Bay Cities Paving v. San Leandro

Citation: Not availableDocket: A137971A

Court: California Court of Appeal; February 12, 2014; California; State Appellate Court

Original Court Document: View Document

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Bay Cities Paving and Grading, Inc. appealed a judgment denying its petition for a writ of mandate contesting the City of San Leandro's decision to award a public works contract to the lowest bidder, Oliver DeSilva, Inc. (G&B), despite G&B's bid package missing the first page of its bid bond. Bay Cities, the second lowest bidder, argued that the omission constituted a material deviation from the contract specifications. However, the court upheld the City's award, determining that G&B's bid was accompanied by an enforceable bond and that the missing page was a minor defect that the City had the discretion to waive. The City had opened bids for the BART-Downtown Pedestrian Interface Project on October 23, 2012, where G&B's bid of $4,846,700 was significantly lower than Bay Cities' bid of $5,359,725. After Bay Cities filed a protest, the City confirmed that the omission could be waived and proceeded with awarding the contract to G&B.

On November 19, the City received a confirmation letter from Travelers Casualty and Surety Company regarding G&B’s bid bond, stating that the bond was approved and that the missing first page did not affect its commitment. On the same day, the San Leandro City Council unanimously adopted a resolution declaring G&B’s bid the lowest responsible bid, rejecting other bids, waiving irregularities in G&B's proposal, and awarding the contract to G&B. The resolution authorized the City Manager to award the project to the next lowest bidder if G&B failed to execute the contract and to recover bid security to protect the City’s interests.

On November 20, the appellant filed a petition for a writ of mandate and an Ex Parte Application for a Temporary Restraining Order against the contract award to G&B. The trial court held a hearing on the application on November 26, denying the request two days later. A hearing on the writ petition occurred on January 16, 2013, with a denial following a week later. The court found that G&B's omission of page 33 of the bid bond was a minor irregularity that did not unfairly advantage G&B, as the signature page identified the project and referenced the missing text. The City deemed the bid bond enforceable, leading to the judgment denying the writ petition on January 23, 2013. The appellant filed a notice of appeal on February 21, 2013.

The appellate review of the public contract award will focus on whether the City’s actions were supported by substantial evidence and whether they were arbitrary or inconsistent with proper procedures. The burden of proof lies with the appellant to demonstrate otherwise, as the court presumes the City’s actions were justified and supported by evidence. Mandamus is applicable to compel decision-making but not to dictate discretion unless it is exercised in only one reasonable way.

Appellant asserts that the appropriate standard of review is the "independent judgment" test, particularly regarding statutory interpretation and potential legal violations by the City. However, the primary issue in this appeal is factual, necessitating a review under the substantial evidence standard. Generally, cities must conduct competitive bidding for significant contracts and award these to the lowest responsible bidder, defined as one capable of fulfilling contract obligations. Bids are considered responsive if they adhere to bidding instructions, and non-conforming bids may be rejected unless the deviations are inconsequential and do not affect bid amounts or provide undue advantages. Strict compliance with bidding requirements is essential to maintain governmental integrity, but inconsequential deviations can be waived by the contracting entity. The City’s authority to waive such deviations is supported by the San Leandro Municipal Code and the specific project's "Notice to Bidders." Appellant contends that a defect in G&B’s bid was material and should not have been waived. The appeal questions whether the City abused its discretion in deeming the deviation inconsequential. Determining if a bid's deviation is substantial or inconsequential is a factual question, requiring evaluation of whether it affects competitive fairness and aligns with public interest. Allowing a losing bidder to challenge a low bid based on minor technicalities would undermine public policy and be detrimental to public interests.

The "Notice to Bidders" issued by the City allowed for the waiver of minor irregularities in bid submissions. Specifically, Section 10 grants the City the right to reject bids or waive informality, while Section 27 clarifies that the City can waive irregularities that do not affect the bid amount, unless doing so would unfairly advantage the low bidder. In this appeal, the primary issue is the missing page of G&B’s bid bond. The appellant argues that the City improperly waived this irregularity. Despite the legal requirement for bid security, the City deemed the missing page inconsequential since the included second page provided sufficient information to verify compliance with the bid security requirement. Substantial evidence supports the City’s decision, as G&B used the City's standard bid bond form, which was provided to all bidders. The second page of G&B’s bid bond contained necessary details, including the project identification and bidder information. The missing first page only required minimal additional information, all of which was either known to the City or already provided in G&B’s submission. Ultimately, the City had adequate information to conclude that G&B met the bid security requirements.

Appellant acknowledges the substantial evidence supporting the City’s determination but seeks to frame the appeal as a question of law warranting de novo review. Appellant argues that the City’s contract with G&B is null due to G&B's failure to provide a bidder’s bond, claiming this rendered G&B's bid incomplete and non-responsive. Appellant emphasizes the absence of valid bid security, asserting that the lack of terms for the surety negates the bond's enforceability. However, the City found that G&B did secure its bid with a bond, a conclusion supported by substantial evidence, undermining appellant’s assertion of non-compliance.

Appellant further argues that the absence of the face page of G&B’s bid bond from the original submission raised a legal question regarding enforceability. It relies on general contract law principles, suggesting that the interpretation of a contract is a judicial function. Nonetheless, this principle does not apply to the City’s determination at the bidding stage, which focused on compliance with bid security requirements. The City concluded that G&B substantially complied, despite the missing documentation.

Additionally, appellant claims the City erred by utilizing its standard bid bond form to address missing information from G&B’s bid. Appellant insists that the City’s evaluation should have been limited to the original bid's contents. However, appellant fails to cite authority supporting this restrictive approach. The reliance on the case of Taylor Bus Service, Inc. v. San Diego Bd. of Education is misplaced, as it pertains to a different context involving due process and the complexity of determining bid responsiveness, with the court noting that such determinations generally do not require external investigation.

The Taylor Bus court clarified that a public agency has the inherent discretionary power to overlook minor variations in bid specifications, but the determination of a bid's responsiveness is generally less complex than assessing non-responsibility. The appellant argued that the school district abused its discretion in finding its bid non-responsive and rescinding its conditional contract award. The court applied a substantial evidence standard of review, placing the burden on the appellant to demonstrate a lack of substantial evidence supporting the district's findings. The court ultimately upheld the district's findings as supported by substantial evidence, indicating no abuse of discretion.

The Taylor Bus case does not substantiate the appellant's claims on appeal. It specifies that determining bid responsiveness can often be made without external investigation, and using project-specific contract materials for this evaluation is lawful. The case also reiterates that the substantial evidence standard applies to claims of abuse of discretion regarding contract awards. 

The appellant's primary argument asserts that defects in G&B's bid were significant and provided an unfair competitive advantage over other bidders. Citing Valley Crest, the appellant draws parallels to a case where a low bidder's non-compliance with subcontractor work percentage requirements was deemed a material defect that could not be waived. In that instance, the court found that the defect provided an unfair advantage, allowing the bidder to withdraw without bond forfeiture, thus reinforcing the notion that certain bid defects cannot be considered inconsequential if they confer a competitive edge.

Appellant argues that the judgment should be reversed based on the precedent set by Valley Crest, claiming the City made a legal error by allowing G&B an unfair advantage in the bidding process. This advantage arises from a defect in G&B's bid, which, according to appellant, would enable G&B to avoid liability under its bidder's bond. The appellant’s argument is founded on two faulty factual theories. 

Public Contract Code section 5103 outlines the procedure for a bidder to be relieved from obligations due to mistakes, requiring the bidder to demonstrate the existence of a mistake, timely notification to the public entity, material difference from the intended bid, and that the mistake was due to filling out the bid rather than carelessness. The Valley Crest court employed a de novo standard of review for statutory interpretation, but this case does not involve any disputed statutory interpretation.

Appellant claims that G&B’s missing bid bond page provided it the option to decide post-bid whether to be bound by the bid bond, arguing that this allowed G&B to avoid liability if it chose not to submit the missing page after the bid deadline. However, the City contended that the core issue was whether the submitted bid bond was enforceable, asserting that the bond information was valid and that the omission was a minor defect that could be waived. The City had confirmed the signatures of the obligor and bonding company at bid opening, which rendered the bond enforceable. This distinguishes the current case from Valley Crest, where a mistake was corrected before acceptance of the bid.

Furthermore, appellant's second theory posits that the omission of the bid bond page provided G&B a competitive edge by creating ambiguity around the validity of its bid bond. However, the City concluded that G&B’s original bid was adequately supported by a valid bond, contradicting appellant's claims of improper supplementation or disputed validity.

Appellant argues that G&B could have avoided liability under its bond by contesting the validity of its bid due to a missing document, thereby claiming a competitive advantage over other bidders. This argument is flawed, as merely having the opportunity to contest a bond does not equate to a competitive advantage in the bidding process. Any bidder could potentially disavow their bond; thus, opportunity alone does not establish an advantage. The City determined that the missing page did not create an unfair advantage because G&B's submitted documentation demonstrated compliance with bid bond requirements. Appellant's reliance on speculation cannot undermine this factual finding.

Appellant cites Valley Crest to assert that any bid deviation allowing a bidder to avoid binding obligations is significant, regardless of intent to withdraw. However, the Valley Crest case involved a concrete mistake warranting relief under Public Contract Code section 5103, which does not apply here. Appellant acknowledges this but misinterprets the legal principle, suggesting that the opportunity to withdraw without forfeiting the bond is key. However, such an "opportunity" lacks legal foundation and is not equivalent to an actual competitive advantage. The City’s conclusion that G&B's bid defect did not confer an unfair advantage stands, as the original documentation satisfied the security requirement. Appellant fails to present any statute or legal rule that would provide grounds for withdrawal without bond liability, and speculation cannot counter the factual determination made by the City. The case of Ghilotti further illustrates that a valid competitive advantage arises only from actual grounds for withdrawal without liability, not merely from speculative opportunities.

GBCI submitted the lowest bid for a city contract but planned to subcontract 55.44% of the contract price. After the second lowest bidder protested, the city determined that GBCI's failure to meet a 50% subcontracting requirement was "nonsubstantive and inconsequential," and awarded the contract to GBCI. The trial court denied a writ of mandate to block this award, a decision affirmed by the Ghilotti court. The court stressed the need to evaluate whether a bid variation creates an unfair competitive advantage and found that the appellant failed to demonstrate such an advantage for GBCI. It ruled that a bid defect affecting the bid amount or process does not inherently establish competitive advantage. Additionally, the court clarified that a bid defect could not be waived if it allowed a bidder to withdraw without penalty, but noted the appellant did not argue this point in trial. The Ghilotti court distinguished the case from Valley Crest, where a competitive advantage was evident due to the bidder's legal recourse to withdraw. The court concluded that the appellant did not prove the city abused its discretion in awarding the contract to G&B, as the determination of an inconsequential deviation was backed by substantial evidence. The appellant's assertion that the deviation was material as a matter of law conflicted with the factual basis required for such a determination. Moreover, reliance on the MCM case was misplaced, as it involved different circumstances regarding bid responsiveness.

The trial court denied the writ petition, which was subsequently affirmed by the appellate court. The appellate court provided two independent reasons for concluding that the City of San Leandro did not abuse its discretion in refusing to waive defects in the MCM bid. First, even if the bid's deviations were deemed immaterial, the city was not obligated to waive them; it has the discretion to either accept or refuse to waive such deviations. Second, the city’s determination that the defects were material was supported by substantial evidence, indicating that these defects gave MCM a competitive advantage by allowing it to withdraw its bid without forfeiting its bid bond under Public Contract Code section 5103. The court affirmed that the city's conclusion was justified, and the appellant failed to demonstrate that the city abused its discretion regarding a similar deviation in G&B’s bid. The judgment and order of the superior court denying the appellant's petition for a writ of mandate were affirmed. The opinion, initially unpublished, was ordered to be certified for publication.