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Pennsylvania Court Holds That Non-Compliance with Requirements of Instructions to Bidders Does Not Automatically Render Bid Incapable of Acceptance
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Gaeta v. Ridley School District
SUPREME COURT OF PENNSYLVANIA, 788 A.2d 363; 2002 Pa. LEXIS 132( January 25, 2002)
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| Ridley School District invited bids for various prime contracts for the construction of a new high school. IBE Contracting, Inc. submitted a bid for the “Aluminum Entrances and Storefronts Construction”. In its bid package, IBE submitted a bid bond from a surety with a Best Rating of “B”. The Instructions to Bidders, however, required that, with respect to the bid bond, the “Surety Company shall be licensed. . .with a minimum Best Rating of A- or better.” After it was determined that IBE was the lowest bidder, the School District contacted IBE and requested that IBE submit a bid bond from a surety with the required Best Rating. IBE submitted a compliant bid bond and the School District awarded IBE the contract.
Gaeta, a taxpayer in the school district, filed a complaint seeking a preliminary injunction against the award of the contract to IBE on the grounds that its bid was non-responsive because the Best Rating for the bid bond surety did not conform to the Instructions. The trial court denied the injunction but the Commonwealth Court reversed.
On appeal, the Pennsylvania Supreme Court denied the injunction, thereby allowing the School District to award the contract to IBE, because (1) the Best Rating requirement for the bid bond was not material and (2) IBE enjoyed no competitive advantage over its competitors.
First, the Court held that the defect was not material because a bid bond serves only a limited purpose—unlike a performance bond—and was not required by statute. The limited purpose, security until a contract can be executed, affords a greater degree of discretion to the School District in determining whether a bid is responsive.
Second, the Court held that IBE enjoyed no competitive advantage because both surety companies charged nothing for the bid bond and, therefore, the Best Rating of the bid bond surety had little or no bearing upon the amount of IBE’s bid, which was significantly less than the next lowest bidder’s bid.
Gaeta had argued that under the language of prior Pennsylvania cases, the failure of IBE to supply a bid bond conforming with the mandatory requirements of the Instructions to Bidders necessarily rendered a bid materially non-responsive. It is a widely accepted tenet of public procurement law that the responsiveness of a bid must be determined as of the time of the bid opening, while there may be an opportunity to resolve matters pertaining to responsibility after the bid opening, but prior to award.
For a full text copy of the decision courtesy of lexis.com, click here. |
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Pennsylvania Federal District Court Holds That Obligee On Performance Bond May Not Maintain Bad Faith Claim Against Surety
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The Norwood Company v. RLI Insurance Company
2002 U.S. Dist. LEXIS 5560 (E.D. Pa. 2002)
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| Subcontractor for installation of glass fiber reinforced concrete panels defaulted in performing its work. Prime contractor called on subcontractor’s performance bond surety to complete the work or to require the subcontractor to complete it. Surety declined to do so on the ground that a dispute existed. Prime contractor claimed that surety made no investigation of its claim for relief under the bond.
Prime contractor sued surety, among other grounds, on a bad faith claim under a Pennsylvania statute which imposes extra-contractual liabilities in an action upon an insurance policy, where an insurer has acted in bad faith toward its insured.
The federal district court held that the prime contractor could not pursue the claim. First, it held that the statute applies to insurance policies and that a surety bond is not an insurance policy. Second, the Court held that the statute only applies to an actions by an insured against its insurer, and not to claims by an obligee (a third party claimant) against a performance bond surety.
The court observed that its literal interpretation of the statute was consistent with ordinary meaning of the terms used in the statute, and also consistent with the rule that penal statutes should be narrowly construed. (Because the bad faith statute provides for a remedy of punitive damages, it can be considered punitive in character).
For the full text of the decision courtesy of lexis.com, click here.
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Pennsylvania Court Holds Arbitration Clause Which Did Not Permit Arbitrators to Question Enforceability of Exculpatory Clause Was Not Enforceable
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Carll v. Terminex Int’l. Co., L.P.
2002 PA Super 44; 793 A.2d 921; 2002 Pa. Super. LEXIS 183 (2002)
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| The Carlls (“Plaintiffs”) instituted an action against Terminex International Company (“Terminex”) and other entities (collectively the “Defendants”), claiming that they sustained severe and permanent injuries as a result of Terminix’s negligent application of pesticides in and around their home. The Defendants responded with a petition to compel arbitration of the matter in accordance with the arbitration provisions of the contract at issue.
The trial court refused to grant the petition, holding that the arbitration clause was contrary to the public policy of the state, and was therefore void. The Superior Court of Pennsylvania agreed.
Pursuant to the clause, the arbitrator was without the authority to award the Plaintiffs damages for physical injuries resulting from the Defendants’ own negligence. It is this absence of authority to afford relief for personal injury in a consumer contract that the Court deemed contrary to the public policy of the state. The arbitration clause was therefore deemed void.
The fact that courts have upheld limitation of damages provisions in the past did not persuade the Superior Court to alter its conclusion. Rather, it noted that such provisions have been upheld only where the contracting parties enjoyed equality in bargaining power and sophistication. Because it rarely deals with such equals in the consumer context, the Court deemed the decisions enforcing limitations clauses inapposite to the contract at issue.
The Superior Court also refused to sever the limitation of damages provision from the arbitration clause. It noted that the limiting language was not independent of the agreement to arbitrate. Rather, the same provision that directed arbitration required the to enforce the clause. Therefore, the Court held that the entire clause must fail.
For the full text of the decision courtesy of lexis.com, click here. |
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VA Board of Contract Appeals Permits Application of “Measured Mile” Approach for Determining Inefficiencies Using Similar But Non-Identical Tasks as Standard of Comparison
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In re P.J. Dick, Inc.
2002 VA BCA LEXIS 2; 2002-1 B.C.A. (CCH) P31,732 (9/27/01)
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| The Department of Veterans Affairs (“VA”) awarded P.J. Dick, Inc. (“PJD”) a contract for the construction of a clinical addition to the Department of Veteran Affairs Medical Center in Ann Arbor, Michigan (the “Contract”). To complete its work under the Contract, PJD entered into a subcontract with Kent Electric Services (“KES”) pursuant to which KES agreed to perform all electrical work for the project for labor and material costs plus a $10,000 per month management fee.
Factoring in change orders, KES budgeted approximately 27,000 man hours to complete the branch circuit work for the project. Due to deficiencies in the electrical drawings and acceleration of the electrical work, KES expended over 70,000 man-hours installing and completing the branch circuit. Per the subcontract, PJD paid KES for the 70,000 plus hours. In turn, PJD asserted a claim against the VA for damages resulting from labor inefficiencies and loss of productivity caused by (1) the VA’s repeated revisions of electrical drawings during the installation of the branch circuits and (2) the VA’s acceleration of the project by its refusal to grant extensions of time.
PJD argued the issuance of revised drawings during the installation precluded KES from scheduling its work ahead of time, resulted in “piece meal” installation and prevented KES from obtaining a rhythm in its work. Moreover, because the VA constructively accelerated the project, KES had to have several crews working at once. This caused more inefficiencies because KES’s supervisory personnel were spread throughout the project and KES’s labor personnel never enjoyed the benefit of their learning curve.
The VA argued that KES’s labor problems stemmed from, inter alia, too few foremen and the effects of winter weather. The Board, however, found in favor of PJD and that the VA was liable for causing labor inefficiencies with respect to the branch-circuit installation.
In determining damages, the Board accepted a calculation relating to the inefficiency of branch-circuit installation using the “measured mile” method as compared to benchmarks established in the installation of the feeder circuit work.
Although the “measured mile” method is recognized as the an acceptable methodology for quantifying labor inefficiency, it is often assumed that the analysis requires productivity rates will be compared for the same work. Here, the Board found that there was no portion of the branch work installation that was not affected by the VA’s revisions and acceleration; therefore, there was no basis to determine the loss of productivity by reference to the branch work which was performed in unimpacted circumstances. Nevertheless, over the VA’s objections, the Board accepted an efficiency factor obtained from the “measured mile” of the feeder circuit work on the grounds that the branch and feeder work (1) used same labor pool; (2) required reasonable similar skill, knowledge and effort; and (3) were performed in the working conditions upon planned and budgeted by KES. The Board acknowledged a departure from the established measured mile methodology, but still concluded that the approach provided a reasonable standard of comparison.
For the full text of the decision courtesy of lexis.com, click here. |
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