It can be a rough and tumble world out there. And in the case of public works construction in California, this includes bid disputes.
California’s competitive bidding laws require that a public works contract be awarded to the “lowest responsible bidder.” However, as we’ve mentioned before, there are two requirements which must be satisfied for a bidder to be determined to be the lowest responsible bidder: (1) the awarded bidder’s bid must be “responsive”; and (2) the awarded bidder must be “responsible.”
In a case decided this past month, DeSilva Gates Construction v. Department of Transportation, Case No. C074521 (December 14, 2015), the California Court of Appeals for the Third District addressed the first of these two requirements, whether two bids on $34 million highway widening project were responsive, which in turn involves a two-step process: (1) whether the bids were responsive or not; and (2) if not, whether the variance in the bids were “material” or “immaterial.”
The CalTrans Invitation for Bids
In July 2012, the California Department of Transportation (“CalTrans”) issued an invitation for bids for a $34 million highway widening project on Highway 99 in Tulare County. The invitation for bids required bidders to list all subcontractors who would perform work in excess of one-half of one percent (0.5%) of the bidder’s total bid or $10,000, whichever is greater, as required by Public Contracts Code section 4104. Specifically, the invitation for bids provided:
2-1.12C Subcontractor List. In the Subcontractor List, list each contractor to perform work in an amount in excess of 1/2 of 1 percent of the total bid or $10,000, whichever is greater (. . . § 4100 et seq.). The Subcontractor List must show the name, address, and work portions to be performed by each subcontractor listed. Show work portion by bid items number, description, and percentage of each bid item subcontracted. On the Subcontractor List you may either submit each subcontracted bid item number and corresponding percentage with your bid or fact these numbers and percentages to (916) 227-6282 within 24 hours after bid opening. Failure to do so results in a nonresponsive bid.
In September 2012, CalTrans issued an addendum to the invitation for bids changing the bid opening date and revising certain project plan sheets and items in the bid item list. Among other things, the addendum advised bidders to “[s]ubmit bids for this work with the understanding and full consideration of this addendum. The revisions declared in this addendum are an essential part of the contract.”
CalTrans received a total of nine bids for the project. Security Paving Company, Inc. (“Security”) submitted the lowest apparent bid at $30,584,331, followed by DeSilva Gates Construction, L.P. (“DeSilva”) at $31,677,677, and Papich Construction Company, Inc. (“Papich”) at $32,611,185.
CalTrans later determined Security’s bid to be non-responsive leaving DeSilva as the apparent lowest bidder. However, there were issues with both DeSilva’s and Papich’s bids:
DeSilva submitted an updated subcontractor list within 24 hours of bid opening, as it was permitted to do in the invitation for bids, identifying All Steel Fence (“All Steel”) as performing $15,023 worth of work. However, All Steel was not listed in DeSilva’s original bid.
Papich’s bid failed to include an acknowledgment of the addendum.
The Bid Protest
Following bid opening, CalTrans sent a letter to Papich stating that:
[Papich] failed to acknowledge Addendum #1 dated September 7, 2012, . . . on the signature page . . . of its bid proposal. [CalTrans] considers the addendum to be a material amendment to the contract and is unable to identify in Papich’s bid submittal that it considered and agreed to be bound to the terms of said addendum. A bidder’s failure to to acknowledge a material amendment to the contract renders its bid non responsive. Unless Papich is able to provide documentary evidence that it establishes it considered and agreed to be bound by the requirements of Addendum #1 its bid may be rejected.
In response, Papich sent a letter stating that it considered and agreed to be bound by the addendum. Papich also challenged DeSilva’s bid on the ground that DeSilva had listed All Steel when All Steel was not listed in DeSilva’s original bid. CalTrans agreed and sent a letter to DeSilva noting that:
Since [DeSilva] originally decided to self perform Fences, Gates and Railing, but subcontracted those items to All Steel Fence, Inc. on the revised bid list received on September 14, 2012, CalTrans finds your bid is non responsive. CalTrans will proceed to award the contract to the lowest responsible bidder provided all requirements are met.
DeSilva later filed a bid protest which was rejected by CalTrans. In response, DeSilva filed a petition for writ of mandate with the superior court requesting that the court invalidate CalTrans’ award of the project to Papich. The trial court agreed and Papich and CalTrans appealed.
On appeal, the Court of Appeals addressed bid responsiveness. As discussed, determining whether a bid is responsive involves a two-step process: (1) whether a bid is responsive or not. Has the bidder submitted all of the correct bid forms, has it properly completed the bid forms, does the bidder have the required license classification set forth in the bid package, etc. ? If not, the bid is not responsive; and (2) if not, whether the variance in a bid is “material” or “immaterial.” If it is a “material” variance the public entity must reject the bid. If, however, there is merely an “immaterial” variance, the public may either waive the variance and accept the bid or reject the bid.
As to the DeSilva’s bid, the Court of Appeals noted that DeSilva’s bid was responsive because while DeSilva’s 24-hour subcontractor list identified All Steel as a subcontractor and All Steel had not been identified as a subcontractor by DeSilva in its original bid, DeSilva was only required to identify subcontractors performing work in excess of one-half of one percent (0.5%) of DeSilva’s total bid or $10,000, whichever is greater, under Public Contracts Code section 4104, and All Steel “was not slated to perform more than one-tenth of one percent of the total contract amount”:
Although DeSilva’s 24-hour subcontractor list was not exactly the same as its subcontractor list on the original bid, All Steel Fence was not slated to perform more than one-tenth of one percent of the total contract amount. Thus, the disclosure of All Steel Fence’s scope of work in DeSilva’s 24-hour subcontractor list constituted additional information that was accurate but unnecessary. The listing of All Steel Fence was not deceptive, indicated no shift of work from another subcontractor to All Steel Fence, and showed no attempt by DeSilva to flout the requirements of the information for bids. Notably, the information for bids did not prohibit the listing of subcontractors performing work amounting to less than the threshold disclosure amount of one-half of one percent. Because nothing prohibited the additional but unnecessary disclosure of subcontractors, DeSilva’s bid was not rendered non responsive by listing All Steel Fence on its 24-hour subcontractor list.
As to Papich’s bid, then Court of Appeals noted that CalTrans’ addendum stated that it constituted “a material amendment to the contract” so that “[a] bidder’s failure to acknowledge a material amendment to the contract renders its bid nonresponsive.” However, rather than declare Papich’s bid nonresponsive, CalTrans permitted Papich to cure its nonresponsive bid. But CalTrans could only permit Papich to cure its non responsive bid if the variance was “immaterial,” and here, CalTrans’ addendum specifically stated the addendum was a “material” amendment to the contract. Thus, concluded the Court:
The trial court did not err in concluding CalTrans abused its discretion in allowing one bidder to correct a mistake that the department had itself deemed a “material” deviation but rejecting another bid even though it did not materially depart from the information for bids or the Public Contract Code.
The Court of Appeals also noted that Papich was provided an unfair advantage, because rather than withdrawing its bid and not forfeiting its bid bond, Papich was allowed by CalTrans to cure its nonresponsive bid.
For public entities, DeSilva Gates provides two important lessons:
Be careful what you deem to be a “material” variance in your bid documents, and if you say something is going to constitute a “material” variance, stick by it.
If you’re going to reject a bid, make sure you are rejecting the bid because the bidder has failed to comply with the invitation for bids or other legal requirements, not because the bidder has provided (as in this case) more than what is required under the invitation for bids or the law.
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