October 8, 2009
Dear City Recorder:
You have several questions related to the competitive bidding process used by the Board
of Education to select a contractor to build a science wing on the city’s high school. I have been
able to attempt an answer to five of them at this point, which hopefully will be helpful. Two
additional questions dealing with the immediate legal rights of persons who submitted RFPs will
have to follow; I am having trouble finding clear law on those.
I note that the city attorney has drafted and sent to the Tennessee State Senator, three
questions about the city’s bidding process, all of which I have been asked to consider. While I
am reluctant to be another cook in the kitchen when these questions are already in the hands of
your highly qualified city attorney, and will probably be in the hands of the Tennessee Attorney
General’s Office, I will attempt to address them because those questions will not likely be
addressed by the Tennessee Attorney General’s Office before you need an answer to those
questions by October 8.
1. Does the city council have any control over the competitive bidding process for the
selection of the contractor to build the science wing on the city high school?
The answer is no.
2. Does the competitive bidding process being used by the City School Board
conform to the state law on competitive purchasing.
The answer is yes.
3. Was the participation of Mr. X in the RFP selection process a prohibited conflict of
interest?
The answer is no.
4. Was the professional services contract executed by the Board of Education a legal
contract?
I am not sure of the answer to this question, but in any event, it appears to me that
contract can be treated as a separate issue.
5. Who is awarded the bid if the bid process is overturned by the courts, and what are the
unsuccessful bidders entitled to if they win a suit against the city?
No bidder is awarded the bid; the bid process would begin again. The unsuccessful
October 8, 2009
Page 2
bidders who sue would be entitled to the cost of putting together their bids and perhaps other
equitable damages. However, there is at least one case that confuses that issue somewhat.
Analysis of Question 1
The state law governing local school systems and the City Charter and Municipal Code
have a bearing on this question. Article II, Section 29 of the City Charter provides that one of the
enumerated powers of the city is to:
Establish, maintain and operate a complete educational system
within the municipality, establish and determine the membership of
the board of education and endow that board with all authority to
operate the school system pursuant to state statute and this charter,
review annually the operating budget of the school system and
appropriate revenue to support the approved budget, purchase or
otherwise acquire land for school buildings, playgrounds and other
purposes necessary to the operation of the school system, purchase
or erect all buildings, and do all other acts necessary for the
establishment of such educational system.
The Municipal Code, Title 20, Chapter 2, provides for an elected board of education (as
required by state law), and gives it numerous duties, one of which is “build, repair, furnish and
keep in sanitary condition all school houses;” [Section 20-204] The board of education Ashall be
subject to the advice, direction and supervision of the city council and the schools and school
system of the city are under the control of the city council acting by and through the city board of
education. [Section 20-209]
Those provisions of the City Charter and Municipal Code are consistent with the state law
governing local boards of education. Tennessee Code Annotated, Title 49, Chapter 2, generally
governs the election, appointment and duties of school boards in Tennessee, including their
duties with respect to school construction. Although that statutory scheme speaks mainly of
county boards of education, Tennessee Attorney General’s Opinion 96-123, says that:
The Education Improvement Act of 1991 (EIA) provided for a
uniform system of governance of county, municipal and special
school districts. Part 2 of Chapter 2 of Title 49 now applies to
“Boards of Education” rather than “County Boards of Education”
as before.... [Emphasis is mine.]
October 8, 2009
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In Tennessee Attorney General’s Opinion 98-235, the question was whether the City
could compensate the city board of education. In opining that the answer was yes, the Attorney
General reasoned that although Tennessee Code Annotated, ' 49-2-202(d), provides that “The
compensation of members of the county board shall be fixed by the county legislative body,”
[T]his office has opined that the provisions of the EIA are intended
to provide a uniform system of governance of county, municipal,
and special school districts and that Title 49, Chapter 2, Part 2, in
which the above quoted statute appears, now applies to “Boards of
Education” generally rather than only to ‘County Boards of
Education’ as before passage of the EIA.
I have had several occasions since 1991 to research the question of whether that opinion
is correct, and each time I have concluded that it is.
Under Tennessee Code Annotated, Title 9, Chapter 2, local boards of education have
broad powers over local school systems. With respect to school systems, Tennessee Code
Annotated, ' 49-2-203(a)(3) gives them the power to, “Purchase all supplies, furniture, fixtures
and material of every kind through the executive committee.” If that statute stopped there, it
could be argued that local school boards have only the power to purchase furnishings for schools,
but the same statute goes on to provide that they have two options for school construction.
Under Tennessee Code Annotated, ' 49-2-203(a)(3)(C)(i) the school board may:
1. “For construction of school buildings, or additions to existing buildings, the LEA may
follow the prescribed [purchasing] procedures of the LEA’s respective local governing body, so
long as that body, through its charter, private act, or ordinance has established a procurement
procedure that provides for advertisement and competitive bidding....” [Tennessee Code
Annotated, ' 49-2-203(a)(3)(C)(i)]
2. “If the LEA chooses not to follow the local governing body’s procedure, the board
shall contract, following open bids, for the construction of school buildings or additions to
existing buildings, the expenditure for which is in excess of ten thousand dollars ($10,000).
Public notice shall be given at least ten (10) days in advance of accepting bids for such
construction, and the board shall award the contract to the lowest and the best bidder....”
The City School Board has obviously chosen to follow option 2 in the construction of the
science wing. But nothing in that statute, nor any other statute in governing local school
construction, gives the city the legal authority to dictate how the school will be constructed.
Analysis of Question 2
October 8, 2009
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As seen above, Tennessee Code Annotated, ' 49-2-203(a)(3)(C)(I) requires that a school
board constructing or making an addition to a school building costing over $10,000, but not
using its city governing body’s purchasing procedures must give public notice at least 10 days “in
advance of accepting bids for such construction, and the board shall award the contract to the
lowest and best bidder.” There appears to me no way to interpret that requirement other than that
the contract must be awarded on the basis of competitive bidding, the same as if the board of
education were using the first option to construct the new building or addition, although the
school board can undoubtedly consider factors other that price in determining who is the “best
bidder.”
What does the term “competitive bidding” in the Municipal Purchasing Law mean? The
Tennessee Supreme Court in State ex rel. Wright v. Leech, 622 S.W.2d 807 (Tenn. 1981),
answered that question:
1. “The request for bids must not unduly restrict competition. All persons or
corporations having the ability to furnish the supplies or materials needed, to perform the work to
be done, should be allowed to compete freely without any unreasonable restrictions.”
2. “It is essential that bidders, so far as possible, be put on terms of perfect equality so
that they may bid on substantially the same proposition and on the same terms.”
3. “In order to attain competitive bidding in its true sense, proposals for bids must be
invited under fair circumstances which afford a fair and reasonable opportunity for
competition.” [Emphasis is mine.]
4. Among other things, the advertisement for bids should include “[s]pecifications of the
supplies or equipment to be purchased and the quantity thereof.”
Those standards are not optional, continued the Court, they must be followed.
The obvious fundamental principles of Leech are that all bidders must be put on a level
playing field, and that the bidding process actually be competitive. In fact, it is further said in
Metropolitan Air Research Testing Authority, Inc. v. Metro. Government of Nashville &
Davidson County, 842 S.W.2d 611 (Tenn. Ct. App. 1992), that:
One of the purposes of competitive bidding is to provide bidders
with a fair opportunity to compete for public contracts. State ex rel.
Leech v. Wright [citation omitted]. Thus, the courts have
recognized that the statutes and ordinance requiring competitive
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bidding impose upon the government an implied obligation to
consider all bids honestly and fairly. [Citations omitted.] [At 616]
[Emphasis is mine.]
Other Tennessee cases have also spoken on what constitutes competitive bidding.
The question here is: Does the competitive bidding process followed by the City up to
this point for the construction of the science addition meet the standards announced by the case
law for competitive bidding?
One of the disputes on this question is whether the RFP meets the State Building
Commission’s By-Law, Policy and Procedure (Revised June, 2009), in particular, Section 5.03
REQUIREMENTS FOR RFQ/RFP PROCUREMENT. Subsection C.2. b) provides that, “In
any prequalification scenario of an RFP/RFQ, a minimum score will be pre-established and only
those proposers who receive the minimum score or higher will be allowed to proceed to the next
step in the process.” Section 5.05 of that document also provides for “PROCUREMENT
THROUGH BEST VALUE,” the text of which provides for three construction options. Option
One is titled “Prequalification Option (Option One).” It declares that:
Qualification of contractors that identifies a short list of contractors
followed by a low bid cost submittal. All contractors who meet the
pass/fair requirements and score at least the established required
qualifications points are considered to be equal. The point value of
the bid is rated at 100%. This option is the most simplistic and
will most likely be the option most frequently employed on smaller
projects (construction cost of $5 million or less).
However, I have been told that the RFP for the construction of the science addition to the
high school is based on an RFP for the construction of certain campus improvements for the
Tennessee School for the Blind used by the Tennessee Department of Finance and
Administration. The evidence, particularly a comparison of the two RFPs supports that assertion.
The introductory section to the latter RFP [Section 1.1] declares that it is based on Tennessee
Code Annotated, ' 4-15-101 et seq., which “empower the State Building Commission to award,
subject to the approval of the state Building Commission, construction contracts for the
improvement of real property for State of Tennessee projects.” It contains some RFP GENERAL
REQUIREMENTS, but none of them provide that all bidders who pass what is in effect the first
step in the bid process move on to the next step, which is the selection of the winning bid. In
fact, section 4.1.6 of that RFP itself clearly provides that “proposers invited to submit bids will
be limited to the five (5) highest scoring Credentials Proposals in Part One, who’s [sic.]
October 8, 2009
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Credentials Proposals have attained the minimum score of seventy (70) points in Part 1.”
The City’s RFP, section 4.1.6, contains exactly the same provision: “Proposers invited to
submit bids will be limited to the five (5) highest scoring Credentials Proposals in Part 1, who’s
[sic.] Credential’s Proposals have attained the minimum combined score of seventy (70) points
for a Proposer to be offered opportunity to bid.” In all other ways the two RFPS are also similar
or identical.
There is nothing in Tennessee Code Annotated, ' 49-2-203 or Leech, that prescribes
specific competitive bidding requirements for school construction. Leech’s definition of what
constitutes competitive bidding is general, and undoubtedly permits some latitude on the part of
public officials who adopt and administer competitive bid procedures. Although any
construction rules issued by the State Building Commission apply only to state buildings, I can
think of no reason why the Board of Education could not have adopted the State Building
Commission’s By-Laws, Policy and Procedure to govern its school construction competitive
bidding process. However, I can find no evidence that it has done so. For that reason, it seems
to me that the debate over whether the Board of Education’s RFP for the science addition met
those requirements is misplaced.
What the Board of Education has adopted for the construction of the science addition is
the model of the competitive bidding process based on the RFP Best Value Procurement Option
One for the construction of campus improvements at the Tennessee School for the Blind, which
was issued on February 18, 2009. Whether or not that RFP, which was issued in February, 2009
conformed to the State Building Commission’s By- Laws, Policies and Procedures, which, I note
were revised in June, 2009, seems to me immaterial for the same reason. Under Tennessee Code
Annotated, ' 49-2-203(a)(2)(C)(i) the Board of Education was not obligated to select any
particular competitive bid procedures as long as they met the requirements of that statute, and as
long as they were consistent with the competitive bidding requirements contained in Leech, and
reiterated and expanded upon in subsequent competitive bidding cases.
The State Building Commission’s competitive bid procedures appear to meet the
standards contained in those cases through all stages of the bid procedures they contemplate.
With respect to the RAP stage in the two options listed in PROCUREMENT THROUGH BESTVALUE procedures, all the prospective bidders who score 70 in the prequalification stage
prescribed for those options are qualified to bid on the project at issue. That is not true of the
RFP used by the Board of Education for the construction of the science wing; only the five
prospective bidders who score the highest over 70 are qualified to bid on the project. That
standard is clearly announced in Section 4.1.6 of the RFP. In that respect all the bidders are put
on a level playing field, and, in theory, have the same opportunity as do all other prospective
bidders to score in the top five of the candidates who score over 70. As far as I can determine, a
process for “weeding out” potential bidders in a prequalification bid process is not prohibited by
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Leech and other competitive bid cases, but if there is to be such a process it is required to be fair,
and to not unduly restrict competition.
It seems to me that if prequalifcation process reduces the number of potential bidders
below a certain point, the process at least unduly restricts competition. In the case of the RFP
used by the Board of Education, 11 potential bidders scored above 70 but their number was
reduced to the five highest scoring candidates. Although I am not sure at what point a reduction
in the number of companies that would actually be entitled to bid on the project would be anticompetitive, I do not have the impression that point was reached there. The standard for judging
competitive bid contests is considered in Metropolitan Air Research Testing Authority
(MARTA) v. Metropolitan Government of Nashville and Davidson County, 842 S.W.2d 611 (Ct.
App. Tenn. 1992), that:
Courts are wary of unwarranted judicial intrusion into the
performance of ordinary governmental activities. [Citations
omitted by me.] Accordingly, judicial review is generally confined
to an examination of the evidence to determine whether there is
material evidence to support conclusions that are neither arbitrary
nor unlawful. [Citation omitted by me.]
Since procuring goods and services is the type of routine activity
that is best left to governmental officials, most courts have
recognized that public procurement authorities have wide
discretion with regard to accepting bids or any other details of
entering into a contract. [Citations omitted by me.]
Purchasing official must not be arbitrary, unreasonable, or
capricious. [Citations omitted by me.] Thus, in the absence of
fraud, corruption, or palpable abuse of discretion, the courts will
ordinarily not interfere with governmental procurement decisions.
[Citations omitted by me.] [At 619]
That language is somewhat misleading in the respect that since unsuccessful bidders have
been given the right to challenge the award of bids, the cases where that has happened indicate
that the municipal bid process is subject to a fine tooth comb review by the courts.
But the Board of Education has a good argument that narrowing a field of 11 bidders to
five of the highest scorers in the prequalifcation stage of the bid process is a rational decision. It
obviously imposes a higher standard on prospective bidder than does a standard that allows all
bidders who score over 70 to bid on the project, but although the analogy is not exact, few people
October 8, 2009
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would quarrel with a multistage selection process for airline pilots that “weeds out” all but the
top five candidates for jobs as airline pilots. .
But the question of whether there was “fraud, corruption or palpable abuse of discretion”
will be considered in the next question, which deals with the issue of whether the participation of
Mr. X on the RFP selection committee constituted any of those things.
Analysis of Question 3
Mr. X served on the committee that graded the RFPs. The product of the grading was to
select the five RFP candidates who scored the highest grades above 70 to go on to the next stage
in the selection of the winning bid. In addition, the committee disqualified two RAPS submitted
for having failed to meet certain requirements in RAP preparation and submittal. One of those
disqualifications is being appealed under the rules contained in the RAP. Among the five RAPS
selected to go to the next stage in the bidding process is Mr. X’s former employee, Mr. Y. Mr. X,
I am told, was employed by Mr. Y until around January 20, 2009, and was hired as the “site
superintendent” for the construction of the science wing, under a
“Professional Services Contract” with the Board of Education, dated June 4, 2009.
As far as I can determine, there is no state law or Board of Education rule or regulation that
would prohibit the Board of Education from hiring Mr. X in that capacity, although the question
of whether Mr. X is actually a construction manager, the answer to which has some legal
implications, will be covered later.
Tennessee’s Conflicts of Interest Law found at Tennessee Code Annotated, ' 12-4-101 et
seq., applies to “any officer, committee member, director or other person whose duty it is to vote
for, let out, overlook, or in any manner to superintend any work or any contract in which any
municipal corporation .... shall or may be interested, to be directly interested in any contract....”
Tennessee Attorney General’s Opinion 00-117 considers the question of whether it was a
conflict of interest under Tennessee Code Annotated, ' 12-4-101 et seq. for a person providing
construction management services for a county board of education to bid on, contract or to
perform and/or be awarded construction work on school building projects the person was hired to
supervise. Even if Mr. X is not a construction manager under his contract with the Board of
Education, that question is still pertinent because he has a contract with the board to be the site
representative on the construction of the science wing, and because he was a member of the
committee that narrowed down RFPS from 13 to 8, 2 by disqualification, 6 by grading the RFPs.
The Tennessee Attorney General opined that while no court had addressed that question:
“Generally, this statute has been applied only to public officers or
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officials. See e.g. Op. Tenn. Atty. Gen. 99-231 (December 15,
1999) (“Tennessee law regarding conflicts of interests involving
government contracts is generally addressed to situations in which
a state officer or employee has a conflict of interest.”); Op. Tenn.
Att. Gen. 99-085 (April 6, 1999) (“A general conflict of interest
statute for state and local officials appears at Tenn. Cod Ann. '124-101.”). Assuming that the construction manager at issue is not a
public official or officer, the conflicts of interest statute would not
apply to the situation at hand....”
Likewise, my previous research of Tennessee’s Conflicts of Interest law in other contexts
as disclosed no cases in which any person except a public official or employee was subjected to
that law. But it could be argued that an independent contractor hired by the city to oversee a
construction project and who serves on a committee to select a contractor for the project qualifies
as an “....other person whose duty it is to vote for, let out, overlook...any contract.....”, but at this
time that law has been applied only to public officials and employees.
However, financial impact is the key to the Conflicts of Interest Law. It entirely prohibits
direct interests and limits indirect interests. It defines “direct interests” as “any contract with the
official personally or with any business in which the official is the sole proprietor, a partner, or
the person having controlling interest.” Absent any information showing otherwise, It does not
appear that Mr. X would have a direct interest under any of those categories even if the Conflicts
of Interest Law applied to him.
Indirect interests are also prohibited unless the official acknowledges that interest. An
“indirect interest” is defined as “any contract in which the officer is interested, but not directly
so....” That is not a very helpful definition, but my previous study of the Conflicts of Interest
Law leads me to believe that absent any information showing otherwise, any interest Mr. X may
have in any contract let by the school board for the science wing is so remote that it does not
even qualify as an indirect interest. Even if it were to happen that his former employer, Mr. Y,
got the contract, he would not necessarily stand to be a financial beneficiary of that contract. It is
not even certain Mr. Y will get the contract.
Tennessee apparently also recognizes common law conflicts of interest. As far as I can
determine, only one Tennessee case involves the application of the common law conflicts of
interest doctrine in which the financial interest of a public official or employee is involved. In
Ramsey v. Gibson County, 7 Tenn.Civ. App. (7 Higgins) 53 (1916), a cook in a county
workhouse supplied food for the workhouse from a store he owned. The Court denied him
payment for the food, declaring:
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That it is not material to determine whether Ramsey [the cook]
was such an official as cannot deal with the county under
Shannon’s Code, Section 1133 [what is now Tennessee Code
Annotated, ' 12-4-101.] We think that under no circumstances can
the Courts recognize the right of a man occupying the position of
Ramsey to recover upon his contracts. Sound public policy forbids
this...The rule forbids the giving of any validity to such contracts
because of the vast opportunities open for fraud and because such
contracts are in flat contradiction of the soundest ethical and
judicial principles. See Madison County v. Alexander, 116 Tenn.,
689, and cases there cited....The law forbids the assumption by
anyone of a position where his interest and his duty will conflict.
[At 54-55]
At that time, Shannon’s Code, ' 1133, much the same as it does now, provided that: “It
shall not be lawful for any officer, committeeman, director, or other person whose duty it is to
vote for, let out, overlook, or in any manner superintend, any work or any contract in which any
public municipal corporation...shall or may be interested, to be directly or indirectly interested in
such contract.” Note that at that time, the statute entirely prohibited both “direct and indirect
interests.”
The Ramsey Court sounded unsure that Shannon’s Code, ' 1133, covered the workhouse
cook. He certainly had no duty to vote for the contract, and arguably as a cook he had no duty to
overlook or to in any manner superintend the contract. He was on the bottom of the employment
totem pole, so to speak. But even if that was true, the contract was a violation of public policy.
That case appears to indicate that the common law conflict of interest is alive in Tennessee.
However, the case law governing competitive bids must also be considered, some of
which was discussed in the answer to Question 2. MARTA, above, relying on Leech, held that
disappointed bidders, whether or not they would have gotten the bid, had the right to sue the
government that solicited the bids. At also said this about fairness in bidding:
Thus, the courts have recognized that the statutes and ordinances
requiring competitive bidding impose upon the government an
implied obligation to consider all bids honestly and fairly.
[Citations omitted by me.]
Since bidders have a right to compete on the same footing,
[Citations omitted by me.], their rights fall inside the procedural
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interest perfected by competitive bidding requirements. [Citations
omitted by me.] Therefore, the loss of an opportunity to receive or
to compete for a public contract is a distinct injury sufficient to
provide a disappointed bidder with standing [to sue.] [Citations
omitted by me.]
Competitive bidding laws also promote the public interest by
guarding against favoritism and fraud. [Citations omitted by me.]
Unsuccessful bidders are most likely to have an incentive to bring
suit to compel government agencies to comply with the
requirements controlling government contracts. [Citations omitted
by me.] [At 616-17]
There seems little doubt that such language would allow an unsuccessful bidder to
challenge the make up of a bid selection committee, and an RFP selection committee. Even
though the RFP committee was the first step in the bid selection process used by the Board of
Education, it effectively foreclosed the opportunity of a number of the potential bidders to submit
a bid. That seems clearly a case of “... the loss of an opportunity to receive or to compete for a
public contract....” What I do not know at the moment is whether a potential bidder eliminated
by the RFP committee would have the right to sue as soon as he exhausted his right of appeal of
that committee’s decision, or whether he would be required to wait until the end of the bid
process.
There are surprisingly few cases dealing with challenges to bid selection committees on
the basis of the relationship of members of the committee with bidders. In fact, I have found only
one case involving a member of a selection committee who previously worked for one of the
bidders. It occurs to me that the reason is that most bid statutes or procedures probably contain
restrictions about such relationships by members of such committees. The RFPBand as far as I
can tell, the School BoardBprescribe no such limitations. .
In CACI, Inc. Federal v. United States, 719 F.2d 1567 (Fed Cir. 1983), an unsuccessful
bidder challenged the award of a bid on the grounds that four of the five members of the
technical evaluation committee reviewing bids for computer equipment for the U.S. Department
of Justice’s Antitrust Division were guilty of impropriety, and alleging that the impropriety
breached the Department of Justice’s “implied contractual obligation to consider CACI’s bid
fairly and honestly.” The basis of that charge, in the Court’s words, was that,
Most of the allegations of impropriety in this case are based upon
the relationships between Antitrust Division employees in the
group who participated in the bid evaluation process and Robert L.
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Stevens, the chief of the Group from 1978 to 1980, who as
Sterling’s [the successful bidder] vice president, directed the
preparation of Sterling’s bid and represented the company before
the Department during its consideration of the bids. [At 1570]
The chairman of the committee had “worked either directly or indirectly for Stevens in
both the government and the private sector.” Another member of the committee “had worked
under and reported directly to Stevens at the Group, and his professional association with
Stevens began in 1978.” Another member “also worked under Stevens during the latter’s tenure
at the Group.” The remaining member “had a social relationship with Stevens.” [At 1571] There
were also allegations that at least two of the members of the committee had discussed
employment with Stevens.
The Court of Claims had some scathing words to say about the relationships in question
and enjoined the award of the bid. But the Court of Appeals, declaring that the grounds upon
which the Court of Claims had enjoined the award of the bid to Sterling, the lowest bidder, were
not clear, and turned to the Ethics in Government Act to determine if the relationships violated
that Act. It found that the relationships between the committee members and Stevens were not
current, and did not constitute a violation of that Act. It refused to find anything sinister about
those relationships.
In Galen Medical Associates, Inc. v. United States, 369 F.3d 1224 (Fed. Cir. 2004), an
unsuccessful bidder alleged that the VA’s evaluation of bids process “manifested a conflict of
interest, or that the VA acted in bad faith.” [At 1335] The allegation arose from the fact that one
of the two successful bidder’s references for past performance were on each of the two bid
evaluation panels. But the Court responded that:
In order to prevail on its conflict of interest claim, Galen must
establish a violation of a statutory or regulatory conflict of interest
provision. [Statutory citations omitted by me.] The mere presence
of one of Downing’s past performance references on each
evaluation panel alone does not constitute proof of conflict of
interest. [At 1335]
The Court also said that:
Even to the extent the regulations required that any conflict of
interest or even the appearance of a conflict of interest in
government-contractor relationship be avoided, 48 C.F.R. ' 3.101-
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1 (2003), Galen has failed to show any potential symbiotic
relationship to be avoided between the technical evaluators and
Downing. Indeed, Galen has not shown that Kirpatrick or any
other evaluator had any “interest” or any appearance of an
“interest” in an award of the contract to Downing. Galen has
presented no evidence of any impact an award of the contract to
either Downing or Galen would have on any of the evaluators. For
even an appearance of a conflict of interest to exist, a government
official must at least appear to have some stake in the outcome of a
government action influenced by that individual.... [At 336]
A similar result was reached in Common Sense Adoption Services v. Department of
Public Welfare, 799 A.2d 225 (Commonwealth Pa. 2002) reached a similar conclusion, but did
not discuss the standards that apply to alleged conflicts of interest.
Speculation about whether Mr. X’s participation on the RFP committee had a favorable
impact on Mr. Y’s RFP seems almost inevitable, he having been its recent employee. But
assuming that similar standards that applied to those cases would apply in Tennessee courts, as
far as I can determine, at least with respect to the RFP, it is difficult to reach beyond the
speculation and find any evidence of such influence. Further, as I said above, I have found no
state law or school board policy that makes it a conflict of interest, or otherwise prohibits him
from serving on that committee. I have no doubt that if a court can find some evidence of a
connection between Mr. X and Mr. Y that influenced his vote on the RFP committee, it
could use that evidence to overturn the award of the bid. But assuming that such a connection
exists, especially when Mr. X left Mr. Y’s employment several months ago is too far a reach.
Analysis of Question 4
The Board of Education and Mr. X entered into what is titled PROFESSIONAL
SERVICES CONTRACT on June 5, 2009. The second WHEREAS of that contract says that
“The Board of Education has determined that it needs daily representation at that construction
site to assure that the project is proceeding in accordance with the plans, specifications and
schedules approved by the board.” Under that contract Mr. X is called the “‘Owner’s
Representative’ as that term is used in the contract with the General contractor during the
construction of the science wing...” [Section 2.A] But he is more regularly called the “site
Representative” throughout the contract.
The “site representative” has the following duties:
- “.... [w]orks under the direct supervision of and reports directly to, the DIRECTOR OF
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SCHOOLS.”
- “All decisions regarding changes in the Contract Documents, schedules, requirements of
law, or change orders shall be reported to, made in consultation with, [presumably the site
representative] and receive the express approval of the DIRECTOR OF SCHOOLS and/or the
School Board.”
- “The Site Representative shall devote such time and energies necessary to perform the
duties of the office....The day to day schedule of the Site Representatives [sic.] attendance at the
work sites shall be determined by mutual agreement between the Site Representative and the
Direct of Schools.”
- “The Site Representative will protect the Board’s interest while promoting teamwork
and fluidity on job site.”
- “Site Representative is to be extremely familiar with Construction Documents and
drawings as to recognize any or all deviations from overall or specific scope and inform Director
of Schools with distilled information and concise set of options clearly defined, along with a
recommended course of action.”
- “The Site representative will strive to maintain progress and mutual interaction and
tasks of various parties in such a way that reduces the risk of overall failure, maximizes benefits,
and restricts costs.”
- “The Site Representative will keep the Director of School informed of issues that arise
during the course of the construction projects noted above, and make recommendations to him
and the Board concerning the proper and timely completion of the projects.”
Nothing is said in that contract about the site representative serving on the committee
selecting the contractor in either stage of that process, although it is clear that he served on the
committee in the prequalification stage of the bid process, in which the number of candidates
eligible to bid on the project was narrowed down to five. But as I said above, I can find nothing
in the law to prohibit him from serving in that capacity.
While I do not purport to be an expert in construction contracts, I have previously
researched the question of what a construction manager is in Tennessee (and elsewhere), and I
am not sure that there is a definition that satisfies everyone. Tennessee’s Contractor Licensing
Law provides that construction managers are contractors covered by that law, but fails to define
exactly what a construction manager is or does. [Tennessee Code Annotated, ' 62-6-102]
October 8, 2009
Page 15
Section 5.06 [PROCUREMENT THROUGH CONSTRUCTION MANAGEMENT] of
the By-Laws, Policy ad Procedure of the State Building Commission authorizes state
buildings to be constructed though one form of construction management.
Unless otherwise approved, projects will use the Construction
Manager/General Contractor (CM/GC) model, which is a form of
construction management in which the owner engages a designer,
and a qualified construction manager to provide those preConstruction and Construction services. The CM/GC provides
consulting and estimating services during design phases, and acts
as the general contractor during the construction phases, holding
the trade contracts and providing the management and construction
services. The CM/GC competitively procures the contracts with
trade contractors and assumes the responsibility and risk of
construction delivery usually within specified cost and schedule
terms, and after providing a guaranteed maximum price (GMP) on
a defined scope of Work.
But there are also other models of construction management, at least one of which the
construction manager serves as the agent of the “owner,” but does not serve as a general
contractor or do most of the things contained in the above State Building Commission
construction management model; he simply manages the construction project in a manner similar
to the way the site representative will perform his duties under his contract with the board of
education. That is the model envisioned by the American Institute of Architects (AIA), whose
forms are widely used in the construction business. 2 Brunder & O’Conner Construction Law, '
6.62 (Westlaw Database updated May 2009):
The American Institute of Architects (AIA) documents treat the
CM as an entity bearing the same relationship to the owner as the
architect. In other words, the AIA standard form of agreement
between owner and CM contemplated an entity that schedules,
coordinates and monitors construction but does not “have control
over or charge of and shall not be responsible for construction
means, methods, techniques, sequences or procedures or for safety
precautions and programs in connection with the work of each of
the contractors, since these are solely the contractor’s responsibility
under the contract for construction.” Like the architect, the CM
does not warrant construction costs. The AIA scheme envisions
the CM working in a cooperative manner with the architect to
provide contract administration services.
October 8, 2009
Page 16
[Also see 2 Brunder & O’Conner Construction Law, ' 2.13 (Westlaw database updated through
May, 2009.)
I am not sure what the Tennessee courts would do with the question of whether the
contract in question is a construction management contract, but I think there is a very good
chance they would hold that by whatever name the contract calls him, he is a construction
manager. Presumably, that question could probably go either way. Section 2 of the contract
outlines the site representative’s duties, and is somewhat vague and subject to interpretation.
Section 2.C of the contract provides that “All decisions regarding changes in the Contract
Documents, schedules, requirements of law, or change orders shall be reported to, made in
consultation with, and receive the express approval of the DIRECTOR OF SCHOOLS and/or the
School Board.” But all of the decision-making that supposedly lies in the hands of the director of
schools or the school board is initiated by the site representative. In addition, the contract clearly
points to duties the site representative has that give him the immediate control of that happens on
the job site. Under Section 2.. F., “The site representative will protect the Board’s interest while
promoting teamwork and fluidity on job site.” It is difficult to see how the site representative
will promote teamwork and fluidity on the job site without himself doing what needs to be done
to get and keep the construction job moving ahead immediately without waiting to bring every
detail of construction problems to the attention of the director of schools. In fact, under 2..H. 1
of the contract, “The site representative will strive to maintain progress and mutual interaction
and task of various parties in such a way that reduces the risk of overall failure, maximizes
benefits, and restricts costs.” The last time I checked, that is one of the primary duties of a
construction manager, no matter what form of construction management model is used.
If the site representative is actually a construction manager, Tennessee Code Annotated,
' 49-2-203(a)(2)(C)(ii) provides that boards of education can hire one, but the hiring must be
done by competitive bid (which is somewhat ironic because Tennessee Code Annotated, ' 12-4106 prohibits other professional services contracts from being competitively bid.) That statute
also fails to define what a construction manager is within the meaning of that provision, except
that it is clear that statute envisions a construction manager that does not do construction, except
in the narrow circumstances outlined in that statute that probably will not apply to the Board of
Education. In that respect the statute contemplates a construction manager that is more similar to
the AIA model.
Tennessee Attorney General’s Opinion 00-117 (July 5, 2000), observes that, “No court
has had an opportunity to construe this provision.” That observation remains true to this date. But
the opinion goes on to opine that:
The statute delineates the method by which construction
October 8, 2009
Page 17
management services may be procured, i.e. through a personal
services contract. The provision also prevents a Construction
manager who has been hired to provide construction management
services to contract for performing actual construction work as a
part of that construction management services contract ....
Moving away from the construction manager issue, there appears to be nothing in
Tennessee Code Annotated, title 49, chapter 2 that expressly establishes any competitive bid
requirements for a school board’s hiring of professional, or non-professional independent
contractors. Tennessee Code Annotated, ' 49-2-203(a)(2)(3) puts a $10,000 limitation on the,
“Purchases of all supplies, furniture, fixtures and material of every kind through the executive
committee,” but that provision does not govern personal service contracts. However, if Mr. X is
not a construction manager, a strong argument can be made that the contract between Mr. X and
the Board of Education is a contract, “For the construction of school buildings, or additions to
existing buildings....” under Tennessee Code Annotated, ' 49-2-203(a)(3)(C)(i), that is no
different than the contract for the construction of the science addition under the RFP at issue. The
trigger for competitive bidding requirements under that statute is $10,000, which is exceeded by
that contract.
But if the contract between the Board of Education and Mr. X fails because it is actually a
construction management contract that was required to be competitively bid, or a construction
contract that was also required to be competitively bid, it seems to me that it can be separated
from the contract to which the RFP applies, which does not technically involve a construction
manager. I doubt that the fact that the board of education had hired a site superintendent, who
may actually be a construction manager, does not appear to me to render the RFP stage of the bid
process illegal For that reason, any problems with that contract appear capable of being
addressed without impacting the legality of the bid process to this point.
Analysis of Question 5
It is clear in Tennessee that any unhappy bidder has standing to challenge the award of a
bid on the ground that the bid process was illegal in some manner. [See Metropolitan Air
Research Testing Authority, Inc. v. Metro. Government of Nashville & Davidson County, 842
S.W.2d 611 (Tenn. Ct. App. 1992); Browning-Ferris Industries of Tennessee, Inc. v. City of Oak
Ridge, 644 S.W.2d 400 (Tenn. App. 1983); Owen of Georgia, Inc. v. Shelby County, 648 F.2d
1084 (6thCir. 1981)]. It is also said in Browning-Ferris Industries of Tennessee, Inc., above,
that:
A contract entered in violation of bidding statutes or ordinances is
void and it is not necessary to show that the governmental authority
October 8, 2009
Page 18
acted in bad faith or fraud was involved. Johnson City Realty Co.,
166 Tenn. 655, 64 S.W.2d 507 (1933). [At 403]
In Tennessee, that does not mean that the unhappy bidder gets the contract. The unhappy
bidder’s remedy when a bid is set aside is apparently at least the cost of preparing his bid, and
perhaps the cost of his lawsuit. In Browning-Ferris Industries v. City of Oak Ridge, 644 S.W.2d
400 (Tenn. Ct. App. 1982), the Court awarded the unhappy bidder for the reasonable expenses
for preparing and presenting its bid. In Owen of Georgia, Inc. v. Shelby County, the Court found
the County liable on the theory of promissory estoppel, reasoning that, “In its solicitation of bids
pursuant to the Restructure Act, Shelby County clearly promised to award the contract to the
lowest financially responsible bidder if it awarded the contract at all.” [At 1095] The measure of
damages, continued the Court, was “the expenses it incurred in its unsuccessful participation in
the competitive bidding process as well as the costs incurred in its successful attempt to have the
award to Pidgeon-Thomas rescinded as having been made in the violation of the statute.” [At
1096]
Computer Shoppe, Inc.v. State, 780 S.W.2d 729 (Tenn. Ct. App. 1989), may cast a
different light on damages unsuccessful bidders may be owed where the bid process is
overturned. There the state cancelled a solicitation for invitations to bid (ITB) after a lengthy
bid process that disclosed there were numerous defects in the ITB, and after the Computer
Shoppe had apparently been led to believe that its bid would be accepted if certain glitches in its
computer program could be eliminated. The Computer Shoppe claimed that it had accomplished
that goal when the ITB was cancelled. Its claim for damages was based on the theory that it had
an express [oral] contract with the state on and after September 3, 1987, obligating the state to
award it the contract, if it could make certain adjustments to its software. The court appears to
have accepted that argument, but in looking at the damages to which Computer Shoppe was
entitled, said:
The Computer Shoppe made other modifications to its software
prior to September 3, 1987. Had the State’s procurement in this
case followed the “multi-step” sealed bidding process required by
Tenn. Code Ann. 12-3-23(a)(1) (1987) for purchasing computers,
the costs of preparing the initial bid and of the modifications made
prior to September 3, would have been at the Computer Shoppe’s
expense. Rather than computing the Computer Shoppe’s damages,
if any, based on lost profits or on the cost incurred in submitting a
bid, we find the proper measure of damages to be the costs the
Computer Shoppe incurred in asking the modifications requested
by the State on September 3, 1987 [At 737].
October 8, 2009
Page 19
The rationale for the court’s calculation was that:
Rejecting all bids and cancelling a solicitation discourages
competitive bidding and should be the exception in government
procurement rather than the rule. [Citation omitted by me.] The
government must have just cause to cancel a solicitation, and
persons challenging decision to cancel a solicitation will succeed if
they demonstrate that the soliciting agency had no reasonable or
rational basis for its decision. [Citation omitted by me.] [At 737]
But then the court spoke about mistakes in solicitations:
The state’s procurement statutes and procedures must be read in
the light of reason and common sense. Errors occur not only in the
private sector but in the public sector as well. Like contracting
parties in the private sector, the State should not be held to a
standard of perfection. The General Assembly has given the
Commissioner of General Services the authority to cancel a
solicitation when there are errors in the invitation to bid. Persons
seeking to do business with the State are aware of this condition
because it is part of every ITB. Thus, we do not deem it
unreasonable to expect bidders to bear the risk of erroneous
invitations to bid, as part of their cost of doing business with the
state. [At 738]
But Computer Shoppe is based on the proposition that Computer Shoppe had a contract
with the state to accept its computer software when the state cancelled the ITB because it
contained numerous errors. But that case does appear to suggest that if the Board of Education
cancelled its invitations for RFPs at this point, none of the bidders would be entitled to
compensation for the cost of preparing their bids, such costs being part of the cost of doing
business. However, that case is confusing to me on the point of what would be the damages to
bidders if there was no good reason for the Board of Education to cancel the RFPs. Here I cannot
get by my previous conclusions that the RFP issued by the Board of Education is not defective.
More will be provided shortly.
Sincerely,
October 8, 2009
Page 20
Sidney D. Hemsley
Senior Law Consultant
SDH/