FTR INTERNATIONAL INC v. CITY OF PASADENA

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Court of Appeal, Second District, Division 7, California.

FTR INTERNATIONAL, INC., Plaintiff and Appellant, v. CITY OF PASADENA, Defendant and Respondent.

No. B100096.

Decided: February 18, 1997

Coleman & Raisin, Bradley A. Raisin; and Armenak Kavcioglu, Los Angeles, for Plaintiff and Appellant. Tracy Webb, City Attorney, Carolyn Y. Williams, Assistant City Attorney, for Defendant and Respondent.

This appeal is from a judgment in favor of the City of Pasadena (“City”) in a mandamus proceeding brought by appellant challenging the City's use of alternative bids as part of its competitive bidding process.   We reverse.

FACTUAL AND PROCEDURAL SYNOPSIS

I. Factual Background 1

In 1994, the City decided to renovate a community health center (the “Project”).   The Project was divided into three phases.   This matter relates to the bidding process employed on phase II of the Project.

The City charter (“Charter”) requires that contracts to build public works construction projects be awarded pursuant to “the lowest and best bidder after competitive bidding.”   The Charter also empowers the city council to prescribe by ordinance a competitive bidding procedure.

The details of the procedure are contained in the Pasadena Municipal Code (“Code”).   The Code requires the submission of sealed bids and lists factors to be considered in determining the lowest and best bidder.   Both the Charter and Code provide that the City may reject any and all bids.

The City also adopted a resolution that all contracts issued for construction services utilize current American Institute of Architecture (“AIA”) documents.

The City typically awards 40 to 50 construction contracts each year.   The City stated its policy was to use alternative bids only when it had reason to believe the bids for a particular project might exceed its designated budget or in certain other limited circumstances.

In this case, the City, which had a budget for all three phases of the Project, had a problem with the second phase of the Project.   During a 50 percent completion review in April 1995, the construction manager's cost estimator determined the portion of the budget allocated for phase II would exceed its budget.   Based on the construction manager's recommendation, the City requested that the Project architect engage in value engineering.   Subsequently, certain elements of the Project were redesigned and other elements were separated out.   It was decided that the latter elements would be bid as alternates.   The City decided to solicit alternative bids from the interested contractors so that the City could determine the scope of the Project after the bids were opened.

AIA documents indicated that alternatives provide the owner with the opportunity to modify a project to ensure costs fall within a fixed budget.   Alternates are additions to or subtractions from a base bid.   Alternates may delete work shown, require additional work or change the level of quality specified.   In some cases, they are intended to allow the owner the opportunity to select specific materials or design features after the actual cost is known.

The alternative bid procedure on phase II worked as follows:  Each bidder was instructed to give a bid for that portion of the work that the City knew for sure it wanted to build.   That figure was called the base bid.   The base bid represented more than 90 percent of the work.   In addition, each bidder was instructed to submit a bid on nine alternatives.   The alternatives described work the City would contract for only if the budget permitted.   The City reasoned that by using the alternative bidding procedure, it could pick and choose which portions of the Project to build after the bids were opened as it would know the price of the base bid and therefore would also know how much money was available for the alternative work that was desired, but not needed.   For example, if the base bid was low enough, all of the alternatives could be selected.   If the base bid was too high, none of the alternatives would be selected.

The City made bid packages available to the potential bidders.   Appellant, a general contractor specializing in public works construction, received one of the bid packages.   The bid form stated the determination of which alternatives, if any, would be utilized was in the sole discretion of the City.

Appellant and ten other contractors submitted bids.   On September 27, 1995, the bids were opened and entered onto a bid tabulation sheet by contractor name.   Three of the base bids were within the budget.   Appellant's bid was the lowest for the base contract work.   The bids for the base work averaged $3.5 million.   The bids on the base contract were close to one another.

The City decided to select alternative numbers 2, 3, 4, 5 and 9. The selection of alternatives was based upon price and the quality of material offered.   The City determined Mallcraft, Inc., the third lowest bidder on the base work, was the low bidder.2  On October 19, the City sent a letter to all bidders declaring its intention to award the phase II contract to Mallcraft.

Appellant submitted a bid protest letter.   The City refused to change its decision.

II. Procedural History

In the superior court, appellant filed a petition for writ of mandate, asserting that the use of alternative bids violated competitive bidding laws as it gave the City the opportunity to play favorites.

The court issued a written order stating that there was no evidence the City had manipulated the award, but it gave appellant the opportunity to conduct discovery as requested by appellant.   Appellant did not undertake any discovery.

Thereafter, in opposing the petition, the City argued its motives in using alternative bidding were good, corruption had played no part in its decision and it was entitled to exercise discretion in the way it awarded contracts.

The City attached an attorney declaration with portions of a handbook and an article published by the AIA both discussing the use of alternatives in bidding.   The handbook and the article conceded the use of alternatives can be used to favor one bidder over another.

The City argued that absent a finding of actual fraud or corruption, the court should not interfere with the award.   Appellant argued that no such evidence was necessary.

The court denied the petition on the basis appellant had not submitted any evidence the City had manipulated the award of the contract or violated applicable competitive bidding principles.

According to the parties, appellant filed a petition for writ of mandate/prohibition in this court.   The court denied the petition, holding that appellant's proper remedy was to appeal from the judgment after one was entered.

A judgment was entered, and appellant filed a timely notice of appeal.

DISCUSSION

I. Mootness

 The City contends that this appeal should be dismissed as the Project has been completed and there are only abstract questions of law to be decided.   We decline to dismiss the appeal on the grounds of mootness as the City concedes it uses alternative bids at times and because the issue of whether such a procedure violates competitive bidding laws is of continuing public interest.  (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 868, fn. 8, 239 Cal.Rptr. 626, 741 P.2d 124;  see also Burch v. George (1994) 7 Cal.4th 246, 253, fn. 4, 27 Cal.Rptr.2d 165, 866 P.2d 92;  National Coach Corp. v. Board of Control (1982) 137 Cal.App.3d 750, 753, fn. 1, 187 Cal.Rptr. 261 [declining to follow the two construction cases cited by the City in which the courts held an appeal was moot due to the completion of construction];  County of Madera v. Gendron (1963) 59 Cal.2d 798, 803-804, 31 Cal.Rptr. 302, 382 P.2d 342.)   Moreover, appellant's writ petition in this court was denied.   To dismiss the appeal would leave appellant with no means to seek appellate review of the procedure at issue.

II. Competitive Bidding

 Appellant contends that the selection of alternatives after the bids were opened violated the competitive bidding laws as it gave the City the opportunity to play favorites.  “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 [appellant] has the burden of proving otherwise.”  (Ghilotti Construction Co. v. City of Richmond (1996) 45 Cal.App.4th 897, 903, 53 Cal.Rptr.2d 389.)   In essence, appellant is questioning whether the City acted arbitrarily and capriciously or whether its actions were inconsistent with proper procedure.

The City Charter requires the use of competitive bidding in awarding a construction contract.

 “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.   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.   The importance of maintaining integrity in government and the ease with which policy goals underlying the requirement for open competitive bidding may be surreptitiously undercut, mandate strict compliance with bidding requirements.”  (Citations omitted.)  (Konica Business Machines U.S.A., Inc. v. Regents of University of California (1988) 206 Cal.App.3d 449, 456-457, 253 Cal.Rptr. 591.)

 Citing City of Inglewood-L.A. County Civic Center Auth. v. Superior Court (1972) 7 Cal.3d 861, 867, 103 Cal.Rptr. 689, 500 P.2d 601, appellant notes that there are generally two steps to the awarding of contract under a competitive bidding law:  (1) determining whether a bidder is “responsible,” which involves the use of discretion (such as consideration of the factors listed in the Code), and (2) determining the lowest bidder.   Although City of Inglewood involved an entity subject to state competitive bidding law,3 its interpretation of the meaning of “lowest bidder” has been applied to charter provisions for competitive bidding.  (See e.g., Domar Electric, Inc. v. City of Los Angeles (1994) 9 Cal.4th 161, 172, fn. 5, 36 Cal.Rptr.2d 521, 885 P.2d 934;  see also Boydston v. Napa Sanitation Dist. (1990) 222 Cal.App.3d 1362, 1368-1369, 272 Cal.Rptr. 458 [“When a statute requires that an award be made to the lowest (or highest) responsible bidder, it must be awarded accordingly unless that bidder is found not responsible, i.e., not qualified to perform the particular work under consideration.”].)

 Citing R & A Vending Services, Inc. v. City of Los Angeles (1985) 172 Cal.App.3d 1188, 1193, 218 Cal.Rptr. 667, the City argues that under its Charter and Code, it had discretion to determine the lowest and best bidder through the use of alternative bidding and the court could not interfere with its determination of the lowest bidder unless there was fraud.   In other words, the City's position is that appellant had to show fraud in order to challenge the City's use of the alternative bid procedure.   However, in R & A, the city had determined the losing bidder was not responsible, not that it was the not the lowest bidder.  (Ibid.)  We conclude it was not necessary for appellant to show fraud in this case in order to challenge the use of the alternative bidding procedure.   Fraud may be an appropriate standard to be used when reviewing a public entity's determination of whether a bidder is responsible.   Depending upon the applicable statutory authority, that determination may involve the exercise of discretion.

 Appellant argues that pursuant to Domar Electric, Inc. v. City of Los Angeles, supra, 9 Cal.4th 161, 36 Cal.Rptr.2d 521, 885 P.2d 934, the use of alternative bidding is not permitted as the Charter does not mention the use of alternative bidding.   However, in Domar, the court noted:  “Charter provisions are construed in favor of the exercise of the power over municipal affairs and ‘against the existence of any limitation or restriction thereon which is not expressly stated in the charter․’   Thus, ‘[r]estrictions on a charter city's power may not be implied.’ ”  (Citations omitted.)  (Id., at p. 171, 36 Cal.Rptr.2d 521, 885 P.2d 934.)

In Domar, the court addressed the issue of whether the charter requirement that contracts subject to competitive bidding be awarded to the “ ‘lowest and best regular responsible bidder’ ” prevented the city from requiring that bidders on public works projects undertake good faith efforts in compliance with the city's subcontractor outreach program as part of the competitive bid process.  (Id., at p. 165, 36 Cal.Rptr.2d 521, 885 P.2d 934.)   The court noted the city agreed that “the lowest responsible monetary bidder that meets the Board's minimum standards for demonstrating good faith outreach efforts must be awarded a bid over the next lowest responsible monetary bidder that exceeds the minimum standards.”  (Id., at. p. 178, fn. 12, 36 Cal.Rptr.2d 521, 885 P.2d 934.)

The court reasoned that as the charter neither expressly authorizes or forbids the City to adopt a requirement relating to subcontractor outreach, the validity of such a requirement must be ascertained with reference to the purposes of competitive bidding, which are ‘to guard against favoritism, improvidence, extravagance, fraud and corruption;  to prevent the waste of public funds;  and to obtain the best economic result for the public,’ and to stimulate advantageous market place competition.

“As one leading treatise explains:  ‘The provisions of statutes, charters and ordinances requiring competitive bidding in the letting of municipal contracts are for the purpose of inviting competition, to guard against favoritism, improvidence, extravagance, fraud and corruption, and to secure the best work or supplies at the lowest price practicable, and they are enacted for the benefit of property holders and taxpayers, and not for the benefit or enrichment of bidders, and should be so construed and administered as to accomplish such purpose fairly and reasonably with sole reference to the public interest.   These provisions are strictly construed by the courts, and will not be extended beyond their reasonable purpose.   Competitive bidding provisions must be read in the light of the reason for their enactment, or they will be applied where they were not intended to operate and thus deny municipalities authority to deal with problems in a sensible, practical way.’   Thus, charters requiring competitive bidding are not to be given such a construction as to defeat the object of insuring economy and excluding favoritism and corruption.”  (Id., at pp. 172-173, 36 Cal.Rptr.2d 521, 885 P.2d 934.)

III. Alternative Bidding

In the instant case, the Charter does not expressly authorize or forbid the use of alternative bidding.   In arguing whether or not alternative bidding violates competitive bidding laws, both parties cite to out-of-state cases.   Appellant cites Griswold v. Ramsey County (1954) 242 Minn. 529, 65 N.W.2d 647 and Arensmeyer-Warnock-Zarndt v. Wray (1922) 118 Misc. 619, 194 N.Y.S. 398.   The City cites Sempre Const. Co. v. Tp. of Mount Laurel (1984) 196 N.J.Super. 204, 482 A.2d 36 and Automatic Merchandising Corp. v. Nusbaum (1973) 60 Wis.2d 362, 210 N.W.2d 745.   None of the cases are precisely analogous or persuasive.

In Griswold, the court invalidated contracts awarded pursuant to procedures which allowed a bidder to reduce its bid after it was awarded the contract if the board decided to make certain changes in the construction project as doing so opened the door to fraud.  (Griswold v. Ramsey County, supra, 242 Minn. 529, 65 N.W.2d 647, 652-653.)   No such option was given to the bidders in this case.   In Arensmeyer, the board rejected all bids submitted in response to the first bid and then let the bid again.   The court issued a writ as it concluded such a procedure was open to a construction it was not done in good faith even though the second bid notice included the board's right to reject all bids because the authorizing statute did not give the board a right to reject all bids unless there was some substantial reason to do so.   (Arensmeyer-Warnock-Zarndt v. Wray, supra, 118 Misc. 619, 194 N.Y.S. 398, 399-400.)   In the instant case, both the Charter and the Code gave the City the unfettered right to reject all bids.

In Sempre Const. Co. v. Tp. of Mount Laurel, supra, 196 N.J.Super. 204, 482 A.2d 36, 38, 40, as the issue before the court was the use of a particular bidding strategy by a bidder, at best, the court impliedly upheld a municipal agency's right to make an award on the base bid, or base bid plus alternatives, as it might adequately judge the entire bid as to each bidder in determining to make as award.   In Automatic Merchandising Corp. v. Nusbaum, supra, 60 Wis.2d 362, 210 N.W.2d 745, 748-749, there was a statute specifically authorizing the use of alternative bids.   No such statute or ordinance exists in this case.

As did the court in Domar, we must ascertain whether the use of the alternative bid procedure comported with the purposes of competitive bidding.   We conclude that such a procedure does not violate the City's competitive bidding law as it allows the City to make the most economical use of it resources and deal with a problem in a sensible and practical way.

However, although the procedure helped insure economy, it did not exclude favoritism.   As more expressly recognized in appellant's reply brief, part of the procedure allowed for the appearance of impropriety.   When the City selected which alternatives to add, the names of the bidding contractors were on the tabulation sheet.   Having access to the names of potential bidders afforded the City the opportunity to play favorites.   Accordingly, we conclude that part of the procedure should be eliminated from any future use of alternative bidding and some sort of blind identification of bidders should be used until after the decision of which bidder was the “lowest and best,” i.e., the lowest responsible bidder.   Alternatively, the City could determine the order of the alternatives prior to opening the bids.

DISPOSITION

The judgment is reversed, and the court is directed to issue a writ of mandate informing the City that any use of an alternative bidding procedure must include a means by which to keep the names of the bidders confidential until after the determination of which alternatives to include.   Appellant to recover costs on appeal.

FOOTNOTES

1.   Respondent is admonished that its sporadic references to the record do not satisfy its mandatory obligation under California Rules of Court, rule 15(a) to provide citations to the record for all statements of any matter in the record.

2.   Mallcraft bid zero on alternative 3 whereas the other eight bids (there was no bid) ranged from $39,600 to $96,761 for that alternative.

3.   As a charter city, the City is not governed by those state laws.  (Piledrivers' Local Union v. City of Santa Monica (1984) 151 Cal.App.3d 509, 511-512, 198 Cal.Rptr. 731;  Stacy & Witbeck, Inc. v. City and County of San Francisco (1995) 36 Cal.App.4th 1074, 1094, 44 Cal.Rptr.2d 472.)

FRED WOODS, J.

LILLIE, P.J., and ARMSTRONG,* J., concur.

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