Competitive Bidding Statute: When it Applies and When it Does Not

The University of Washington (UW), a public university, aimed to secure a real estate developer for a new building on its campus. The proposal involved an 80-year ground lease (the “Lease”), and developers submitted bids. The selected developer would demolish an existing building, construct a new one, own it during the Lease at its own cost, and UW would lease back a portion, with ownership reverting to UW at the Lease’s end. Alexandria Real Equities, Inc. (ARE) was a finalist but ultimately was not selected, and the Lease was awarded to Wexford Science and Technology, LLC (Wexford). As a result, ARE filed suit against UW asserting three claims: 1) UW lacked authority to execute the Lease, 2) UW didn’t follow required competitive bidding procedures, and 3) UW’s developer selection process was arbitrary and capricious. None of these claims were successful and ARE appealed.

Division II of the Washington Court of Appeals affirmed in Alexandria Real Estate Equities Inc. v. Univ. of Wash., __ Wn. App. __, 539 P.3d 54 (2023), a published decision. The Court concluded, based on the facts in that case, that because construction was not publicly funded, UW did not have to follow competitive bidding requirements that were laid out in a statute relevant to state universities.  Still, the Court applied the “bright-line cutoff point” that prohibits disappointed bidders from challenging an award once a contract has been executed. See Dick Enterprises, Inc. v. Metro. King County, 83 Wn. App. 566, 572, 922 P.2d 184 (1996).

Competitive Bidding Requirements

The Court of Appeals rejected ARE’s claim that UW failed to follow competitive bidding requirements in (former) RCW 28B.10.350, holding the competitive bidding requirements did not apply to that Project. Under former RCW 28B.10.350[1], if any state university will spend more than $90,000.00 in “building, construction, renovation, remodeling, or demolition, other than maintenance or repairs,” that project must be subject to competitive bidding requirements. Washington state public policy strongly favors competitive bidding laws in Washington and any contract that violates such law is void. See Manson Constr. & Eng’g Co. v. State, 24 Wn. App. 185, 190, 600 p.2d 643 (1979); Failor’s Pharmacy v. Dep’t of Soc. Health Servs., 125 Wn.2d 488, 499, 886 P.2d (2013).

ARE claimed the Project met the $90,000 benchmark, although the developer would bear the cost of constructing the improvements, because the millions of dollars in future promises of rent from UW amounted to payment of the developer’s construction costs. The Court disagreed. It held the future rent payment did not amount to a funding of the construction work itself, noting rent was to be paid only after substantial completion and that “UW will not incur any risk for the building or costs for the stated construction activities—all those costs are incurred by the developer…”

 Disappointed Bidder and Taxpayer Standing

The Court of Appeals also rejected ARE’s argument that UW’s developer selection process was arbitrary and capricious because it determined ARE lacked standing to bring that claim (meaning the right to sue UW in court).  On appeal, ARE claimed it had standing to challenge the bid selection process as  (1) a disappointed bidder and (2) a taxpayer.

A disappointed bidder may pursue injunctive relief before contract formation based on disappointed bidder standing. BBG Grp., LLC v. City of Monroe, 96 Wn. App. 517, 519-20, 982 P.2d 1176 (1999). But a  bidder loses that status once the contracts at issue have been executed. Because ARE did not bring its suit prior to the “bright-line cutoff point,” i.e., the execution of the Lease, the Court determined there was no disappointed bidder standing. See Dick Enterprises, 83Wn. App at57.

The Court also determined ARE did not have taxpayer standing to sue UW. It noted that to have a right to sue the government based on taxpayer standing, ARE was required to demonstrate it suffered a “special injury” from a government’s decision involving use of taxpayer funds. To show a “special injury” ARE identified the costs it incurred in preparing and submitting the bid, as well as its anticipated lost profits, but the Court held these costs were the same as disappointed bidder costs. The Court reasoned that if a disappointed bidder who suffered no “special injury” as a taxpayer other than disappointed bidder costs could sue even after the “bright line cutoff,” that would undermine the public policy of preventing excessive taxation, which the Court explained was the purpose of the bright line rule.

Comment: This case serves as a reminder to carefully review the bid terms and know when the public entity does not bear the cost of construction, public bidding procedure requirements may not apply. Disputing public works bids are time-sensitive matters, and contractors or developers, as in this case, lose their right to bring a claim once the Contract is executed. Although the Court determined competitive bidding requirements did not apply because the public owner (UW) was not funding the actual construction, it still held there was no standing to sue after contract execution based on public policy interests that are intended to protect taxpayers (whose money did not fund the construction work in this case). The impacts of this decision, which seems heavily tied to the facts of the unique ground lease involved in that case, are not yet known, but it serves as another important reminder that contractors or developers who bid on projects involving government entities, regardless of funding sources, must make every effort to timely challenge an award before a contract is executed with another bidder. The parties have sought an appeal before the Washington State Supreme Court, but the Supreme Court has not yet denied or accepted review of the case.

[1] The current version RCW 28B.10.350(1), effective until July 1, 2024, applies to university projects that exceed the sum of $110,000, or $90,000 if the work involves one trade or craft area.

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