Are public Entities Above the Law?

Background/question: A large school district advertised for bidders for a five-year maintenance contract for their district’s HVAC systems. The scope of this contract is to provide a list of guaranteed prices for common replacement parts, various smaller new AC units, and flat rates for specific service and repair tasks. We followed all of the bidding instructions, provided all of the required documents and submitted our bid. At the bid opening, we were the low bidder, yet three months later the district has not issued a notice of award. The work that would be part of the maintenance contract is currently being performed by a contractor that the district has been using all along on a piecemeal basis. Since the commercial HVAC business is a pretty tight knit community, it isn’t too surprising that we are able to get insider information on what is going on.

One of our employees found out that the district is awarding the work that was supposed to be under this contract by issuing change orders to existing contracts that are perpetually kept open. We also suspect that the district is breaking up large projects into smaller projects in order to avoid having to go out for an open bid. We believe this to be the case because last year we inspected a particular administration building to upgrade to an energy efficient HVAC system and we submitted a competitive quote of about $150,000. At that time, the district said that they were going to postpone this project due to budget problems and mentioned something about putting it out for open bid once they had an acceptable budget for the work. The district’s preferred contractor is now performing the work, and this project was never put out for open bid.

Word on the street has it that the district issued several separate purchase orders for the equipment and then awarded additional purchases orders for “phases” of the labor. Our overall impression is that the district’s facilities personnel had expected their preferred contractor to be the low bidder on this longterm maintenance contract, and going through the bid process was nothing more than a formality to validate the plan.

For now, the district seems to have found loopholes in the process by issuing change orders and breaking up the larger projects into smaller ones, so they can avoid issuing the award for the maintenance contract to our company. We spent a significant amount of time and resources preparing a detailed bid in good faith, which included obtaining special pricing from the equipment manufacturers and devising creative ways to optimize our labor. Plus, we also spent money on the required bid bond. We feel we are entitled to be awarded this contract since we are the low bidder. What can we do?

Answer: I will assume that you are the lowest responsible bidder submitting a responsive bid (in public bid lingo). Most bid documents give a deadline as to when the district will issue the notice of award. If that time has passed, you may want to consider a bid protest. I strongly encourage you to seek the advice of experienced legal counsel immediately because it is easy to lose your rights related to this contract as well as make matters worse for yourself for future bids.

For example, if a state public agency decides that your protest is frivolous, you have to post a bond at 10 percent of the contract value to proceed with the protest, and you may end up being classified as irresponsible and then be barred from future agency contracts. The bid documents should include bid protest procedures particular to that public entity. It is very important to follow these procedures to the letter, especially the protest deadlines because they tend to be very short.

For example, the bid protest procedures may give a submission deadline of five days after the bid opening, which is vastly different than a deadline of five days after the notice of award is publicized. A bid protest usually begins with submitting a formal written protest explaining why you are protesting. Most bid protest procedures provide a guideline on exactly what information you must provide. Then, you probably will receive a written response to your protest, or a notice of a hearing. If you receive a written response, then you will usually need to submit a formal request for a hearing within a certain deadline if you do not agree with the response.

At the hearing, it will feel like a one-sided argument because the very agency that you feel is violating the law is the one that will decide if you win your protest. If you don’t agree with the results of the district’s hearing, you will have to file a petition for a writ of mandate in Superior Court, and can seek damages. A writ of mandate is when the court is essentially forcing a public entity to do what they are supposed to do, but have not been doing. You may be able to get the court to mandate that the district will not give work that was supposed to have been provided under the maintenance contract to its preferred contractor by using the various illegal means.

You may also be able to petition the court to stop the district from illegally splitting up large projects into smaller ones in order to award the work to its favored contractor. But, the court cannot force the district to award a specific contractto you or anyone else. Had the contract been improperly awarded, the best the court could do is mandate that the contract be taken away from the bidder to whom it was mis-awarded. In that type of case, the district would have probably just re-bid the project.

As far as damages go, the district had the right to reject all bids and not award contract at all. Depending on how the court looks at the district’s lack of either awarding the bid or rejecting all bids, if you are entitled to damages at all, most likely you will only get your costs for putting the bid together. You are not entitled to an award against the district for profits that you anticipated you would have made off the contract. Public contract laws are intended to eliminate favoritism, fraud and corruption in the awarding of public contracts. It is far from a perfect system, but is the only way we have to attempt to keep a level playing field. It is your right to expect a fair bidding process, and it may be worth your while to force the district into playing by the rules to enhance your chances of future work.

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Disclaimer The information in this article is based upon California law and is for general information only. Any information or analysis presented here is intended solely to inform and educate the reader on general issues. Nothing presented or referenced to, regarding facts, documents or applicable laws, constitutes legal advice. Before acting or relying on any information, including any information presented here, consult with a qualified attorney for your specific situation.
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Scholefield holds an active PE license in Colorado, an undergraduate engineering degree from the University of Florida, and received her JD from the University of San Diego. Source Code: 20080425tca

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