Michigan Supreme Court Holds Submission of the Lowest Bid on a Public Contract Does not Create a Valid Business Expectancy

by Dickinson Wright
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In a recent opinion, the Michigan Supreme Court held that submission of the lowest bid on a public contract did not create a valid business expectancy for the purpose of making out a claim for tortious interference with a business expectancy.

In Cedroni Assocs, Inc v Tomblinson, Harburn Assocs, Architects & Planners, Inc, ___ Mich ___ (Docket No. 142339, July 27, 2012), Davison Community Schools hired the defendant to perform architectural services for a construction project, including assistance in the contractor bid selection process. The plaintiff submitted the lowest bid by nearly $50,000. Nonetheless, the defendant recommended, and the school district selected, the second-lowest bidder. The plaintiff sued the defendant for tortious interference with a business expectancy, claiming that the defendant’s recommendation was predicated on its desire to punish the plaintiff for a prior project wherein the defendant was replaced by another architect.

The defendant moved for summary disposition, arguing that the plaintiff did not have a valid business expectancy with which to interfere. The trial court agreed, but the Court of Appeals reversed in a split decision, concluding that a genuine issue of material fact existed as to whether a valid business expectancy existed.

In reversing the Court of Appeals’ decision and reinstating the trial court’s order granting the defendant’s motion for summary disposition, the Supreme Court concluded in a 4-3 opinion that being the lowest bidder on a public contract does not create a valid business expectancy for the purpose of bringing a claim for tortious interference with a business expectancy.

As support for its decision, the Court relied on the common-law rule that a "bidder that submits the lowest bid has no cause-of-action against the public entity that rejects this bid," as well as a statutory provision allowing a school district to "reject any or all bids." The Court reasoned that all bidders should know that submission of the lowest bid on a public contract does not create any expectancy that it will be awarded the contract. The Court also noted the school district’s fiscal management policy, under which the district explicitly reserved the right to accept or reject all offers. Because "the ultimate decision to enter into a business relationship is a highly discretionary governmental activity," the plaintiff did not have a valid business expectancy.

Justice Michael Cavanagh, joined by Justices Marilyn Kelly and Diane Hathaway, dissented, arguing that the Court should have applied the Court of Appeals’ prior decision in Joba Constr Co, Inc v Burns & Roe Inc, 121 Mich App 615; 329 NW2d 760 (1982), in which the Court of Appeals held that "once a qualified bidder has submitted a conforming bid and knows that it has provided the lowest bid, there might be a genuine issue of material fact regarding whether the bidder’s expectation reasonably elevated from a ‘mere hope’ to a ‘realistic expectation’ that it would be awarded the project."

FOR MORE INFORMATION CONTACT:

Christopher M. Allen is an associate in Dickinson Wright’s Ann Arbor office. He can be reached at 734.623.1694 or callen@dickinsonwright.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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