A legacy evolves: responsibility meets responsiveness

A broad discretion in the selection among bidders is included within a reasonable construction of the statute as to ‘responsible’ bidders. The word ‘responsible’ is not limited to the meaning of pecuniary liability or responsibility, but includes as well skill, experience, and integrity…”  – Colorado Court of Appeals

This language was penned the year the federal income tax was signed into law, stainless steel was invented, the British House of Commons rejected a woman’s right to vote, and Confederate veterans reenacted Pickett’s Charge at the Great Reunion … 1913.

Contractor responsibility is a bedrock legacy in public procurement. This past year, two cases showed how issues of responsibility have evolved.

How Does Prequalification Affect Responsibility Determinations?
Contractor responsibility typically is determined at the time of contract award. Does a prequalification process preclude an awarding entity’s conducting additional responsibility investigations? In Massachusetts, the answer is no. [Barr Inc. v. Town of Holliston, 967 N.E.2d 106 (Mass. 2012)]

Barr bid on a project in the town of Holliston: the construction of a new police station. In Massachusetts, the commonwealth’s Department of Capital Asset Management (DCAM) had policy-making authority with respect to some construction by local governments. DCAM used a contractor certification process that looked at representative samples of a contractor’s public sector projects. The process considered experience in the various trades – e.g. masonry, plumbing, electrical and roofing – that the contractor expected to perform.

Barr had been certified by DCAM and was eligible to bid on Holliston’s project. Barr was the low bidder. The town, however, uncovered unfavorable information about Barr’s past performance. The town asked a detective in its police department to conduct an investigation. Eventually, the town determined that Barr was not responsible and awarded the contract to the next lowest bidder. Barr sued and sought injunctive relief, claiming that the town had acted arbitrarily and capriciously.

The court rejected arguments that the comprehensive contractor certification process precluded independent investigations related to contractor responsibility. The court noted that while DCAM controlled the certification process, municipalities ultimately made the award decision. The court found no statutory prohibition on the independent investigation and held that an awarding authority may consider additional information bearing on a bidder’s responsibility outside that contained in DCAM’s bidder certification records.

The holding is consistent with others I have seen in my practice. In a sense, the certification or prequalification serves as a filter, usually to ensure that the contractor – or in some cases subcontractors – have requisite experience in the construction trades or projects they are undertaking.

The court ruled that despite comprehensive systems to winnow out unqualified bidders, there still is room for investigation and responsibility determinations up until the time of award. A Washington court considered contractor responsibility from a different perspective:  How are matters of responsibility related to responsiveness and contract formation?

Do Responsibility and Responsiveness Intersect?
If there is one case to talk about with your counsel, Washington’s Skyline Contractors is it. The case has elements of contract law (formation), availability of injunctive relief versus monetary damages, and entitlement to attorney fees. [Skyline Contractors, Inc. v. Spokane Housing Authority, 289 P.3d 690 (Wash. Ct. App. 2012)] The case involves issues of both responsibility and responsiveness.

In February 2010, the Spokane Housing Authority issued an invitation for bids for a federally-funded project to furnish and install windows in homes. The invitation for bid (IFB) required window installers to have a minimum of five years of documented experience. Skyline – who had been incorporated as a business for only three years – submitted a timely bid, but the housing authority did not consider Skyline a responsible bidder because the company did not satisfy the experience requirement. Skyline protested. Skyline pointed out that its bid identified a subcontractor with 20+ years of window installation experience. The Authority canceled the original award and granted Skyline’s request for reevaluation.

During that reevaluation, the housing authority asked questions about how the work would be performed by Skyline and its subcontractors. In its responses, Skyline stated that it had “full intention of subcontracting all installation of the windows in the bid documents,” and “Skyline … does not intend to self-perform installation of the windows. All contract documents will be followed as they were bid.”  After considering the additional information, the housing authority notified Skyline that it “shall be awarded the contract.”  The IFB instructions stated that written award to the successful bidder “shall result in a binding contract without further action by either party.”

Here’s where the tale gets interesting. At the preconstruction meeting, the authority again asked Skyline about the subcontractors. The identity of the subcontractors remained unclear, so the authority asked to see the subcontracts. Skyline explained that because the owner-contractor agreement had not been executed, Skyline did not yet have subcontracts. Skyline further implied that the listed subcontractor might not be able to do all the work. Skyline maintained, however, that listing subcontractors on a bid proposal did not mean those subcontractors had to be used.

Apparently not satisfied, the housing authority’s lawyer notified Skyline that its bid was “not responsive” to the invitation for bids. The authority awarded to the next bidder in line, and Skyline sued for injunctive relief. When Skyline could not post the bond (usually required in injunctive relief cases), Skyline persisted with its lawsuit seeking damages for breach of contract.

The Washington appellate court found that, based on Washington judicial precedent, a contract existed at the time of the award notice. But the court found for the authority on very narrow grounds: monetary damages for alleged breach by a government are not available in Washington courts under these circumstances.
The Skyline case provides an excellent case study regarding timing of awards and the effect of that timing on an agency’s ability to consider matters of contractor responsibility. The housing authority’s attorney transformed Skyline’s failure to adequately answer questions about subcontractor identity into a matter of responsiveness, although the court found the contract existed at the time of the award notice. The court’s rationale for finding in favor of the housing authority stopped short of ruling on the relationship between matters of responsibility, responsiveness, and contract formation. But what was clear from the holding is this: In the state of Washington, an award notice that says the bidder “shall be awarded the contract” creates a contract.

Some Suggestions
So what lessons can one take from these two cases in terms of recommended practices? As I have noted in previous columns, laws differ among jurisdictions. Contractor responsibility, however, is one of the foundational procurement principles shared by most governments. Absent specific statutory/regulatory requirements or judicial precedent to the contrary, consider using these practices:

So there is no doubt about agency authority, include notices in prequalification packages that inform contractors about the entity’s right to conduct further investigation of contractor responsibility on individual projects.

In solicitations using prequalification, also include a similar statement regarding the agency’s right to conduct additional inquiry regarding contractor responsibility before award.

Include language in solicitations that requires bidders to respond to inquiries or risk a determination of nonresponsibility. The ABA Model Procurement Code provides that “[t]he unreasonable failure of a bidder or offeror to promptly supply information in connection with an inquiry with respect to responsibility may be grounds for a determination of non-responsibility with respect to such bidder or offeror.”

If your laws permit, consider using “intent to award” notices, rather than award notices that create a contract. Public announcement of intent to award should start the clock running in agencies extending protest rights within a prescribed number of days of award. The intent to award preserves the right to make a responsibility determination up until contract execution or purchase order issuance. Moreover, the intent to award avoids the issue of breach of contract damages if a protest is granted and the contract with the awardee cancelled.

Include language in the solicitation and model contract that conditions any financial obligation on bilateral execution of the agreement or issuance of a purchase order.