FROM: Sid Hemsley, Senior Law Consultant
DATE: March 3, 2004
RE: Solid Waste Contract
You have the following question: Can the City waive a mathematical error in a company’s bid on a solid waste collection contract, or permit the company to correct the error?
In my opinion, under the facts the answer is no.
Under those facts, the city solicited bids for a solid waste collection contract. It received two bids, one from Company A, the other from Company B. Those bids have been opened. Both bids are consistent with the Bid Form contained in the bid specifications, which breaks the bid into units: A. Collection of Solid Waste Residential Unit (per unit per month); B. Disposal of Solid Waste Residential Unit (per unit per month); and C. Total Collection and Disposal. The form contains blanks reflecting those unit costs for years 1, 2, 3, 4 and 5.
However, Company A’s bid form contains at least two mathematical errors. I have attached that bid form and circled those errors. The first error is $.25 in the total of residential collection and disposal units for at least year one. The second error involves a $.06 miscalculation of total residential collection and disposal unit cost. At first glance it is easy to make a simple assumption about the first error: That is simply a clerical error in adding up the totals of Line A, Year 1, and Line B, year 1, in which case the total for Line C, Year 1, would be $7.00 rather than the $7.25 reflected on the form, and that all other totals in Line C, Years 2, 3, 4 and 5, remain the same. However, that assumption is not necessarily correct. It may be that in Line A, Year 1, the figure 5.00 should have read, say, 5.10, and that Line B, Year 1 the figure2.00 should have read, say 2.15, which would account for the $.25. Beyond the first glance, then, there is no way on the face of the bid to determine whether the figure $7.25 in line C, Year 1 is an accurate figure, or whether the figure or figures in Line A and/or B, Year 1 are accurate.
A similar analysis can be applied to the $.06 error reflected on Line C, Year 5. In addition, that there may be unknown inaccuracies in the figures in one or more of Lines A, B, and C, Year 1, is supported by the $.06 error that occurs in Line C, Year 5.
Under the law governing the revision of bids, the source of the $.25 error reflected in Line C, Year 1 may not make a difference. The reason is that when the bids were open, it gave the city or Company A the opportunity to adjust Line C, Year 1, downward by $.25. I hasten to add here that if any such adjustment has even been contemplated, I would not ascribe any bad motives to either the city or Company A in making them. However, under the law governing the revision of bids it is the opportunity to make the adjustment, not the exercise of the opportunity in bad faith, that makes the bid defective.
The law governing mistakes in bids is that governments generally can waive minor irregularities, and even allow bidders to modify their bids to correct minor errors, provided the errors are not material. [See 10 McQuillin, Municipal Corporations, §§ 29.65 and 29.68.] Indeed, the 5th paragraph of the Request for Proposals, says that:
The City reserves the right to reject any or all Proposals regarding the collection and disposal of solid waste, to waive irregularities and/or informalities in any Proposal, and to make an award in any manner, consistent with law, deemed in the best interest of the City.
Notwithstanding that provision, a city does not have unbridled discretion in the waiver of irregularities. 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]
There appear to be no Tennessee cases expressly governing changes in bids after they are opened, but the Tennessee Supreme Court in State ex rel. Wright v. Leech, 622 S.W.2d 807 (Tenn. 1981), addressed the question of what the term “competitive bidding” in the Municipal Purchasing Law means:
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 principle of Leech is 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.]
In the City’s case, when the bids were open, the city could not waive or correct the error without sacrificing the integrity of the competitive bidding process. It was in a position to decide whether its bid on Line C, Year 1 should reflect a reduction of $.25. Presumably, it was in the same position, had it caught the second error, to increase the bid on Line C, Year 5, from $7.81 to $7.87.
In addition, cases in other states have taken up the issue of what changes can be made to bids after they are opened. In J. H. Parker Construction Company, Inc. v. Board of Aldermen of the City of Natchez, 721 So.2d 671 (Ct. App. Miss.1998), the Court, analyzing the question of whether the city could waive the failure of a bidder to include certain documents in his bid, declared that, “Any deviation from the bidding process that affects the integrity of the competitive process is beyond the discretionary power of the county or municipal authorities.” [At 677] Here, said the Court, the waiver:
....did not alter or destroy the competitive bidding process. Lampkin did not receive an advantage or benefit over the other bidders. The failure to file a list of individuals authorized to bind the company did not affect the price, quality, or quantity of its bid. Additionally, there was no opportunity for fraud or favoritism. The City’s waiver of the Prequalification Statement did not prejudice the right of other bidders or the public. [At 677] [Emphasis is mine.]
The correction of both the first and second error in Company A’s bid does change the price of the bid, at least in the first and fifth years.
In City of Baltimore v. De Luca-Davis Construction Co., Inc., 124 A.2d 557 (Ct. App. Md. (1956), a contractor discovered a clerical mistake that resulted in his bid on a project being $500,000 too low. Denying him relief, the Court reasoned that:
It is manifest to us that the City is correct in saying that there can be no reformation, for at least two reasons. In the first place, to warrant the equitable remedy of reformation, the mistake must have been mutual. [Citations omitted] Here the mistake was entirely that of the contractor and not induced by any act or omission of the City....More important than the first reason why there cannot be a reformation is the second, namely that a court will never in the name of a reformation rewrite a contract or make a contract for the parties or act unless there is clear convincing and satisfying proof a mutual understanding of a bargain that has not been accurately expressed. [Citations omitted.] [At 560]
Lovering–Johnson, Inc. v. City of Prior Lake, 558 N.W.2d 499 (Ct. App. Minn. 1997), is a case that bears similarity to the bid at issue in your City. There a contractor bid a + $21,500 on a certain alternative. When the bids were opened, the contractor, alleging a clerical error, claimed the figure should have been a -$21,500. The city accepted his argument and waived the mistake; the waiver made the contractor the low bidder. The Court overturned the waiver, and its reasons are worth quoting at length:
The [Minnesota] Supreme Court has described the essential nature of the competitive bidding process for public contracts:
A fundamental purpose of competitive bidding is to deprive or limit the discretion of contract-making officials in the areas which are susceptible to such abuses as fraud, favoritism, improvidence, and extravagance. Any competitive bidding procedure which defeats this fundamental purpose, even though it be set forth in the initial proposal to all bidders, invalidates the contraction contract although subsequent events establish *** that no actual fraud was present. It is for this reason that no material change may be made in any bid after bids have been received and opened since to permit such change would be to open the door to fraud and collusion. [The Court’s emphasis.]
Accordingly, the supreme court has held that a public agency must determine bid responsiveness at the time the bid is opened. [Citation omitted.] Once a bid has been opened, the public entity has no authority to make any material changes or modifications to the bid. [Citation omitted.] The rule prohibiting material changes once a bid has been opened, applies despite provisions in the bid instructions that allow the public entity to waive irregularities. [Citation omitted.]....
Thus, the issue becomes whether a change or modification to the bid is “substantial or material.” The test for determining whether a change or variance is material is whether the change gives a bidder a substantial advantage or benefit not enjoyed by other bidders. [Citations omitted.] In the instant case, we conclude that the city materially modified Rochon’s alternate 11 bid by ignoring the plus signs after it has been read as “+ 21,500.” Once Oertel read the bids, Rochon had a substantial advantage over its competitors because Rochon knew the bid of the lowest responsible bidder. As a result, Rochon was in a position to become the lowest responsible bidder by lowering its bid price to the “intended” price. Based on Rochon’s certain knowledge of the lowest bid after bid opening, we believe Rochon had an impermissible unfair advantage over the other bidders.
Here there is no finding that Rochon had a fraudulent purpose. Notwithstanding, the courts are obliged to scrupulously guard the competitive bidding process to protect against the possibility of such fraud. [Citations omitted..]....
Moreover, the supreme court has stated that price or “other things that go into the actual determination of the amount of the bid,” are all matters “involving the substance of a competitive bid.” [Citation omitted.] The city’s change affected Rochon’s price for alternative 11, thereby affecting its total bid. Under Foley, modifications in price affecting a bid’s amount are deemed material. Caselaw also indicates that price modifications are especially relevant where, as here, the competing bids are close and bidding is highly competitive....[At 502-03]
Neither errors in Company A’s bid were mutual mistakes; they appear to be careless mathematical errors that were the sole responsibility of Company A. Both of them relate to prices, and one cannot tell from the face of the contract at the time the bid is opened what corrections should be made to which prices. The city could only make that determination from guesswork, and perhaps input from Company A. Furthermore, a net adjustment downward results in Company A’s bid makes that bid more competitive. In fact, as I calculate the figures, if the first error in Line C, Year 1 is adjusted downward $.25, and the second error in Line C, Year 5 is adjusted upward $.06, the bids are only $.01 apart over the five year term of the contract, albeit, in Company B’s favor. But that adjustment still gives Company A an advantage it did not have because the city has some discretion with respect to what is the lowest and best bid. The difference of $.01 over the life of the contract could put Company A on more competitive terms. For all those reasons, changing Company A’s bid results in a compromise of the integrity of the city’s competitive bid process. That is so even if the changes involve no fraud or bad motives on the part of the city or Company A.