Aug 05, 2014

Is the Award of a Public Contract a Contract?

Watson_BobFor those bidding on public work, there might be a perception that once the owner opens bids and accepts a particular prime or general contractor via resolution adopted at a public meeting, there is a binding contract.

The Commonwealth Court’s recent decision in Allan A. Myers, LP v. Montgomery County, No. 25 C.D. 2013, ___ A.3d ___ (Pa. Commw. May 20, 2014), tells the successful bidder, “Not so fast!”

In this recent appellate decision, the county requested proposals for a roadwork project from 17 vendors. Seven bidders responded. Following a public opening of the bids, Myers’ $4.1 million bid was accepted and a resolution was adopted which also rejected a competitor’s bid due to non-compliance with specifications.

In its form request for proposals, the county required all bidders to sign signature pages stating “[i]n case this proposal is accepted, the undersigned is hereby bound to enter into [a] contract within thirty (30) days after receipt of notice of acceptance of the above in accordance with the specifications.” Myers’ bid included language, signed by its president, confirming that in case the proposal was accepted by the county, Myers was thereby bound to commence and complete all work included under its contract in such time and in such manner as required. The bid language continued, noting that Myers understood it was the county’s unrestricted right “to reject any and all proposals or parts thereof, or to waive any informalities or technicalities in said proposals, and it is agreed that this proposal may not be withdrawn for a period of at least sixty (60) days from the date of opening thereof.”

The same county resolution awarding the contract directed Myers to post all surety bonds, and stated that the failure to do so would automatically render the contract void. In fact, Myers took all steps required, including furnishing the necessary bonds and insurances, and allocating manpower, materials, equipment and related resources to the upcoming project. The performance bond mandated by the county was provided; and all other steps necessitated by the county’s directive were complied with, including the provision of copies of all contract documents executed by Myers. At no point did the county counter-sign the paperwork.

Following word of a challenge being brought by Myers’ rejected competitor, Myers’ counsel sent the county a letter confirming his client’s belief that based on the public award and resolution, an enforceable contract existed for the work, and Myers was prepared to proceed with the project. In response, at the next county commissioners meeting, a resolution was adopted rescinding the award to Myers and giving the job to its competitor.

Myers sued the county, alleging violations of the Commonwealth Procurement Code and breach of contract. The county filed preliminary objections alleging the failure to state a claim, and noting Myers did not allege the existence of an enforceable written and signed contract between it and the county. The preliminary objections also argued that if a contract existed, Myers would be required to attach a copy to its complaint. The county’s objections alleged the Procurement Code was not applicable because bidding and contracting was governed by the Second Class County Code. Finally, they asserted that the commissioners were not proper parties because it is the county itself which has the corporate power to sue and be sued in its own name.

The trial court rejected Myers’ claims, holding that “the mere act of awarding a public contract normally creates no binding obligation on the awarding entity without the proper contracting authorities going further and formally ‘entering into’ and ‘executing’ the contract.” On appeal, the Commonwealth Court stated it was well-settled that where a statute outlines the formal mode of making public contracts, that statute must be observed. Otherwise, the contract cannot be enforced against the governmental agency involved. The appellate court further held that while the original resolution specifically referred to all of the writings which would constitute the contract, no official document had been physically executed or signed. Without signatures on a formal written contract, the Commonwealth Court determined that no contract existed. The only damages Myers could seek from the county were those related to costs of procuring those bonds it was directed to secure following the original resolution.

Key to the Commonwealth Court’s decision was its determination that Section 2001(a) of the Second Class County Code, 16 P.S. § 5001(a), required all contracts or purchases in excess of $18,500.00 to be in writing. The commissioners’ act of formal acceptance of Myers’ bid at its public meeting was insufficient to constitute formation of a contract at the time of award.

The court also distinguished the Supreme Court’s earlier decision in Shovel Transfer v. Pa. Liquor Control Board, 559 Pa. 56, 739 A.2d 133 (1999), where it was determined that the LCB’s manifestation of approval at a public meeting was sufficient to create an enforceable contract because further signatures on a written contract were not mandated by the PA Liquor Code, 43 P.S. § 2-201, et seq. Instead, the Myers court compared the county commissioners’ public actions to those of the school board in Crouse, Inc. v. School District of Braddock, 341 Pa. 497, 19 A.2d 843 (1941), which held under a prior version of the Public School Code that acceptance of a bid was subject to the preparation and acceptance of a formal contract.

The court also found support in Section 3912 of the Procurement Code, which provides “[i]n the case of a contract entered into by a government agency through competitive sealed bidding, the contract shall be executed by the government agency within 60 days of the date that the contract is awarded.” 62 Pa. C.S. § 3912.

The Myers decision confirms the limitations of a public resolution awarding work to a successful bidder, and holds the door open to bid challengers. It also places greater risk on the shoulders of the general or prime contractor saddled with those upfront monetary and logistical costs necessitated by the initial public award, which likely will still be required even before the public body executes the contract documents. We continue to monitor this matter and any potential appeals of the decision to the PA Supreme Court.

Reprinted with permission from the August 5, 2014 issue of The Legal Intelligencer. (c) 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Author: Robert R. Watson, Jr.

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