April 5, 1994
Your question is, can the city pave eight streets under a bid that was never accepted for the reconstruction of another street, but which had a separate paving price component. In my opinion, the answer is no.
The facts behind your question are as follows: The city called for bids on the reconstruction of one certain street. The city had discussed paving eight other streets, but those eight streets were neither included nor contemplated in the call for bids for the reconstruction of the street. The city received one bid for the reconstruction of the street, which came in almost $100,000 over the amount budgeted for the project, and the city intends to reject the bid. However, the only bid was an itemized bid, and one of the items was paving at a certain price. Now the bidder wants the city to let him pave the eight streets at the per ton price contained in his bid for the reconstruction of the street, claiming that the city can simply authorize the paving of the eight streets by a change order. The city is subject to the Municipal Purchasing Law codified at Tennessee Code Annotated, section 6-56-301 et seq., which generally requires competitive bids on goods and services costing over $2,500. However, under that law municipalities are authorized to increase that competitive bidding trigger to $4,000. The city has done so in Ordinance No. 879, reflected in Section 5-5-1 of its municipal code. Needless to say, the paving of the eight streets will exceed $4,000.
There is no legal logic in the proposition that the city can pave the eight streets under the authority of a change order issued under a bid the city did not even accept, and a contract the city did not even let. Using a change order in that manner is contrary to State ex re. Leech v. Wright, 622 S.W.2d 807 (Tenn. 1981). There the Tennessee Supreme Court declared that the term "competitive bidding" had a legal meaning, and in the absence of prescribed methods or procedures in a law requiring it, "certain minimum standards of competitive bidding [must] be followed." I have chosen to omit the list of six minimum requirements when competitive bidding is required; those are listed in some detail in the case, which I have enclosed. It is enough to say that the paving of the eight streets by the unsuccessful bidder on the street reconstruction project through the use of a change order fails to meet most, if not all, of those requirements.
In Browning-Ferris Industries of Tennessee, Inc. v. City of Oak Ridge, 644 S.W.2d 400 (1983), the Tennessee Court of Appeals, Eastern Section, declared that "Competitive bidding requirements are strictly construed against the governing authority." The Municipal Purchasing Law, construed against the governing body of the city, indicates that the letting of a contract to pave the eight streets by use of a change order in the suggested manner is also illegal under that Law.
Even if the city had accepted the bid on the street reconstruction project, permitting a change order under that project to be used to permit work on the eight streets might also constitute splitting work into components to circumvent competitive bid requirements. Splitting work into components for that purpose has regularly been held illegal, including in Tennessee. [See 53 ALR2d 498 (Determination of amount involved in contract within statutory provision requiring public contracts involving sums exceeding specified amount to be let to lowest bidder); and State ex rel. Butler v. Dugger, 172 Tenn. 281, 111 S.W.2d 1032 (1932).]
The call for bids in the city's case was a call for bids on a street reconstruction project, only one component of which included paving. The project proposed for the eight streets by the by the unsuccessful bidder is a street paving project. It is easy to envision that if the city called for bids on the paving of the eight streets, the bids might come in lower than the "bid" offered via the proposed change order (under a bid that was never let).
In addition, the courts in other jurisdictions have dealt with the question of what constitutes "extra" work within the meaning of change order provisions of contracts, and some have held that such work refers to work done according to original plans and specifications. [See 1 ALR3d 1273 (Effect of Stipulation, in Public Building or Construction Contract, That Alterations or Extras Must be Ordered in Writing).] The Tennessee courts could hold that a change order issued under a street reconstruction project is limited to that project and not to additional paving projects in general. In my opinion that is exactly what the Tennessee courts would do under the facts, because the change order would serve as an instrument to circumvent competitive bidding requirements.
Under Browning-Ferris, above, a municipality is bound by competitive bidding requirements in both statutes and ordinances. Said the Court:
A contact 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.
I strongly advise the city that when it decides to pave the eight streets, it call for bids that it knows complies with the Municipal Purchasing Law and Wright, and that it not let a change order be used in the proposed manner.
Sidney D. Hemsley
Senior Law Consultant