Bid Protests: The Good, the Bad and the Ugly (Redeux)

This past week I gave a presentation on a panel entitled “Bid Protests: The Good, the Bad and the Ugly” before my local bar association.  Thanks to those who attended, my co-presenters and the bar association for sponsoring.

Rather than letting my notes gather dust I thought I would share some of the highlights.

What is a bid protest?

A bid protest is the procedure by which a bidder protests the rejection of its bid or award of a public works contract to another bidder.

A bid protest may occur in one of two situations: (1) A public entity rejects the bid of an apparent low bidder and the apparent low bidder protests the rejection; or (2) A public entity awards the contract to the apparent low bidder and another bidder protests the award.

On what types of projects can a bidder protest an award?

A bidder can file a bid protest on a competitively bid public works project. Most public works projects in California are subject to competitive bidding, the requirements for which are set forth in the Public Contracts Code, and generally involve the submittal of sealed bids to a public entity by a certain date and time, which are then open and read by the public entity, who will then award the public works contract to the lowest responsible bidder.

The competitive bidding laws serve several purposes: (1) To protect the public from misuse or waste of public funds; (2) To provide all qualified bidders with a fair opportunity to enter the bidding process; (3) To stimulate competition in a manner conducive to sound fiscal practices; and (4) To eliminate favoritism, fraud, corruption and abuse of discretion in the awarding of public contracts.

However, not all public works projects in California are subject to competitive bidding.  The most common exceptions are for:

• Public world projects which do not meet the dollar threshold for competitive bidding (generally, between $10,000 to $75,000).
• Charter cities if their charter exempts them from the state’s competitive bidding laws.
• Professional service contracts with architects, engineers and land surveyors.
• Emergency and remedial repairs.
• Self-performed work.
• When it would be undesirable or impossible to advertise for bids for particular work.

Note: State and local public entities who solicit bids with alternates may select the lowest responsible bidder with the lowest responsive bid based on: (1) base bid alone, (2) base bid + all alternates, (3) base bid + one or more specified alternates,  or (4) any of the foregoing, so long as the lowest bid is determined by sealed bid which does not reveal the identity of the bidders or proposed subcontractors or material suppliers. However, a state or local public entity must specify in its bid solicitation which method it intends to use to rank bidders, and if no method is specified, then the local public entity must rank bidders based on their base bids alone.

Who can file a bid protest and how do you do it?

Unlike the competitive bidding laws there are no state laws governing bid protests. Thus, the procedures applicable to a bid protest depend on the procedures adopted by the public entity, as shaped by case law. Typically, those procedures only allow “bidders,” not subcontractors of bidders, to file a bid protest. Moreover, those procedures typically have very short deadlines (e.g., five days after bid opening) for a bidder to file a bid protest.

Generally, however, a bidder who protests an award should send a letter to the public agency awarding the public works contract, by certified mail, overnight delivery, or other method providing proof that a bid protest was received, setting forth the factual and, if possible, legal basis for the bid dispute. The legal basis, as discussed below, can be either on the grounds of “responsiveness” or “responsibility.”

What must a public entity do if it rejects a bid or receives a bid protest?

As discussed, the competitive bidding laws require that a public works contract be awarded to the “lowest responsible bidder.”  However, this is a bit of a misnomer because there are actually two requirements which must be satisfied for a bidder to be awarded a public works project – the awarded bidder’s bid must be “responsive” and the awarded bidder must be “responsible.”

Responsiveness

A “responsive” bid is a bid that is in strict and full accordance with all material terms of the bid package (e.g., the bidder has used the correct bid forms, has fully completed all questionnaires, has submitted all requisite enclosures, and has provided a proper bid bond when security is required).

Determining whether a bid is “responsive” is a two-step process.  First, the public entity must determine if the bid is responsive or not. Has the bidder submitted all of the correct bid forms, has it properly completed the bid forms, does the bidder have the required license classification set forth in the bid package, etc. ? If not, the bid is not responsive.

If a bid is not responsive, the public entity must then determine whether the variance in the bidder’s bid is “material” or “immaterial.” If it is a “material” variance the public entity must reject the bid. If, however, there is merely an “immaterial” variance, the public may either waive the variance and accept the bid or reject the bid.

Unfortunately there is no bright-line rule for determining whether a variance is “material,” requiring that a public entity reject a bid, or “immaterial,” allowing a public entity to either accept or reject the bid. The courts, however, have stated that in order to be “immaterial” a “variance cannot have affected the amount of the bid or given a bidder an advantage or benefit not allowed other bidders” and that a “material” variance is one which would have “afford[ed] a bidder the ability to withdraw its bid without forfeiting its bid bond.”

Note: Bids are often submitted under extreme time pressure as bidders receive quotes from their subs and fax or electronically submit their bids to the public entity in the final minutes. As such, bid errors are not uncommon. Nevertheless, bids are considered irrevocable offers and there are limited circumstances in which a bidder may withdraw its bid without forfeiting its bid bond. Public Contract Code section 5100 et seq. governs bid withdrawals and provides that bidder may withdraw its bid and recover its bid bond if:

1. A mistake was made;
2. The bidder gives the public entity written notice within five days after bid opening specifying how the mistake occurred;
3. The mistake made the bid materially different than the bidder intended it to be; and
4. The mistake was not due to an error in judgment, carelessness in inspecting the work site, or reading the plans or specifications.

A bidder who withdraws its bid may not bid on the project even if the project is rebid.

Responsibility

Determining whether a bid should be rejected because it is non-responsive or the bidder is not responsible can be a difficult task, as questions concerning responsiveness versus responsibility, are often mixed questions of fact. Although unwieldy, California courts have developed a five-factor test determine whether a bid should be rejected because it is non-responsive or the bidder is not responsible. Commonly referred to as the D.H. Williams factors, after a case by the same name, the five factors are:

1. The complexity of the problem and the need for subtle administrative judgment.
2. The need for information received outside the bidding process.
3. Whether the issue requires evaluation on a case by case basis or is subject to hard and fast rules
4. The potential for adverse impact on the bidder’s reputation.
5. The potential that innocent bidders will be erroneously or arbitrarily disqualified.

Because the D.H. Williams factors are easier to state than apply, practitioners have come up with various shortcuts. Once such shortcut is that if, in determining whether a bid or protest should be rejected, the public entity requires information outside the bid, then it’s an issue of responsibility. Another shortcut is that if it has to do with the bid then it’s an issue of responsiveness but if it has to do with the bidder then it’s an issue of responsibility.

Be wary though of shortcuts. For example, I had a bidder who did not hold the proper license classification required in the bid package. I had to look outside the bid to determine this, and arguably it had as much to do with the bidder as it did with the bid, but prior cases had clearly held that it was an issue of responsiveness and that it was a material variance at that.

Rejection of all Bids

In addition to the foregoing, a public entity may always reject all bids and rebid the project.

What happens if a public entity rejects a bid protest?

A bidder whose protest is rejected, after exhausting all administrative remedies (i.e., exhausting all of the bid protest procedures of the pubic entity), may file a writ of mandate with the superior court to have the superior court review the public entity’s decision. However, a bidder cannot demand that a public entity award a public works contract to the disappointed bidder. This remains a decision for the public entity who, if it loses the writ, has the choice of awarding the contract to the disappointed bidder or rejecting all bids.

Upon petition for a writ of mandate, the trial court reviews the agency’s proceedings for abuse of discretion. In doing so, the court determines whether the agency’s actions were arbitrary, capricious, entirely lacking in evidentiary support, or inconsistent with proper procedure. There is a presumption that the agency’s actions were supported by substantial evidence and the burden is on the bidder to prove otherwise.

In addition, a public entity is not required to halt its award of a contract or from proceeding with a project because a writ of mandate is filed. And, even if the disappointed bidder should prevail, the bidder is only entitled to recover its costs to prepare its bid and bid protest expenses, and is not entitled to an award of lost profits.

A few best practices for public entities

• Institute clear and reasonable bid protest procedures.
• Prequalify bidders to eliminate non-responsible bidders.
• Include a list of all forms that must accompany a bid.
• If bids will include alternates, clearly identify how bids will be evaluated.
• Give yourself sufficient wiggle room (e.g., bid “may,” as opposed to “shall,” be rejected if . . . .”)
• If responding to RFIs before bid opening, require RFIs to be in writing, respond to RFIs in writing, and make RFIs and responses available to all bidders
• Limit the time for filing bid protests.
• Allow sufficient time between bid opening and contract award to address bid protests.
• If a protester requests bid information submitted by other bidders, give it to them, rather requiring that they comply with the Public Records Act.
• Give notice of the grounds why a bid is being rejected or a protest is being rejected.
• Giver yourself sufficient wiggle room (e.g., bid “may,” as opposed to “shall,” be rejected if . . .”).