In a previous post we saw that an ambiguity can be used aggressively to throw out a bid even after contract award.  There is more to the story. When a bid specification is ambiguous, the burden is not entirely on the specification drafter.  If the protester had opportunities to seek clarification and failed to do so, then its interpretation will not be reasonable and the specification will not be ambiguous.  In re: Protest of Andersen Consulting, SC Procurement Review Panel 1993-18 (http://www.procurementlaw.sc.gov/MMO/legal/decisions/93-18.pdf ).  Andersen Consulting stated in their proposal that “several assumptions have been made.”  This statement was not well-received by the Panel.  The Panel repeatedly referred to the impropriety of making assumptions in light of the various steps available to get clarification.  The procedures provided for in the Request for Proposals (RFP) included a pre-proposal conference, question and answer time, and the ability to ask about answers to previous questions published in amendments to the RFP.  The Panel ruled that because Andersen “did not take the proper steps” to have its questions answered, it could not claim an ambiguity, and thus the requester’s determination that Andersen’s proposal was non-responsive was upheld.

When a solicitation of bids is drafted, it is important for the requestor to be familiar with the precise requirements that lead to the procurement.  This should enable the drafter to create bid documents that are clear and specific.  Otherwise, the bid process may have to be re-done, even after an award was made. 

A specification is ambiguous if it “is of uncertain meaning and can reasonably be interpreted in more than one way.”  In re: Protest of Warehouse Distributing Company, SC Procurement Review Panel 1988-2 (http://www.procurementlaw.sc.gov/MMO/legal/decisions/88-2i.pdf).  Where a protesting bidder interpreted the specification differently than the drafter intended, the bid protester need only show that its interpretation of the specification was “reasonable” in order to establish ambiguity.  In re: Protest of Pitney Bowes, Inc., SC Procurement Review Panel 1988-14(II)  (http://www.procurementlaw.sc.gov/MMO/legal/decisions/88-14ii.pdf).

In the Pitney Bowes case, the alleged ambiguities pertained to the use of the word “reservoir” in one part of the specification and the word “and” in another part.  The specification called for a mailing machine that used an “ink reservoir,” where the requestor intended the broader, dictionary definition of the term rather than the more technical, industry-specific meaning ascribed to it by Pitney Bowes.  Further, the specification required a system capable of producing “daily, weekly, monthly, and yearly transaction and summary reports.”  Pitney Bowes asserted that the winning bidder’s machine was non-responsive in that it could not produce reports for all four time periods.  Even though the Review Panel noted that there is no such thing as a daily summary report and a yearly transaction report would be prohibitively large, Pitney Bowes’ literal interpretation of this provision was considered reasonable.  The Panel relied on both of these ambiguities in ordering the specification re-written and the contract re-bid.

The requirement that specifications not be “unduly restrictive” is an important pro-competition provision of South Carolina’s procurement law.  SC Code Ann §11-35-2730 (1973) (http://www.scstatehouse.gov/code/t11c035.htm).  Unduly restrictive specifications have been held “inadequate” or “not independently arrived at in open competition” under SC Code of Laws Regulation 19-445.2085(C) (http://www.scstatehouse.gov/coderegs/c019.htm).  In re: Protest of B&D Marine and Industrial Boilers Inc, SC Procurement Review Panel 2000-12 (http://www.procurementlaw.sc.gov/MMO/legal/decisions/00-12.pdf).  This can lead to cancellation of an award or contract and the issuance of a new award or bid solicitation. 

A specification that calls for products from only one manufacturer isn’t automatically unduly restrictive.  In re: Protest of CambexCorp., SC Procurement Review Panel 1992-7 (http://www.procurementlaw.sc.gov/MMO/legal/decisions/92-7.pdf).  SC Code of Laws Regulation 19-445.2140 (http://www.scstatehouse.gov/coderegs/c019.htm) permits a bid specification to use a brand name, so long as it can serve as a basis for meeting the State’s need in a cost-effective, nonrestrictive manner.  Cambex, a computer memory manufacturer, protested an Invitation for Bids (IFB) for an upgrade from one IBM model to another IBM model.  The IFB specified that “no other make or model will be considered” and “all parts … must be manufactured by IBM.”  South Carolina’s Division of Information Resource Management (DIRM) declined to consider Cambex’s product an acceptable alternative, citing several concerns, including the complexity of maintenance and repair in a multi-vendor environment.  The Procurement Review Panel applied the familiar administrative law standard of review, deferring to the agency’s position unless the specification is “unreasonable, arbitrary, capricious, or contrary to the Procurement Code.”  The Panel upheld the DIRM’s decision to limit its IFB to a single manufacturer because Cambex failed to show that the concerns stated as a basis for doing so were “unrealistic or unreasonable.”  Additionally, the Panel noted that the use of a brand-name specification without providing for alternatives did not make the IFB a single-source procurement because the secondary used market for IBM products allowed several vendors to bid on the job. 

On the other hand, merely reciting the phrase “or approved equal” isn’t a magic bullet against undue restrictiveness.  In re: Protest of B&D Marine and Industrial Boilers Inc, SC Procurement Review Panel 2000-12 (http://www.procurementlaw.sc.gov/MMO/legal/decisions/00-12.pdf).  B&D protested an Invitation for Bids (IFB) from USC that called for a boiler to be “Cleaver-Brooks Model CBLE200-800-150ST or approved equal by Kewanee or Burnham.”  The specification drafter admitted that when he wrote the IFB, he did not know if there was an approved equal made by the named manufacturers.  It was later learned that the named manufacturers did not offer an approved equal.  Although USC allowed prospective bidders to submit technical data for approval of additional products, none of the alternates were approved.  Therefore, no approved equals were considered, and as a result, the Panel deemed the IFB an unduly restrictive single-source procurement.   The Panel then held that the finding of undue restrictiveness indicated that the IFB did not meet the State’s requirements for the goods because of the failure to assure competition under SC Code of Law Regulation 19-445.2085(C).  Thus, the Panel upheld the cancellation of the award and re-solicitation of bids.

             A frequent issue when protesting decisions by local government on bidding is whether the local codes meet the requirements of The South Carolina Consolidated Procurement Code (the State Code).  The State Code at § 11-35-50 requires all political subdivisions of the State to develop and adopt procurement laws.

            “All political subdivisions of the State shall adopt ordinances or procedures embodying sound principals of appropriately competitive procurement no later than July 1, 1983, S.C. Code Ann. § 11-35-50 (2007).”  The local codes must be “substantially similar” to the State Code.

            In a case decided October 23, 2008 entitled Edward D. Sloan v. Greenville County, et al., § 11-35-50 was construed.  The State Code contained a preference for competitive bids over competitive proposals and required a written reason if the State used competitive proposals rather than competitive bids.  The Greenville Code did not contain such a requirement.  Sloan challenged the Greenville Code.  The Court said the issues were moot because the contracts which were subject to the protest had been cancelled or fully performed by the time the Court considered the issue. 

The Court did, however, address the issue of whether the local code had to mirror the State Code in part by saying the State Code did not require local governments to adopt specific methods of procurement or the process by which to apply them, and that § 11-35-50 “clearly was intended to afford local governments flexibility to determine what is ‘appropriately competitive’ in light of the public business they must transact.”  However, this was not the holding of the case. 

            As noted above, the Court did not directly decide the issue but pointed out that the same issue was on its docket to be decided in Sloan v. Greenville Hospital System and in that case, the issue was more developed and ripe for decision.

Earlier this year, South Carolina’s Chief Procurement Officer for Construction (CPOC) determined that Instructions to Bidders for competitively bid projects are part of the contract documents and are therefore binding on both bidders and agencies. Tyler Construction Group, Inc. v. University of South Carolina, http://www.procurementlaw.sc.gov/webfiles/OSE_main/Protests/
Tyler_v_USC.pdf. This decision had the effect of requiring USC to award the contract to the higher bidder on the actual scope of work to be performed.

Bids were solicited for a renovation project, including a base bid and an alternative bid for additional work. The bid documents included Standard Supplemental Instructions to Bidders (Form 00201-OSE). Section 5.4.2 of the Instructions stated that the contract would be awarded to the “apparent low bidder,” the bidder with the lowest total base plus alternative bids.

After receiving the bids, USC determined that their budget would only allow for the work in the base bid, and awarded the contract to the bidder with the lowest base bid. However, another bidder had offered a lower combined bid and was therefore the apparent low bidder. When the apparent low bidder protested, the CPOC found that they should have been awarded the contract and directed USC to award the contract according to the terms of the Instructions.

Not surprisingly, the standard form has been modified since this determination was made. http://www.mmo.sc.gov/webfiles/OSE_manual/Appendices/
0201_OSE_Standard_Supplemental_Instructions_to_Bidders.pdf. The instructions now call for bids to be in the form of “Alternate Base Bids” rather than a base bid plus alternatives, such that contracts will be awarded on the basis of the lowest bid for the alternative that is actually to be used. The alternate base bids are treated as separate bids. This means that a low bidder on one alternative may be awarded a contract for that alternative, notwithstanding that their bid was not the lowest for, or even responsive to, other alternatives.

The Court of Appeals for the Federal Circuit provided another piece of the 20 year development of the law in the area of racially preferential contracting procedures earlier this month in Rothe Development Corp. v. Dept. of Defense and Dept. of the Air Force. http://www.cafc.uscourts.gov/opinions/08-1017.pdf. The Court held that the statute, 10 USC §2323 (“Section 1207”) was facially unconstitutional because Congress lacked the requisite “strong basis in evidence” at the time of the most recent re-enactment of the law.

Section 1207 was originally enacted in 1986 and made effective for three years, and has been re-enacted at the end of every three-year period since then. The current version of the statute was enacted in 2006 and is set to expire in 2009.

Section 1207 created a goal that five percent of Department of Defense (DOD) contract dollars be awarded to businesses owned by socially and economically disadvantaged individuals (known as socially disadvantaged businesses, or SDB’s) and authorized the entry into “contracts using less than full and open competitive procedures” in order to reach this goal. The contractual procedures authorized by Section 1207 were constrained by a limitation that the DOD not pay more than ten percent over fair market value on any contract. This limitation was implemented by the DOD in the form of a price evaluation adjustment (PEA) of ten percent added to non-SDB bids.

Rothe was the lowest bidder on an Air Force contract pertaining to computer systems and communication services, but lost the contract to a higher bid submitted by a minority-owned business because of the ten percent PEA increase. The minority-owned business was considered a SDB under Section 1207 based on a presumption incorporated from the Small Business Act (SBA) that members of minority races are socially disadvantaged individuals. Because of this racial distinction, the statute was subjected to “strict scrutiny” when reviewed for compliance with the Fifth Amendment Due Process Clause guarantee of equal protection. The Court found that Congress did not have a “strong basis in evidence” when it determined that DOD was a passive participant in racial discrimination. Thus, a race-conscious remedy was not justified.

Rothe may not be as far reaching as it appears for two reasons. First, the decision was heavily fact-driven. Twenty-five of the forty-seven pages review the statistical and other evidence relied on by Congress during the 2006 re-enactment. The Court stated that its holding was case-specific and avoided setting blanket rules or deciding whether a further re-enactment of the statute would be constitutional.

Second, the defendants are considering an appeal to the U.S. Supreme Court and have asked that enforcement be suspended pending that appeal. If enforcement is suspended and Congress re-enacts the statute with a different evidentiary basis, Rothe may never have any effect.

The ABA Journal is conducting a survey about the legal job market in light of the current state of the economy. I’ve already completed the survey and I’m interested to see what others have to say. The survey can be found here or by going to http://www.surveymonkey.com/s.aspx?sm=9Dhw2g7bX_2bxfq4mW8eB1Cg_3d_3d. The authors of the survey assure me that responses will be confidential. Survey results will be published in January’s ABA Journal.

By way of review, in order for one’s bid to be considered it must be responsive and the bidder must be responsible. In order to be considered responsible, as discussed above, the bidder must have integrity and the proper licenses. Another factor in determining whether the bidder is responsible is the contractor’s experience and past performance.

PAST PERFORMANCE

11-35-1410 (6) defines a “Responsible bidder …” [as] a person who has the capability in all respects to perform fully the contract requirements and the integrity and reliability which will assure good faith performance which may be substantiated by past performance.
The Procurement Code made past performance as a key basis for determining responsibility. Similarly the FAR makes “a satisfactory performance record” a necessary element in the determination. See FAR 9.104-1 (c ). Based upon a reading of decisions on this issue, the contracting agency is unlikely to use just one example of poor performance as enough to find a bidder non-responsible. Most frequently, the agency will cite 5 or more instances of poor performance.

EXPERIENCE

Experience is different from past performance although they can be easily confused. Past performance focuses on the quality of the contractor’s past work where experience focuses on the nature or type of the contractor’s past experience. A contractor’s experience requirement might be stated in terms such as “3 years providing commercial plumbing service.” The word experience appears five times in the South Carolina Consolidated Procurement Code.

One issue that is a limitation on use of the experience criteria in judging bidder responsibility has to do with access to work. The experience requirement will not be used to bar a firm from entry into a new business area unless the solicitation specifically sates a particular amount or type of experience. If the agency fails to justify the reason for its requirement, the requirement may be set aside.

A public entity issued an RFP for insurance. Two parties responded, “A” and “B”. The executive of the public entity favored “A” for personal reasons. The executive ordered an independent analysis of the proposals. The expert recommended “B.” The executive sought another opinion. The second opinion criticized both “A” and “B”. Immediately the entity issued a determination that the RFP had been inadequate and determined to use its emergency procurement powers to obtain its insurance. “B” protested.

“B” alleged that the entity acted arbitrarily in cancelling the RFP when its proposal had been found to be the best by one expert and had not been found to be inadequate by either expert although it was criticized by the second expert. “B” alleged that the “emergency” claimed by the entity was manufactured because the entity had known from the beginning about the pretextual reasons it used to say the RFP itself was inadequate.

“B” alleged the cancellation was demonstrably capricious since (1) each of the criticisms was either patently false or could be easily remedied and (2) one of the key distinctions between an RFP and a hard bid is that RFP responses are inherently negotiable. Where a bid states a certain result the entity wants, an RFP states a problem the entity has and seeks a proposal for responding to it.

“B” also alleged that the executive had a personal conflict of interest in that the executive’s brother stood to gain financially if “A” was selected.

The protest was to be decided under the entity’s procurement policy. The entity was not a state agency. Therefore the South Carolina Consolidated Procurement Code did not apply although a state statute required that the entity’s procurement policy be “substantially similar.” The entity first argued that cancellation of a solicitation is not protestable. The procurement policy, however, said “Any …offeror… who is aggrieved in connection with the solicitation of a contractor shall protest…with in fifteen days of the Request for proposal….”

After “B” ’s bid protest unequivocally demonstrated that “B” ‘s proposal (a) was better than “A” ’s (b) met the entity’s needs and (c) the executive was acting out of self interest, the matter was settled. The moral of the story is that public entities have an obligation to the public to avoid arbitrary and capricious behavior in public procurement.