Highlights: State law requires public owners to follow specific standards when selecting contractors. These standards can differ from one type of public owner to the next, and some owners may be able to expand or limit their discretion in awarding bids. In this article we outline the standards that apply to municipalities and the ways a municipality can expand their discretion in evaluating bidders.
The title to this article would have made a great headline—in 1905. In fact, Ohio’s law on selecting bidders allowed such discretion to some public entities as early as 1831. Remember 1831? Andrew Jackson was president. In the days before Ohio had a state flag (1901), before the Cardinal was declared the state bird (1933)—even before the Red Carnation was chosen as the state flower (1904) and Tomato Juice became the state beverage (1965)—Ohio was choosing bidders based on qualifications as well as price.
Way back in 1905, the City of Hamilton, Ohio ran into the bidding buzz saw. In Scott v. City of Hamilton, 1905 Ohio Misc. LEXIS 486, an argument had broken out over whether a contract for paving should be given to William Andrews. (As an aside, there was a disagreement over whether the street should be paved with vitrified brick or the new-fangled sheet asphalt block.) The First Circuit Court of Butler County Ohio explained that a municipality should select the lowest AND BEST bidder; and, that the municipality had discretion to make that decision.
The objection that the bid of the defendant, William N. Andrews, was not the lowest and best, is not a good ground for granting an injunction, because Section 143 of the Municipal Code provides that “the directors of public service shall make a contract with the lowest and best bidder,” and if the action of the board in awarding this contract was free from fraud, the discretion thus conferred can not be controlled by the courts.
Fast forward 103 years. Today, municipal bidding is controlled by Title 7 of the Ohio Revised Code. ORC § 715.011 (lease-purchase); § 735.05 (Cities) or § 731.14 (Villages); and § 731.141 (Village Administrator) all require the municipality to make a contract with “the lowest and best bidder.”
Applying The Lowest and Best Standard
It is a widely accepted view among construction attorneys that the “lowest and best” standard allows more discretion in the award of a contract than the “lowest responsive and responsible” standard to which other public bodies are subjected. That point of view is based on a perception that an entity applying the “lowest and best” standard is permitted to compare not only the prices of two bidders, but the bidders’ qualifications, which was the case in Cedar Bay Construction, Inc. v. City of Fremont, 50 Ohio St. 3d 19.
Consider this simplified example. A municipality wants to build a new recreation center. The estimated cost is $15 million. The project is put out to bid and two bids are received.
- The first bid is from A Guy With A Hammer Construction Company for $100. A Guy With A Hammer has been in business for one month, has never worked on a public project, and has two employees (and a hammer).
- The second bid is from Mega Construction Company and is for $14 million. Mega has been in business 50 years, has 200 employees, and has completed $1 Billion in public work of this nature.
Clearly, at $100, A Guy With A Hammer has the lowest bid. Is there any chance A Guy With A Hammer is the best bidder? Probably not. And, in this simple example, the municipality would find that Mega Construction Company is the lowest and best bidder.
If only it were that simple. The construction industry today is hyper-competitive. Bidders are becoming more sophisticated and the gap between bids can be only pennies. Often, a disappointed bidder will turn to the courts for relief when they are passed over in favor of another bidder. Still, it is important that municipalities employ their discretion to ensure that they get not only a good price for the work, but also a contractor who has the ability to complete the project correctly. In future issues we shall delve more deeply into the minutia of rejecting bidders.
Enlarging or Decreasing Municipal Discretion
In Ohio, municipalities are granted certain Home Rule powers. Through the effective drafting of a municipal charter, many cities have successfully gained additional discretion in rejecting bidders. In Cleveland Constr., Inc. v. City of Cincinnati, 118 Ohio St. 3d 283, the Supreme Court of Ohio explained that:
The outcome of this case would be different if the contract and relevant municipal ordinances said that the contract would be awarded to the “lowest bidder.” Instead, they said that the contract would be awarded to the “lowest and best bidder.” Cincinnati Municipal Code 321-37(a). In addition, even the lowest and best bid may be rejected if the bid “is not in the best interests of the city.” Cincinnati Municipal Code 321-43.
Conversely, some municipalities may adopt a more restrictive standard. Ohio Revised Code §9.312 contains such an option for municipalities.
A municipal corporation, township, school district, board of county commissioners, any other county board or commission, or any other political subdivision required by law to award contracts by competitive bidding may by ordinance or resolution adopt a policy of requiring each competitively bid contract it awards to be awarded to the lowest responsive and responsible bidder in accordance with this section.
Thus, the O.R.C. § 9.312 option expressly authorizes, but does not require, any political subdivision that must award contracts by competitive bidding to adopt a policy requiring that each competitively bid contract be awarded to the “lowest responsive and responsible bidder,” within the meaning of the statute. It is important for the prospective bidder and Owner to know whether the municipality has opted to adopt the standard in § 9.312(C). Choosing this option will likely limit the municipality’s discretion in selecting the right bidders.
It is important to note that evaluating bids under the lowest and best standard does not mean that an Owner should ignore whether the bidder has been responsive in its bid. The responsive element is inferred under the lowest and best standard. It would be difficult to argue that a bidder who submitted a non-responsive bid was actually the “lowest and best.”
A Contractor’s bid must be responsive, and responsiveness is determined by examining the bid. In order for a bid to be responsive, the bid must comply with the specifications and instructions to bidders in all material respects and must contain no irregularities or deviations from the specifications that would affect the amount of the bid or give the bidder a competitive advantage. All of the statutes require a finding that the bid is responsive, either explicitly or implicitly.
Standard of Review
There are many things to consider in determining whether a bidder is the lowest and best. Municipalities must take care to make those evaluations rational. The good news is that the courts will not typically overturn the decision of the municipality so long as that decision is not the result of abused discretion or fraud.