MUNICIPALITIES MAY WAIVE TECHNICAL NON-COMPLAINCE WITH BID SPECIFICATIONS By Alexander A. Miuccio CIC General Counsel Public bidding laws serve a dual purpose. The primary purpose is to benefit the public by enabling municipalities or public agencies to obtain the best price for public improvement contracts through competitive bidding. The secondary purpose is to insure that contractors bidding on public projects are on an equal footing in competitive bidding. Actions or omissions which would place certain bidders at a disadvantage are to be avoided. As a general rule, bidders must comply with the bid specifications. Public agencies may reject bids that fail to comply with the literal requirements of the bid specifications, such as the requirements for bid bonds or other collateral, pre-qualification of the bidder, or the timeliness of the bid. When a contractor who submits the lowest bid, and who is otherwise qualified to perform the contract, has failed to comply with technical requirements of the bid specifications, the public agency must balance the two purposes of the bidding laws. If the municipality rejects the low bid because of the noncompliance, the public may lose the benefit of the lower bid. If the municipality waives the non-compliance, it may be giving an advantage to the low bidder not enjoyed by the other bidders. The dilemma faced by the public agency when it receives a bid that does not fully comply with the requirements of bid specifications is whether to reject the bid on the ground that the non-compliance is material or to accept the bid for the reason that the 687294935 - 2/6/2016 (9:01 AM) 1 defect is a mere irregularity. As long as there is a rational basis for the public agency’s actions, courts almost invariably uphold the decision, provided that the decision is in the public interest and does not place other bidders at a competitive disadvantage. In a recent case, the court held the low bidder’s technical non-compliance was a mere technical irregularity and waived the non-compliance. Background In Matter of Terra Firma Electrical v. City of New York Dept. of Environmental Protection, the DEP advertised competitive sealed bids for improvements to a water pollution control plant in Brooklyn. The only bidders were Terrafirma Electrical Construction Co. Inc. and Schlesinger Siemens, LLC. Schlesinger submitted a low bid of $21,680,000. Terrafirma submitted a bid of $22,300,000. The DEP’s chief contracting officer informed Schlesinger that its bid was nonresponsive and must be rejected, as it had submitted the wrong bid sheet. Bidders were required to use the revised bid sheet in accordance with Addendum Number 2. Schlesinger filed an appeal with the Deputy Commissioner of the DEP, claiming that it complied with all the material terms and conditions of the solicitation. Schlesinger stated that the original bid sheet was identical to the Addendum 2 bid sheet, except that the Addendum eliminated item 3, a Contingency Work Allowance of $400,000. It stated that this did not affect the bid in any way, as its bid was $600,000 lower than the other bidder, and that eliminating the mistake would further reduce the bid by another $400,000. Schlesinger stated that it was willing to eliminate the $400,000, so that its bid price 687294935 - 2/6/2016 (9:01 AM) 2 would be $1,000,000 lower than the second bidder. Schlesinger requested permission to correct its mistake in bidding. The Deputy Commissioner granted the appeal and allowed Schlesinger to file a new proper bid sheet in the amount of $21,280,000. Terrafirma filed a protest with the Commissioner of the DEP, arguing that the reversal of the non-responsive status of the Schlesinger bid was improper, and that it should be awarded the contract. It claimed that Schlesinger’s failure to use the proper bid sheet constituted a material non-compliance with the specifications, and therefore, it was prohibited from correcting its mistake. The Commissioner denied Terrafirma’s protest and upheld the Deputy Commissioner’s determination to permit Schlesinger to correct its bid. It held that the incorrect bid sheet contained only one item above and beyond the correct bid sheet, and that the mistaken inclusion of this item did not rise to the level of material non-compliance with the bid specifications. Terrafirma commenced an Article 78 proceeding, in New York’s Supreme Court, seeking a judgment to annul the award of the contract to Schlesinger. Decision The court upheld the DEP’s determination, holding that there was a rational basis for the DEP to waive the irregularity in Schlesinger’s bid as it was in the City’s best interest to do so. According to the court, allowing Schlesinger to correct its bid, thereby making it the low bidder by $1,000,000 as opposed to $600,000, is clearly within the best interest of the City of New York. The court relied on well-settled case law, allowing a municipality or agency to waive a technical compliance with bid specifications if the defect is a mere irregularity 687294935 - 2/6/2016 (9:01 AM) 3 and it is in the best interest of the municipality to do so. The court said that “a governmental agency has the right to determine whether a variance from bid specifications is material or whether to waive it is a mere irregularity, and that determination must be upheld by the courts if supported by any rational basis.” Conclusion The question of whether a deviation in the bid is material or minor is not always an easy one to call. Here, the correction of Schlesinger’s error did not place Terrafirma at a competitive disadvantage, as Schlesinger’s bid was, at all times, considerably lower than that of Terrafirma. 687294935 - 2/6/2016 (9:01 AM) 4