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Vol. II, 2011
MSBCA Gets MBE Protest Jurisdiction
Salisbury University v. Joseph M. Zimmer, Inc., 2011 Md. App. LEXIS 66 (May 27, 2011)
According to a recent Court of Special Appeals decision, COMAR 21.10.03.14 - which prohibited bid protests regarding Minority Business Enterprise ("MBE") participation goals - is beyond the scope of the Board of Public Works' ("BPW's") authority to promulgate regulations. Pursuant to Zimmer, contractors aggrieved by a procurement unit's MBE-related decision have the statutory right to submit bid protests under the procedures set forth in COMAR 21.10.02, and those protests may be appealed to the Maryland State Board of Contract Appeals ("MSBCA").
In Zimmer, the Appellant, Joseph M. Zimmer, Inc. ("JMZ") submitted the low bid in response to an Invitation for Bids ("IFB") published by Salisbury University ("SU"). The IFB set forth an MBE participation goal of 10% of the total contract value. JMZ submitted a bid that indicated it met the 10% MBE goal. SU determined that the bid listed an MBE on the Participation Schedule that was not properly certified by the Maryland Department of Transportation. As a consequence, SU rejected JMZ's bid.
JMZ filed a bid protest of SU's rejection determination under COMAR 21.10.02. SU responded to JMZ's letter by noting that the protest could not be filed due to COMAR 21.11.03.14, which stated, "a protest under COMAR 21.10.02 may not be filed ... concerning any act or omission by a procurement [unit] under this chapter [regarding MBE policies]." JMZ appealed SU's protest denial to the MSBCA. The MSBCA ruled that it lacked jurisdiction because COMAR 21.11.03.14 prohibited protests regarding MBE policies.
JMZ brought a Petition for Judicial Review in Circuit Court, arguing that the BPW's promulgation of COMAR 21.11.03.14 was ultra vires, or beyond BPW's authority. The Circuit Court ruled in favor of JMZ's position. SU appealed the Circuit Court's decision to the Court of Special Appeals, arguing both (1) that JMZ's appeal was moot, since the contract had already been executed with and performed by another, and (2) that COMAR 21.11.03.14 was valid.
With regard to the mootness of the appeal, the Court of Special Appeals ruled that - while in the instant matter a remedy may not be available for JMZ - the matter is an "important problem which, absent resolution, will reoccur and may evade judicial review." Accordingly, the Court of Special Appeals found that the case should not be dismissed on the grounds of mootness.
In examining the validity of COMAR 21.11.03.14, the Court of Special Appeals found that State Fin. & Proc. §§ 15-215 and 15-217 invalidated the regulation. State Fin. & Proc. § 15-215(c) defines a "protest" as including "a complaint that relates to the formation of a procurement contract" including "the determination of the successful bidder or offeror." Section 15-217(a), "Initiation of protest or contract claim," sets forth, "[a] bidder ... may submit a protest to the procurement officer."
The Court of Special Appeals first rejected SU's argument that the preamble to the State's first MBE law (enacted in 1978) indicated the General Assembly's intent that the law did not create a private right of action. According to the Court, the first MBE law and the current State Fin. & Proc. article are "two separate statutes." As such, the preamble to the initial MBE law cannot affect the current, "unlimited right to file a bid protest concerning the determination of the successful bidder."
Next, the Court rejected SU's argument that the General Assembly indicated its assent to the regulation by amending the MBE law in 2006 after the MSBCA had previously ruled that COMAR 21.11.03.14 prevented the filing of bid protests regarding MBE matters. See, e.g., Knott Constr. Co., 6 MSBCA ¶ 555 (2004). The Court noted that the 2006 re-enactment of the MBE law did not give express attention to whether BPW could promulgate such a regulation; simply because the General Assembly re-enacted the MBE law does not impair the bidder's right to a protest under State Fin. & Proc. §§ 15-215 and 15-217.
Third, the Court dismissed SU's argument that §§ 15-215 and 15-217 gives the MSBCA jurisdiction to hear disputes under State Fin. & Proc. Title 15, but does not give jurisdiction over disputes under Title 14, "Minority Business Enterprise Policies." According to the Court, "Title 15 gives the [MSBCA] jurisdiction to hear all disputes, including MBE disputes, and Title 14 does not purport to take that jurisdiction away."
Notably, this decision distinguished a related, unreported opinion, David A. Bramble, Inc. v. Maryland Dept. of Gen. Svcs. (No. 51, Sept. Term 2009) in which the Court of Special Appeals' panel did not declare COMAR 21.11.03.14 invalid.
Impact of Zimmer decision: For some time now, a bidder faced the cost- and time-prohibitive requirement of complaining rejection of their bid on MBE grounds by way of filing an action for injunctive and declaratory relief in Circuit Court, rather than the relatively simpler process of filing a protest with the procurement unit and subsequent MSBCA appeal. Now, bidders may file protests and appeal those protests to the MSBCA--a review panel that deals exclusively with procurement law as opposed to judges who have to juggle cases involving other subject matters.
Because of this prior procedural deterrent, there has been a dearth of Maryland case law regarding the interpretation and implementation of the various MBE provisions set forth in State Fin. & Proc. Title 14 and COMAR 21.11.03. Combined with the recent settlement in Kline v. MDOT which led to the SHA Pilot Procurement Program, confusion among bidders as to the exact requirements of various MBE and DBE provisions found in statutes, regulations and solicitations may be clarified by MSBCA opinions and the agencies themselves.
Procurement or Not A Procurement? That Is The Question.
Md. Transp. Auth. v. Md. Transp. Auth. Police Lodge #34 of FOP, Inc., 2011 Md. LEXIS 369 (June 20, 2011)
The Court of Appeals, in Police Lodge #34, ruled that an Agreement between the Maryland Transportation Authority ("MdTA") and Fraternal Order of Police Lodge #34 ("FOP") for a "take-home vehicle program" was unenforceable because the Legislature did not expressly authorize MdTA to bargain collectively at the time the Agreement was executed. In addition to this ruling, the opinion cites the Court of Special Appeals' analysis as to whether such an agreement constituted a "procurement" and should be subject to Maryland State Board of Contract Appeals ("MSBCA") jurisdiction.
In 2006, MdTA entered into an agreement with FOP to fund a three year "take-home vehicle program" allowing FOP member officers to receive a personally-assigned patrol vehicle that the officer could use for commuting. In exchange, FOP agreed to request withdrawal of proposed legislation authorizing the MdTA and its officers to engage in collective bargaining. The proposed legislation was withdrawn, and MdTA began implementing the program by ordering vehicles.
In June 2007, MdTA discontinued the program and FOP filed suit for breach of contract in Circuit Court. The Circuit Court ruled that the Agreement was unenforceable on the grounds of (1) sovereign immunity, (2) Maryland procurement law, and (3) Maryland collective bargaining law.
Upon appeal at Md. Transp. Auth. Police Lodge # 34 of FOP, Inc. v. Md. Transp. Auth., 195 Md. App. 124 (2010), the Court of Special Appeals reversed the Circuit Court. Among its findings, the Court of Special Appeals held that the Agreement did not constitute a "procurement contract" for either lobbying services or vehicles. 195 Md. App. at 174-185.
The Court of Special Appeals determined that the Agreement was not a procurement contract for vehicles because it was not an agreement "between MdTA and the supplier of the vehicles." 195 Md. App. at 184. Similarly, the Court of Special Appeals determined that the Agreement was not a procurement contract for lobbying services because the "program was not an elaborate means of compensating [FOP] for advocating the [State's] position to the Legislature. ... The Agreement did not create a buyer-seller relationship." 195 Md. App. at 184-185. Since it was not "reasonably debatable" whether the Agreement was a procurement contract, the MSBCA was "palpably without jurisdiction" to hear the dispute. 195 Md. App. at 183, 185 (citing State v. Md. State Bd. of Contract Appeals and Law Offices of Peter G. Angelos, P.C., 364 Md. 446, 458 (2001)).
Impact of Police Lodge #34 decision:
The Court of Appeals' recitation of the Court of Special Appeals' finding regarding procurement law clarifies the scope of what is defined as a "procurement contract." Specifically excluded from this definition are agreements that call for a group to discontinue advocating a position, as well as agreements that lead to the aquisition of goods or services from someone other than a party to the agreement.
Unlikely Board of Public Works Approval May Be Reason Enough To Reject All Bids.
STG International, Inc., MSBCA No. 2755 (June 20, 2011)
The Maryland Board of Contract Appeals ("MSBCA"), in the recent STG International decision, identified a manner by which agencies may justify rejecting all proposals and cancelling a solicitation - namely, if the State believes that the Board of Public Works will withhold approval of the award.
In January 2010, the Department of Public Safety & Correctional Services ("DPSCS") issued a Request for Proposals ("RFP") for mental health services for inmates at state correctional facilities. Eight proposals were submitted in response to the RFP, four of which DPSCS initially determined were reasonably susceptible for award: MHM, Maryland, Inc. ("MHM"), STG International, Inc. ("STG"), Conmed Healthcare Management, Inc. ("Conmed"), and Prison Health Services, Inc. ("PHS").
Among the proposals initially determined not reasonably susceptible for award was a proposal from Hope Health Systems, Inc. ("Hope"), a minority-owned firm with experience only in adolescent - correctional mental health services. Hope protested and DPSCS rescinded its rejection of Hope's proposal.
After opening all five financial offers, the proposals were ranked as follows:
Following the initial ranking, DPSCS requested a Best and Final Offer ("BAFO") from all five offerors. In September 2010 all offerors were notified that MHM had been selected for award.
Hope protested the proposed award on the grounds that it was not afforded the same option to make a presentation given to other offerors. In November 2010, DPSCS rejected this protest and Hope appealed this denial to the MSBCA.
After selection of the awardee, but prior to award, DPSCS reversed its selection and disqualified MHM due to MHM's minority business enterprise ("MBE") submissions. After initially informing STG of DPSCS' "tentative" decision to award STG the contract, DPSCS formally rejected all proposals "due to specification changes." DPSCS made this determination without a single memorandum, letter, email or note discussing the determination. STG protested the rejection of all proposals and DPSCS rejected the protest. STG appealed to the MSBCA.
In denying STG's appeal, the MSBCA pointed out that, pursuant to COMAR 21.06.02.02C, the State retains broad discretion to determine that the cancellation of a procurement serves the State's best interest. Citing Scott Livingston's 1986 law review, "Fair Treatment for Contractors Doing Business with the State of Maryland," the MSBCA highlighted the need for a bona fide reason for cancellation after the State opens technical and financial offers.
The MSBCA reasoned that cancellation after opening of proposals is disfavored for two reasons: (1) the significant expense undertaken by offerors in preparing proposals and presentations, and (2) the possibility of an "auction scenario." Offerors will increase prices to the State by building into financial proposals the cost of misallocated bidding resources as a consequence of cancellations.
Despite the need for a bona fide reason for cancellation, the burden placed upon an appellant to overturn the State's cancellation is extremely high - namely, the appellant must prove that the cancellation was "fraudulent or so arbitrary as to constitute a breach of trust." See Automated Health Systems, Inc., MSBCA No. 1883, 2 MSBCA ¶ 113 (1985). One way of meeting this burden is by showing that "prejudice to bidders and harm to the competitive process outweighs the [State's] interest in resolicitation."
DPSCS identified five specification modifications likely to be issued in the revised RFP. Among these modifications was correction of inconsistent language concerning the weight of technical and financial factors in the award determination. The MSBCA ruled that this inconsistency could not be used as justification for cancellation as it was not discovered until long after the rejection of all proposals. In addition, a similarly flawed contract for other inmate medical services was executed by DPSCS without the proposed modifications.
The MSBCA found that the real reason for cancellation was an "unfortunate byproduct of the legitimate and reasonable exercise of the chain of command in the administration of state government services and the awkward position in which DPSCS was placed by virtue of a multiplicity of errors that caused the reversals of decisions which led to the bid protests that arose in the course of this procurement." Specifically, Department of Budget and Management ("DBM") officials cited the following flaws in the procurement: (1) the possibility of a successful bid protest and (2) the unlikelihood that the Board of Public Works would approve award to STG.
The MSBCA held that the cancellation was within the legitimate exercise of discretion on the part of DPSCS and DBM.
Impact of the STG opinion:
According to the MSBCA's reasoning in STG, the State may legitimately cancel a procurement after proposals have been opened if the Board of Public Works would likely reject award to the recommended offeror on the ground that the procurement was seriously flawed in some way.
Unbalanced Bid May Make Bidder Non-Responsible.
Brawner Builders, Inc., MSBCA Nos. 2770 & 2771 (July 7, 2011)
The Maryland State Board of Contract Appeals ("MSBCA") recently dismissed an appeal that challenged both the State's determination to reject all bids and subsequent determination to reject the low bid as materially unbalanced. In Brawner, the State Highway Administration ("SHA") issued an invitation for bids ("IFB") for bridge deck overlay. Many of the 51 items listed on the schedule of prices were estimated quantities, including cubic yards of concrete overlay and linear feet of road barrier relocation.
After bid opening, SHA realized that its estimated quantities for two of the low bidder's highest-priced items - namely, temporary precast concrete barriers and F-shape concrete barriers - were more than 20% underestimated. SHA determined that the low bid would be displaced if these quantities had been accurately estimated in the IFB. As a consequence, SHA rejected all bids and reissued the IFB with corrected estimated quantities. The previous low bidder, Brawner Builders, Inc. ("Brawner"), protested the rejection of all bids as "not in the fiscal interest of the State of Maryland."
In response to the revised IFB, Brawner was again the low bidder by approximately $40k. This time, Brawner offered a price that was twice as much as the other bidders for concrete overlay, a highly variable item. Similarly, Brawner's new bid offered a price of $275 per foot for moving road barriers, where all other bidders bid $10 or less. SHA rejected Brawner's bid as materially unbalanced.
With respect to Brawner's protest of the rejection of all bids, the MSBCA held that the State has a "broad right" to reject all bids in accordance with COMAR 21.06.02.02C(1) and General Provision 2.18 of SHA's Standard Specifications. Specifically, a protestor must demonstrate that the State's rejection of all bids is "fraudulent or so arbitrary as to constitute a breach of trust." Id. at 5-6. The State may legally justify its decision so long as the determination is based on a "fairly founded conclusion that such action is 'in the State's best interest.'" Id. In this instance, Brawner failed to state sufficient grounds of appeal, since it did not allege that the determination met this standard.
With respect to Brawner's protest of SHA's determination that Brawner's bid was materially unbalanced, the MSBCA found that General Provision 2.17 of SHA's Standard Specifications allows SHA to reject an unbalanced bid as a matter of responsibility. Id. at 8-9. In this case, the MSBCA believed that SHA properly determined Brawner's bid materially unbalanced. In support of this finding, the MSBCA stated:
It is not merely that the Brawner bid is very low on 47 out of 51 categories; it is that appellant submitted a bid that is also very high on the other four (4). That is what renders its bid unbalanced, namely, submitting a price of twice as much as its competitors for the cost of [bridge deck] concrete overlay, which may reasonably be expected not only to constitute a large portion of the final total charge to the State, but also to be subject to the potential of post-award increases in quantity needs at the contractor's sole control. What also renders the Brawner bid unbalanced is its attempt to charge a hundred times more for the cost of moving concrete barriers in comparison to its competitors, where again, the contractor rather than the State may seek to determine how many times barriers must be moved.
Impact of the Brawner opinion:
The MSBCA restates the high standard of deference, set forth in STG International, given to the State's determination to reject all bids. Challenging such a determination requires such a level of arbitrariness that it is quite difficult to overturn. Similarly, where a bidder's unit prices are far out of line with other bidders on items that are inherently quite variable, the MSBCA will uphold a determination that the bid is unbalanced. In this case, the unbalanced nature of the bid was in the magnitude of at least double on these items compared to other bidders.
Violation of Special Bidding Instructions Is Not Waivable
PDI-Sheetz, Inc., MSBCA No. 2757 (July 14, 2011)
The Maryland State Board of Contract Appeals ("MSBCA") found in a recent decision that a procurement unit may not waive - as a minor irregularity - the failure to meet minimum unit bid prices where the invitation for bids ("IFB") explicitly renders a non-conforming bid non-responsive. In PDI-Sheetz, an State Highway Administration ("SHA") IFB for bridge maintenance throughout SHA's District 5 included "Special Bidding Instructions" which set forth that "IF A BID PRICE IS BELOW THE MINIMUM COST ESTABLISHED FOR ANY ITEM, THE BID WILL BE CONSIDERED NON-RESPONSIVE AND WILL BE REJECTED."
Allied Contractors, Inc. ("Allied"), submitted the low bid. Both Allied and the second low bidder failed to satisfy the Special Bidding Instructions because they both bid below a minimum unit price established on the IFB's schedule of prices. Specifically, Allied bid only $10.00 per hour on an item that required a minimum of $10.80 per hour. The difference in extended prices between the required minimum and Allied's bid was $64, which was less than the difference between Allied and the second low bidder.
At first, SHA rejected Allied's bid and the second low bid as non-responsive pursuant to the Special Bidding Instructions. Allied protested rejection of its bid, arguing that its non-compliance could be waived as a minor irregularity according to COMAR 21.06.02.04. SHA agreed with Allied, rescinding its rejection of Allied's bid. PDI-Sheetz, Inc. ("PDI-Sheetz"), the third low bidder, protested SHA's determination. SHA rejected PDI-Sheetz' protest and PDI-Sheetz appealed to the MSBCA.
The MSBCA sustained PDI-Sheetz' appeal, stating that "SHA cannot just ignore the language of its own Special Bidding Instructions." Citing Group Health Association, MSBCA No. 1679, 4 MSBCA ¶ 310 (1992), the MSBCA held that SHA could not determine a failure to comply with mandatory, material contract requirements to be a minor irregularity. The MSBCA considered the Special Bidding Instructions a material requirement of the IFB because of General Provision 2.17(b)(3)(b) of SHA's Standard Specifications which prevents unbalanced bidding.
Impact of the PDI-Sheetz decision:
Where SHA indicates in a bid that a failure to meet unit price minimums or maximums will render a bid non-responsive, that provision will be strictly enforced. Bidders that make scrivener's errors in their bids cannot point to the error as an excuse for failure to meet the unit price restriction.
MSBCA to Contractor: Claim not timely, and not valid besides.
Concrete General, Inc., MSBCA No. 2693 (July 14, 2011)
The Maryland State Board of Contract Appeals ("MSBCA") rejected a contractor's untimely claim because, according to MSBCA, the contractor agreed to do the work as changed and waited too long otherwise to assert any claims. The State Highway Administration ("SHA") invitation for bids ("IFB") specified "galvanized steel soldier piles" and "concrete lagging." Concrete General, Inc. ("CGI") submitted the low bid, which was partly based upon a subcontract quote for retaining wall work from the Schnabel Foundation Company ("Schnabel"). Schnabel's subcontract quote offered retaining wall work including "galvanized soldier piles" and "precast lagging."
During contract performance, CGI proposed substitution of timber lagging rather than precast concrete lagging. In August 2004, SHA agreed to the substitution only if CGI agreed to encapsulate the front flanges of timber soldier piles in concrete. According to the MSBCA, CGI agreed.
In November 2004, CGI discussed with SHA the potential of filing a claim for the increased cost associated with the concrete encapsulation. CGI did not file the claim until July 2007. SHA rejected the claim, and CGI appealed to the MSBCA.
The MSBCA rejected CGI's appeal for two reasons. First, the claim was untimely pursuant to State Fin. & Proc. Section 15-219(a) and COMAR 21.10.04.01A. These provisions require a contractor to file a written notice of a construction contract claim within 30 days after the basis for the claim is known or should have been known.
Second, the MSBCA substantively dismissed the claim because the contract specifications unambiguously called for concrete lagging. In fact, there was a pre-bid inquiry regarding use of timber lagging but, according to the MSBCA, SHA specifically rejected timber lagging as unacceptable.
Impact of the CGI decision:
When the specifications of a contract call for a particular material, the State may be willing to allow a substitution. If the State does so, the contractor may be rejected an equitable adjustment in the contract sum unless the parties clearly negotiate such a change orders.
GOMA Issues New MBE Subgoal Guidelines
Following the 2011 Regular Session, Governor Martin O'Malley signed into law House Bill 456, which amended Maryland's Minority Business Enterprise ("MBE") statute. Effective July 1, 2011, the law repealed the prior statutory subgoals of 7% and 10% of a unit's total dollar value of contracts to African American-owned and women-owned businesses, respectively. The law replaced these statutory subgoals with language requiring the Governor's Office of Minority Affairs ("GOMA") to establish guidelines for each unit to consider in setting their own subgoals.
On July 1, 2011, GOMA issued "Guidelines For Setting Contract Subgoals In State MBE Program." In summary, these guidelines established a six-step process each unit must follow in setting project subgoals:
1. Determine the expected value of the procurement. 2. Identify the Major Industry Category encompassed by the procurement. 3. Apply GOMA's Recommended Subgoals, pursuant to steps 4-6. 4. If the overall MBE goal is less than the sum of the Recommended Subgoals and a two percent margin, do not apply subgoals. 5. If the number of subgroup certified firms who are available to perform the work on a contract is less than three, the Recommended Subgoal may not be applied. 6. If the number of subgroup certified firms who are available to perform the work on a contract is three or more, and the unit does not set the Recommended Subgoal, the unit must explain its basis for not doing so.
GOMA's Recommended Subgoals are shown on the chart below.
Note that this chart indicates a number of significant changes. Subgoals have now been introduced for Hispanic- and Asian-American-owned businesses in certain categories. Also, the total subgoals for Construction and Maintenance are now less than the 17% previously required by statute. This means that a larger percentage of Construction and Maintenance MBE goals may be met by way of participation of any available MBE regardless of subgroup.
BPW Advisory 2011-1
Purpose: To encourage the use of hiring agreements as a mechanism for providing current and former Family Investment Program recipients with employment prospects on State procurement contracts.