Knowledgebase-Awarding of Construction Contract and Competitive BiddingOctober 8, 2009Dear City Recorder: You have several questions related to the competitive bidding process used by the Board of Education to select a contractor to build a science wing on the city
' s high school. I have been able to attempt an answer to five of them at this point, which hopefully will be helpful. Two additional questions dealing with the immediate legal rights of persons who submitted RFPs will have to follow; I am having trouble finding clear law on those. I note that the city attorney has drafted and sent to the Tennessee State Senator, three questions about the city
' s bidding process, all of which I have been asked to consider. While I am reluctant to be another cook in the kitchen when these questions are already in the hands of your highly qualified city attorney, and will probably be in the hands of the Tennessee Attorney General
' s Office, I will attempt to address them because those questions will not likely be addressed by the Tennessee Attorney General
' s Office before you need an answer to those questions by October 8. 1. Does the city council have any control over the competitive bidding process for the selection of the contractor to build the science wing on the city high school? The answer is no. 2. Does the competitive bidding process being used by the City School Board conform to the state law on competitive purchasing. The answer is yes. 3. Was the participation of Mr. X in the RFP selection process a prohibited conflict of interest? The answer is no. 4. Was the professional services contract executed by the Board of Education a legal contract? I am not sure of the answer to this question, but in any event, it appears to me that contract can be treated as a separate issue. 5. Who is awarded the bid if the bid process is overturned by the courts, and what are the unsuccessful bidders entitled to if they win a suit against the city? No bidder is awarded the bid; the bid process would begin again. The unsuccessful bidders who sue would be entitled to the cost of putting together their bids and perhaps other equitable damages. However, there is at least one case that confuses that issue somewhat.Analysis of Question 1 The state law governing local school systems and the City Charter and Municipal Code have a bearing on this question. Article II, Section 29 of the City Charter provides that one of the enumerated powers of the city is to: Establish, maintain and operate a complete educational system within the municipality, establish and determine the membership of the board of education and endow that board with all authority to operate the school system pursuant to state statute and this charter, review annually the operating budget of the school system and appropriate revenue to support the approved budget, purchase or otherwise acquire land for school buildings, playgrounds and other purposes necessary to the operation of the school system, purchase or erect all buildings, and do all other acts necessary for the establishment of such educational system. The Municipal Code, Title 20, Chapter 2, provides for an elected board of education (as required by state law), and gives it numerous duties, one of which is
" build, repair, furnish and keep in sanitary condition all school houses;
" . [Section 20-204] The board of education
" shall be subject to the advice, direction and supervision of the city council and the schools and school system of the city are under the control of the city council acting by and through the city board of education.
" [Section 20-209] Those provisions of the City Charter and Municipal Code are consistent with the state law governing local boards of education. Tennessee Code Annotated, Title 49, Chapter 2, generally governs the election, appointment and duties of school boards in Tennessee, including their duties with respect to school construction. Although that statutory scheme speaks mainly of county boards of education, Tennessee Attorney General
' s Opinion 96-123, says that: The Education Improvement Act of 1991 (EIA) provided for a uniform system of governance of county, municipal and special school districts. Part 2 of Chapter 2 of Title 49 now applies to
" Boards of Education
" rather than
" County Boards of Education
" as before.... [Emphasis is mine.] In Tennessee Attorney General
' s Opinion 98-235, the question was whether the City could compensate the city board of education. In opining that the answer was yes, the Attorney General reasoned that although Tennessee Code Annotated, '49-2-202(d), provides that
" The compensation of members of the county board shall be fixed by the county legislative body,
" [T]his office has opined that the provisions of the EIA are intended to provide a uniform system of governance of county, municipal, and special school districts and that Title 49, Chapter 2, Part 2, in which the above quoted statute appears, now applies to
" Boards of Education
" generally rather than only to
' County Boards of Education
' as before passage of the EIA. I have had several occasions since 1991 to research the question of whether that opinion is correct, and each time I have concluded that it is. Under Tennessee Code Annotated, Title 9, Chapter 2, local boards of education have broad powers over local school systems. With respect to school systems, Tennessee Code Annotated, '49-2-203(a)(3) gives them the power to,
' Purchase all supplies, furniture, fixtures and material of every kind through the executive committee.
" If that statute stopped there, it could be argued that local school boards have only the power to purchase furnishings for schools, but the same statute goes on to provide that they have two options for school construction. Under Tennessee Code Annotated, '49-2-203(a)(3)(C)(i) the school board may: 1.
" For construction of school buildings, or additions to existing buildings, the LEA may follow the prescribed [purchasing] procedures of the LEA
' respective local governing body, so long as that body, through its charter, private act, or ordinance has established a procurement procedure that provides for advertisement and competitive bidding....
" [Tennessee Code Annotated, '49-2-203(a)(3)(C)(i)]
2. " If the LEA chooses not to follow the local governing body' s procedure, the board shall contract, following open bids, for the construction of school buildings or additions to existing buildings, the expenditure for which is in excess of ten thousand dollars ($10,000). Public notice shall be given at least ten (10) days in advance of accepting bids for such construction, and the board shall award the contract to the lowest and the best bidder.... "
The City School Board has obviously chosen to follow option 2 in the construction of the science wing. But nothing in that statute, nor any other statute in governing local school construction, gives the city the legal authority to dictate how the school will be constructed.
Analysis of Question 2
As seen above, Tennessee Code Annotated, '49-2-203(a)(3)(C)(I) requires that a school board constructing or making an addition to a school building costing over $10,000, but not using its city governing body' s purchasing procedures must give public notice at least 10 days " in advance of accepting bids for such construction, and the board shall award the contract to the lowest and best bidder." There appears to me no way to interpret that requirement other than that the contract must be awarded on the basis of competitive bidding, the same as if the board of education were using the first option to construct the new building or addition, although the school board can undoubtedly consider factors other that price in determining who is the " best bidder."
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.]
Other Tennessee cases have also spoken on what constitutes competitive bidding.
The question here is: Does the competitive bidding process followed by the City up to this point for the construction of the science addition meet the standards announced by the case law for competitive bidding?
One of the disputes on this question is whether the RFP meets the State Building Commission' s By-Law, Policy and Procedure (Revised June, 2009), in particular, Section 5.03 REQUIREMENTS FOR RFQ/RFP PROCUREMENT. Subsection C.2. b) provides that, " In any prequalification scenario of an RFP/RFQ, a minimum score will be preestablished and only those proposers who receive the minimum score or higher will be allowed to proceed to the next step in the process." Section 5.05 of that document also provides for" PROCUREMENT THROUGH BEST VALUE," the text of which provides for three construction options. Option One is titled " Prequalification Option (Option One)." It declares that:
Qualification of contractors that identifies a short list of contractors followed by a low bid cost submittal. All contractors who meet the pass/fair requirements and score at least the established required qualifications points are considered to be equal. The point value of the bid is rated at 100%. This option is the most simplistic and will most likely be the option most frequently employed on smaller projects (construction cost of $5 million or less).
However, I have been told that the RFP for the construction of the science addition to the high school is based on an RFP for the construction of certain campus improvements for the Tennessee School for the Blind used by the Tennessee Department of Finance and Administration. The evidence, particularly a comparison of the two RFPs supports that assertion. The introductory section to the latter RFP [Section 1.1] declares that it is based on Tennessee Code Annotated, '4-15-101 et seq., which " empower the State Building Commission to award, subject to the approval of the state Building Commission, construction contracts for the improvement of real property for State of Tennessee projects." It contains some RFP GENERAL REQUIREMENTS, but none of them provide that all bidders who pass what is in effect the first step in the bid process move on to the next step, which is the selection of the wining bid. In fact, section 4.1.6 of that RFP itself clearly provides that" proposers invited to submit bids will be limited to the five (5) highest scoring Credentials Proposals in Part One, who' s [sic.] Credentials Proposals have attained the minimum score of seventy (70) points in Part 1."
The City' s RFP, section 4.1.6, contains exactly the same provision: " Proposers invited to submit bids will be limited to the five (5) highest scoring Credentials Proposals in Part 1, who' s [sic.] Credential' s Proposals have attained the minimum combined score of seventy (70) points for a Proposer to be offered opportunity to bid." In all other ways the two RFPS are also similar or identical.
There is nothing in Tennessee Code Annotated, '49-2-203 or Leech, that prescribes specific competitive bidding requirements for school construction. Leech' s definition of what constitutes competitive bidding is general, and undoubtedly permits some latitude on the part of public officials who adopt and administer competitive bid procedures. Although any construction rules issued by the State Building Commission apply only to state buildings, I can think of no reason why the Board of Education could not have adopted the State Building Commission' s By-Laws, Policy and Procedure to govern its school construction competitive bidding process. However, I can find no evidence that it has done so. For that reason, it seems to me that the debate over whether the Board of Education' s RFP for the science addition met those requirements is misplaced.
What the Board of Education has adopted for the construction of the science addition is the model of the competitive bidding process based on the RFP Best Value Procurement Option One for the construction of campus improvements at the Tennessee School for the Blind, which was issued on February 18, 2009. Whether or not that RFP, which was issued in February, 2009 conformed to the State Building Commission' s By- Laws, Policies and Procedures, which, I note were revised in June, 2009, seems to me immaterial for the same reason. Under Tennessee Code Annotated, '49-2-203(a)(2)(C)(i) the Board of Education was not obligated to select any particular competitive bid procedures as long as they met the requirements of that statute, and as long as they were consistent with the competitive bidding requirements contained in Leech , and reiterated and expanded upon in subsequent competitive bidding cases.
The State Building Commission' s competitive bid procedures appear to meet the standards contained in those cases through all stages of the bid procedures they contemplate. With respect to the RAP stage in the two options listed in PROCUREMENT THROUGH BEST- VALUE procedures, all the prospective bidders who score 70 in the prequalification stage prescribed for those options are qualified to bid on the project at issue. That is not true of the RFP used by the Board of Education for the construction of the science wing; only the five prospective bidders who score the highest over 70 are qualified to bid on the project. That standard is clearly announced in Section 4.1.6 of the RFP. In that respect all the bidders are put on a level playing field, and, in theory, have the same opportunity as do all other prospective bidders to score in the top five of the candidates who score over 70. As far as I can determine, a process for " weeding out" potential bidders in a prequalification bid process is not prohibited by Leech and other competitive bid cases, but if there is to be such a process it is required to be fair, and to not unduly restrict competition.
It seems to me that if prequalifcation process reduces the number of potential bidders below a certain point, the process at least unduly restricts competition. In the case of the RFP used by the Board of Education, 11 potential bidders scored above 70 but their number was reduced to the five highest scoring candidates. Although I am not sure at what point a reduction in the number of companies that would actually be entitled to bid on the project would be anti- competitive, I do not have the impression that point was reached there. The standard for judging competitive bid contests is considered in Metropolitan Air Research Testing Authority (MARTA) v. Metropolitan Government of Nashville and Davidson County, 842 S.W.2d 611 (Ct. App. Tenn. 1992), that:
Courts are wary of unwarranted judicial intrusion into the performance of ordinary governmental activities. [Citations omitted by me.] Accordingly, judicial review is generally confined to an examination of the evidence to determine whether there is material evidence to support conclusions that are neither arbitrary nor unlawful. [Citation omitted by me.]
Since procuring goods and services is the type of routine activity that is best left to governmental officials, most courts have recognized that public procurement authorities have wide discretion with regard to accepting bids or any other details of entering into a contract. [Citations omitted by me.]
Purchasing official must not be arbitrary, unreasonable, or capricious. [Citations omitted by me.] Thus, in the absence of fraud, corruption, or palpable abuse of discretion, the courts will ordinarily not interfere with governmental procurement decisions. [Citations omitted by me.] [At 619]
That language is somewhat misleading in the respect that since unsuccessful bidders have been given the right to challenge the award of bids, the cases where that has happened indicate that the municipal bid process is subject to a fine tooth comb review by the courts.
But the Board of Education has a good argument that narrowing a field of 11 bidders to five of the highest scorers in the prequalifcation stage of the bid process is a rational decision. It obviously imposes a higher standard on prospective bidder than does a standard that allows all bidders who score over 70 to bid on the project, but although the analogy is not exact, few people would quarrel with a multistage selection process for airline pilots that weeds out all but the top five candidates for jobs as airline pilots. .
But the question of whether there was " fraud, corruption or palpable abuse of discretion" will be considered in the next question, which deals with the issue of whether the participation of Mr. X on the RFP selection committee constituted any of those things.
Analysis of Question 3
Mr. X served on the committee that graded the RFPs. The product of the grading was to select the five RFP candidates who scored the highest grades above 70 to go on to the next stage in the selection of the winning bid. In addition, the committee disqualified two RAPS submitted for having failed to meet certain requirements in RAP preparation and submittal. One of those disqualifications is being appealed under the rules contained in the RAP. Among the five RAPS selected to go to the next stage in the bidding process is Mr. X' s former employee, Mr. Y. Mr. X, I am told, was employed by Mr. Y until around January 20, 2009, and was hired as the " site superintendent" for the construction of the science wing, under a " Professional Services Contract" with the Board of Education, dated June 4, 2009.
As far as I can determine, there is no state law or Board of Education rule or regulation that would prohibit the Board of Education from hiring Mr. X in that capacity, although the question of whether Mr. X is actually a construction manager, the answer to which has some legal implications, will be covered later.
Tennessee' s Conflicts of Interest Law found at Tennessee Code Annotated, '12-4-101 et seq., applies to " any officer, committee member, director or other person whose duty it is to vote
for, let out, overlook, or in any manner to superintend any work or any contract in which any municipal corporation .... shall or may be interested, to be directly interested in any contract...."
Tennessee Attorney General' s Opinion 00-117 considers the question of whether it was a conflict of interest under Tennessee Code Annotated, '12-4-101 et seq. for a person providing construction management services for a county board of education to bid on, contract or to perform and/or be awarded construction work on school building projects the person was hired to supervise. Even if Mr. X is not a construction manager under his contract with the Board of Education, that question is still pertinent because he has a contract with the board to be the site representative on the construction of the science wing, and because he was a member of the committee that narrowed down RFPS from 13 to 8, 2 by disqualification, 6 by grading the RFPs.
The Tennessee Attorney General opined that while no court had addressed that question:
" Generally, this statute has been applied only to public officers or officials. See e.g. Op. Tenn. Atty. Gen. 99-231 (December 15, 1999) (ATennessee law regarding conflicts of interests involving government contracts is generally addressed to situations in which a state officer or employee has a conflict of interest." ); Op. Tenn. Att. Gen. 99-085 (April 6, 1999) (" A general conflict of interest statute for state and local officials appears at Tenn. Cod Ann. '12- 4-101." ). Assuming that the construction manager at issue is not a public official or officer, the conflicts of interest statute would not apply to the situation at hand...."
Likewise, my previous research of Tennessee' s Conflicts of Interest law in other contexts as disclosed no cases in which any person except a public official or employee was subjected to that law. But it could be argued that an independent contractor hired by the city to oversee a construction project and who serves on a committee to select a contractor for the project qualifies as an " ....other person whose duty it is to vote for, let out, overlook...any contract....." , but at this time that law has been applied only to public officials and employees.
However, financial impact is the key to the Conflicts of Interest Law. It entirely prohibits direct interests and limits indirect interests. It defines " direct interests" as " any contract with the official personally or with any business in which the official is the sole proprietor, a partner, or the person having controlling interest." Absent any information showing otherwise, It does not appear that Mr. X would have a direct interest under any of those categories even if the Conflicts of Interest Law applied to him.
Indirect interests are also prohibited unless the official acknowledges that interest. An " indirect interest" is defined as " any contract in which the officer is interested, but not directly so...." That is not a very helpful definition, but my previous study of the Conflicts of Interest Law leads me to believe that absent any information showing otherwise, any interest Mr. X may have in any contract let by the school board for the science wing is so remote that it does not even qualify as an indirect interest. Even if it were to happen that his former employer, Mr. Y, got the contract, he would not necessarily stand to be a financial beneficiary of that contract. It is not even certain Mr. Y will get the contract.
Tennessee apparently also recognizes common law conflicts of interest. As far as I can determine, only one Tennessee case involves the application of the common law conflicts of interest doctrine in which the financial interest of a public official or employee is involved. In Ramsey v. Gibson County, 7 Tenn.Civ. App. (7 Higgins) 53 (1916), a cook in a county workhouse supplied food for the workhouse from a store he owned. The Court denied him payment for the food, declaring:
That it is not material to determine whether Ramsey [the cook] was such an official as cannot deal with the county under Shannon' s Code, Section 1133 [what is now Tennessee Code Annotated, '12-4-101.] We think that under no circumstances can the Courts recognize the right of a man occupying the position of Ramsey to recover upon his contracts. Sound public policy forbids this...The rule forbids the giving of any validity to such contracts because of the vast opportunities open for fraud and because such contracts are in flat contradiction of the soundest ethical and judicial principles. See Madison County v. Alexander, 116 Tenn., 689, and cases there cited....The law forbids the assumption by anyone of a position where his interest and his duty will conflict. [At 54-55]
At that time, Shannon' s Code, '1133, much the same as it does now, provided that: " It shall not be lawful for any officer, committeeman, director, or other person whose duty it is to vote for, let out, overlook, or in any manner superintend, any work or any contract in which any public municipal corporation...shall or may be interested, to be directly or indirectly interested in such contract." Note that at that time, the statute entirely prohibited both " direct and indirect interests."
The Ramsey Court sounded unsure that Shannon' s Code, '1133, covered the workhouse cook. He certainly had no duty to vote for the contract, and arguably as a cook he had no duty to overlook or to in any manner superintend the contract. He was on the bottom of the employment totem pole, so to speak. But even if that was true, the contract was a violation of public policy. That case appears to indicate that the common law conflict of interest is alive in Tennessee.
However, the case law governing competitive bids must also be considered, some of which was discussed in the answer to Question 2. MARTA, above, relying on Leech, held that disappointed bidders, whether or not they would have gotten the bid, had the right to sue the government that solicited the bids. At also said this about fairness in bidding:
Thus, the courts have recognized that the statutes and ordinances requiring competitive bidding impose upon the government an implied obligation to consider all bids honestly and fairly. [Citations omitted by me.]
Since bidders have a right to compete on the same footing, [Citations omitted by me.], their rights fall inside the procedural interest perfected by competitive bidding requirements. [Citations omitted by me.] Therefore, the loss of an opportunity to receive or to compete for a public contract is a distinct injury sufficient to provide a disappointed bidder with standing [to sue.] [Citations omitted by me.]
Competitive bidding laws also promote the public interest by guarding against favoritism and fraud. [Citations omitted by me.] Unsuccessful bidders are most likely to have an incentive to bring suit to compel government agencies to comply with the requirements controlling government contracts. [Citations omitted by me.] [At 616-17]
There seems little doubt that such language would allow an unsuccessful bidder to challenge the make up of a bid selection committee, and an RFP selection committee. Even though the RFP committee was the first step in the bid selection process used by the Board of Education, it effectively foreclosed the opportunity of a number of the potential bidders to submit a bid. That seems clearly a case of " ... the loss of an opportunity to receive or to compete for a public contract...." What I do not know at the moment is whether a potential bidder eliminated by the RFP committee would have the right to sue as soon as he exhausted his right of appeal of that committee' s decision, or whether he would be required to wait until the end of the bid process.
There are surprisingly few cases dealing with challenges to bid selection committees on the basis of the relationship of members of the committee with bidders. In fact, I have found only one case involving a member of a selection committee who previously worked for one of the bidders. It occurs to me that the reason is that most bid statutes or procedures probably contain restrictions about such relationships by members of such committees. The RFPBand as far as I can tell, the School BoardBprescribe no such limitations. .
In CACI, Inc. Federal v. United States, 719 F.2d 1567 (Fed Cir. 1983), an unsuccessful bidder challenged the award of a bid on the grounds that four of the five members of the technical evaluation committee reviewing bids for computer equipment for the U.S. Department of Justice' s Antitrust Division were guilty of impropriety, and alleging that the impropriety breached the Department of Justice' s " implied contractual obligation to consider CACI' s bid fairly and honestly." The basis of that charge, in the Court' s words, was that,
Most of the allegations of impropriety in this case are based upon the relationships between Antitrust Division employees in the group who participated in the bid evaluation process and Robert L. Stevens, the chief of the Group from 1978 to 1980, who as Sterling' s [the successful bidder] vice president, directed the preparation of Sterling' s bid and represented the company before the Department during its consideration of the bids. [At 1570]
The chairman of the committee had" worked either directly or indirectly for Stevens in both the government and the private sector." Another member of the committee " had worked under and reported directly to Stevens at the Group, and his professional association with Stevens began in 1978." Another member" also worked under Stevens during the latter' s tenure at the Group." The remaining member " had a social relationship with Stevens." [At 1571] There were also allegations that at least two of the members of the committee had discussed employment with Stevens.
The Court of Claims had some scathing words to say about the relationships in question and enjoined the award of the bid. But the Court of Appeals, declaring that the grounds upon which the Court of Claims had enjoined the award of the bid to Sterling, the lowest bidder, were not clear, and turned to the Ethics in Government Act to determine if the relationships violated that Act. It found that the relationships between the committee members and Stevens were not current, and did not constitute a violation of that Act. It refused to find anything sinister about those relationships.
In Galen Medical Associates, Inc. v. United States, 369 F.3d 1224 (Fed. Cir. 2004), an unsuccessful bidder alleged that the VA' s evaluation of bids process " manifested a conflict of interest, or that the VA acted in bad faith." [At 1335] The allegation arose from the fact that one of the two successful bidder' s references for past performance were on each of the two bid evaluation panels. But the Court responded that:
In order to prevail on its conflict of interest claim, Galen must establish a violation of a statutory or regulatory conflict of interest provision. [Statutory citations omitted by me.] The mere presence of one of Downing' s past performance references on each evaluation panel alone does not constitute proof of conflict of interest. [At 1335]
The Court also said that:
Even to the extent the regulations required that any conflict of interest or even the appearance of a conflict of interest in government-contractor relationship be avoided, 48 C.F.R. '3.101- 1 (2003), Galen has failed to show any potential symbiotic relationship to be avoided between the technical evaluators and Downing. Indeed, Galen has not shown that Kirpatrick or any other evaluator had any " interest" or any appearance of an " interest" in an award of the contract to Downing. Galen has presented no evidence of any impact an award of the contract to either Downing or Galen would have on any of the evaluators. For even an appearance of a conflict of interest to exist, a government official must at least appear to have some stake in the outcome of a government action influenced by that individual .... [At 336]
A similar result was reached in Common Sense Adoption Services v. Department of Public Welfare, 799 A.2d 225 (Commonwealth Pa. 2002) reached a similar conclusion, but did not discuss the standards that apply to alleged conflicts of interest.
Speculation about whether Mr. X' s participation on the RFP committee had a favorable impact on Mr. Y' s RFP seems almost inevitable, he having been its recent employee. But assuming that similar standards that applied to those cases would apply in Tennessee courts, as far as I can determine, at least with respect to the RFP, it is difficult to reach beyond the speculation and find any evidence of such influence. Further, as I said above, I have found no state law or school board policy that makes it a conflict of interest, or otherwise prohibits him from serving on that committee. I have no doubt that if a court can find some evidence of a connection between Mr. X and Mr. Y that influenced his vote on the RFP committee, it
could use that evidence to overturn the award of the bid. But assuming that such a connection exists, especially when Mr. X left Mr. Y' s employment several months ago is too far a reach.
Analysis of Question 4
The Board of Education and Mr. X entered into what is titled PROFESSIONAL SERVICES CONTRACT on June 5, 2009. The second WHEREAS of that contract says that " The Board of Education has determined that it needs daily representation at that construction site to assure that the project is proceeding in accordance with the plans, specifications and schedules approved by the board." Under that contract Mr. X is called the "' Owner' s Representative' as that term is used in the contract with the General contractor during the construction of the science wing..." [Section 2.A] But he is more regularly called the "S ite Representative" throughout the contract.
The " site representative" has the following duties:
-" .... [w]orks under the direct supervision of and reports directly to, the DIRECTOR OF SCHOOLS."
- " All decisions regarding changes in the Contract Documents, schedules, requirements of law, or change orders shall be reported to, made in consultation with, [presumably the site representative] and receive the express approval of the DIRECTOR OF SCHOOLS and/or the School Board."
- " The Site Representative shall devote such time and energies necessary to perform the duties of the office....The day to day schedule of the Site Representatives [sic.] attendance at the work sites shall be determined by mutual agreement between the Site Representative and the Direct of Schools."
- " The Site Representative will protect the Board' s interest while promoting teamwork and fluidity on job site."
- " Site Representative is to be extremely familiar with Construction Documents and drawings as to recognize any or all deviations from overall or specific scope and inform Director of Schools with distilled information and concise set of options clearly defined, along with a recommended course of action."
- " The Site representative will strive to maintain progress and mutual interaction and tasks of various parties in such a way that reduces the risk of overall failure, maximizes benefits, and restricts costs."
- " The Site Representative will keep the Director of School informed of issues that arise during the course of the construction projects noted above, and make recommendations to him and the Board concerning the proper and timely completion of the projects."
Nothing is said in that contract about the site representative serving on the committee selecting the contractor in either stage of that process, although it is clear that he served on the committee in the prequalifcation stage of the bid process, in which the number of candidates eligible to bid on the project was narrowed down to five. But as I said above, I can find nothing in the law to prohibit him from serving in that capacity.
While I do not purport to be an expert in construction contracts, I have previously researched the question of what a construction manager is in Tennessee (and elsewhere), and I am not sure that there is a definition that satisfies everyone. Tennessee' s Contractor Licensing Law provides that construction managers are contractors covered by that law, but fails to define exactly what a construction manager is or does. [Tennessee Code Annotated, '62-6-102]
Section 5.06 [PROCUREMENT THROUGH CONSTRUCTION MANAGEMENT] of the By-Laws, Policy ad Procedure of the State Building Commission authorizes state buildings to be constructed though one form of construction management.
Unless otherwise approved, projects will use the Construction Manager/General Contractor (CM/GC) model, which is a form of construction management in which the owner engages a designer, and a qualified construction manager to provide those pre- Construction and Construction services. The CM/GC provides consulting and estimating services during design phases, and acts as the general contractor during the construction phases, holding the trade contracts and providing the management and construction services. The CM/GC competitively procures the contracts with trade contractors and assumes the responsibility and risk of construction delivery usually within specified cost and schedule terms, and after providing a guaranteed maximum price (GMP) on a defined scope of Work.
But there are also other models of construction management, at least one of which the construction manager serves as the agent of the " owner," but does not serve as a general contractor or do most of the things contained in the above State Building Commission construction management model; he simply manages the construction project in a manner similar to the way the site representative will perform his duties under his contract with the board of education. That is the model envisioned by the American Institute of Architects (AIA), whose forms are widely used in the construction business. 2 Brunder & O' Conner Construction Law, '6.62 (Westlaw Database updated May 2009):
The American Institute of Architects (AIA) documents treat the CM as an entity bearing the same relationship to the owner as the architect. In other words, the AIA standard form of agreement between owner and CM contemplated an entity that schedules, coordinates and monitors construction but does not " have control over or charge of and shall not be responsible for construction means, methods, techniques, sequences or procedures or for safety precautions and programs in connection with the work of each of the contractors, since these are solely the contractor' s responsibility under the contract for construction." Like the architect, the CM does not warrant construction costs. The AIA scheme envisions the CM working in a cooperative manner with the architect to provide contract administration services.
[Also see 2 Brunder & O' Conner Construction Law, '2.13 (Westlaw database updated through May, 2009.)
I am not sure what the Tennessee courts would do with the question of whether the contract in question is a construction management contract, but I think there is a very good chance they would hold that by whatever name the contract calls him, he is a construction manager. Presumably, that question could probably go either way. Section 2 of the contract outlines the site representative' s duties, and is somewhat vague and subject to interpretation. Section 2.C of the contract provides that " All decisions regarding changes in the Contract Documents, schedules, requirements of law, or change orders shall be reported to, made in consultation with, and receive the express approval of the DIRECTOR OF SCHOOLS and/or the School Board." But all of the decision-making that supposedly lies in the hands of the director of schools or the school board is initiated by the site representative. In addition, the contract clearly points to duties the site representative has that give him the immediate control of that happens on the job site. Under Section 2.. F.," The site representative will protect the Board' s interest while promoting teamwork and fluidity on job site." It is difficult to see how the site representative will promote teamwork and fluidity on the job site without himself doing what needs to be done to get and keep the construction job moving ahead immediately without waiting to bring every detail of construction problems to the attention of the director of schools. In fact, under 2..H. 1 of the contract, " The site representative will strive to maintain progress and mutual interaction and task of various parties in such a way that reduces the risk of overall failure, maximizes benefits, and restricts costs." The last time I checked, that is one of the primary duties of a construction manager, no matter what form of construction management model is used.
If the site representative is actually a construction manager, Tennessee Code Annotated, '49-2-203(a)(2)(C)(ii) provides that boards of education can hire one, but the hiring must be done by competitive bid (which is somewhat ironic because Tennessee Code Annotated, '12-4-106 prohibits other professional services contracts from being competitively bid.) That statute also fails to define what a construction manager is within the meaning of that provision, except that it is clear that statute envisions a construction manager that does not do construction, except in the narrow circumstances outlined in that statute that probably will not apply to the Board of Education. In that respect the statute contemplates a construction manager that is more similar to the AIA model.
Tennessee Attorney General' s Opinion 00-117 (July 5, 2000), observes that, " No court has had an opportunity to construe this provision." That observation remains true to this date. But the opinion goes on to opine that:
The statute delineates the method by which construction management services may be procured, i.e. through a personal services contract. The provision also prevents a Construction manager who has been hired to provide construction management services to contract for performing actual construction work as a part of that construction management services contract ....
Moving away from the construction manager issue, there appears to be nothing in Tennessee Code Annotated, title 49, chapter 2 that expressly establishes any competitive bid requirements for a school board' s hiring of professional, or non-professional independent contractors. Tennessee Code Annotated, '49-2-203(a)(2)(3) puts a $10,000 limitation on the," Purchases of all supplies, furniture, fixtures and material of every kind through the executive committee," but that provision does not govern personal service contracts. However, if Mr. X is not a construction manager, a strong argument can be made that the contract between Mr. X and the Board of Education is a contract, " For the construction of school buildings, or additions to existing buildings...." under Tennessee Code Annotated, '49-2-203(a)(3)(C)(i), that is no different than the contract for the construction of the science addition under the RFP at issue. The trigger for competitive bidding requirements under that statute is $10,000, which is exceeded by that contract.
But if the contract between the Board of Education and Mr. X fails because it is actually a construction management contract that was required to be competitively bid, or a construction contract that was also required to be competitively bid, it seems to me that it can be separated from the contract to which the RFP applies, which does not technically involve a construction manager. I doubt that the fact that the board of education had hired a site superintendent, who may actually be a construction manager, does not appear to me to render the RFP stage of the bid process illegal For that reason, any problems with that contract appear capable of being addressed without impacting the legality of the bid process to this point.
Analysis of Question 5
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]
In Tennessee, 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]
Computer Shoppe, Inc.v. State, 780 S.W.2d 729 (Tenn. Ct. App. 1989), may cast a different light on damages unsuccessful bidders may be owed where the bid process is overturned. There the state cancelled a solicitation for invitations to bid (ITB) after a lengthy bid process that disclosed there were numerous defects in the ITB, and after the Computer Shoppe had apparently been led to believe that its bid would be accepted if certain glitches in its computer program could be eliminated. The Computer Shoppe claimed that it had accomplished that goal when the ITB was cancelled. Its claim for damages was based on the theory that it had an express [oral] contract with the state on and after September 3, 1987, obligating the state to award it the contract, if it could make certain adjustments to its software. The court appears to have accepted that argument, but in looking at the damages to which Computer Shoppe was entitled, said:
The Computer Shoppe made other modifications to its software prior to September 3, 1987. Had the State' s procurement in this case followed the " multi-step" sealed bidding process required by Tenn. Code Ann. 12-3-23(a)(1) (1987) for purchasing computers, the costs of preparing the initial bid and of the modifications made prior to September 3, would have been at the Computer Shoppe' s expense. Rather than computing the Computer Shoppe' s damages, if any, based on lost profits or on the cost incurred in submitting a bid, we find the proper measure of damages to be the costs the Computer Shoppe incurred in asking the modifications requested by the State on September 3, 1987 [At 737].
The rationale for the court' s calculation was that:
Rejecting all bids and cancelling a solicitation discourages competitive bidding and should be the exception in government procurement rather than the rule. [Citation omitted by me.] The government must have just cause to cancel a solicitation, and persons challenging decision to cancel a solicitation will succeed if they demonstrate that the soliciting agency had no reasonable or rational basis for its decision. [Citation omitted by me.] [At 737]
But then the court spoke about mistakes in solicitations:
The state' s procurement statutes and procedures must be read in the light of reason and common sense. Errors occur not only in the private sector but in the public sector as well. Like contracting parties in the private sector, the State should not be held to a standard of perfection. The General Assembly has given the Commissioner of General Services the authority to cancel a solicitation when there are errors in the invitation to bid. Persons seeking to do business with the State are aware of this condition because it is part of every ITB. Thus, we do not deem it unreasonable to expect bidders to bear the risk of erroneous invitations to bid, as part of their cost of doing business with the state. [At 738]
But Computer Shoppe is based on the proposition that Computer Shoppe had a contract with the state to accept its computer software when the state cancelled the ITB because it contained numerous errors. But that cases does appear to suggest that if the Board of Education cancelled its invitations for RFPs at this point, none of the bidders would be entitled to compensation for the cost of preparing their bids, such costs being part of the cost of doing business. However, that case is confusing to me on the point of what would be the damages to bidders if there was no good reason for the Board of Education to cancel the RFPs. Here I cannot get by my previous conclusions that the RFP issued by the Board of Education is not defective.
More will be provided shortly.
Sidney D. Hemsley
Senior Law Consultant