Supreme Court Clarifies Jurisdiction Over Claims Arising Under Procurement Code

by Pepper Hamilton LLP

The Pennsylvania Supreme Court recently confirmed the absolute right of Commonwealth agencies to withdraw solicitations for contracts, as well as the exclusive jurisdiction of the Board of Claims to hear disputes with the Commonwealth over contracts once they are executed. In Scientific Games International, Inc. v. Commonwealth of Pa., the court held that the Procurement Code gives Commonwealth agencies essentially unfettered discretion to withdraw a solicitation for bids or requests for proposal prior to the awarding of a contract, and that the decision to withdraw the solicitation is not subject to legal challenge. The court further held that once a contract is executed, the Board of Claims has exclusive jurisdiction over any claims arising out of the contract.

Scientific Games International (SGI) alleged that it had entered into a contract with the Department of General Services (DGS) for the design, development, implementation, and maintenance of a computer control system to monitor slot machines at gaming venues across Pennsylvania. DGS, on behalf of the Department of Revenue, had issued a request for proposals (RFP) for the computer control system, which was to replace an existing system that had been provided by GTECH Corporation. GTECH and SGI both submitted proposals for the new system, and DGS, at least preliminarily, selected SGI for the award. Months later, GTECH submitted a protest to the award, which DGS denied. GTECH then appealed and requested that the RFP be canceled. Shortly after GTECH filed its appeal, DGS announced that it was canceling the RFP and would not enter into a contract with SGI.

SGI subsequently brought an action in the Commonwealth Court seeking declaratory and injunctive relief against DGS and the Department of Revenue. SGI requested that the Commonwealth Court enter an order requiring DGS to finalize the contract with SGI and restraining the Department of Revenue and DGS from canceling the RFP and initiating re-bidding.

GTECH intervened, and argued, along with both DGS and the Department of Revenue, that SGI’s claims were not properly before the Commonwealth Court because they sounded in contract and fell within the Board of Claims’ exclusive jurisdiction. SGI argued (somewhat inconsistently, as the Supreme Court noted), that while it had an enforceable right to be awarded the contract, its claim was not subject to the Board of Claims’ exclusive jurisdiction because the contract had not been executed. In an attempt to walk a very fine line, SGI argued that its claims did not “arise from” a contract, but pertained to a contract and DGS’s statutory authority to decline to award one after solicitation. SGI argued that it could pursue its claim for nonmonetary relief in the Commonwealth Court by virtue of a section of the Procurement Code that permits a party to pursue a claim for nonmonetary relief “in another forum as provided by law.” The Commonwealth Court agreed with SGI and overruled GTECH’s and the Commonwealth agencies’ preliminary objections attacking its jurisdiction.

The Supreme Court overturned on appeal, and held that that the Commonwealth was immune from suit over the exercise of its right to withdraw solicitations under the Procurement Code. The court observed that the Commonwealth generally enjoys sovereign immunity and that, in order to be cognizable, a claim must fall within some waiver or exception to that immunity. The court further observed that the Procurement Code contains only specific and limited exceptions to the Commonwealth’s general sovereign immunity, none of which applied to SGI’s challenge to the agencies’ decision to withdraw the requests for proposal. In the event that a Commonwealth agency cancels a solicitation for a public project, bidders have no remedy under the Procurement Code and no forum in which to seek relief.

The court went on to note that while the Procurement Code did waive sovereign immunity as to claims arising from contracts with the Commonwealth, it vested the Board of Claims with exclusive jurisdiction over such claims. The Supreme Court re-affirmed that, in matters arising from procurement contracts with Commonwealth agencies, “the Board of Claims retains exclusive jurisdiction (subject to all jurisdictional prerequisites), which is not to be supplanted by a court of law through an exercise of original jurisdiction.” The Supreme Court further held that such claims could not be brought under the original jurisdiction of the Commonwealth Court, even if couched as actions for “non-monetary” relief, such as specific performance.

While the Court found that the Board of Claims retains exclusive jurisdiction for “controversies in matters arising from procurement contracts with Commonwealth agencies,” the Court did not specifically address the question of whether taxpayers who challenge bids and awards are bound by the dispute resolution procedures set forth in the Procurement Code. Before the Procurement Code’s 2002 amendments, only a taxpayer of the jurisdiction funding the contract had standing to challenge the Commonwealth’s alleged improper award of a contract. The action was one to enjoin the award of a contract when the Procurement Code’s bidding requirements were not followed.

But the Procurement Code now provides a bid-protest procedure for bidders or offerors, prospective bidders or offerors, or a prospective contractor in connection with the Commonwealth’s solicitation or award of a contract. Any protest is made to the agency and must state the grounds upon which the solicitation or award of the contract was improper. If the agency denies the protest, the protestant may file an appeal with the Commonwealth Court. This is “the exclusive procedure for protesting a solicitation or award of a contract by a bidder or offeror, a prospective bidder or offeror or a prospective contractor that is aggrieved in connection with the solicitation or award of a contract,” according to the Procurement Code.

Notably, these Procurement Code procedures do not mention taxpayer challenges. With respect to taxpayer challenges, the court in the SGI case stated in a footnote only that there is no waiver of sovereign immunity to permit a taxpayer to challenge the Commonwealth’s cancelation of an RFP. The court did not address whether the taxpayer can continue to challenge in a trial court a contract that the Commonwealth awards.

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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