“It doesn't take Hamlet to figure out that something rotten happened in this case.” So begins Great West Contractors, Inc. v. Irvine Unified School District 2010 Cal.App. LEXIS 1521. And when the author is the Fourth District’s Justice David Sills, a little entertainment is bound to be included with the enlightenment. But if you are involved in public works contracting, Great West is far from comedy. It’s a dramatic reminder of the perils and pitfalls facing contractors and counsel. With fewer private projects underway, more firms are bidding on public work. And it’s not like there’s a lot of public projects to bid on either. To the qualified low bidder, goes the rare and coveted work. That’s the theory anyway. Great West exemplifies how ephemeral the phrase “winning bid” can be.
"Responsible bidder” means “a bidder who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity and experience …” (Public Contracts Code § 1103.) If the low bidder is found to be nonresponsible, it is entitled to a hearing before the bid can be awarded to another bidder. (D.H. Williams Construction Co. v. Clovis Unified School Dist. (2007) 146 Cal.App.4th 757, 772.) In contrast, “a bid is responsive if it promises to do what the bidding instructions demand.” (Taylor Bus Service, Inc. v. San Diego Bd. of Educ. (1987) 195 Cal.App.3d 1331, 1341.) Responsiveness is “readily ascertainable on the face of the bid.” (Great West Contractors, 2010 Cal.App. LEXIS 1521 at p. *65.) Examples of nonresponsiveness include the low bidder proffering an “insurance trust” instead of the requested CGL policy, proposing to lease a phone system instead of selling it as the bid package required, failure to include requested documentation of compliance with an outreach program, and failure to list the required “class A” license.
So what happened in Great West? Great West Contractors was the low bidder on not one but two, elementary school projects. The difference between Great West and the next closest competitors was $800,000. But Great West never got the work. Rather, the third lowest bidders did. Great West's low bid was rejected as “nonresponsive” because it answered “no” to a question about whether it had a different license number. Its winning bid was summarily rejected.
Great West didn’t take it lying down. But when it tried to inspect the bid documents submitted by the two “winning” bidders, it ran into problems. The District eventually turned over the winning bid documents the day after the writ hearing, a date “convenient for the District.” As Justice Sills put it, “The District gave one bidder access to its rivals’ bids immediately, but hemmed and hawed in giving the lowest bidder similar access to its rivals’ bids, then used the delay to prevent the trial court from having to consider that maybe those rivals were guilty of the same offense that ostensibly prompted the rejection.”
Guess what happened when Great West finally obtained the winning bid documents? It discovered that both of the winning contractors’ bids contained the same alleged defects as its own -- failure to disclose other license numbers. Months and two hearings later, Great West was still trying to obtain relief.
During that time, the projects were completed.
Why did Great West work so hard to get the contract back? Why not just sue for lost profits? A contractor wrongfully denied a public contract can only recover bid preparation costs, not lost profits. (See Kajima/Ray Wilson v. Los Angeles County Metropolitan Transit Authority (2000) 23 Cal.4th 305, 308.) As a result, the incentive for a contractor wrongfully denied a public contract is to litigate, immediately seeking writ and injunctive relief. As Justice Sills also put it, “within a month, a little month, this case was effectively over as far as any practical possibility” that Great West could recover the work.
Great West pressed on, appealing. It did so at this point because it needed to amend its complaint to obtain bid preparation costs, but the trial court had denied its request and entered judgment. Borrowing from D.H. Williams, supra, the Fourth District adopted 5 factors to apply when a bidder has literally complied with the bid requirements yet the public entity maintains the bid is “nonresponsive.” They 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 problem is susceptible to resolution by hard and fast lines or whether it is better handled on a case-by-case basis; 4) the potential for adverse impact on the reputation of the bidder; and 5) the potential that innocent bidders will be subject to arbitrary or erroneous disqualification. Applying those factors provides a useful metric for determining if the issue is really one of responsiveness to the bid proposal or responsibility of the bidder.
Turning to Great West’s dispute, the court of appeal had no trouble concluding that the issue went to responsibility. Great West “complied literally with the bid request. There was a question. Great West answered it. Period.” The question about license numbers “was asked so the District could check up on” the bidders. Investigation is required, putting the matter in the responsibility category. Investigating meant going outside the four corners of the bid and the need for outside information goes to responsibility. Resolution turned on case-by-case inquiry “suited to a hearing, fact-finding and administrative judgment, rather than summary rejection based on staff checking” of bid contents, pointing to responsibility. Rejection for failure to disclose associated licenses is particularly suited to agency abuse, pointing to responsibility. And the final factor, allegations of dishonesty? “In this case, the District rejected Great West’s bid for dishonesty. Need we say more?”
Great West was entitled to a predeprivation hearing. It never got it.
Public contracting is complex, difficult work. The laws are designed to protect the taxpayer from everything from inept management and overbilling to outright graft. The bid process is only the beginning. A vast array of documentation and compliance is required from the moment the winning bidder breaks ground. Given the competitive nature of the bidding, complexity of the work and the stakes involved, perhaps disputes are inevitable. As Great West shows, counsel must be especially nimble when disputes arise. For only the quickest action can prevent winning bidders from being transformed into losing bidders and court victories from being Pyrrhic.