Commonwealth Court Rules Bid Specification Concerning Performance Bond is Non-Waivable
Last month the Commonwealth Court issued an opinion that reiterated the need not deviate from the requirements of the bid specifications when bidding on public work.
Section 1402 of the Pennsylvania Borough Code requires all contracts in excess of the base amount of $18,500 to be made to the lowest responsible and responsive bidder. Generally, the criteria set forth in the bid documents are mandatory and must be strictly adhered to in order for a bid to be valid in order to “to invite competition and to guard against favoritism, improvidence, extravagance, fraud and corruption in the award of municipal contracts.”. Fedorko Properties, Inc. v. Millcreek Township School District, 755 A.2d 118 (Pa.Cmwlth.2000); Kimmel v. Lower Paxton Township, 159 Pa.Cmwlth. 475, 633 A.2d 1271 (1993); Dunbar v. Downington Area School District, 901 A.2d 1120, 1126–27 (Pa.Cmwlth.2006) (citation omitted).
Yet, a municipality can waive deviations from the criteria in the bid documents and accept a non-compliant bid for public work if: (1) the effect of a waiver will not deprive a municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements; and (2) a waiver will not adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders. Gaeta v. Ridley School District, 788 A.2d 363 (Pa. 2002).
Recently, in Dragani v. Borough of Ambler, 37 A.3d 27 (Pa. Cmmw. 2012) the Commonwealth Court considered whether a bid that did not conform to the bid specifications by not including a consent of surety from a surety company listed with at least $20 million in underwriting capacity was a material defect that could not be waived. The Commonwealth Court held it was a material defect that could not be waived and reversed the trial court’s refusal to issue an injunction preventing the award of the contract to the bidder with the defective bid.
On its face, Dragani appears to be similar to Gaeta. There the Court held that a bidder’s failure to follow the bid specifications requiring a bid bond from a surety with a rating of A- or higher was a waivable defect and a School District could accept a bid when the bid bond posted only had a B rating. The Gaeta Court held the defect was waivable because “the bid defect at issue was not material [and] the effect of a waiver did not deprive the School District of adequate assurance and did not confer a competitive advantage as would compel bid rejection.” Gaeta at 509.
While a defect in a bid bond was potential waivable, the DraganiCourt concluded that a defect in a performance bond was not. The Dragani Court distinguished bid bonds from performance bonds. Unlike performance bonds, bid bonds do not deprive the municipality of assurance that the project will be completed. The Court noted that “the restrictive purpose, duration, and scope of liability associated with bid bonds favors a degree of latitude in terms of absolute responsiveness.” Dragani, at 32.
Moreover, the Dragani Court also held that a defect is not waivable “when the specifications provide that the bid will not be considered if that particular requirement is not met.” Id at 33. (citing Glasgow v. Pennsylvania Department of Transportation, 851 A.2d 1014 (Pa.Cmwlth.2004)). The Court noted that the bid specifications at hand stated that no bid would be considered if a confirming performance bond was not posted. Therefore, the Court held that the municipality removed any discretion it had in waiving the defect in the performance bond. The Court concluded that the awarded bidder’s failure to provide a consent of surety with an underwriting capacity of $20 million or more was a “legally disqualifying error.”
The Dragani holding is important to both municipalities and contractors bidding on public work. Municipalities should make sure their bid specifications are not ambiguous. If the municipality wishes to reserve the right to waive defects in the bid, then it should exclude language from the bid specifications that state bids will not be accepted if certain criteria are not met. While a defect may ultimately not be deemed waivable, the municipality can assure itself that it will not face an argument that under Dragani it waived the right to waive. From a contractor’s perspective, the Dragani court once again demonstrates the need not to deviate from any of the bid requirements when bidding on public work.
