|Legal Opinion: |
Text of Document: MEMORANDUM
FROM: Sid Hemsley, Senior Law Consultant
DATE: April 25, 2002
RE: Bids for Fire Truck
You have a number of questions about legality of the bidding process the city used to purchase a fire truck. Based on the documentation you sent to me on the bidding process, it appears plain that the process was faulty. For that reason I will not take the questions in order, but will point to the law and cases governing competitive bidding in Tennessee, and comment only on the obvious things the city probably did wrong in the bidding process. In addition, I will make some comments about the bidding process as it relates to the Open Meetings Law, and to other issues.
Tennessee’s Municipal Purchasing Law requires municipalities to competitively bid purchases for goods and services costing more than $2,500. However, municipalities are authorized by ordinance to increase that amount to $10,000. [Tennessee Code Annotated, § 6-56-306] I see nothing in the Municipal Code increasing the amount beyond $2,500. But even if the amount had been increased to $10,000, the fire truck in question cost more than that amount. The Municipal Purchasing Law also contains some exclusions, among them one for “purchases by authorized officials in municipalities having charter provisions or private act requirements governing competitive bidding and purchasing” [Tennessee Code Annotated, § 6-56-302(1)]. I see nothing in the City Charter pertaining to competitive bidding and purchasing. For those reasons, the Municipal Purchasing Law clearly applied to the purchase of the fire truck.
The city passed a purchasing ordinance on March 18, 2002. That was the same date as the bid opening. Obviously that ordinance could not have applied to the bids on the fire truck.
What does “competitive bidding” 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 quality so that they may bid on substantially the same proposition and o 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.”
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.
I am not an expert on fire trucks, but the bid specifications themselves, letters from two potential fire truck vendors, and even the minutes of the meeting of the board of mayor and aldermen on March 18, 2002, indicate the bid specification that limited the truck chassis to a Kenworth Model T300 made it nearly impossible for anybody but one manufacturing company to successfully bid on the truck. If that is true, it would have done the city no good to re-bid the truck because only that manufacturing company could have met the bid specifications no matter how many times the truck was bid.
It is not always true that a purchaser cannot specify a particular “brand name,” in the purchase of supplies and equipment, but generally there must be a good reason for such a specification. Unless that was the case with the fire truck, the potential bidders were not on a level playing field, and the bidding process was not actually competitive. I have checked with the MTAS fire consultant, and he told me that there is no good reason to prefer a Kenworth chassis over other chassis available on fire trucks. The same thing may be true of other brand names for equipment contained in the bid specifications.
Under SPECIFICATIONS BID REQUIREMENTS on page 3 of the specifications, it is said, “Bidders shall also indicate in the ‘yes/no’ column if their bid complies on each item (PARAGRAPH) specified. Exceptions shall be allowed if they are equal to or superior to that specified and provided they are listed and fully explained on a separate page.” For that reason, if the text of the specifications were the only documents at issue, arguably potential bidders whose trucks did not rest on a Kenworth chassis technically were not automatically disqualified from bidding.
But the cover letter on the specifications reads as follows: “In order for your bid to be accepted your company must meet all specifications. There will be no exceptions to the specifications. Any bid not meeting the specifications will be disqualified.” [Emphasis is mine.] It may or may not have been the intent of that language to notify potential bidders that exceptions to the specifications would not be allowed even if they were otherwise documented as required under SPECIFICATIONS BID REQUIREMENTS. But that language reflects such an intent, and in that respect it was at best highly misleading. The letters to the city from the vendors both reflect the belief that the bid specifications were designed for the Kenworth chassis, and neither company intended to bid on the truck for that reason. Vendor One eventually did submit a bid (and withdrew it from the table) under the circumstances detailed below, but Vendor Two simply declined to bid because it perceived the specifications leading to a foregone conclusion–the city’s purchase of the manufacturing company’s truck. It is difficult to believe that the action of both companies, particularly Vendor Two which did not even bid, reflect sour grapes.
The documents suggest that the vendor for the manufacturing company and the alderman/fire chief (and possibly other members of the board) collaborated on the drawing of the bid specifications. There is certainly nothing wrong with city officials obtaining help from potential vendors in drawing bid specifications, but obviously where the product of such collaboration makes it nearly impossible for other vendors to compete for a bid, Leech comes into play. The extent of the collaboration between the fire committee and the vendor for the fire truck is not shown in the documents. The minutes of the board meeting on March 18 reflect an exchange among the board members on this topic, and that the vendor admitted to helping the city with the specifications, but exactly what help he gave is not indicated.
The minutes of the board’s meeting on March 18 also reflect that Vendor One was called and asked it to submit a bid, and that Vendor One’s principal was reluctant to do so because it could not meet the Kenworth chassis specification. There is also a strong indication in those minutes that Vendor One’s principal was told that the city would accept its bid even if it did not meet specifications. A city can negotiate with a successful bidder, but cannot negotiate with bidders prior to the award of the bid. [Browning Ferris Industries of Tennessee, Inc. v. City of Oak Ridge, 644 S.W.2d 400 (Tenn. App. 1983)]. As pointed out above, the cover letter for the bid specifications provides that “In order for your bid to be accepted your company must meet all specifications.” Neither the city nor the board member in particular was entitled to negotiate away its bid specifications, at least before the award of the bid. In addition, if the board member sought the first vendor’s bid for the purpose of it being used as a strawman, Vendor One was not operating on a level playing field.
Let me turn to other issues associated with the bid process:
1. Open Records Law: Apparently, the bid specifications may have been developed by a fire committee of the board of mayor and aldermen without public notice. If that is true, it has been held in an unreported case that under Tennessee Open Meetings Law, a municipal governing body may not act, intentionally or unintentionally, through its committees in a manner prohibited to the board itself. [Standard Publishing Co. v. City of McMinnville, Tn. Ct. App., filed April 25, 1985]. Because I cannot tell from the documents what actual part the fire committee played in the formation of the bid specifications, I cannot say for sure that it violated the Open Meetings Law. However, because the Open Meetings Law is quite easy to violate, it is wise policy for a municipal body to give public notice of all the meetings of its committees, particularly where the committee in question has the authority to make decisions.
2. Conflicts of Interest Law: I have previously covered the question of whether various members of the board of mayor and aldermen have conflicts of interest in the letting of the bids for the fire truck.
3. Lowest and best bid: Let us assume that up to the point the bid was let the entire bid process was correct, and that both bids met specifications. The March 18 minutes of the board reflect the near certainty that the low bid by Vendor One would have been rejected (had it not been withdrawn from the table). Generally, a government body has considerable discretion in determining what is the lowest and best bid, but that discretion is restricted to reasons that affects the city’s 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.” [Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084, 1992 (6th Cir. 1981)]. It is also said in 10 McQuillin, Municipal Corporations, § 29.73, that there must be a plausible reason for a rejection of the lowest bid.
The minutes of the board’s March 18 meeting reflect that when the board reached the point of picking a fire engine, One board member voted for the manufacturing company’s truck because he was more familiar with it. At the same time he conceded that he could not point to any substantive difference between this truck and the truck proposed by Vendor One. A second board member justified his vote for the manufacturing company’s truck on the ground that apparently the cab would be steel as opposed to aluminum in Vendor One’s truck. However, the bid specifications plainly specify an aluminum cab. [Page 11]. Vendor One’s bid would have been the low bid.
Members of a city’s governing body should reject the lowest bid only for reasons they would be prepared to defend in court.
4. One bid: If a competitive bid process meets the standards in Leech, and only one bid is received, there is no reason a city cannot accept the one bid. However, generally if the goods and services for which competitive bids are sought involve high dollar and there are several potential vendors of such goods and services, but only one bid is received, the city ought to question whether its bid process is faulty in some respect. The MTAS fire consultant told me that there are several fire truck vendors and that ordinarily a government which sends out bid proposals for a fire truck ought to receive more than one bid. Your City received two bids, but the documentation of the bid process strongly suggests that the second bid was reluctant and was induced by misleading statements made by a board member.
I doubt that the action of Vendor One in taking its bid off the table would have cured any problem with the bid process up to that point; under Leech, it was already defective.
5. Time for bids to be submitted; advertising: The request for proposals for the fire truck went out on February 19, 2002, and required that bids be received by February 27, 2002. That period is on its face ridiculously short for a bid of that kind. I have no doubt a court would frown upon such a period on the ground that it limited competition for bids, even if the short period was not intended for that purpose.
I could be wrong on this point, but I see no indication that the city advertised for bids beyond directly contacting certain companies, and apparently only a limited number of those. Direct contacts for that purpose are permitted by Leech, but whether the limited contacts were sufficient advertisement under that case I am not sure. I think that generally, as wide an advertisement as possible is desirable.
6. Remedies for improper bid process: It is clear in Tennessee that the low bidder has standing to sue on the ground that the bid process was illegal in some manner. [See 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)]. Based on the facts of your City’s case, I doubt Vendor One will come forward to challenge the award of the bid. It might not even be able to do so because it withdrew its bid. In Leech, above, the public official who failed to competitively bid county purchases was ousted from office upon the petition of several citizens and the attorney general. However, his violations were repeated and involved other serious misconduct. My guess is that ouster suit is not (and should not be) a serious option in this case.
Generally, in order for a citizen to file a suit against a public body for the award of a bid, he must have suffered a special pecuniary injury not suffered by public in common. For that reason, it is not clear that any citizen would have standing to challenge the award of the bid for the manufacturing company’s truck in this case. However, it is 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]
For that reason, standing to challenge the award of the bid for the fire truck may be broader than the cases up to this point indicate.
Considering all the circumstances surrounding the bid process for the fire truck, my advice to the city is to rescind the award of the bid, and re-bid it. In addition, I also advise the city to contact Ray Crouch, the MTAS fire consultant. He is well-versed in the fire arts, and in the process for the purchase of fire equipment. If the city does not wish to do that, it would be well-advised to locate other bid specifications that do not limit the fire truck to one brand. Because the bid has already been awarded, the successful bidder arguably has some rights in the bid, but under the circumstances, those rights appear extremely tenuous.