Posts Tagged ‘lowest responsible bidder’

Early this year, the Commonwealth of Pennsylvania issued an opinion holding that even if public bid specifications state that the owner reserves the right to waive any formality in bids received, the owner may not waive a defect in the bid if the bid specifications expressly state that a bid will be rejected if certain information is not provided at the time of bid submission.  Where a governmental entity expressly states that a bid will be rejected if certain requirements are not met at the time of bid submission, such requirements become mandatory, even if not statutory.    Thus, the failure to comply with such requirements will be considered a material defect that precludes the bid from being considered.

In Dragani v. Borough of Ambler, the Borough of Ambler issued a public advertisement requesting sealed bids for its refuse, recyclables and yard waste hauling contract.  In relevant part, the bid specifications stated that each bidder must accompany its bid with a consent of surety from an approved surety company with its underwritten limitation therein stated to be at least equal to $20 million and that the failure to provide the required consent of surety at the time of bid submittal shall preclude a bid from being considered.  However, another section of the bid specification stated that the Borough reserved the right to waive any informality in bids received.

Three bids were submitted in response to the request for bids.  The consent of surety attached to BFI’s bid came from a surety with an underwriting authority of only $16 million.  BFI was the lowest bidder.  The next lowest bidder notified the Borough that BFI’s bid did not conform to the bidding instructions, in part because BFI’s surety did not have underwriting authority of $20 million, and therefore the bid should not be awarded to BFI.  BFI responded that the defects with its bid were nonmaterial and could be cured or waived by the Borough.

The Borough awarded the contract to BFI.  Thereafter, a resident taxpayer of the Borough took legal action to block the contract from being awarded to and carried out by BFI.  The trial court sided with the Borough on the grounds that: (1) the defects in BFI’s bid were not statutory; (2) the Borough reserved the right to waive bid deficiencies in the bid specifications and in the advertisement for bids; and (3) the waiver of defects by the Borough did not confer a competitive advantage on BFI.

The taxpayer resident appealed the trial court’s decision to the Commonwealth of Pennsylvania on the basis that BFI did not conform to the bid specifications.  Specifically, the taxpayer resident pointed to the fact that BFI’s surety only had underwriting for $16 million and that this defect was material and could not be waived by the Borough.

In examining this case the Commonwealth noted that it has repeatedly held that requirements set forth in bidding documents are mandatory and must be strictly adhered to in order for a bid to be valid, but that where the requirements in a bidding document are not required by statute and the bidding document reserves the right to waive defects, a non-compliant bid for public work may be accepted or cured if: (1) the effect of the waiver will not deprive a municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements; and (2) a waiver will not adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders.  This standard is referred to hereinafter as the “Gaeta Standard.”

The tax payer argued that the Gaeta Standard should not be applied because the Borough could not waive a bid defect relating to a particular requirement in the bid specifications when the specifications expressly provided that the bid would not be considered if that particular requirement was not met.  In other words, while a governmental entity may waive a bid defect, it may not do so if the defect involves the waiver of a mandatory requirement that the bid specifications treat as non-waivable.

The Commonwealth Court agreed with the taxpayer and held that the Gaeta Standard did not apply because the Borough removed its discretion to waive a defect pertaining to the surety having $20 million in underwriting when it provided that the bid would be rejected if this requirement was not met at the time of bid submission.  Although the bid instructions reserved the right to waive any informality and the bid specifications reserved the Borough’s right to accept any contract, the Borough removed any discretion it had to waive a defect pertaining to the consent of surety when it provided that the bid would not be considered if the consent of surety required by the specifications was not provided at the time of bid submission.  BFI did not provide the consent of surety required by the bid specifications at the time it submitted its bid.  Because this requirement was mandatory, the failure to submit a consent of surety from a company with at least $20 million in underwriting was a legally disqualifying error.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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