co., Berks Products Corporation, a second-tier subcontractor, supplied materials on a Wilson Area School District project under a subcontract with a first-tier subcontractor.  Skepton Construction, Inc., the general contractor, paid the first-tier subcontractor in full for the materials in question, but Berks remained unpaid to the tune of $52,679.26.  Berks then sued Arch Insurance Company which had issued a payment bond to Skepton.

Arch’s defense was that, under the “safe harbor” provision found in section 3939(b) of the Pa. Procurement Code, full payment by Skepton to the first-tier  subcontractor was a complete bar to Berks’s claim.  The statutory “safe harbor” states that: “Once a contractor has made payment to the subcontractor according to the provisions of this subchapter, future claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor which has been paid shall be barred.”  The “safe harbor” protects general contractors from having to pay twice – once to the subcontractor, and second to the sub-subcontractor.

In response, Berks argued that certain language of the payment bond waived the “safe harbor.” The specific language in question stated that the bond would remain in full force and effect if either the general contractor (the principal) or its subcontractor failed to pay for labor or materials. Because the first-tier subcontractor failed to pay Berks in full, the trial court found that the payment bond remained in effect and that the “safe harbor” had been waived by Arch.  On appeal, the Commonwealth Court upheld the trial court’s decision.  In its decision, the Commonwealth Court explained its holding as follows:

… the payment bond drafted by Arch herein provided that the bond shall remain in full force and effect until such time as both Skepton, the principal/general contractor, and any subcontractor, such as Tauber, make full payment for any labor and/or materials supplied for the school project. As the trial court noted, this language ensured that a third party such as Berks, which provided labor and/or materials for the project, would get paid in full.

This decision could tilt the playing field in favor of unpaid second-tier subcontractors, but only if the payment bond mirrors the language found in the Arch payment bond, or if there is other language that defeats the “safe harbor.” On the other hand, the ruling may be fleeting as sureties can easily overcome the holding by modifying any troublesome language in a payment bond.

If you are a second-tier subcontractor on a public project in Pennsylvania and remain unpaid, you should demand a copy of the payment bond and examine it carefully to determine whether the surety has waived the benefit of the “safe harbor.”  Better yet, contact experienced counsel for assistance in getting paid.

The Commonwealth Court decision can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Surety and Bonding Leave a comment

Bidder’s Response To RFP Does Not Create Contract

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In an unpublished opinion issued in November 2012, in a case brought by two disappointed bidders involving contracts awarded in 2002, the Commonwealth Court revisited some core principles of public bidding which are worth repeating.

The underlying facts concerned an Request for Proposals issued by Hazleton Area School District for school bus transportation contracts.  The school district awarded the contracts, not to the lowest bidders, but to other bidders based upon the model year of the buses proposed for the contracts. The low bidders sued and challenged the award and also asserted a tortious interference claim against the competing bidders.

As a preliminary matter, the Court noted that the low bidders’ standing as taxpayers did not also give them a cause of action for breach of contract or tortious interference.  Taxpayer standing does not translate into a claim for damages.

The Court first held that the bidders’ response to the school district’s RFP did not create a binding contract with the school district.  The bidders argued that the circulation of the RFP constituted a unilateral contract offer which was accepted by the school district.  The Court rejected this position and reiterated the long-standing rule in Pennsylvania that an invitation to bid or an RFP is merely an invitation for an offer and is not an offer itself.  Rather, the bid is the offer which the public entity is free to accept or reject.  Thus, the Court held that the issuance of the RFP did not bind the school district to award the bus contracts to the low bidders.

Second, the Court held that there was no interference by the other competing bidders with the low bidders’ “prospective” business relationship with the school district.  The competing bidders were free to ask the school district to consider the age of the buses in making its decision to award the bus contracts. This sort of conduct was privileged and could not subject the other bidders to a tortious interference claim by the disappointed bidder.

The moral of the story?  Bid protests are not easy to win, especially where the bid protests are based on unwarranted extensions of the law and where counsel argue points that have no support in public bidding law and muck up their clients’ claims with silly theories like tortious interference with contract.

The decision in Yurcho v. Hazleton Area School District 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 Voids Drug Contract Where Price Was Not A Factor In Contract Award

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In March 2011, the Pennsylvania Department of Public Welfare (DPW) issued a Request for Proposals (RFP), under a competitive sealed proposal process, seeking proposals for the supply of pharmaceuticals for its Developmentally Disabled Centers.  The pricing structure set out in the RFP provided that the winning vendor would be reimbursed through Medicare, Medical Assistance (MA), or private insurance.  Apparently, DPW would not consider price as a factor in its award of the contract.

DPW received four bids and awarded the contract to Diamond Drugs whose proposal was scored the highest.  Omnicare filed a protest with DPW and argued that DPW violated the Procurement Code by failing to consider price as an element of the bids when it contracted to purchase pharmaceuticals for which there was no set pricing scheme and where DPW would pay for drugs not covered by Medicare, MA, or a private insurer.  Section 513(g) of the Procurement Code requires that a purchasing agency consider price in the competitive sealed proposal process. DPW argued that that its actions were proper because it would pay the same regardless of which vendor won the contract. DPW rejected the protest.  Omnicare then appealed to the Commonwealth Court of Pennsylvania.

On May 15, 2013, the Commonwealth Court sustained the protest and voided the contract.  The Commonwealth Court first held that the protest was timely as it was filed within seven days after notice of the contract award was posted to the DPW website.  The Commonwealth Court rejected DPW’s argument that the protest was untimely because the RFP provided Omnicare with enough information on which to base its bid protest.  The Commonwealth Court next held that the contract violated the Procurement Code because DPW will pay directly for non-compensable medications even though it did not consider price as a factor in its award.

The Commonwealth Court wrote:

In doing so, and in failing to consider pricing for non-compensable drugs as an element of the proposals, DPW deprived itself and the offerors of the opportunity to discover whether an offeror could offer better prices for non-compensable drugs than those arrived at by using the MA pricing formula. Given that the offerors’ prices for non-compensable drugs could have differed, DPW violated Section 513(g) [of the Procurement Code] by failing to consider pricing as an element of the proposals.

The Commonwealth Court decision in Omnicare, Inc. v. Department of Public Welfare can be found here.

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

Pa. Board of Claims Retains Exclusive Jurisdiction For State Contract Claims

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I recently posted about a not-so-recent December 2011 decision in Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, where the Pa. Commonwealth Court held that it had original jurisdiction to hear state contract claims seeking non-monetary relief.  Well, it turns out that the Commonwealth Court was wrong.  So, forget everything I wrote.

In a decision issued on March 25, 2013, the Supreme Court of Pennsylvania reversed the Commonwealth Court and held that claims arising from state contracts can be brought only in the Pa. Board of Claims. In its decision, the Supreme Court wrote that:

… we conclude that the Commonwealth Court erred in interpreting Section 1724(d) [of the Procurement Code] so broadly as to sanction original-jurisdiction actions in a judicial tribunal over nonmonetary claims against the Commonwealth.

***

On account of the doctrine of sovereign immunity, however, contractors, bidders, and offerors have limited recourse and remedies. Relative to controversies in matters arising from procurement contracts with Commonwealth agencies, the Board of Claims retains exclusive jurisdiction (subject to all jurisdictional prerequisites), which is not to be supplanted by a court of law through an exercise of original jurisdiction.

The full Supreme Court decision can be found here.  The factual background for the Court’s decision can be found in my earlier post.

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

Disappointed Bidder On State Contract Has No Due Process Rights

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In a recent, unreported decision concerning a bid protest for a state contract, the Pa. Commonwealth Court reaffirmed its position that a disappointed bidder for a state contract has no due process rights in connection with the award of the contract.  Therefore, the bidder has no right to a hearing on its bid protest.  Instead, the bidder has only those protest rights enumerated in the Pa. Procurement Code.  The Court ruled that a prior decision finding due process rights was expressly overruled by later enacted legislative amendments to the Procurement Code.

The Commonwealth Court also held that it was proper for the winning bidder to participate in the bid protest.

The Court’s full decision, in Corizon Health, Inc. v. Department of General Services, can be found here.

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

Commonwealth Court Can Hear State Contract Claims For Non-Monetary Relief

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[UPDATE: The case discussed in this post is no longer valid.  The Supreme Court has overruled the Commonwealth Court.]

Despite common misperception, the Pa. Board of Claims is not the exclusive forum for all state contract claims.

In a decision from December 2011, Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, the Pa. Commonwealth Court held that it has jurisdiction to hear state contract claims seeking non-monetary relief.  The decision concerned an RFP issued by the Department of General Services (DGS), on which there were two bidders, GTECH, the incumbent contractor, and its competitor, Scientific Games.  Scientific Games was awarded the contract, which it executed (DGS did not execute contract).  GTECH then protested.  The protest was rejected by DGS and was also found to be in bad faith.  Nevertheless, DGS canceled the RFP, stating that the cancelation was in its best interests.

Scientific Games then filed a complaint in the Commonwealth Court, claiming that it had a contract with the state and seeking specific performance of the contract and other non-monetary relief.  DGS filed objections to the complaint, arguing that the Board of Claims had exclusive jurisdiction over state contract claims and that Scientific Games had an adequate administrative remedy.

The Commonwealth Court rejected the arguments of DGS that the Board of Claims has exclusive jurisdiction of all claims arising out of state-issued contracts. The Commonwealth Court relied upon a provision in the Pa. Procurement Code concerning the jurisdiction of the Board of Claims which states: “Nothing in this section shall preclude a party from seeking nonmonetary relief in another forum as provided by law.”  The Commonwealth Court also held that the administrative remedies did not apply as the relief being sought by Scientific Games was non-monetary in nature.

This decision allows state contractors another potential forum for determination of their contract disputes with the state, provided, of course, that the disputes do not seek a monetary payment from the state.

The full court decision can be found here.

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Board of Claims, Court Decisions, DGS, Procurement Code Leave a comment

When A Claim Is Not A Claim

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When is a claim not a claim?  When it’s not.

In K-B Offset Printing, Inc. v. Department of General Services, a not-so-recent unreported decision, the Pa. Commonwealth Court held that a letter sent by a contractor to the Pa. Department of General Services and asserting entitlement to more than $1 million in contract underpayments did not constitute a “claim,” as that term is defined in the Pa. Procurement Code.  As a result, the contractor was barred from pursuing its claim before the Pa. Board of Claims due to its failure to exhaust administrative remedies. (Under the Procurement Code, a contractor must first file a claim with the contracting officer before it can proceed before the Board of Claims, and the claim must be filed within six months of the date it accrues.)

A five-year contract between K-B Offset Printing and the state had expired in May 2011.  An audit by K-B discovered that K-B was entitled to additional compensation, due to contractual price adjustments that were to occur every six months but were never implemented.  In June 2011, K-B sent a letter to DGS demanding the underpayments.  While DGS conceded that it had not made the necessary price adjustments, DGS refused to recognize the K-B claim to additional payments, basing its decision on its belief that K-B’s claims were barred by a six-month statute of limitations.

K-B then filed a claim with the Board of Claims.  DGS objected, claiming that the Board lacked jurisdiction because K-B did not first exhaust its administrative remedies by filing a claim with the contracting officer.  The claim was then dismissed by the Board of Claims.  On appeal, the Commonwealth Court accepted DGS’s argument that K-B’s claim was not ripe because K-B did not first file a claim with the contracting officer before it proceeded with filing its claim with the Board of Claims.  The Commonwealth Court held that K-B’s June 2011 letter was not a “claim,” and that K-B’s claim for the additional payments did not accrue until DGS sent the July 2011 letter which stated that DGS would not make any further payments.  The Court rested its holding on a rule of the Supreme Court that a “claim” does not accrue until a claimant is affirmatively notified that it will not be paid by the Commonwealth.

At first blush, the court’s reasoning appears to be a monumental splitting of hairs. K-B sends a letter to DGS demanding more than $1 million as a matter of right under a contract.  That looks and sounds like a claim.  DGS then sends a letter conceding that it goofed on the pricing adjustments, but refusing to pay any more money to K-B due to a legal technicality.  That looks and sounds like a denial of a claim.  Nonetheless, the Commonwealth Court holds that a “claim” must still be filed with the contracting officer, even if such a claim is identical to the first letter and is doomed to ultimate failure.  However, the first letter was not a claim because at that time DGS had not yet stated that would not pay K-B the underpayments. Until that statement was made by DGS, there was no “claim” that could be filed and pursued.

The moral of the story?  File the paperwork, and dot your i’s and cross your t’s, even if the claim is pre-destined to be rejected and doomed to failure.  The Commonwealth Court has now made it abundently clear that even a pointless gesture must be pursued in order to perfect a claim before the Board of Claims.

The K-B Offset court decision can be found here.  Read it and be forewarned.

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

Public Bidding 101: The RFP

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This post is another in my continuing series on the basic tenets of public bidding in Pennsylvania. The subject of today’s post is the Request for Proposal (RFP) and whether, and to what extent, the general rules of sealed, competitive bidding apply to RFPs.

An RFP is a type of invitation to bid.  It is typically used where the public entity seeks to enter into a contract in the area of professional services – such as architectural, engineering or legal services.  This is because contracts for those services are not governed by the rule of lowest responsive, responsible bidder, and in fact can be awarded, in many instances, without any competition whatsoever and to a bidder whose bid is not the lowest in price.

In Malloy v. Boyertown Area School Bd., 540 Pa. 308, 657 A.2d 915 (1995), a seminal case in this area, the Pennsylvania Supreme Court described the reasons why the “low bid” rule does not apply to professional services contracts:

For those contracts for which the distinctiveness and quality of service is the paramount concern, there exists a special relationship between the property owner and the contractor.  In these types of contracts, the contractor owes a special duty of loyalty to the property owner because the contractor in essence becomes the property owner’s agent and, therefore, must act in good faith and always in the furtherance of the property owner’s interests vis-à-vis the other contractors on the project.

The Supreme Court’s statement nicely summarizes why professional services contracts are not subject to the low bid rule.  There is an element of trust in such contracts, and this element is not necessarily assumed by the bidder whose bid is the lowest.  So, the public entity has discretion in the award of such contracts and can seek to enter into such contract through an RFP process.

However, once the public entity embarks on a course of bidding, even via a more informal RFP process which does allow for negotiation, it is bound to “adhere to that procedure throughout the procurement process.”  In Lasday v. Allegheny County, 499 Pa. 434, 453 A.2d 949 (1982), another seminal case in this area, Allegheny County solicited proposals under an RFP for operation of a newstand and gift shop concession.  The RFP stated that separate proposals to operate only the newstand would not be accepted.  Nonetheless, Allegheny County then allowed one proposer to make such a proposal and to grant the concession to that proposer on the basis of its proposal, without also allowing the existing operator an opportunity to submit such a proposal.  The Supreme Court held that this was improper and held that, once an RFP process is undertaken, it must be adhered to in all respects in accordance with its instructions and guidelines.

If you are a respondent to a public RFP, consider these rules carefully, and remember that the public entity cannot act contrary to the instructions of its own RFP.

 

 

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