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Great West Contractors, Inc. v. Irvine Unified School District

August 31, 2010

GREAT WEST CONTRACTORS, INC., PLAINTIFF AND APPELLANT,
v.
IRVINE UNIFIED SCHOOL DISTRICT, DEFENDANT AND RESPONDENT.



Appeal from a judgment of the Superior Court of Orange County, Sheila Fell, Judge. Reversed and remanded. (Super. Ct. No. 30-2008 00107122).

The opinion of the court was delivered by: Sills, P. J.

CERTIFIED FOR PUBLICATION

OPINION

I. THE IMPORTANCE OF THIS CASE

This case is important for two reasons. First, it presents a challenging problem in public contracting law: How to distinguish a "non-responsive" bid from a de facto determination that the bidder is not a "responsible" bidder. The difference is significant not only to the bidder, but to the taxpaying constituency of the public entity: A truly non-responsive bid may be summarily denied by a public entity even if the bid is otherwise monetarily the best for the entity. On the other hand, a determination of non-responsibility entitles the bidder to a hearing where certain minimal elements of due process must be afforded before the contract can be awarded to the next-best bidder.*fn1

More particularly, this case illustrates the necessity of following the rule enunciated in 2007 by our Fifth District colleagues in D.H. Williams, supra, 146 Cal.App.4th 757 (D.H. Williams). Under the D.H. Williams rule, a public agency cannot reject the bid of the lowest bidder on a public works project on the theory that the bid is "non-responsive" to the agency's request for bids when, in substance, the real reason for the rejection is that the agency thinks the lowest bidder is "not responsible" -- at least not without giving the lowest bidder the chance for a hearing on whether the lowest bidder really is "not responsible." On the record before us, because D.H. Williams was not followed, the Irvine Unified School District appears to have paid $800,000 more than necessary to remodel two elementary schools.

The second major reason this case is important is that it presents an object lesson in how evidence that, at least on its face, tends to show favoritism -- indeed, on this record, favoritism most foul -- never got squarely presented to, or considered by, the trial court. The reason? An unfortunate combination of trial court calendaring beyond a petitioner's control, and a public entity's delay in complying with a request for information. (Readers can judge for themselves, when we recount the facts in detail in part II below, whether "stonewalling" might not be a better word than "delay.")

Here, one competitor in a bid for a school remodeling contract, for some reason never adequately explained by the public entity, had access to the lowest bidder's bid information within 24 hours of the opening of all the bids. Thus, this competitor was able to present a bid challenge almost immediately to the contracting school district based on the allegation that the lowest bidder had omitted to disclose some licenses with which it or its principals had been associated. And that competitor went on to be awarded one of two contracts up for award.

But when the lowest bidder tried to get a copy of that very same competitor's bid (as well as that of another company that was awarded the second contract), the school district did not turn over that information until several weeks later. More pointedly, the information was deliberately not made available until after the critical first court hearing in the case.

And then, when the lowest bidder finally did get the information on its competitors' bids, it allegedly discovered that its successful competitors had been guilty of the very same omission with regard to the disclosure of all associated licenses that was the ostensible reason the lowest bidder's bid was summarily rejected in the first place.

However, when, in the second hearing on the lowest bidder's main request for relief, the lowest bidder tried to proffer evidence that would show how it had been treated differently from the winning competitors, the school district vigorously objected on the ground that the evidence was submitted too late! It doesn't take Hamlet to figure out that something rotten happened in this case. In fact, it suspiciously fits George Washington Plunkitt's definition of "honest" graft -- the use of tips to gain an advantage over one's rivals in public contracting.

Because this is a long opinion, we include an outline of it in the margin so that readers can see where the various pieces fit.*fn2

II. THE HISTORY OF THIS CASE

A. The Bid Call and Prequalification

In late March 2008, the Irvine Unified School District put out what is sometimes called a "bid call," asking for contractor bids on two elementary school modernization projects, Eastshore and Northwood.*fn3

Before bids were submitted, however, there was something called a "pre-qualification" process. The process is set out in section 20111.5 of the Public Contract Code. Basically, subdivision (a) of the statute gives the governing board of a school district the discretion to require prospective bidders to "complete and submit" a "standardized questionnaire and financial statement," including "a complete statement of the prospective bidder's financial ability and experience in performing public works." Subdivision (b) of the statute requires such districts to "adopt and apply a uniform system of rating bidders on the basis of the completed questionnaires and financial statements, in order to determine the size of the contracts upon which each bidder shall be deemed qualified to bid."

Plaintiff Great West went through the prequalification process for the Eastshore and Northwood projects. On May 1, the District sent Great West a letter saying Great West was indeed qualified to bid on the two projects.

B. The Opening of the Bids and the Immediate Challenge to the Lowest Bidder's Bids

Upon the opening of the bids on May 8, it was revealed that Great West was the lowest bidder on both projects. On Eastshore, JRH Construction, the eventual winner, was the third-from-lowest bidder. On Northwood, Construct 1, the eventual winner, was the third-from-lowest bidder. The difference between Great West's bid and JRH's on the Eastshore project was about $500,000. The difference between Great West's bid and Construct 1's bid on the Northwood project was about $300,000.*fn4

Great West had given as its license number 673901. But an item in the required bid package had asked: "Have you ever been licensed under a different name or license number?" In the question, there was a footnote after the word "you" which defined "you" to include a contractor's "owners, officers, directors, shareholders, principals, responsible managing officer (RMO) or responsible managing employee (RME)." Great West had simply answered, "no." That "no" answer would soon become the ostensible reason the company would not get the contract.

On May 9, the day after the bids were opened, the vice president of Construct 1 (the eventual winner of the Northwood contract) sent the District a letter challenging the bids of Great West and the second-to-lowest bidder as well. The Construct 1 letter made two points: The letter argued that the two lower bidders had relied on an unreliable subcontractor for certain vapor emission treatment (a point that has no further relevancy to this case) and, more importantly, that Great West had "failed to disclose that they had previously operated under license #674120 and are also currently operating under license number #756099." The letter also asserted that Great West's president, Gary Wolfinger, "was also listed as the RME under license #376709." (Readers should remember the May 9 date of Construct 1's letter -- it will resurface as significant 18 paragraphs from now.)

The letter apparently prompted a staff review of Great West's bid, which resulted in a letter from the District's director of construction and facilities to Wolfinger of Great West on May 16, 2008. The staff letter made these points:

(1) The Contractors State License Board website listed Great West and Wolfinger as a joint venture under license number 756099 (referenced in the Construct 1 letter above).

(2) Also, the board's "records" indicated that Wolfinger had been the responsible managing employee of another company (RJW Construction) "albeit for a short period of time in 1993, under license number 376709" (also referenced in the Construct 1 letter above).

(3) Great West was "an apparent joint venture partner under the business name of Trans-Pacific Constructors" under license number 674120.

The bottom line of the letter (literally) was that District staff were recommending the District's board "reject your bid as non-responsive."

As Great West's opening brief now points out, the staff letter did not invite any response or suggest any opportunity for refutation or denial of its allegations. In any event, the board was due to award the contracts in only four days. The board agenda for the May 20 meeting did not give the amounts bid by Great West and the second-to-lowest bidders. Rather, it merely inserted the word "Non-Responsive" where the monetary amount of the bid would otherwise have been listed.

Great West did manage to submit two letters in response, however, both dated May 20, the date of the board meeting. One letter was from Wolfinger, Great West's president. The other was from its counsel. (The same counsel represents Great West in this appeal). Wolfinger's letter made these points:

(1) Great West only operates and functions as a business under license number 673901 (the one listed in the bid).

(2) Great West had in effect been sandbagged by the District on the "other license" question because it had submitted a prequalification package back in April which had a similar question and in which Great West gave the same answer, and that package was approved.

(3) The joint venture license number, 756099, was a license to perform general engineering work (basically, street utilities) and that "license had never contracted or functioned as a business."

(4) Wolfinger had merely been the "qualifier" for the RJW firm for 15 days while the RJW firm closed down and Great West started up.

(5) The Great West and Trans-Pacific joint venture "did not perform any work or function as a business." The license was merely obtained to increase Great West's available bond line.

For its part, Great West's counsel's letter made a legal argument that Great West's bid was not "'non-responsive.'" Rather, the letter's thesis was that the "essence" of the District staff's proffered rejection of Great West's bid "goes to the question of Great West's responsibility." In that regard, the letter cited City of Inglewood, supra, 7 Cal.3d 861, and quoted the language from page 871 of that decision about the lowest bidder's right to a hearing when a bid is rejected for non-responsibility.

Counsel's letter also repeated Wolfinger's points that no "business" was done under the other licenses. And it further asserted that (a) the time for such matters was during the prequalification process already held, and (b) even if there were any mistakes in Great West's answer, they certainly were not material because they gave no "indication of 'untrustworthiness' on Great West's part."

C. The District Selects the Third-From-Lowest Bidders

The staff reports to the board on the two projects did not list the amount bid by Great West or the runner-up for either the Northwood or Eastshore project. The written agenda showed a list of all bidders on the two projects, with the amounts bid by the top two bidders not given, replaced by the words "Non-Responsive." Thus the very first bidders listed with numbers were Construct 1's $3,316,973 bid on Northwood and JRH's bid of $3,558,000 on Eastshore.

Counsel for Great West spoke at the May 20 board meeting, apparently airing, as the meeting's minutes later expressed it, "concerns . . . relative to the bid process." Two members of the five-member board, Mike Parham and Sharon Wallin, both suggested delaying the decision "pending clarification from legal counsel." Staff, however, "reiterated that legal counsel had already validated the district's position and a delay could jeopardize summer completion due to extremely tight timelines," and it appears the board agreed with their view.

And so, on May 20, 2008, the District's board awarded the Eastshore contract to JRH Construction, based on its bid of about $3.6 million, as opposed to Great West's bid of not quite $3.1 million. It awarded the Northwood contract to Construct 1 based on its bid of about $3.3 million, as opposed to Great West's bid of slightly less than $3 million.

D. A Disparity in Access to Information Quickly Emerges

Great West quickly made the decision to contest the two awards in the court, and went into a fact-gathering mode. And that requires us to return, in our narrative, to Construct 1's May 9 letter.

For some reason, never explained in the District's briefing, Construct 1 got a copy of Great West's bid (as well as the second-to-lowest bidder's bid) within 24 hours of the opening of the bids. (The Construct 1 letter opened with the lines, "We have reviewed the bid packages from both the apparent low bidder and the apparent 2nd place bidder and found [and thereafter detailed the challenge to the vapor emission subcontractor].")

But Great West was not so favored. On May 21, the day after it lost the two contracts, Great West sent a written request to the District to inspect and copy the bid documents submitted by the two winners, JRH and Construct 1.

The next day, May 22, Great West's counsel followed up with the District's counsel. According to the later declaration of Great West's counsel, the District's counsel said he "would need to 'check' to see if [Great West] could even inspect the documents prior to the passage of ten days under the California Public Records Act." The matter was left, on May 22, with the thought that the District's counsel would "'get back'" to Great West's counsel.

E. Great West Files a Writ Petition Without Receiving the Information It Requested from the District

And the next day after that, May 23, Great West filed this case, generally arguing that Great West should have received the awards given to Construct 1 and JRH. But the precise relief requested is worth detailing now.

Great West did not ask for any sort of money damages for having been unlawfully denied the two contracts. Nor did it, for example, ask for a rescission or revocation of the awarded projects pending a substantive responsibility hearing under City of Inglewood.

Rather, its first two requests for relief were for alternative writs pursuant to section 1087 of the Code of Civil Procedure.*fn5 Each of those requests were for a writ that would either command the district to "immediately rescind its unlawful award" of the Northwood and Eastshore projects or "alternatively show cause why it has not done so at the time and date specified by this court." The next prayer was a straight-out request for relief, but itself framed as an alternative to the alternative writs requested in the first two prayers. ("Alternatively, that this Court issue a peremptory writ of mandamus setting aside the award of the Northwood Project and the Eastshore Project and commanding [the District] to award both projects to [Great West].") The final two prayers for relief were boilerplate: costs of proceedings and the standard "further relief" as the court might see proper.*fn6

F. From the Filing of the Petition to the Initial Hearing

Great West's petition was filed May 23. The District's contract with JRH was signed four days later, on May 27. The contract with Construct 1 was signed two days after that, on May 29.*fn7 The District issued formal notices to proceed to both companies on May 28. Each notice said "time is of the essence," and the "official start date of the project is therefore established as June 3, 2008."

On Monday morning, June 2, Great West applied ex parte for a temporary restraining order pending a full hearing on its petition for a writ of mandate. A ...


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