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March 28, 2002

Want to dispute that bid? Better act quickly

  • State’s rule on protesting public contract bids gets murky
  • By MARK ROSENCRANTZ
    Stanislaw Ashbaugh

    In Washington, disappointed bidders on public projects may not seek damages resulting from the wrongful award of a contract.

     Rosencrantz
    Rosencrantz

    Instead, the only available judicial remedy is a court-issued injunction preventing a public body from proceeding with a contract that violates public bidding law. However, once a public owner signs a contract, a disappointed bidder’s right to seek even the limited remedy of injunctive relief disappears.

    What happens, however, when a public entity and a successful bidder sign a contract before a disappointed bidder has a chance to obtain an injunction? Before answering that question, it is helpful to first discuss the general rule that the right to seek injunctive relief disappears when the public body signs the contract.

    The general rule

    The general rule was articulated by the Washington Court of Appeals in two 1999 decisions. In BBG Group v. Monroe, 96 Wn. App. 517 (1999), the city of Monroe awarded a public construction project to A-1 Landscaping and Construction Inc. BBG, a disappointed bidder, sought injunctive relief, asking the trial court to enjoin the city from signing a contract with A-1. The trial judge dismissed the lawsuit, ruling that BBG lacked standing to sue because the contract had already been awarded. BBG appealed the trial court’s ruling.

    The Court of Appeals, Division One, determined the trial court improperly dismissed the lawsuit. The court stated:

    Our review of the cases does not support the trial court’s conclusion that contract “formation” for bidder standing purposes occurs when the contract is awarded. Instead, the cases state that a bidder may seek an injunction before the contract is signed.

    The court reaffirmed, however, that injunctive relief was the only remedy available to bidders who felt aggrieved by the bidding process. Bidders, therefore, may not sue for lost profits or other damages.

    Division Two of the Court of Appeals reached a similar conclusion later that year in Hadaller v. Port of Chehalis, 97 Wn. App. 750 (1999). In that case, a disgruntled bidder sought damages from the Port of Chehalis when it was deemed not responsible, and hence ineligible, to enter into a public contract. The Court of Appeals affirmed the trial court in ruling that the disappointed bidder was limited to seeking injunctive relief prior to contract execution. As the disappointed bidder failed to do so, the case was dismissed.

    Recent cases

    Three more recent court decisions have analyzed the rule that the right to seek injunctive relief expires once the contract is signed. Two of those opinions establish that the inability to seek injunctive relief after the execution of a public contract may not be such a hard and fast rule after all.

    In the first case, King County Fire Protection District No. 26 solicited bids for the construction of a new facility. The district named John Korsmo Construction the successful bidder despite the fact that Korsmo’s bid was submitted after the deadline.

    However, after the award was announced, but before a contract was signed, disappointed bidder Quinn Construction notified the district and Korsmo, as required by local court rule, that it intended to seek a temporary restraining order later that day enjoining execution of a contract. The district and Korsmo then proceeded to sign a contract before the hearing took place.

    The superior court denied Quinn an injunction. On appeal, Division One of the Court of Appeals, in an unpublished opinion released March 11, 2002, declined to answer the question of whether an exception to the rule announced in BBG Group and Hadaller should exist. Instead, the court concluded that because an injunction was unjustified in any case, it need not answer the question.

    However, two different Thurston County Superior Court judges have recently ruled that a party in Quinn’s position did have standing to seek an injunction in Sysco Food Services of Seattle Inc. v. The State of Washington. Sysco bid on a six-year contract worth approximately $120 million to provide food products for, among other agencies, the Washington Departments of Corrections, Social and Health Services, and Veterans Affairs.

    The state, through the Department of General Administration, Office of State Procurement, awarded the contract to Food Services of America Inc., despite the fact that Food Service’s bid contained a number of major omissions. To make matters worse, the state, in violation of its own request for proposal (RFP), awarded, negotiated, and signed the contract with Food Services not only before notifying any of the disappointed bidders, but while actively telling Sysco that it had not yet awarded the contact to anyone.

    Upon learning of the award, Sysco immediately filed an administrative bid protest with the state, and a lawsuit in Thurston County Superior Court seeking a preliminary injunction to prevent performance of the contact. Judge Richard Strophy held that despite the fact that the state and Food Services had already signed a contact, Sysco had standing to seek an injunction prohibiting performance of the contract due to the state’s failure to comply with its own RFP.

    The state then informed Sysco that it was canceling the award to Food Services, and soliciting new proposals. After new proposals were submitted, the state again awarded the contract to Food Services, and again signed a contract with Food Services while telling Sysco that it had not yet done so. Accordingly, on March 8, Judge Daniel J. Berschauer ruled that Sysco again had standing to seek an injunction.

    These rulings are particularly significant as they recognize an exception to the Washington Court of Appeals’ recent holdings in BBG Group and Hadaller. However, as state trial court opinions are not published, and have no precedential value, the law remains unclear.

    In summary, while the law appears to foreclose any possibility of obtaining an injunction once a contract has been signed, it may be possible, under the right circumstances, to still obtain an injunction. However, disappointed bidders should act immediately upon learning that they are not the successful bidder in order to protect their rights and insure that injunctive relief is available.


    Mark Rosencrantz is a lawyer at Stanislaw Ashbaugh LLP, a leader in construction law. For more information about bid protest issues, contact Rosencrantz, or any of the other attorneys at Stanislaw Ashbaugh, at (206) 386-5900.



     


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