LAW: The Contractor's Side

Some willing to go the extra dollar

Article December 28, 2000
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I continually come across efforts by government agencies to award contracts other than to the low bidder

I continually come across efforts by government agencies to award contracts other than to the low bidder. The justification for such award is that the higher bidder offered the "best value" to the government.

A recent Missouri case demonstrates how far this notion has gone. KAT Excavation Inc. (KAT), a contractor, and Betty J. Manlove, a taxpayer, filed suit against the city of Belton contending the city acted illegally in awarding a contract to Dennis Johnson Construction Co. (Dennis Johnson), the second lowest bidder. The city is governed by a Missouri statute which requires contracts for street improvements to be awarded by cities to the "lowest and best" bidder.

On May 7, 1998, the city of Belton solicited bids for construction of the Mullen Street Road Improvements. "The project involved the installation of roadway and storm sewer improvements. KAT’s bid of $542,676.68 was timely, responsive and the lowest. Dennis Johnson submitted the second lowest bid in the amount of $547,089.50. Dennis Johnson’s bid also was timely and in compliance with the bid requirements." A consulting engineer hired by the city concluded that KAT would be able to complete the contract on time. Yet, the city of Belton Board decided to award the contract to Johnson.

Following the city’s award to Johnson, KAT and Manlove filed suit to have the award thrown out. Following a hearing for a temporary restraining order, the court entered judgment in favor of the city, finding that the city acted within its discretion in determining that Johnson was the lowest and best bidder on the project. KAT and Manlove appealed, asserting that the city’s award of contract to Johnson, the second lowest bidder, was arbitrary, capricious and unsupported by any objective factual basis.

A Missouri statute governs the letting of public street improvement contracts by fourth class cities. It requires such contracts to be awarded to the "lowest and best bidder." This requirement is intended to "secure unrestricted competition among bidders, eliminate fraud and favoritism and avoid undue and excessive costs which would otherwise be imposed on taxpayers."

Johnson, city share a history

The court noted in determining who is the "lowest and best bidder" on a public works contract, a public authority is vested with wide discretion, and its decision, when made honestly and in good faith, will not be interfered with by the court, even if erroneous. In awarding a public works contract to the "lowest and best bidder," the public entity must exercise its discretion "in good faith, in the interest of the public, without collusion or fraud, nor corruptly, nor from motives of personal favoritism or ill will, and not abused."

The court stated that under the statute a low bid is not necessarily the determining factor in the letting of the contract (the expression "lowest bidder" is used in its logical and practical, rather than in its grammatical sense). "The ‘lowest’ bid may be determined by monetary standards with the dollar as the unit, but this is not so in determining the ‘best’ bid . . . that question involves a number of other factors and elements." Besides considering a bidder’s pecuniary ability in determining the "lowest and best bidder," a public authority may consider the honesty and integrity of the bidder necessary to a faithful performance of the contract; the bidder’s skill and business judgment; the bidder’s experience and facilities for carrying out the contract; previous conduct of the bidder under other contracts; and the quality of the bidder’s previous work.

In this case, evidence was presented that the city of Belton Board considered several factors in determining that Johnson was the "lowest and best bidder." First, the city had a good experience with Johnson on a project in the past. Johnson successfully completed a prior project for the city under budget and ahead of schedule. Additionally, the city learned that Johnson had recently successfully completed a road improvement project in a nearby community. Because the city had a history of problems with other contractors not completing projects on time, Johnson’s previous performance under the other contracts was an important factor in the city’s decision to award the contract to it. Finally, while KAT submitted the lowest bid on the contract, Johnson’s bid was only approximately $4,600 higher on the $500,000 contract. Such disparity in bids would not have imposed undue or excessive costs on taxpayers. The court found no evidence had been presented that the city exercised its discretion arbitrarily or fraudulently based on favoritism or gross abuse. Instead, the court believed the city’s award of the contract to Johnson was a proper exercise of its discretion.

The problem I see looming over the industry is that awards of contracts based on "best value" or the "best bidder" opens the door for fraud and favoritism. It is very difficult to prove a public agency was "arbitrary and capricious" in the award. It is interesting that the city’s consulting engineer concluded KAT would be able to complete the work on time. Yet, the city chose to pay approximately $5,000 more. I wonder what would have happened if the difference in the bids was $50,000.

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