Award on Base Bid Not Including Elected Alternate Violates Public Bidding Laws

By Nell M. Hurley, Esq; Ernstrom & Dreste, LLP

            Sometimes the question a court is asked is not the one the court decides to answer.  What began as a dispute over an apparent low bidder’s qualifications and experience for the project became, instead, a question of whether a bid specification violated public bidding laws so as to be disregarded entirely, rendering the original question moot.  In the end, the apparent second lowest bidder was held to be the low bidder all along, and a petition to review the owner’s determination against the initial low bidder was dismissed, without reaching the qualification issue.[1] The violative bid specification required that the price of the base bid determine the low bidder, without consideration of prices bid for alternate work.

In July 2021, the Olympic Regional Development Authority (“ORDA”) sought bids for construction of a new ORDA administration building as part of its preparation for the Lake Placid 2023 Winter World University Games. Cutting Edge Group, LLC (“Cutting Edge”) and Bast Hatfield Construction, LLC (“Bast”), among others, submitted bids for the “General Trades” contract of the project, which included one alternate for a parking structure that could be added to the contract, if ORDA so chose.  The instructions to bidders provided that, in determining which bid was the lowest, the bid price for the alternate work “shall not be used in combination with the Base Bid to determine low bidder.” Cutting Edge had the lowest base bid. Bast had the second lowest base bid. If the bidders’ prices for the alternate work were combined with their base bids, however, the order was reversed, and Bast had the lowest combined bid.

ORDA elected to add the alternate work to the contract but, per its methodology, declared Cutting Edge to be low bidder. Cutting Edge submitted its pre-award submittal package including the required references for three projects and resumes for its supervisory personnel. ORDA found that Cutting Edge’s projects were not similar in scope and size to the ORDA administrative building project, and its supervisory personnel were insufficiently qualified. Although Cutting Edge argued to the contrary and submitted more information, ORDA concluded that it did not meet the mandatory pre-award submittal requirements. Cutting Edge “failed to provide sufficient references for projects of similar scope and size and qualified staff/supervision,” said ORDA, which rendered it a non-responsible bidder, and the bid non-responsive. ORDA then awarded the General Trades contract to Bast. Cutting Edge objected, unsuccessfully argued its case with ORDA, and thereafter commenced an Article 78 proceeding seeking an immediate temporary restraining order (which was denied), annulment of the ORDA contract with Bast and its award to Cutting Edge, or a re-bid of the contract.

The petition and responses of the parties focused on issues surrounding ORDA’s rejection of Cutting Edge’s bid, including its specific requirement of three project references, its conclusion that referenced projects were not of “similar scope and size,” its determination as to the experience of Cutting Edge personnel, and Cutting Edge’s entitlement to injunctive relief. At oral argument, however, it became clear that the court was more concerned about the manner in which ORDA determined low bidder for the contract and, specifically, its instruction to bidders that low bidder be determined by base bid only, without consideration of the prices for the included alternate work.

In its March 17, 2022 decision, the court held that the provision “violates the clear language of [New York] Public Authorities Law § 2620(2)” which prohibits ORDA from “award[ing] any construction contract except to the lowest bidder who, in its opinion, is qualified to perform the work required and who is responsible and reliable.” Construing the statute, the court found the intention of the legislature to be two-fold:

  • Protection of the public fisc by obtaining the best work at the lowest possible price; and
  • Prevention of favoritism, improvidence, fraud and corruption of public contracts.

Since an administrative agency can only promulgate rules to further the implementation of the law as it exists, the court stated, it has no authority to create a rule out of harmony with the statute. The court explained:

The clear and unambiguous language of the [the statute] does not afford any discretion to ORDA to only consider the base bid price in determining the lowest bidder…when [it] has elected to include [the alternate in the awarded contract].

The court reasoned that the “fallacy and danger of implementing the contract language employed by ORDA is shown by the bid prices.” Had ORDA found Cutting Edge to be qualified, it would have expended more money on the General Trades contract (which included the alternate) than if the contract was awarded to Bast. Thus, the court concluded, ORDA properly awarded the contract to Bast, albeit for the wrong reason. Under the doctrine of judicial restraint the court declined to consider ORDA’s disqualification of Cutting Edge or its request for a re-bid.

What this decision means for public bidders and owners going forward is not entirely clear. This type of provision has been used in ORDA (and other public) contracts for years.   While public owners have not historically been required to award a contract based solely on a base bid or to prioritize alternates, they have also not been precluded from doing so.  The risks of fraud, improvidence[2], favoritism or corruption seemingly exist with equal measure under either scenario, with the standards against such conduct offering protection while requiring actual evidence of it.

The question of bidder qualifications aside, timing would seem to be a factor. Had the election of the alternate been made after contract award rather than as part of it, the matter might not have reached the court.  The decision does not represent a black letter ruling that all alternates must be included in determining the low bid.  But if the contract award includes an alternate, that should be factored into determining who is the low bidder – at least according to one court.  The problem for bidders is the uncertainty at bid time whether alternative pricing will or will not be used to determine the low bid.   The goals of protecting the public fisc and preventing improvidence and other risks are best served by clarity in the bid process.  Had ORDA stated in the bid documents that alternates included with the contract award would be factored into determining the low bid, the process might have withstood judicial scrutiny.  But if, indeed, the process used by ORDA was void as a matter of law, as the court determined, ORDA should not have been “saved” (rewarded?) by its disqualification of Cutting Edge.  The ORDA specification presented the type of inherent unfairness to bidders that would justify a re-bid.  Rather than ending with the same result for a different reason, this case should have started over with a new beginning.

[1] Cutting Edge Grp., LLC v. Olympic Reg’l Dev. Auth., 75 Misc.3d 208 (Sup Ct, Essex County 2022).

[2] Meaning not planning carefully for the future, particularly spending money unwisely.  Some taxpayers might complain that “improvidence” is a feature of the system, not a bug.