California Court Blasts The Irvine School District For Apparent Favoritism In The Bid Process, Responsible Bid Was Wrongfully Rejected

A California Court of Appeals has re-affirmed the distinction between responsiveness and responsibility in evaluating bids on public works projects and harshly criticized a school district that wrongfully determined that a low bidder for two projects was non-responsible.

Raising the possibility of “graft,” “favoritism most foul” and “stonewalling” by the school district, the Court of Appeal wrote: “It doesn’t take Hamlet to figure out that something rotten happened in this case.” The court added: “The record readily gives rise to reasonable inference of a ‘systematic’ practice of favoritism and ‘harming the public fisc’ ” and “at least an inference that the fix was in from the beginning not to award the contracts” to the low bidder.

Responsiveness v. Responsibility

A basic tenant of public contract law is that a contract for a public work of improvement must be awarded to the responsible bidder that submits the lowest responsive bid.

Contractors who bid public jobs are likely familiar with the terms “responsive” and “responsible.” The terms signify pre-requisites to the award of a public contract. To be awarded a contract, a bid must be both terms “responsive” to the agency’s bid request and the agency must find the bidder to be “responsible.” In California, as well as in Washington, a bid rejected on the theory that the bidder is not responsible entitles the bidder to due process protections on the responsibility issue, certain minimal elements of notice and an opportunity to be heard must be afforded an alleged “non-responsible” bidder.

The Court of Appeal noted that the cases City of Inglewood-L.A. County Civic Center Authority v. Superior Court, 7 Cal.3d 861 (1972) and Taylor Bus Service, Inc. v. San Diego Board of Education, 195 Cal.App.3d 1331 (1987) stand for the propositions that:

  • A bid is responsive if it promises to do what the bidding instructions demand. Taylor Bus, 195 Cal.App.3d at 1341.
  • Responsiveness can be determined from the face of the bid. Taylor Bus, 195 Cal.App.3d at 1342.
  • Responsibility means the fitness, quality and capacity of the bidder to satisfactorily perform the proposed work. Inglewood, 7 Cal.3d at 867. As stated in California Public Contract Code §1103: ” ‘Responsible bidder,’ as used in this part, means a bidder who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity and experience to satisfactorily perform the public works contract.”
  • Before a low bidder can be rejected as non-responsible, the public entity must afford minimal elements of due process by: 1) notifying the low monetary bidder of any evidence reflecting on his responsibility received from others or adduced as a result of independent investigation; 2) affording the bidder an opportunity to rebut such evidence; and 3) permitting the bidder to present evidence that it is qualified to perform the contract. Inglewood, 7 Cal.3d at 870-871.
  • A determination of non-responsiveness, on the other hand, requires only that the bidder be given notice of the fact that its bid has been found non-responsive and be permitted to submit materials on the issue of responsiveness. The public entity is not required to conduct a hearing or to produce findings. Taylor Bus, 195 Cal.App.3d at 1343.


The School District Inappropriately Rejected Great Western’s Responsive Bid On Grounds That Great Western Was Not A Responsible Bidder

The Irvine Unified School District issued invitations for bids for two school modernization projects. An item in each bid package asked: “Have you ever been licensed under a different name or license number?” Great Western submitted bids on both projects, answering “no” to the license question. Great Western was the low monetary bidder on both projects.

The day after bids were opened, one of the other bidders sent a letter to the School District alleging that Great Western had failed to disclose that it had previously operated under other license numbers.

This letter prompted School District staff to review Great Western’s licensing information on the California Contractor’s State License Board Web site. The District found out that Great Western had not disclosed two joint ventures it was part of and that its president had been the qualifier on another license. Solely on this basis, the District summarily rejected Great Western’s bid as non-responsive. The District gave Great Western no opportunity to respond to the allegations.

Great Western informed the District by letter that neither joint venture ever performed any projects and that its president had served as qualifier for the other contractor for 15 days while it wound down operations. The letter stated that Great Western operated only under the license number it listed on bid papers.

The District awarded both contracts to bidders other than Great Western, and Great Western petitioned for a writ of mandate seeking rescission of the contract awards. The trial court denied relief, and Great Western appealed.

The Court of Appeal applied the D.H. Williams factors and found that they all supported the conclusion that the District’s rejection of Great Western’s bid was in legal effect for non-responsibility, not non-responsiveness. In particular, Great Western’s bid was summarily rejected as non-responsive after an external investigation (i.e., reviewing the Contractors State License Board Web site) rather than merely on the basis of the bid itself. The Court of Appeal observed that responsibility focuses on the bidder while the responsiveness questions focus on the bid itself.

Because the District did not give Great Western a responsibility hearing, the Court of Appeal reversed. It held that the trial court abused its discretion in refusing to allow Great Western to amend its complaint to seek damages. The appeals court remanded and granted Great Western its costs on appeal.

Court’s Harsh Criticism Of The School District

In criticizing the District, the Court of Appeal wrote that a competing bidder was given access to Great Western’s bid within 24 hours of bid opening, allowing it to almost immediately submit a bid protest to the District. But, the appeals court noted, when Great Western tried to get access to the competitor’s bid, the District took weeks to turn over the information. “More pointedly, the information was deliberately not made available until after the critical first court hearing on the case,” the Court of Appeal wrote. It noted that the District never explained its conduct.

When Great Western finally did get the competitor’s bid, the appeals court wrote, Great Western discovered that the competitor allegedly was guilty of the same failure to disclose all associated contractor licenses as Great Western – the purported basis for the District’s summary rejection of Great Western’s bid.

But, when Great Western tried to present that evidence at a second court hearing, “the school district vigorously objected on the ground that the evidence was submitted too late,” the appeals court wrote.

The Court of Appeal noted that the District paid $800,000 more for the two projects than Great Western bid. (Its bids for the two projects totaled just over $6 million.) The appeals court noted that this price differential was not apparent on the agenda of the school board meeting at which the contracts were awarded – because Great Western’s bid prices were not listed. The agenda simply listed Great Western’s bids as “Non-Responsive.”

The appeals court noted that Great Western had provided the same license information in a prequalification package submitted weeks before bids were submitted and that the District prequalified Great Western, raising no questions about licensing history. Great Western asserted that it had been “sandbagged” by this.

The Court wrote that the District proceeded in “sweaty haste” to consummate contracts with the non-low bidders while Great Western was seeking to obtain rescission of the wrongful contract awards. When some members of the school board expressed concerns about the bidding process and suggested delaying award, District staff members warned that delay could jeopardize completing the projects during summer recess. The appeals court wrote that the District signed contracts and issued notices to proceed for the projects within six days after Great Western filed its petition challenging its disqualification. The official start dates for both projects were 11 days after the petition was filed.

The appeals court noted that under California law, Great Western can recover damages for its costs of bid preparation but not its lost profits.

Great Western Contractors, Inc. v. Irvine Unified School District, 187 Cal.App.4th 1425, 115 Cal.Rptr.3d 378 (2010).

  • Due process protections in Washington. Under RCW 39.04.350, if a public works owner determines that a bidder is not responsible, the public works owner must provide the bidder the reasons for its determination in writing. The bidder may then appeal that determination and present additional information to the public works owner. The public works owner must consider the additional information before issuing its final determination and if the public works owner nevertheless determines that the bidder is not responsible, the public works owner may not execute a contract with any other bidder until two (2) business days after the bidder determined to be not responsible has received the final determination from the public works owner. These two (2) days give the allegedly non-responsible bidder an opportunity to appeal the public works owner’s decision to a court.
  • Bidder Responsibility Workshop. Capital Projects Advisory Review Board/AGC Legal Foundation are together presenting a no cost seminar for contractors, owners, subcontractors, suppliers, architects, engineers and others interested in bidder responsibility on March 10, 2011, at the SeaTac Airport Conference Center. Contact the AGC Legal Foundation for more information The seminar will address Washington’s mandatory and supplemental bidder responsibility criteria, different approaches to the determination of the bidder’s compliance with the responsibility criteria, examples of projects on which supplemental bidder responsibility criteria were challenged and revised, as well as break-out group exercises to assist attendees in working with bidder responsibility in the state of Washington. Speakers at the seminar will be Dan Absher, President of Absher Construction, John P. Ahlers, Ahlers & Cressman, PLLC. Nora Huey, Director of Central Procurement for the Port of Seattle, Mike Purdy, Principal of Mike E. Purdy & Associates, LLC, a frequent speaker and consultant to the contracting community, and Paul Szumlanski, Deputy Assistant Director for the Dept. of General Administration.
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