Knowledgebase-Accepting the High Bid


Information Product

Title:Accepting the High Bid
Summary:MTAS was asked to analyze the law governing competitive bidding
requirements for purchases by cities.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:06/18/2002
Last Reviewed on::02/22/2010
Subject:Contracts; Contracts--Laws and regulations; Municipal government--Services; Purchasing; Purchasing--Bids proposals and specifications; Purchasing--Laws and regulations
Type:Legal Opinion
Legal Opinion: Accepting the High Bid public.doc

Reference Documents:

Text of Document: June 18, 2002


Mr. Stan Reynolds, Esq.
Attorney at Law
Glymer Center, Building A, Suite # 1
114 Highway 70b East
Dickson, Tennessee 37055

Dear Mr. Reynolds:

You have the following question: Can the city accept the high bid on a garbage collection contract where the reason given for the acceptance by the city council of the high bid is that it is happy with the previous garbage collection services of the high bidder?

Under the facts related in the material you sent to me by fax on June 13, 2002, the answer is no.

That material includes the city’s competitive bid ordinance (which substantially reflects the Municipal Purchasing Law codified in Tennessee Code Annotated, ' 6-56-301 et seq.), the bid specifications for the garbage collection contract, the bids themselves, your letter of June 13, indicating that the reason the high bid was accepted was the past satisfactory service of the high bidder. The high bidder, Mash Trash, has had the contract with the city over the previous ten or so years.

Competitive Bidding Generally

The Municipal Purchasing Law requires that contracts over a certain amount be competitively bid. The contract in question is clearly over the amount that triggers the competitive bidding requirement. [Tennessee Code Annotated, ' 6-56-304] What does the term “competitive bidding” in the Municipal Purchasing Law mean? The Tennessee Supreme Court in State ex rel. Wright v. Leech, 622 S.W.2d 807 (Tenn. 1981), answered that question:

1. “The request for bids must not unduly restrict competition. All persons or corporations having the ability to furnish the supplies or materials needed, to perform the work to be done, should be allowed to compete freely without any unreasonable restrictions.”

2. “It is essential that bidders, so far as possible, be put on terms of perfect equality so that they may bid on substantially the same proposition and on the same terms.”

3. “In order to attain competitive bidding in its true sense, proposals for bids must be invited under fair circumstances which afford a fair and reasonable opportunity for competition.” [Emphasis is mine.]

4. Among other things, the advertisement for bids should include “[s]pecifications of the supplies or equipment to be purchased and the quantity thereof.”

Those standards are not optional, continued the Court, they must be followed.

The obvious fundamental principles of Leech are that all bidders must be put on a level playing field, and that the bidding process actually be competitive. In fact, it is further said in Metropolitan Air Research Testing Authority, Inc. v. Metro. Government of Nashville & Davidson County, 842 S.W.2d 611 (Tenn. Ct. App. 1992), that:

One of the purposes of competitive bidding is to provide bidders with a fair opportunity to compete for public contracts. State ex rel. Leech v. Wright [citation omitted]. Thus, the courts have recognized that the statutes and ordinance requiring competitive bidding impose upon the government an implied obligation to consider all bids honestly and fairly. [Citations omitted.] [At 616] [Emphasis is mine.]

If the city lets bids to the highest bidder solely on the ground that it is satisfied with the services of the past supplier of goods and services, it can hardly be said that the bid process has been fair or that competition has been promoted.

The Lowest Responsible Bidder

The bid specifications in question do not themselves provide for the acceptance of the lowest and best bid. However, the City of White Bluff’s own PURCHASING PROCEDURES (second paragraph, last sentence) provide that, “Awards shall be made to the lowest responsible bidder, if the bidder is otherwise qualified and acceptable.” Generally, a government body has considerable discretion in determining what is the lowest responsible bidder, but that discretion is not unlimited. It is said in 10 McQuillin, Municipal Corporations, ' 29.73, that there must be a plausible reason for a rejection of the lowest bid. Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084, 1992 (6th Cir. 1981), is even more clear. There, Shelby County, Tennessee rejected the lowest bid on a certain contract on the grounds that the second lowest bidder was a local firm, and had a better minority hiring record. Shelby County argued that the “good cause” provision of the statute that governed the county’s competitive bidding gave it grounds to reject the lowest bid. The good cause provision read:

All open market purchase orders or contracts shall be warded to the lowest bidder who is financially responsible, taking into consideration the qualities of the articles to be supplied, their conformity to specifications, their suitability to the requirements of the County government and the delivery terms. And any and all bids may be rejected for good cause. [At 1088]

The Court rejected Shelby County’s argument, reasoning that:

While a bid may be rejected for reasons other than those enumerated, the County must cite factors similar to the ones listed, i.e. factors which go to the heart of the contract. In order for rejection to be based on “good cause,” the proffered reason must be related to something which affects the County bargain to substantially the same degree that, for example, inferior quality goods or non-conforming goods affect it. Poor workmanship on a previous job is one example of such a factor.

The reasons cited by the County in the present case—that Pidgeon Thomas employs a higher proportion of minorities and is a local concern—do not constitute “good cause” for rejecting the other bid. These factors simply do not affect the County’s bargain to the same extent that factors such as those specifically enumerated affect it. [At 1092]

As pointed out above, under its own PURCHASING PROCEDURES the city is obligated to award the bid to the “lowest responsible bidder, if the bidder is otherwise qualified and acceptable.” The term “acceptable” does not give the city’s governing body much wiggle room. Under Owen of Georgia v. Shelby County, cited above, the rejection of the lowest bid is required to be supported by some reason related to the bidders responsibility. Members of the city’s governing body should reject the lowest bid only for reasons they would be prepared to defend in court. Unless there are facts to which I am not privy, the lowest bidder meets the bid specifications, and would qualify as the lowest responsible bidder.

Remedies for Improper Bid Process

It is clear in Tennessee that any unhappy bidder has standing to challenge the award of a bid on the ground that the bid process was illegal in some manner. [See Metropolitan Air Research Testing Authority, Inc. v. Metro. Government of Nashville & Davidson County, 842 S.W.2d 611 (Tenn. Ct. App. 1992); Browning-Ferris Industries of Tennessee, Inc. v. City of Oak Ridge, 644 S.W.2d 400 (Tenn. App. 1983); Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084 (6thCir. 1981)]. It is also said in Browning-Ferris Industries of Tennessee, Inc., above, that:

A contract entered in violation of bidding statutes or ordinances is void and it is not necessary to show that the governmental authority acted in bad faith or fraud was involved. Johnson City Realty Co., 166 Tenn. 655, 64 S.W.2d 507 (1933). [At 403]

That does not mean that the unhappy bidder gets the contract. The unhappy bidder=s remedy when a bid is set aside is apparently at least the cost of preparing his bid, and perhaps the cost of his lawsuit. In Browning-Ferris Industries v. City of Oak Ridge, 644 S.W.2d 400 (Tenn. Ct. App. 1982), the Court awarded the unhappy bidder for the reasonable expenses for preparing and presenting its bid. In Owen of Georgia, Inc. v. Shelby County, the Court found the County liable on the theory of promissory estoppel, reasoning that, “In its solicitation of bids pursuant to the Restructure Act, Shelby County clearly promised to award the contract to the lowest financially responsible bidder if it awarded the contract at all.” [At 1095] The measure of damages, continued the Court, was “the expenses it incurred in its unsuccessful participation in the competitive bidding process as well as the costs incurred in its successful attempt to have the award to Pidgeon Thomas rescinded as having been made in the violation of the statute.” [At 1096]

Of course, if the award of the contract is set aside, the city has the additional expense of going though the bid process all over again.

Sincerely,



Sidney D. Hemsley
Senior Law Consultant

SDH/

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