California Department of Corrections Gets Hit With the Prison Bid Protest Blues

by Wendel, Rosen, Black & Dean LLP
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“I’m breakin’ rocks in the hot sun . . . I fought the law and the law won . . . I needed money ’cause I had none . . . I fought the law and the law won” – The Clash, I Fought the Law (1978)

In the recent case, West Coast Air Conditioning Company, California Department of Corrections and Rehabilitation, Case No. D071106 (February 22, 2018),  those lyrics could be aptly revised to, “the law fought the courts and the courts won.”

West Coast Air Conditioning Company, Inc. v. California Department of Corrections

In February 2015, the California Department of Corrections and Rehabilitation (CDCR) published an invitation for bids for a new central air conditioning plant for the Ironwood State Prison in Blythe, California. West Coast Air Conditioning Company, Inc., Hensel Phelps Construction Co., and four other companies submitted bids.

In May 2015, the CDCR awarded the contract to Hensel Phelps as the lowest responsive and responsible bidder, with a bid amount of $88 million. The next lowest bidder was West Coast, with a bid of $98 million. Both bids were below the CDCR’s engineer’s estimate of $103 million.

Following an unsuccessful bid protest, West Coast filed a petition for writ of mandate pursuant to Code of Civil Procedure Section 1085, and filed a complaint against the CDCR and Hensel Phelps alleging causes of action for injunctive relief and promissory estoppel, claiming that Hensel Phelps’ bid suffered from “myriad defects,” making its bid unresponsive, including:

  • Failing to list the license numbers of 17 subcontractors, among other missing information, which gave Hensel Phelps additional time to “solicit, receive and negotiate subcontractor prices and price cuts;”
  • “Typographical/arithmetical errors;” and
  • Submitting a revised bid after the deadline that included substantial alterations to the percentage of work that Hensel Phelps’ subcontractors would perform.

These errors and irregularities, West Coast claimed, materially affected Hensel Phelps’ bid price, and were not waivable by the CDCR. What followed was a series of regrettable decisions by the CDCR:

  • In July 2015, during the pendency of the case, West Coast filed a motion asking the trial court to grant its petition to have Hensel Phelps’ contract set aside. Despite West Coast’s pending motion, a week later, the CDCR issued a notice to proceed to Hensel Phelps.
  • In September 2015, the trial court granted West Coast’s motion, finding that the mathematical errors in Hensel Phelps’ bid were material variances making its bid non responsive as a matter of law. The trial court further ruled that the CDCR should have awarded the contract to West Coast.
  • Following the ruling, West Coast sent the CDCR a letter demanding that it immediately issue a “stop work order” to Hensel Phelps and award West Coast the contract. Despite the trial court’s order, the CDCR ignored West Coast’s letter, claiming that the order was really just a tentative decision.
  •  West Coast then filed an ex parte application for a temporary injunction against the CDCR. The trial court granted the temporary injunction in October 2015 and in December 2015 granted a permanent injunction, but in doing so, revised its earlier order that the contract be awarded to West Coast (presumably, because the CDCR also had the option of rebidding the project or not moving forward with the project at all).

In May 2016, trial proceeded on West Coast’s remaining claim of promissory estoppel, in which West Coast  was seeking recovery of its bid preparation costs in the stipulated amount of $250,000. At trial, the CDCR argued for the first time that West Coast should not be awarded its bid preparation costs because:

  1. West Coast’s bid was unresponsive because it failed to include in its bid “subcontractor license types,” “complete addresses,” and its “subcontractor’s corresponding percentages of the total Project bid price;” and
  2. The CDCR had decided not to award the contract to West Coast in any event.

The regrets continued. At trial ,West Coast’s chairman of the board, David Dudley, testified on the issue of whether West Coast’s bid was unresponsive. The record at trial indicted that the CDCR did not cross-examine Dudley or offer any evidence to contradict his testimony. And this is what Dudley had to say:

  • In response to the CDCR’s contention that West Coast had failed to include in its bid “subcontractor license types,” Dudley testified that in response to a pre-bid submission request for information asking whether bidders were required to list contractor license classifications “A,” “B,” or “C” under “License Type,” that the CDCR issued an addendum stating “[b]idder to provide full license number on form.” This is exactly what West Coast did, testified Dudley. And while West Coast did not list license types, further testified Dudley, this was because the CDCR had said not to.
  • In response to the CDCR’s contention that West Coast had failed to include in its bid “complete addresses,” Dudley testified that West Coast’s bid contained all required information. This was not challenged by the CDCR.
  • Finally, in response to the CDCR’s contention that West Coast had failed to include in its bid its “subcontractors corresponding percentages of the total Project bid price,” Dudley testified that the invitation to bid only required percentages for subcontractors in which disabled veteran business enterprise (DVBE) credits were being sought, not all subcontractors, and that West Coast had indicated percentages for those subcontractors in which DVBE credits were being sought. Again, this was not challenged by CDCR.

Perhaps not surprising, the trial court found in favor of West Coast on its promissory estoppel claim and awarded West Coast the amount stipulated by the parties as West Coast’s bid preparation costs, $250,000.  What was surprising, however, is that CDCR appealed.

The Appeal

Bid Responsiveness: Looking Past the “Four Corners” of the Bid

First, held the Court of Appeal, “it would be grossly unfair to preclude West Coast from proffering evidence on the issue of whether its bid was responsive when CDCR waited until the even of trial to raise this issue for the first time and when the court already had granted West Coast’s writ of mandate petition and request for permanent injunction.”
Second, held the Court of Appeal, there was sufficient evidence in the record that the CDCR did in fact find West Coast’s bid to be responsive, just not the lowest responsive and responsible bid, because in deposition testimony CDCR officials testified that when finding a bid unresponsive they issue a “disqualification letter,” and Dudley’s uncontradicted testimony was that West Coast never received such a letter.

Third, held the Court of Appeal:

[L]imiting the determination of whether a bid is responsive to the four corners of a bid – particularly when, as here, a public works contract was found to be misawarded by a public agency – would undermine the public policy in competitive bidding laws of “ensur[ing] full compliance with competitive bidding statutes as a means of protecting the public from misuse of public funds,” “provid[ing] all qualified bidders with a fair opportunity to enter the bidding process, thereby stimulating competition in a manner conducive to sound fiscal practices,” and “eliminat[ing] favoritism, fraud, and corruption in the awarding of public contracts.”

Finally, held the Court of Appeal, “we reject CDCR’s contention that West Coast should be judicially estopped from contending its own bid was responsive in connection with the required subcontractor information because West Coast had earlier argued that HP’s subcontractor information was insufficient.” “We conclude,” held the Court, “this contention is borderline frivolous.” Ouch!

Bid Preparation Costs: “Effective” Relief is a Preclusion

Next, the CDCR argued that the trial court erred in awarding West Coast its bid preparation costs because West Coast had already obtained “effective” relief when the trial court granted its request for a permanent injunction.

The Court of Appeal again disagreed. While a disappointed contractor may be able obtain effective relief when a public agency is required to set aside a contract that was improperly awarded and the contract is awarded to the next lowest responsive and responsible bidder, held the Court; where a project has already been completed or is nearly completed  by the time an injunction is issued, or where the public entity refuses to award the contract to the next lowest responsive and responsible bidder, as was the case here, it cannot be said that “effective” relief has been obtained by the disappointed bidder and the disappointed bidder should be awarded “damages equal to its bid preparation costs.” Dang!

However, the Court of Appeal was careful to note that, since the issue wasn’t raised on appeal, it wasn’t deciding whether a public agency must award a contract to the next lowest responsive and responsible bidder if it is found that the public entity misawarded the contract in the first place (Note: I think the case law is pretty clear though that the public entity is not required to, and can instead rebid the project, or decide not to move forward with the project at all).

Conclusion

West Coast Air Conditioningoffers important lessons for both public agencies and bidders. For public agencies, the lesson is don’t be a hard ass (or, if you’re going to be, be prepared to back that up by preparing for trial). For contractors, the lesson is that, while public agencies generally have wide discretion in determining whether a bid is unresponsive or not, that discretion is not unlimited and that in addition to injunctive relief you maybe entitled to your bid preparation costs as well. However, the practical reality is that it may cost you more in attorney’s fees and costs than what you might recover if you are awarded your bid preparation costs.

While we started this post with The Clash, let’s go back about ten years earlier to 1968, to The Cash:

Click here to view video.

[View source.]

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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