TILDEN COIL CONSTRUCTORS INC v. CITY OF CATHEDRAL CITY

Reset A A Font size: Print

Court of Appeal, Fourth District, Division 2, California.

TILDEN-COIL CONSTRUCTORS, INC., Plaintiff and Appellant, v. CITY OF CATHEDRAL CITY, Defendant and Respondent.

No. E019286.

Decided: November 20, 1997

Aklufi and Wysocki and Joseph S. Aklufi, Riverside, for Plaintiff and Appellant. Garvin & Eggebraaten, LLP, and Toni Eggebraaten, Rancho Mirage, for Defendant and Respondent.

OPINION

Plaintiff Tilden-Coil Constructors, Inc., filed a petition for writ of mandate and complaint for damages against defendant City of Cathedral City, a general law city, for the alleged violation of Public Contract Code sections 20161 and 20162.   Those sections generally require a city to award a contract for a public project to the lowest responsible bidder.

Tilden-Coil contends that the City should have awarded the project, the construction of a public library building, to it because it was the lowest responsible bidder.   Specifically, Tilden-Coil objects to alternative bidding procedures used by the City, arguing that the City manipulated those procedures to favor a local contractor.

The trial court denied the petition and Tilden-Coil appeals.

FACTS

The case was submitted for decision upon a stipulation of facts and documentary exhibits.   The parties stipulated that a notice inviting bids for the project was published on July 27, 1994.

The notice to bidders seeks bids for the library project, defined as construction of the building in accordance with the plans and specifications included with the notice to bid.   The notice to bidders also specifies that:  “The award of the contract, if it be awarded, will be to the lowest responsible bidder complying with these instructions and with the Notice Inviting Bids.”

In addition to the base bid, the bid documents requested the bidder to submit a bid on 16 alternates.   Alternates were defined in the bid documents as follows:  “An Alternate is an amount proposed by Bidders and stated on the Bid Form for certain construction activities defined in the Bidding Requirements that may be added to or deducted from the Base Bid amount if the Owner decides to accept a corresponding change in either the amount of construction to be completed, or in the products, materials, equipment, systems or installation methods described in Contract Documents.”   The architect described the reason for the request for alternates as follows:  “The reason that bid alternates are included in projects with tight budgets, is to help insure that bids will be received at or below the designated funding level for the project.   We have found that this technique is preferred to the possible rebidding of a project, which often results (should the bid exceed the budget) in extensive time delays and non-competitive bids.”   The bid documents also provide that, after award of the contract, the City would decide which alternates it would accept, and it would notify the parties accordingly.

The sealed bids were opened on September 7, 1994.   Twelve bids were received and the three lowest base bids were from M. Kassinger Construction, Inc., a Palm Springs firm, in the amount of $2,900,000;  Williams-Hedley Joint Venture, a Palm Desert firm, in the amount of $3,065,381;  and Tilden-Coil, a Riverside firm, in the amount of $3,106,690.   The contract was then awarded to Kassinger on September 28, 1994.

At the same time, the city council selected 12 bid alternates totalling $95,150 and authorized staff to include those alternatives in the Kassinger contract.   Staff then proceeded to verify that Kassinger was a responsible bidder.   However, Kassinger was unable to submit the required bond, and staff found that it was not a responsible bidder.

Accordingly, staff recommended to the city council, at its October 26, 1994, meeting, that the city council award the contract to Tilden-Coil, instead of to Williams-Hedley, the next lowest base bidder.   The staff report states:  “In looking at the next lowest qualified bidder, Staff has analyzed the bid and bid alternates that M. Kassinger Construction, Inc.'s contract was awarded under and has determined Tilden-Coil to be the next lowest bidder.   Tilden-Coil's base bid, with bid alternates, is $3,218,590 which is $4,724 less than is next lowest bidder.”

The staff recommendation was not adopted at the meeting.   Instead, Williams-Hedley representatives appeared and urged the city council to award the contract to it, on grounds that it was a local company that used local subcontractors.   Tilden-Coil representatives also appeared and argued that the contract should be awarded to it.   The

city council directed that staff consider the matter further and provide it “with further information with regard to the alternatives available to the Council.”

Between October 26, 1994 and November 1, 1994, the staff investigated the question of whether the two companies were responsible bidders, and the question of the alternate bids to be accepted.   On the latter issue, the architect wrote a letter describing the alternate bid process and stating:  “Even though we have included 17 alternates on your project, it was never our intent for this project to be built without at least some of the add alternates being accepted by the City and included in the project scope.   We knew that at least some of the adds would be affordable within your budget.   In other words, the ‘base project scope’ including all the deductive alternates, and excluding any additive alternates would be, in our opinion, an unacceptable project to Cathedral City. The idea was to create a ‘shopping list’ of choices, based on the City's priorities, so that as many desirable features as was affordable could be included within the project scope.   As it turned out, the most important additive alternates, based on our recommendations and staffs review, are affordable given the bids which were received.”   The architect then ranked the bid alternates as to desirability.

The staff subsequently presented a staff report for the November 1, 1994, council meeting.   The staff continued to recommend award of the contract to Tilden-Coil.   It also reported on whether the two bidders had complied with the bid documents and commented that, if the city council decided to award the contract to Williams-Hedley, it would have to waive some bid requirements and approve certain subcontractor changes.   The staff report added two alternatives to its earlier report.   The first alternative was an award to Williams-Hedley for its original base bid price of $3,065,381.   This alternative included the waiving of certain bid requirements that Williams-Hedley had not met, and the scheduling of a public hearing on the proposed change in subcontractors.   The second alternative was an award to Williams-Hedley for the base price plus seven bid alternatives for a total price of $3,156,967.   This number was lower than the Tilden-Coil bid of $3,218,590, consisting of Tilden-Coil's base bid plus 12 bid alternatives.1  The second alternative also required waiver of the bid requirements that Williams-Hedley could not meet, and the scheduling of a public hearing on the change of subcontractors.2

At its meeting of November 1, 1994, the city council rescinded the award to Kassinger and awarded the contract to Williams-Hedley.   The city council selected alternative two as described above and therefore authorized a contract with Williams-Hedley for the base bid plus seven alternates for a total price of $3,156,967.   Tilden-Coil of course complains that its base bid plus the same seven alternates was not compared to the Williams-Hedley bid.

The transcript of the November 1, 1994, hearing reveals that Williams-Hedley again made a presentation which urged the city council to award the contract to it because it was a local company.   The president of the Desert Contractors Association also appeared and argued that Williams-Hedley should get the job because it was a local company which used local subcontractors.   At least one council person spoke in favor of an award to a local company.   The vote on the award was not recorded.

Tilden-Coil then protested the award and filed this action after its protests proved futile.

STANDARD OF REVIEW

 “In reviewing the award of a public contract, our function is the same as the trial court's-to decide whether the public entity's decision is supported by substantial evidence.   Our review is limited to an examination of the proceedings to determine whether the City's actions were arbitrary, capricious, entirely lacking in evidentiary support, or inconsistent with proper procedure.   There is a presumption that the City's actions were supported by substantial evidence, and [plaintiff] has the burden of proving otherwise.   We may not reweigh the evidence and must view it in the light most favorable to the City's actions, indulging all reasonable inferences in support of those actions.”  (Ghilotti Construction Co. v. City of Richmond, supra, 45 Cal.App.4th 897, 903, 53 Cal.Rptr.2d 389.)

Despite this statement of a substantial evidence standard of review, Ghilotti also emphasizes the policy considerations stated in Konica Business Machines U.S.A., Inc. v. Regents of University of California (1988) 206 Cal.App.3d 449, 253 Cal.Rptr. 591.  (Ghilotti Construction Co. v. City of Richmond, supra, 45 Cal.App.4th 897, 907-908, 53 Cal.Rptr.2d 389.)   The cited passage from Konica reads:  “The purpose of requiring governmental entities to open the contracts process to public bidding is to eliminate favoritism, fraud and corruption;  avoid misuse of public funds;  and stimulate advantageous market place competition.  [Citations.]   Because of the potential for abuse arising from deviations from strict adherence to standards which promote these public benefits, the letting of public contracts universally receives close judicial scrutiny and contracts awarded without strict compliance with bidding requirements will be set aside.   This preventative approach is applied even where it is certain there was in fact no corruption or adverse effect upon the bidding process, and the deviations would save the entity money.  [Citations.]   The importance of maintaining integrity in government and the ease with which the policy goals underlying the requirement for open competitive bidding may be surreptitiously undercut, mandate strict compliance with bidding requirements.  [Citation.]”  (Konica Business Machines U.S.A., Inc. v. Regents of University of California, supra, 206 Cal.App.3d 449, 456-457, 253 Cal.Rptr. 591.)

The parties also cite the standard of review stated in Fullerton Joint Union High School Dist. v. State Bd. of Education (1982) 32 Cal.3d 779, 786, 187 Cal.Rptr. 398, 654 P.2d 168:  “In reviewing such quasi-legislative decisions, the trial court does not inquire whether, if it had power to act in the first instance, it would have taken the action taken by the administrative agency.   The authority of the court is limited to determining whether the decision of the agency was arbitrary, capricious, entirely lacking in evidentiary support, or unlawfully or procedurally unfair.”

DISCUSSION

 Tilden-Coil contends that the City, by its consideration of alternate bids, manipulated the bidding process to obtain a low bid for the favored local bidder, Williams-Hedley.   Essentially, it argues that, by changing the process for determining who was the low bidder, after the bids were known, the city council allowed the appearance of favoritism to creep into the process, and it invalidated a meaningful comparison of the bid prices.

Underlying Tilden-Coil's argument is the basic question of whether the procedure for alternate bids conflicts with the requirements of Public Contracts Code section 20161, which requires that contracts be awarded to the lowest responsible bidder.   Thus, while the city council has the power to reject a bidder because it is not responsible, it did not purport to exercise that power here.   Instead, it acted on grounds that Tilden-Coil was not the low bidder.   The issue then, is whether the base bid or the base bid plus chosen alternates is used to determine the low bidder.

Without alternate bidding, the base bid provides the only means of comparison.   Assuming all bidders are responsible bidders, the low bidder is awarded the contract after the bids are opened.   Under this system the possibility of favoritism is eliminated because the identity of the bidders is not known in advance, and there are no changes after bids are opened, again assuming that all bidders are responsible bidders.

The question then, is whether the more recent system of alternate bidding can or should change this system.   As noted above, alternate bidding is intended to give the local public agency some control over the cost of a project.   In effect, the alternate bids are requests for bids on proposed extra work or change orders.   The base bid represents the basic work that can be afforded under the contract, and the alternate bids represent extras that can be added later to improve the project within the agency's budget.

The problem is that, if alternate bids are used to compare bids after the bids are opened but before an award is made, they can be used to manipulate the process to create a favored low bidder.   Comparisons based on alternate bids also give the appearance of favoritism because the bidders are known when the comparisons are made.   When the bidders are known, the process degenerates, as it did here, into a contest in which the parties each appeared before the city council to try to influence it to award them the contract.   Williams-Hedley added to the appearance of impropriety by touting its local connections and urging the city council to award the contract to it.   Such a process flies in the face of the purpose of the Public Contracts law, “[t]o eliminate favoritism, fraud, and corruption in the awarding of public contracts.”  (Pub. Contract Code, § 100, subd. (d).)  Of equal significance is the fact that the process used was totally unnecessary.

In our view, the only allowable comparison in the awarding of the contract here was on the basis of the base bid.   The notice to bidders plainly requested a bid to construct the project as stated in the terms and specifications.   The fact that alternate bids were requested so that the City could expedite the making of changes to fit its budgetary situation does not change the basic principle that the project should have been awarded to the lowest responsible bidder.

When Kassinger was found to be unable to qualify as a responsible bidder, the next lowest base bidder, Williams-Hedley, should have been awarded the contract.   This alternative was presented to the city council as alternative one at the November 1, 1994, meeting, but it was not selected.   Once Williams-Hedley was awarded the contract, the City would have the option to have it make changes in the project represented by the alternate bids of Williams-Hedley, at the prices set forth in the bid documents for each change.   Under this procedure, there is no appearance of favoritism, and the City retains budgetary control over the project.   We agree with the City that, as stated in the bid documents, it retained discretion to adopt all, some, or none of the alternates, just as it would have in making any change order, and we do not question the reasonableness of the alternates actually selected.   Of course, the City also retained the option under the bid documents to reject all bids and have the project rebid.

Tilden-Coil thus wins the battle and loses the war.   It conceded as much in the trial court when its counsel argued:  “So how do we know which is the low bid?   Well, we follow the process that was published, which is to take a look at the base bid.   And in my situation, I don't win.   But I'm not here to win anything for my client.   I'm here, I think, to make a point for the ․ [p]ublic's benefit.”

We therefore agree with Tilden-Coil that the process used by the City was flawed but we find that the use of bid alternates is not necessarily inconsistent with the public contract bidding statutes.   However, we are concerned with the potential for manipulation that could arise if the base bid was not truly a bid for the entire project, and if the change orders were not truly for extra work.   As the Attorney General has stated:  “In our view change orders are appropriately contemplated where, during the performances of the contract, unforeseen matters are discovered which require some modification to complete the contract.   They are not intended to cover the situation where the changes were already identified before the contract was awarded by the county.”  (73 Ops. Atty. Gen. 417, 423 (1990) fn. omitted.)   In other words, if a bid alternate is necessary for the operation of the completed project, it should not be stated as an alternate, but rather should be part of the plans and specifications subject to the base bid.3  Enforcement of this principle will avoid the potential fraud that could arise if a selected contractor was able to present a low base bid to obtain award of the contract, knowing that its high price for preselected bid alternates would allow it to make a large profit on the project.   In other words, the bid alternate procedure, like other bidding procedures, must be closely scrutinized to avoid circumvention of competitive bidding requirements.

DISPOSITION

The judgment is affirmed.   Each party is to bear its own costs on appeal.

FOOTNOTES

1.   Apparently, some further adjustments had been made to the bid amounts.   The Williams-Hedley base bid ($3,065,381) plus its bids for the selected seven alternates totals $3,163,929.   The Tilden-Coil base bid ($3,106,690) plus its bids for the selected seven alternates totals $3,167,190, a difference of $3,261.   These unexplained inconsistencies do not create confidence in the process used.

2.   Although not directly in issue in this case, we note that “[A] public entity may waive inconsequential deviations from contract specifications in a public contract bid.   To be considered inconsequential, a deviation must neither give the bidder an unfair competitive advantage nor otherwise defeat the goals of insuring economy and preventing corruption in the public contracting process.”  (Ghilotti Construction Co. v. City of Richmond (1996) 45 Cal.App.4th 897, 900, 53 Cal.Rptr.2d 389.)

3.   We thus disagree with the architect's conception that it never intended the project to be built without at least some alternates being included.   If the building is incomplete without a bid alternate, the bid alternate should be included in the base bid to avoid manipulation.   Thus, the proper rule for alternates is that stated in the bid documents quoted above, i.e., alternates should be desirable but not necessary changes.

HOLLENHORST, Acting Presiding Justice.

McKINSTER and RICHLI, JJ., concur.

Copied to clipboard