Original Author: Hemsley, Sid
Date of Material: 02/04/1997
Purchasing--Bids, proposals and specifications
Purchasing--Laws and regulations
Reviewed Date: 07/29/2021
MTAS was asked whether the city can negotiate price with the low bidder when there is only one bid on a municipal purchase.
You have the following question: Can the city negotiate price with the low bidder when there is only one bid on a municipal purchase? The question does not relate to any pending or proposed purchase. The answer is generally yes.
In State ex rel. Wright v. Leech, 622 S.W.2d 807 (Tenn. 1981), the Tennessee Supreme Court declared that the term "competitive bidding" required by a statute meant several things:
1. The request for bids must not unduly restrict competition.
2. All persons or corporations having the ability to furnish the supplies or materials, or to perform the work, in question, should be allowed to freely compete without unreasonable restrictions.
3. Proposals must be invited under fair circumstances which afford a fair and reasonable opportunity for competition.
4. 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.
5. Due advertisement, giving opportunity to bid is required, and notice must be given by a method designed to reach bidders likely to be interested in the bids.
6. The advertisement for bids should include substantially the following information: (a) specification and quantity of the supplies or equipment to be purchased; (b) the time or time frame for delivery (if relevant); (c) deadline for submitting bids and the name and address of the office to which they should be submitted; (d) time and place that the bids will be opened.
Post-bid negotiations with the lowest bidder do not appear to violate any of the components of competitive bidding laid down in Leech.
In Browning-Ferris Industries of Tennessee, Inc. v. City of Oak Ridge, 644 S.W.2d 400 (Tenn. App. 1983), the City of Oak Ridge's competitive bidding ordinance provided that:
Competitive bids on all supplies, materials, equipment, and services, except those specified elsewhere in this article, and contracts for public improvements shall be obtained, whenever practicable, and the purchase or contract awarded to the lowest responsible bidder.
The city rejected all three bids it received on a contract for garbage disposal services. The city then entered into negotiations with one of the bidders, but not the lowest bidder. In declaring that the city violated its own competitive bidding ordinance, the Court declared that:
While post-bid negotiations with the lowest competitor bidder are not inconsistent with policies under the bidding statutes, private negotiations with any other bidder directly contravene the purpose of the ordinance. [Emphasis is mine.]
The Court, then, was not troubled with post-bid negotiations themselves, but with the post-bid negotiations with a bidder who was not the lowest bidder. That kind of conduct would undoubtedly also violate Leech. However, such a situation would not arise where there is only one bidder on a purchase or service.
The Tennessee Attorney General has raised a good point about post-bid negotiations in OAG 85-121: if the negotiations modify the terms and conditions upon which other bidders rely, the negotiations might violate Leech. However, that should not be a problem where there is only one bidder on a purchase or service.
Obviously, Browning-Ferris Industries also stands for the proposition that a municipality must obey the competitive bidding statutes, and the charter and ordinance provision, that regulate its purchases of goods and services.
Sidney D. Hemsley
Senior Law Consultant