December 14, 2001
Re: Internet Service Provider Contract Inquiry
Dear Mayor,
A consultant has contacted me concerning a situation which has arisen in your City. It
is my understanding that the City was unhappy with the former internet service provider
and switched to a new plan. No bids for the new contract were requested or taken, and
the former ISP owner is now threatening to sue. The question asked is “Does an
internet service provider contract qualify as a professional services contract, for which
the bid process may be avoided?” In my opinion, it does not, and bids must be taken
by a municipality prior to entering into such a contract. The remedy which would be
available to the disgruntled ISP owner is limited in scope, however, so the City should
not be subjected to a large judgment or penalty for the action.
T.C.A.' 12-4-106(a)(1) provides that contracts entered into by governmental entities for
certain professional services “shall not be based upon competitive bids, but shall be
awarded on the basis of recognized competence and integrity.” The services which
qualify for this exception are described as:
legal services, fiscal agent, financial advisor or advisory services,
educational consultant services and similar services by professional
persons or groups of high ethical standards...
Most Tennessee cases interpreting this statutory language concern engineering
services, which the Supreme Court held qualifies as “professional services requiring
special training and skill” for which contracts do not have to comply with bid
requirements. Modjeski and Masters v. Pack, 388 S.W.2d 144, 147 (Tenn. 1965). In
so holding, the Court relied on the test set forth in 43 American Jurisprudence Public
Works and Contracts, ' 28:
As a general rule, statutory and constitutional provisions prohibiting
letting of contracts by a state or by municipal subdivisions, without
first advertising for bids, do not apply to contracts for professional
services, such as the services of physicians or attorneys, or to contracts
requiring special training and skill, such as contracts calling for the
services of architects, engineers, accountants, or the like, and such
contracts may be let without bids.
More case law on this issue comes from outside the state. Throughout the states,
general trends have been to focus on the distinction between work vs. service, the act
itself, licensing and educational requirements and professions specifically exempted by
statute. Specifically, the courts have focused on the technical and professional skills
required. In Nachtigall v. N.J. Turnpike Authority, 694 A.2d 1057 (N.J. 1997) the Court
held that a contract for integrated electronic toll collection systems was a contract for
professional services and exempt from competitive bidding laws. The Court noted that
the installation and servicing of the system was a complex, multifaceted process which
“cannot possibly be regarded as anything but a professional services contract.” Id. at
1064.
The majority of the early cases on the issue reveal that courts relied overwhelmingly on
the basic definition of “scientific and technical” skills to distinguish between professional
and nonprofessional services. In Harper v. Thompson, 280 S.W. 861 (Texas 1926), the
Texas Supreme Court held that a contract for the preparation of a plat book system and
abstract of property required “scientific and technical” skill and was therefore exempt
from competitive bidding. The Florida Supreme Court held that a contract for the
maintenance of and collection from parking meters is not a contract “requiring the
performance of personal services involving peculiar skill and ability,” as “the works of a
parking meter are not too complicated to rapidly learn” and “it doesn’t take much ability.”
City of Pensacola v. Kirby, 47 So. 2d 533, 535 (Fl, 1950). A more lengthy explanation
has been provided by the New Jersey Courts in ruling that services for electrical
inspection and enforcement services do not qualify as professional services:
Professional services are services rendered or performed by a
person authorized by law to practice a recognized profession,
whose practice is regulated by law, and the performance of
which services requires knowledge of an advanced type in a field
of learning acquired by a prolonged formal course of specialized
instructions and study as distinguished from general academic
instruction. Professional services may also mean services rendered
in the performance of work that is original and creative in character
in a recognized field of artistic endeavor.
Burlington Tp. V. Middle Dept. Inspection, 421 A.2d 616 (N.J. 1980).
The above cited and quoted cases are representative of the body of case law from all
jurisdictions in the issue of whether services are professional or nonprofessional for
purposes of determining if contracts must be submitted to the bid process. Such legal
authority leads me to conclude that an internet service provider does not qualify as a
professional service, but rather a technical service that is provided without the input or
involvement of professionals. As the installation of a new ISP system merely requires
the use of a specific phone line installed by technicians, and is not accompanied by any
professional training or advising services, it is very unlikely that the courts would
consider such to be professional services. This conclusion is prudent, in light of the
Court of Appeals ruling that competitive bidding requirements are to be strictly
construed against the governing body. Browning-Ferris Industries of Tenn., Inc. v. City
of Oak Ridge, 644 S.W.2d 400 (Tenn. App. 1982); Metropolitan Air Research Testing
Authority, Inc. v. Metropolitan Gov’t, 842 S.W.2d 611 (Tenn. App. 1992).
The good news is that the City will not be subjected to a large judgment if the aggrieved
party sues. An unsuccessful bidder for a public contract who challenges the bidding
process and award of contract to another is only entitled to damages for the cost
incurred in submitting the bid. Computer Shoppe, Inc. v. State, 780 S.W.2d 729, 738
(Tenn. 1989). Bidders do not have a vested or contractual right to be awarded a public
contract. Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084, 1094 (6th Cir. 1981).
Aggrieved bidders therefore cannot claim lost profits or other income they would have
received if awarded the contract.
In the immediate situation, the internet service provider which was dropped did not incur
any expense associated with the bidding process, but may complain that the contract
was not let for bidding. It is unclear what, if any, their damages may be for the City’s
failure to take bids. It may be that the best the aggrieved party can hope for is a
declaratory judgment that they are right and the City is wrong. It would certainly seem
to be an unwise business decision to launch such a lawsuit, and incur attorneys’ fees
and expenses with no possibility of recouping those funds.
I hope this information has been helpful. Please feel free to contact me should you
need anything further on this issue.
Sincerely yours,
Melissa A. Ashburn
Legal Consultant