August 21, 2018
Author: S. Gregory Joy
Organization: Smith, Currie & Hancock LLP
I. INTRODUCTION TO CONSTRUCTION CONTRACT BIDDING AND NEGOTIATIONS
The discussion of the rights and responsibilities of participants in the construction industry in Georgia begins with a look at the bidding stage of the public contracting process. It is at this initial juncture that the owner, contractor and design professionals begin to allocate the legal risks, which will govern the construction project. It is at this early juncture that the participants encounter, and need to understand, the body of legal principles which affect their bidding rights and responsibilities. Those legal principles will vary greatly depending upon whether the construction contract is “public” or “private” in nature. The parties’ rights and responsibilities may vary depending on whether a “public” project is administered by the state, by a “public authority,” or by a local municipality. Those rights and responsibilities may vary further depending upon whether that public contract is let by Georgia’s Department of Administrative Services or, for example, the Georgia Department of Transportation.
A. Legal Foundation for Public Procurement
The Constitution of the State of Georgia provides the legal framework for all procurement activities by the state, its counties and municipalities. The State Constitution grants the Georgia General Assembly with the power to make all laws necessary and proper for the welfare of the State, including the appropriation of funds for all public procurement and to meet all authorized public, contractual obligations. Georgia Constitution, Article 3, § 6, ¶ 1; Article 3, § 9, ¶ 4. The Constitution also provides that state funds may be granted to counties and municipalities subject to procedures and conditions specified by laws passed by the General Assembly. Georgia Constitution, Article 7, § 3, ¶ 3. The counties and municipal corporations, which are established pursuant to the Georgia Constitution, are authorized to adopt ordinances, resolutions and regulations relating to its property and affairs, including the procurement of construction services.
The Georgia Constitution provides for state debt (Article 7, § 4) and states that the state may be obligated to acquire, construct, develop, extend, enlarge or improve land, waters, property, highways, buildings, structures, equipment or facilities of the state, its agencies, departments and institutions. Georgia Constitution, Article 7, § 4, ¶ 1(c). At the same time, no state agency may execute a contract with a private party for the purchase of goods or services purporting to obligate funds not available at the time of the contract or which depend upon future appropriations. 1974 Op. Att’y Gen. No. 74-115; Position Paper, 8-8-78; 1978 Op. Att’y Gen. P. 267. In addition, the Constitution prohibits the General Assembly from authorizing any contract or agreement which may have the effect of, or which is intended to have the effect of, defeating or lessening competition or encouraging monopoly. Georgia Constitution, Article 3, § 6, ¶ 5(c).
Pursuant to the Georgia Constitution, the Georgia State Financing and Investment Commission is responsible for issuing all public debt and for the proper application of the proceeds of that debt to the purposes for which it has been incurred. Georgia Constitution, Article 7, § 4, ¶ 7. The Constitution also provides for constitutional boards and commissions in connection with the administration of public contracting activities and public services, including a Public Service Commission for the regulation of utilities. Georgia Constitution, Article 4, § 1, ¶ 1. The Georgia State Transportation Board is established by the Constitution and is empowered to select a Commissioner of Transportation who also serves as the Chief Executive Officer of the Georgia Department of Transportation. Georgia Constitution, Article 4, § 1, ¶ 4; § 4, ¶ 1. Although the Georgia Legislature has added to this public procurement framework, public construction contracting in Georgia begins with the legal framework and limitations established by the Georgia Constitution.
B. Basic Legal Principles
At the state procurement level, Georgia Constitutional provisions, state statutes, and agency regulations greatly impact the rights and liabilities growing out of bidding activities. Municipalities typically add their own level of formal regulation to the bidding process for construction contracts let by those public bodies. Underlying these public contracting rules and regulations, however, is the body of contract law, which has been derived from the English common law of contracts and refined over the last 200+ years by the Georgia courts. Unless altered by particular rules of public contracting, or by “private rules” of contracting created by the parties in their contracts, those involved in construction contract bidding in Georgia can expect to encounter, and to be affected by, the following “common law” principles:
a. In order to form a valid contract, there first must be a definite “offer” which indicates an intention to be bound by an acceptance of that offer. In that context, an invitation for bids (“IFB”) is not typically considered as the “offer” element in the contracting process. Instead, the bid made in response to that IFB is viewed as the contract “offer.”
b. Before a contract is created, the offer must be met with an unequivocal “acceptance” of all material terms of the offer. A contract may be created even if the offer and acceptance do not reflect agreement on all contract terms, provided the material terms (price, quality, quantity, etc.) may be determined by examination of the parties’ objective intentions. Depending upon the contracting circumstances, that expression of “acceptance” may come in various forms. For example, part performance of the contract in response to an offer may be viewed as acceptance of the offer.
c. Before the offer is accepted, it can be withdrawn at any time and for any reason. This principle gets complicated for subcontractors who bid to general contractors and whose bids are then relied upon by the general contractor in making a bid to an owner. That reliance on the subcontractor bid by the general contractor, if established, may prevent or “estop” the subcontractor’s withdrawal of that bid. In other circumstances, parties may contractually obligate themselves to hold open an offer for a certain period of time.
d. The party receiving a contract offer (e.g., an owner or general contractor receiving a bid) may accept or reject that offer, or reject all offers, for any reason, or for no reason. In private contracting especially, owners and general contractors are free to do business with any offeror, regardless of considerations of bidder responsibility or bid responsiveness, unless the parties have contractually created legally enforceable expectations to the contrary.
e. The contract offer and acceptance necessary to form a contract must be supported by valid consideration. For example, a contract change order for the performance of “additional” work may not be enforceable if it is determined that the work was not really beyond the scope
of the original contract undertaking.
f. If in replying to an offer, new or different, material terms are included in the reply, the reply is deemed a counteroffer, and the original offer is deemed rejected. The rules of “offer” and “acceptance” are different in connection with the contracts for the purchase of materials or equipment. In those circumstances, the rules contained in the Georgia Uniform Commercial Code can create contracts, for example, in the face of conflicting and unsigned purchase orders exchanged by the parties.
There are a number of additional contract principles, which underlie the law of construction contract bidding, but those mentioned above are frequently the subject of bidding disputes. Although these legal principles provide a good starting place for an understanding of the law in this area, it is important to know that statutes and ordinances affecting public contracting, as well as the “private law” created by parties to private construction contracts, often alter these common law principles. It is critical that those who make contract offers or solicit contract offers in connection with Georgia construction projects have an appreciation for the parties’ respective rights and potential liabilities.
II. STATE PROCUREMENT GENERALLY
The Georgia Legislature created a Department of Administrative Services to act as the centralized purchasing agency for the state. O.C.G.A. § 50-5-51. This state Department of Administrative Services (“DOAS”) is charged by the Georgia State Procurement Act with the responsibility:
(1) To canvass all sources of supply and to contract for the lease, rental, purchase, or other acquisition of all supplies, materials, equipment, and services other than professional and personal employment services required by the state government or any of its offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of this state under competitive bidding in the manner and subject to the conditions provided for in this article;
(2) To establish and enforce standard specifications which shall apply to all supplies, materials, equipment, and services other than professional and personal employment services purchased or to be purchased for the use of the state government for any of its offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of the state;
(3) To contract for all electric light power, postal, and any and all other contractual purchases and needs of the state government or any of its offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of the state or in lieu of such contract to authorize any offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of the state to purchase or contract for any or all such services;
(4) To have general supervision of all storerooms and stores operated by the state government or any of its offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of the state; to provide for transfer or exchange to or between all state offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of the state or to sell all supplies, materials, and equipment which are surplus, obsolete, or unused; and to maintain inventories of all fixed property and of all movable equipment, supplies, and materials belonging to the state government or any of its offices, agencies, departments, boards, bureaus, commissions, institutions, or other entities of the state;
(5) To make provision for and to contract for all state printing, including all printing, binding, paper stock, and supplies or materials in connection with the same, except as provided in this part. For the purpose of obtaining bids on printing, it shall have the power to divide the printing into various classes and to provide stipulations and specifications therefor and advertise, receive bids, and contract separately for the various classes;
(6) To procure all fidelity bonds covering state officials and employees required by law or administrative directive to give such bonds; and, in order to provide the bonds at a minimum expense to the state, the bonds may be procured under a master policy or policies providing insurance agreements on a group or blanket coverage basis with or without deductibles or excess coverage over the state's retention as determined by the commissioner. Fidelity bonds covering state officials and employees which are procured pursuant to this paragraph shall expressly provide that all state officials and employees who are required by law to be bonded be named in the fidelity bond as insureds or beneficiaries under the terms of the fidelity bond.
With the exception of the state construction contracts for highways, bridges and public works, which fall within the jurisdiction of the Georgia Department of Transportation, and contracts issued by the Stone Mountain Memorial Association, the Board of Regents of the University System of Georgia, various public authorities (discussed below) or the expenditure of money credited to the account of this state in the Unemployment Trust Fund by the secretary of the treasury of the United States pursuant to Section 903 of the Social Security Act and appropriated as provided in Code Section 34-8-85, it is the Department of Administrative Services that has the responsibility for ensuring that public funds are spent wisely in connection with construction contracts. The Purchasing and Supplies Property Division of the DOAS is the operating arm of the state’s purchasing authority for construction services and supplies, and the Division publishes a helpful “Vendor Manual” outlining procurement requirements and containing various procurement forms.
A. Competitive Bidding Requirements
The Georgia statutes generally expresses a preference that all procurement contracts be awarded “by competitive sealed bidding” to the “lowest responsible bidder.” O.C.G.A. §§ 50-5-67(a), (b). However, this statute also permits the use of competitive sealed proposals if it appears that competitive sealed bidding is not practicable or is not advantageous to the state and sets forth the conditions applicable to soliciting competitive sealed proposals. In addition, the commissioner of administrative services is also authorized to issue rules and regulations related to the conduct of electronic auctions (“reverse bid auctions”); however, the use of electronic auctions is not authorized for the procurement of construction services or goods and services of $100,000 or less.
This competitive bidding requirement extends to “all construction and public works contracts, exceeding a total expenditure of $100,000, of any department, board, bureau, commission, office or agency of the state government.” O.C.G.A. § 50-5-72. Excepted from this statutory competitive bidding requirement, and discussed later in this chapter, are those construction contracts awarded by the Georgia Department of Transportation and by the several “public authorities” created by state statutes, including the Stone Mountain Memorial Association and the Board of Regents of the University System of Georgia, or the expenditure of money credited to the account of this state in the Unemployment Trust Fund by the secretary of the treasury of the United States pursuant to Section 903 of the Social Security Act and appropriated as provided in Code Section 34-8-85. If the proposed contract will require a state expenditure of $100,000.00 or more, then the procurement must be let after statewide advertising.
Bid bonds are required for all state public works construction contracts with estimated bids or proposals over $100,000.00; provided, however, that the state or any public board or body of the state may require a bid bond for projects with estimated bids or proposals of $100,000.00 or less. O.C.G.A. § 13-10-20(a).
In the case of competitive sealed bids, except as provided in Code Sections 13-10- 22 and 13-10-23, a bid may not be revoked or withdrawn until 60 days after the time set by the state or any public board or body of the state for opening of bids. Upon expiration of such 60 day time period, the bid will no longer be valid, unless the bidder provides written notice to the state prior to the scheduled expiration date that the bid will be extended for a time period specified by the state. O.C.G.A. § 13-10-20(b).
For competitive sealed proposals, the state shall advise offerors in the request for proposals of the number of days that offerors will be required to honor their proposals; provided, however, that if an offeror is not selected within 60 days of opening the proposals, any offeror that is determined by the state to be unlikely of being selected for contract award shall be released from his or her proposal. O.C.G.A. §13-10-22(c).
(d) If the state requires a bid bond for any public works construction contract, no bid or proposal for a contract with the state will be valid for any purpose unless the contractor gives a bid bond with good and sufficient surety or sureties approved by the state. The bid bond shall be in the amount of not less than 5 percent of the total amount payable by the terms of the contract. No bid or proposal shall be considered if a proper bid bond or other security authorized in Code Section 13-10-21 has not been submitted. The provisions of this subsection shall not apply to any bid or proposal for a contract that is required by law to be accompanied by a proposal guaranty and shall not apply to any bid or proposal for a contract with any public agency or body which receives funding from the United States Department of Transportation and which is primarily engaged in thebusiness of public transportation. O.C.G.A. § 13-10-20(d).
1. Georgia Department of Transportation Contracts
Within the State of Georgia, the Georgia Department of Transportation (“Georgia DOT” or “GDOT”) has enjoyed a particularly unique position in the eyes of the law. In several significant circumstances, rules of public procurement that are applied generally to state contracts are not applied to contracts let by the Georgia Department of Transportation. The Georgia DOT is required by statute to award its contracts to the “lowest reliable bidder.” O.C.G.A. § 32-2-69. Exceptions are authorized for an unsolicited proposal for a public-private initiative (O.C.G.A. §§ 32-2-79; 32-2-80) for design-build contracts, which are to be awarded to the “lowest, most responsive” offeror. O.C.G.A. § 32-2-81. In the same statutory provision, principles regarding the rejection of bids, negotiation of contracts, and re-advertisement of solicitations are discussed. The requirements for the advertising of bids with respect to DOT work are significantly different from those, which apply to the DOAS. For example, the Georgia DOT is obligated to seek bids only for any contract exceeding $50,000.00 (whereas the limit applied to DOAS contracts is $100,000.00), and certain DOT contracts are specifically exempted from the competitive bidding process. O.C.G.A. § 32-2- 61(d). In addition, the Georgia DOT enjoys significantly more liberal advertising requirements with respect to the procurement of highways, roads and bridges.
Although the Georgia DOT operates principally in the sphere of state roads, highways and bridges, the DOT also has responsibility for some projects and facilities in airports, mass transportation facilities, as well as in connection with the construction and maintenance of its own offices and facilities. And, apart from the liberties granted the DOT in certain procurement circumstances, the Georgia DOT generally must award its contracts by public bid and pursuant to a competitive bidding process. For that reason, most, but not all, of the principles of Georgia public procurement discussed herein also can be applied to contract situations involving the Georgia DOT.
2. Georgia public authorities
In a category apart from the state and its agencies, Georgia has created a group of “public authorities” which function in a “quasi-public” capacity. There are a number of such authorities created by the State of Georgia to accomplish a variety of traditionally governmental functions (e.g., building hospitals, state university buildings, etc.). The state typically will contract with a public authority for the use of the public authority’s facilities or services. These public authorities are empowered to enter into contracts to achieve the purpose for which they were created, but those doing business with a Georgia “public authority” should be forewarned that their public authority contracts are not with the State of Georgia, and the State of Georgia is not responsible for the public authority’s debts. In addition to avoiding responsibility for what is, in essence, a state debt, Georgia’s use of “public authorities” also allows the state to avoid constitutional restrictions on the state’s freedom to incur debt. In fact, the public authorities created in Georgia function much more like independent “private” corporations. Georgia’s public authorities can sue or be sued in their own name.
The public authorities created by the Georgia Legislature, and granted the power to procure design and construction services for buildings or facilities on land owned or leased by the state, include:
1. Georgia Housing and Finance Authority;
2. Georgia Building Authority;
3. Georgia Ports Authority;
4. Board of Regents of the University System;
5. Georgia Highway Authority;
6. State Toll Way Authority;
7. Georgia Education Authority;
8. George L. Smith II Georgia World Congress Center Authority; and
9. Georgia Airport Development Authority.
Typically, the construction projects engaged in by these public authorities are funded by revenue bonds issued by the public authority. For example, the State Building Authority is allowed by state statute to procure construction services for buildings on property owned or leased by the state, but the cost of those construction services must be “paid in whole or in part from the proceeds of revenue bonds of the authority” or from federal grants. O.C.G.A. § 50-9-5(5), (6).
The Georgia State Financing and Investment Commission (“GSFIC”) is the creature of the Georgia Legislature that is charged with the responsibility for overseeing and centralizing the revenue bond issues and other funding measures employed by the various public authorities in the state. The “Construction Division” of the GSFIC has, as a result of its supervisory and financing role, taken a lead role in the procurement functions of many of the Georgia public authorities.
3. Supply contracts
With respect to any supplies, materials or equipment to be purchased by the state or one of its agencies, and when the value of the purchase will exceed $100,000.00, the DOAS is required by statute to follow competitive bidding procedures. Unless an exception permits the use of competitive sealed proposals, the contract must be awarded following a publicly advertised competitive sealed bidding process, and the contract is to be awarded to the “lowest responsible bidder.” O.C.G.A. § 50-5-67(a), (b). The Georgia Procurement Act does make provision, however, for the DOAS to go outside the competitive bidding rules in limited circumstances. Competitive bidding procedures must be followed “whenever possible,” according to the Georgia statutes, although the DOAS may take into account at least the following:
1. The quality of the articles to be supplied,
2. Conformity with the standard specifications established,
3. The purposes for which the supplies are required,
4. Any discount allowed for prompt payment,
5. Transportation charges, and
6. The delivery dates specified in the bid.
O.C.G.A. § 50-5-67(b). As previously indicated, the Georgia Department of Transportation enjoys certain freedoms from the general competitive bidding requirements imposed upon the state and its other agencies. However, with respect to the purchase of materials and equipment, the Georgia DOT also must comply with the competitive bidding requirements dictated by the DOAS. In addition, the DOAS is authorized to purchase supplies on behalf of local governmental authorities.
4. Additional state law requirements
In addition to the competitive bidding requirements outlined herein, those bidding public work in the State of Georgia also should know that the following statutes may apply to their construction related contracts:
1. Minimum wage law requirements (O.C.G.A. § 34-4-3).
2. Drug free work place regulations (O.C.G.A. § 50-24-3).
3. Equal Pay for Equal Work Act (O.C.G.A. § 34-5-3).
4. State licensing requirements for electrical, plumbing, conditioned air, low-voltage and utility contractors (O.C.G.A. §§ 43-14-1 – 43-14-13).
5. Preference for Georgia supplies and materials requirement (O.C.G.A. § 50-5-60).
6. Minority Business Enterprise Development (O.C.G.A. § 50-5-130).
7. Non-resident contractor revenue bond requirements (O.C.G.A. § 48-13-32).
8. Foreign corporation registration requirements (O.C.G.A. § 14-2-1501).
9. Exclusive use of Georgia forest products requirements (O.C.G.A. § 50-5-63).
In addition, in 2004 the Georgia Legislature enacted House Bill 1003, which established the authority for the creation of a licensing law and board for general contractors, licensing procedures and continuing education requirements. The effective date of the law depends upon the appropriation of funds by the Legislature for the purpose.
B. Design Services
State law does not require that the state purchase engineering and architectural services in accordance with mandatory competitive bidding requirements. As a result, it would not violate state statutes if the state or any of its agencies awarded engineering contracts through a negotiation process or contracts for architectural services as a consequence of a competitive proposal process. In fact, the DOAS, the central procurer of construction services for the state, has no statutory authority to contract for professional services.
In spite of the absence of a state mandate for competitively bid design contracts, many state and local governmental agencies have elected to put into place their own internally-imposed competitive bidding regulations for design contracts. See City of Atlanta Procurement and Real Cost Code §§ 5-5048, 5- 5082 and 5-5087 (Supp. No. 20, 7-83). Although not typically astringent as the competitive bidding statutes governing construction contract awards, these individualized competitive bidding regulations do restrict the unfettered award of design contracts and must be followed when they are properly enacted.
III. LOCAL GOVERNMENT PROCUREMENT
A. Georgia Competitive Procurement Laws
In 2000, the Georgia Legislature significantly amended the Georgia public procurement requirements. See, O.C.G.A. § 36-91-1, et seq. (The requirement for counties to have contracts approved in a public meeting by the governing authority and shown on the minutes remains in effect. O.C.G.A. § 36-10-1.) The Legislature found that county governments had to comply with different and, in some cases, antiquated laws for building construction and other public works.
The Legislature also noted that cities and school boards were sometimes subject to local competitive bid ordinances but not necessarily statewide requirements. The lack of uniformity made it difficult for contractors to know the requirements when bidding for public works projects, depending on the type of local government. The present law is designed to make all local governments (including counties, cities, school boards, local authorities, boards and commissions) subject to the same basic rules of advertising and awarding construction contracts in a competitive manner. Also, the new law allows for the use of more modern construction delivery methods, such as design/build techniques, that were previously unavailable to counties.
The law applies to local “public works construction” contracts, other than Georgia DOT contracts and guaranteed energy savings performance contracts. \"Public works construction\" means the building, altering, repairing, improving, or demolishing of any public structure or building or other public improvements of any kind to any public real property other than those projects covered by Chapter 4 of Title 32 or by Chapter 37 of Title 50. Such term does not include the routine operation, repair, or maintenance of existing structures, buildings, or real property, or any energy savings performance contract or any improvements or installations performed as part of an energy savings performance contract. O.C.G.A. § 36 91-2(12). The law does not apply if the construction is performed by local government employees or inmate work crews, if the labor is supplied by the state or federal government, if the contract is for less than $100,000.00, if the work is required as a result of an emergency, or if there are federal requirements that override the state requirements. However, this law does not apply to contracts for professional services, such as architects and engineers.
Local governments are now required to advertise projects either in the county legal organ or on an Internet website. Unlike the prior competitive bidding requirements, which called for advertising once per week for four weeks, the new law requires advertisement twice during the four weeks before bid opening. O.C.G.A. § 36-91-20(b)
3. Competitive sealed bid vs. competitive proposal methods
Prior to the 2000 amendments, counties were required to award only to the lowest responsive, responsible bidder. The current law now allows local governments to use the competitive sealed bid method required for counties by prior law, or to use the competitive sealed proposal method. The competitive sealed proposal method under the new law allows local governments to base their decisions to award contracts on factors other than just the lowest price submitted by a responsive, responsible bidder. However, under the law enacted in 2000, localities must set out the evaluation criteria in the request for proposals. Those criteria could include factors such as qualifications of the proposer, experience of the proposer, innovative design submitted by the proposer, and allows the use of design/build, program management and construction management methods. The statute provides the following requirements for the competitive bidding and competitive proposal methods:
Any competitive sealed bidding process shall comply with the following requirements:
1. The governmental entity shall publicly advertise an invitation for bids;
2. Bidders shall submit sealed bids based on the criteria set forth in such invitation;
3. The governmental entity shall open the bids publicly and evaluate such bids without discussions with the bidders; and
4. The contract shall be awarded to the lowest responsible and responsive bidder whose bid meets the requirements and criteria set forth in the invitation for bids; provided, however, that if the bid from the lowest responsible and responsive bidder exceeds the funds budgeted for the public works construction contract, the governmental entity may negotiate with such apparent low bidder to obtain a contract price within the budgeted amount. Such negotiations may include changes in the scope of work and other bid requirements.
O.C.G.A. § 36-91-21(b).
In making any competitive sealed proposal, a governmental entity shall:
1. Publicly advertise a request for proposals, which request shall include conceptual program information in the request for proposals describing the requested services in a level of detail appropriate to the project delivery method selected for the project, as well as the relative importance of the evaluation factors;
2. Open all proposals received at the time and place designated in the request for proposals so as to avoid disclosure of contents to competing offerors during the process of negotiations; and
3. Make an award to the responsible and responsive offeror whose proposal is determined in writing to be the most advantageous to the governmental entity, taking into consideration the evaluation factors set forth in the request for proposals. The evaluation factors shall be the basis on which the award decision is made. The contract file shall indicate the basis on which the award is made.
O.C.G.A. § 36-91-21(c).
As set forth in the request for proposals, offerors submitting proposals may be afforded an opportunity for discussion, negotiation, and revision of proposals. Discussions, negotiations, and revisions may be permitted after submission of proposals and prior to the award for the purpose of obtaining best and final offers. In accordance with the request for proposals, all responsible offerors found by the governmental entity to have submitted proposals reasonably susceptible of being selected for award shall be given an opportunity to participate in such discussions, negotiations, and revisions. During the process of discussion, negotiation and revision, the governmental entity shall not disclose the contents of proposals to competing offerors.
O.C.G.A. § 36-91-21(c)(2).
The current law does not specifically require local governments to implement a prequalification process for proposers. However, the law allows the use of prequalification so long as the process is fair. The new law does not specify the type of process to be used but does require that the process meet the following standards: (1) the minimum requirements must be related to the work or the quality of the work; (2) the minimum requirements must be made available to prospective bidders/offerors or anyone else requesting the information; and (3) the process must provide a way for a bidder/offeror who does not meet the minimum requirements to respond to its disqualification. If the local government has a prequalification process, it must notify prospective bidders/offerors of the requirement in the project advertisements. O.C.G.A. § 36-91-20(f).
The law also takes into account the possibility of late addenda being issued to a solicitation. The new statute allows local governments to issue addenda to change project specifications, but if they do so within 72 hours of the bid opening, then the bid opening must be extended for 72 hours to give the contractors time to adjust their bids. O.C.G.A. § 36-91-20(d).
The new statute modifies the minimum contract amount for which performance and payment bonds are required. Under prior law, counties had to obtain performance and payment bonds if the project was more than $40,000. The new statute increases the minimum contract amount for which bonds must be obtained to $100,000. See also O.C.G.A. §§ 36-91-70 and 36-91-90.
7. Holding the bid open
If the local government uses the competitive bid process, then the contractor is only required to hold its bid open for 60 days, unless the contractor agrees to an extension of that period. However, under the competitive proposal method, the local government must specify how long proposals are to remain open in the competitive sealed proposal solicitation. If after 60 days the local government determines that some of the offerors are not on the “short list,” then the governmental entity must release those offerors.
The current statute contains basically the same penalties for improper governmental conduct as the prior law for counties but does provide some modification to prior law with regard to the contractor’s conduct. It is a misdemeanor for local government officials to receive profit or pay from a public works construction project. If will be unlawful for either the contractor or a local government to enter into a public works construction contract that does not comply with the requirements of the law. However, unlike current law, the contractor will not be punished (i.e., by having the contract voided or not receiving payment) if the contractor had no knowledge that the local government failed to comply with the advertising and competitive processes in the law. If the contractor does not provide the required bonds, then the contract is void.
IV. EXCEPTIONS TO COMPETITIVE BIDDING RULES
As mentioned above, there are instances in which neither the Georgia Constitution nor state statutes demand that public dollars for construction be spent pursuant to competitive bidding requirements. Even where such mandatory processes are in place, however, the State of Georgia does provide a limited number of exceptions to the controlling, competitive bidding rules. Consider, the following examples.
A. Negotiated Contracts
At the state level, and in limited circumstances, the DOAS is permitted by statute to negotiate contracts for construction services where—
(a) Bids are unreasonable or unacceptable as to terms and conditions,
(b) Bids are noncompetitive, or
(c) The low bid exceeds available funds, and
(d) Time or other circumstances will not permit the delay required to resolicit competitive bids.
O.C.G.A. § 50-5-67(c)(1)(A).
In order to take advantage of this “negotiated procurement” exception, the DOAS must notify each bidder of its determination regarding the appropriateness of a negotiated procurement, and the DOAS must give each bidder a reasonable opportunity to negotiate.
O.C.G.A. § 50-5-67(c).
If the competitive bidding process has been rejected because the low bid exceeds available funds or has been deemed “noncompetitive,” then the negotiated procurement must result in a contract award, which is less than the lowest rejected bid of any responsible bidder.
B. GDOT “Single Bid” Circumstances
Although the Georgia Department of Transportation enjoys certain procurement privileges not shared by other state agencies, the GDOT is not allowed to negotiate contracts for road maintenance or construction if the value of that contract exceeds $50,000.00, unless GDOT receives only one bid in response to an invitation for competitive bids. O.C.G.A. § 32-2-69(b). Provided the bid received exceeds GDOT’s internal estimate for the project, a negotiated contract may be entered into with the single bidder. The negotiated contract price must be less than the original single bid, and GDOT is obligated to disclose its internal estimate to the single bidder prior to contract negotiations. Id., 86-21 Op. Atty. Gen. 48 (1986). GDOT is granted one other right to negotiate a construction contract. If the bid from the lowest reliable bidder produces an unbalanced bid resulting from errors by GDOT in the bid documents, then GDOT is allowed by statute to negotiate with the low bidder to correct that bid. O.C.G.A. § 32-2- 69(c).
C. Contracts For Emergency Construction Services
The Department of Administrative Services is granted the right to acquire “any necessary supplies, materials, or equipment for immediate delivery” to state agencies or departments in the event of an emergency arising out of unforeseen causes. O.C.G.A. § 50-5-71. Those “unforeseen causes” justifying such an emergency procurement may include delay by contractors, an unanticipated volume of work, machinery breakdowns, or transportation delays. In a similar vein, GDOT is allowed to negotiate contracts for emergency construction or maintenance of public roads, if “the public interest requires that the work be done without the delay” of the competitive bidding process. O.C.G.A. § 32-2- 61(d)(1)(C). Counties and cities have been granted the same emergency road construction and maintenance contract rights by state statute. O.C.G.A. §§ 32-4- 63(6); 32-4-113(5).
D. Sole Source Specifications
For the most part, Georgia’s public agencies are precluded from spending public dollars through “sole source” procurements. However, the Georgia Attorney General has issued opinions which authorizes the use of sole source procurements by state agencies when only one product is viewed as suitable to meet the legitimate specification needs of the state agency. 74-16 Op. Atty. Gen. 27, 29 (1974). Of course, for those municipalities, school boards or public authorities that are not obligated by the Georgia Constitution or statutes to follow competitive bidding requirements, a sole source procurement is possible. Even so, you are likely to find that these public authorities, school boards and municipalities in Georgia have imposed upon themselves competitive bidding regulations, which would preclude, with very limited exception, the use of sole source procurements.
E. Competitive Sealed Proposals
The Georgia statutes also make provision for the DOAS to avoid the competitive bidding process, but only in those circumstances in which the DOAS has determined that it is either “not practicable or not advantageous to the state” to award the contract pursuant to the competitive bidding process. In those instances, the DOAS is allowed by statute to follow a “competitive sealed proposals” process in order to procure the necessary services. Although typically this narrow exception to the competitive bidding requirements of the state is employed only in connection with the procurement of materials or equipment, or services, which are governed by specific performance criteria, it is conceivable that this exception could apply in a construction contracting situation.
V. ISSUES OF BIDDER RESPONSIBILITY
A. Responsibility Factors
The statutes and regulations governing the award of public contracts typically require that the contract be awarded to the “responsible” bidder who has submitted the lowest responsive bid. From time to time, either the public agency involved, or another disappointed bidder, will raise questions regarding the “responsibility” of the apparent low bidder. This question focuses on whether that bidder has the necessary supervision, equipment, manpower, financial support, technical capacity, responsibility, integrity, experience and other resources necessary to complete the contract as required by the bid solicitation.
The question of bidder “responsibility” requires that the public agency gather information and consider factors beyond the four corners of the bid itself. It is an inquiry, which focuses on the bidder’s “overall ability to respond in quality and fitness to the particular requirements of the contract in question.” 74-16 Op. Atty. Gen. 27-30 (1974).
Although the Georgia law on this issue is largely undeveloped, the law in other states, as well as the federal procurement regulations followed by the United States Government, are likely to be relied on in any Georgia determination of bidder “responsibility.” There is, at least, the following statement of statutory factors of “responsibility” in connection with public works’ contracts let by the most heavily populated counties in Georgia. Those factors include:
1. The quality of work by the bidder on other similar projects;
2. The general reputation of the bidder in the community;
3. The bidder’s financial responsibility;
4. The bidder’s previous employment on public works; and
5. The bidder’s compliance with a minority business enterprise participation plan or its good faith effort to meet the goals of such a plan.
O.C.G.A. §§ 36-10-2.1 (counties with populations of more than 800,000), 36-10- 2.2 (counties with populations of more than 150,000 in any metropolitan statistical area).
B. Determining Bidder Responsibility
There is case law in Georgia, which demonstrates that Georgia courts will be hesitant to allow Georgia’s public owners to abuse the process of determining bidder “responsibility.” An otherwise acceptable bid cannot be ignored, for example, solely because the bidder is “unknown” to the governing body. Hilton Constr. Co. v. Rockdale County Bd. of Education, 245 Ga. 533, 266 S.E.2d 157 (1980). However, where a project architect refused to recommend a contract award to the low bidder because of “strongly unfavorable reports” from one of the contractor’s references, the Georgia Supreme Court upheld a denial of injunctive relief in favor of the disqualified bidder. Mark Smith Constr. Co. v. Fulton County, 248 Ga. 694, 285 S.E.2d 692 (1982). Where the bidder has been guilty of fraud in connection with other projects, has a history of disputes and litigiousness, cannot demonstrate prior experience with the type of work represented by the proposed contract, or has previously defaulted on construction contracts, other states have upheld the withholding of contract awards on the basis of inadequate bidder “responsibility.” The legitimacy of any contract disallowance based upon a “responsibility” determination will necessarily turn on the individual circumstances and history of the bidder, as well as the particular requirements of the solicitation.
C. Pre-Qualification Requirements
One approach taken by some agencies faced with “responsibility” concerns is the development of pre-qualification procedures for contractors. The DOAS is authorized by statute to pre-qualify prospective suppliers of materials and equipment. O.C.G.A. § 50-5-68. The Georgia DOT has similar authority to pre-qualify prospective bidders so as to “establish a list of reliable persons qualified to bid on a department contract or to subcontract with such persons and to ensure that the contract may be awarded to the lowest reliable bidder.” O.C.G.A. § 32-2-66. Local governments may pre-qualify as well. O.C.G.A. § 38- 91-21(f). Since these pre-qualification processes may prevent a bidder from submitting a bid, state law requires that they be based upon “reasonable rules and regulations.” Such pre-qualification requirements also are often imposed by local regulation on municipality or county procurements.
VI. BID RESPONSIVENESS
A. Defining Bid “Responsiveness”
In addition to a “responsible” bidder, public contracts in Georgia typically require a “responsive” bid. Where the bidding process is not governed by public competitive bidding requirements (i.e., a private bid process), bidders may respond to invitations for bids with bids, which propose to vary the terms of the solicitation. In the private sector, and unless the private owner has created some enforceable expectation to the contrary, the private owner is free to consider those “non-responsive” bids. With respect to state and other public bid solicitations, competitive bidding statutes and regulations generally preclude a public owner from awarding a contract to a party submitting such a non-responsive bid. In order to be considered “responsive,” a bid submitted in response to a public offering must comply with all material requirements of the solicitation. That is, the bid submitted must represent an offer to perform the precise work defined in the invitation for bids—nothing less and nothing different.
The object of this requirement is to create a level playing field for all public bidders. No one contractor should be permitted to gain a competitive advantage as a result of irregularities, qualifications or omissions in a public bid proposal. A contractor should not be allowed to include a contingency or qualification in its bid, which would permit it to accept or reject a contract after all bids are known. In furtherance of these goals, bids on public projects typically must be submitted on the required bid form, and at the time and place specified for the receipt of the bid. See City of Atlanta v. J.A. Jones Constr. Co., 195 Ga. App. 72, 392 S.E.2d 564 (App. 1990), rev’d on other grounds, 250 Ga. 658, 398 S.E.2d 369 (1990).
B. Determining Bid Responsiveness
Although the public agency typically has discretion in making this bid “responsiveness” determination, a bid proposal which deviates from the invitation with respect to price, quality, quantity, delivery or completion schedule is likely to be deemed a “material” deviation from the solicitation requirements and a threat to the competitive bidding process. That “responsiveness” determination should be made by the public owner based upon the bid documents themselves at the time of the bid submittal, unaided by other documentation or post-bid information. Examples of “material” deviations in a bid proposal, as determined by Georgia courts, include the following:
1. A bid not submitted strictly in accordance with the specified time limits is non-responsive. City of Atlanta v. J.A. Jones Constr. Co., supra.
2. A bid which fails to provide the required bid bond or guarantee is non-responsive. O.C.G.A. §§ 32-2-68(a), 32-4-67(a), 32-4-117(a); 36-91-50(d).
3. The failure to include in a DOAS bid the “certificate of independent price determination” required by statute renders the bid non-responsive. O.C.G.A. § 50-5-67(e).
C. “Minor” Or “Immaterial” Bid Irregularities
If the public agency deems the bid variation to be “minor” or “immaterial,” then typically the public agency has the discretion—but not the obligation—to waive the irregularity and accept the bid. The presence of such a “immaterial” irregularity in the bid does not, however, provide the contractor with an excuse to withdraw its bid to a public agency. Those bid irregularities that are regarded as “minor irregularities” may vary depending on the circumstances and the public agency’s reasonable exercise of its discretion. The key inquiry, of course, is whether the bid irregularity or deviation is such as to compromise the competitive bidding process or create an unfair advantage for one of the bidders.
D. Challenging Responsiveness Determinations
If a contract is improperly awarded on the basis of a non-responsive bid, then the contract may be voidable by the public agency or in the face of a timely bid protest by another bidder. Generally, however, a disappointed bidder faces a substantial burden in order to overturn a public agency’s exercise of its award discretion. “Where the state has acted wholly outside its authority; has acted arbitrarily and capriciously in its decision-making; has rendered a decision that is clearly erroneous; or has acted in violation of constitutional rights,” then a disappointed bidder may successfully challenge a public agency’s improper determination of bid responsiveness. Int’l Business Machines Corp. v. Evans, 265 Ga. 215, 453 S.E.2d 706 (1995). Where the public agency’s exercise of its discretion is inconsistent with the objective standards or criteria which govern the agency’s procurement process, a disappointed bidder may be successful in a timely challenge to a contract award. Credle v. East Bay Holding Co., 263 Ga. 907, 440 S.E.2d 20 (1994). The owner’s determination of bid responsiveness must be based upon a demonstrable factual foundation, and the public owner is required to exercise good faith in this determination. Hilton Constr. Co. v. Rockdale County Bd. of Education, 245 Ga. 533, 266 S.E.2d 157 (1980). Absent this sort of governmental abuse of the responsiveness determination, a party challenging a bid responsiveness decision by a Georgia public body faces a difficult burden.
“Mutual mistake” is another legal doctrine under which a contractor may obtain relief from a changed condition. Under the mutual mistake theory, a contractor that can show the existence of a factual condition, of which both the contractor and the owner were unaware, and which goes to the “very essence” of the contract, may be successful in having the contract rescinded and in having the actual cost paid on a quantum meruit (literally “as much as he deserves”; in practice, the “reasonable value” of the materials and services furnished) basis. See, e.g., Long v. Inhabitants of Athol, 82 N.E. 665 (Mass. 1907).
VII. SET-ASIDE PROGRAMS
In Georgia, as in other jurisdictions, state and local public bodies have, for a number of years, included in their procurement processes various programs designed to increase the participation of minority-owned or “disadvantaged” businesses in construction contract awards. In theory, these state and local public programs are designed to set aside, for previously disadvantaged minority firms, a share of the public procurement dollar. In practice, these programs have met with mixed success and mixed reactions. In recent years, the continued validity of such programs has been called into question by state and federal court decisions.
Although these set aside programs are variously referred to as intended for the benefit of “small business enterprises,” “minority owned business enterprises,” disadvantaged business enterprises,” or “women owned business enterprises,” they still may be found in one form or another at the state and local level in Georgia.
A. State Set-Aside Policies
In Georgia, and at the state level, the General Assembly has declared that it is the policy of the state to “ensure that a fair proportion of the total purchases and contracts or subcontracts” for the state “be placed with small businesses . . . competitive as to price and quality.” O.C.G.A. § 50-5-122. In addition, state statutes declare that it is state policy to encourage and develop “the actual and potential capacity of minority business enterprises.” O.C.G.A. § 50-5-130. In spite of these policy pronouncements, and at least at the state level in Georgia, there have been efforts by state agencies to develop and implement these policy statements. Certainly, where a state or local construction project is funded by federal program money, contractors doing business in Georgia can expect to confront the minority preference and affirmative action requirements which attach to that federal funding. This incorporation of federal minority business enterprise requirements into state construction contracts is seen frequently, for example, in connection with the road construction projects sponsored by the Georgia DOT. See Standard Specifications Construction of Roads and Bridges, Department of Transportation, State of Georgia § 102.07(H) (2001); Metropolitan Atlanta Rapid Transit Auth. v. Wallace, 243 Ga. 491, 254 S.E.2d 822 (1979) (upholding MBE utilization as a condition of federal funding of a MARTA construction project).
B. Local Government Set-Aside Programs
At the county and municipality contracting level, minority set aside programs also may be encountered by contractors doing business in Georgia. Although such set aside programs have historically been challenged successful as contrary to public statutes requiring contract awards to the “lowest responsible bidder,” the Georgia legislature in recent years has recognized the right of certain counties and municipalities to include minority set aside programs in their local procurements. O.C.G.A. §§ 36-10-2.1; 36-10-2.2 (counties with populations exceeding certain levels may include minority business enterprise participation plans and goals in their procurement programs). Both prior to and since this enabling legislation, certain counties and municipalities in Georgia have adopted minority participation requirements. For example, the City of Atlanta’s Charter has been amended to include, as part of the bidder “responsibility” determination, the contractor’s compliance with “equal employment opportunity” and “minority and female business enterprise” involvement programs duly established by city ordinance. 1992 Ga. Laws 7162, 7164-65.
C. Constitutional Hurdles For Set Aside Programs
Even if a municipal or a county minority business enterprise program is sanctioned by state enabling legislation, that MBE program still must survive the application of limiting standards imposed by the Georgia Constitution and the United States Constitution. For example, in 1989, the City of Atlanta’s minority set aside program was successfully challenged and struck down by the Georgia Supreme Court on the basis of the program’s failure to meet the equal protection clause requirements of the Georgia Constitution. American Subcontractors’ Ass’n. Georgia Chapter, Inc. v. City of Atlanta, 259 Ga. 14, 376 S.E.2d 662 (1989) (the program’s requirement that bidders must identify in their bids minority and female business involvement sufficient to meet the program’s goal of 35% minority participation was constitutionally improper). In striking down the City of Atlanta minority set aside program, the George Supreme Court applied the test established by the United States Supreme Court in its analysis of a similar ordinance passed by the City of Richmond. City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989). The Georgia court found that there was no evidence that qualified minority contractors had been passed over for city contracts, either as a group or in any individual case. In addition, the Georgia Supreme Court held that even if there were evidence of prior discrimination, the City of Atlanta’s program was not a response which was “narrowly tailored” to remedy that prior discrimination. That is, the court found no relationship between the 35% MBE “goal” and the level of discrimination that might have occurred in the past. As a result, the Georgia Supreme Court held that this MFBE program could not withstand the “strict scrutiny” appropriate in an analysis of a governmental program denying certain citizens the opportunity to compete for public contracts on the sole basis of their race and gender. See also Associated General Contractors of Conn. v. City of New Haven, 791 F. Supp. 941 (D. Conn. 1992). The United States Supreme Court’s policy enunciated in the Croson case was further developed in that court’s decision in Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995). As a result of the Adarand decision, it is clear that any affirmative action program—at the federal, state or local level—is subject to “strict” judicial scrutiny. Any racial classification must serve a compelling governmental interest, and any resulting preference must be narrowly tailored to further that interest.
Notwithstanding the tightened standards imposed by the Croson and Adarand decisions, minority set aside programs still may be encountered by those doing business in the Georgia construction industry. For example, the City of Atlanta has re-issued its disadvantaged business enterprise affirmative action plan. Section 5-5170, City of Atlanta, Procurement and Real Estate Code (Supp. No. 52, 11-91). This program establishes percentage goals for minority business involvement in construction projects, and it requires that prime contractors submit equal business opportunity (“EBO”) plans along with their bids. These EBO plans “shall be designed to meet the applicable project goals set for such project and shall be incorporated into the contract.” In response to the Adarand decisions determination that the affirmative action plan must be tailored to meet a demonstrated and compelling government interest, the Atlanta program is based upon a specifically commissioned study which established specific findings of prior minority discrimination in the contracting process. Section 5-5162 and 5- 5163, City of Atlanta, Procurement and Real Estate Code. If a bidder fails to include an EBO plan in its bid, as well as a commitment to meet those affirmative action goals, the bid may be deemed non-responsive. Similar set aside programs may be encountered in dealing with other Georgia public owners, such as Fulton County, Georgia, the Atlanta Board of Education, and the Metropolitan Atlanta Rapid Transit Authority.
VIII. OTHER PREFERENCE STATUTES
In addition to those minority set aside programs described above, there also are preference statutes in Georgia which would seem to give preferences to “local” contractors or suppliers bidding for public work. For example, by statute, the DOAS is required “to give preference as far as may be reasonable and practicable to such materials, supplies . . . equipment . . . as may be manufactured or produced in this state.” O.C.G.A. § 50-5-60(a). Although this type of “local” preference statute may appear significant at first blush, this statute, and other similar statutes, qualify the preference for local suppliers and contractors by providing that the preference should not result in any “sacrifice or loss in price or quality.” Although goods manufactured or produced in Georgia may be favored over those offered from other jurisdictions, the preference is equivalent to a “the tie goes to the Georgia vendor” rule. That is, unless the Georgia vendor and a bidder from another jurisdiction submit identical low bids for the public purchase of materials or equipment, the local preference statute is not likely to have any impact.
With respect to construction contracts, there is no direct corollary to the statutes favoring local vendors. However, the DOAS is directed to give preference to “local sellers of Georgia products when it is possible to do so, the interest of the state is not sacrificed, and the quality and prices permitted.” O.C.G.A. § 50-5-62. Moreover, unless a conflicting federal statute or regulation is applicable, any construction contract let by a state department or agency must include a stipulation providing that the contractor or any subcontractor “shall use exclusively Georgia forest products . . . if Georgia forest products are available.” O.C.G.A. § 50-5-63.
IX. MISTAKES IN BIDDING
A. The Right To Withdraw Bids
Bid mistakes are all too common in a construction industry environment in which multi-million dollar contract proposals are put together in unique business circumstances and in very limited time frames. When such mistakes do occur, the contractor making the bid mistake must consider the withdrawal of its bid as a potential first line of defense. Generally, a bidder is entitled to withdraw its contract offer any time prior to acceptance. With respect to bids submitted on public works projects in Georgia, the bidder is generally entitled to withdraw its bid any time prior to the scheduled bid opening. See e.g., O.C.G.A. § 32-2-68(b); Standard Specifications Construction of Roads and Bridges, Department of Transportation, State of Georgia, § 102.01 (2001); see also O.C.G.A. § 13-3-2. Once the bids for a public works project have been opened, however, the right of the mistaken bidder to withdraw its bid is much less certain.
Public bidding statutes and procurement regulations often require that, once the bids are open, all bids are considered firm and irrevocable for a fixed evaluation period. See e.g., O.C.G.A. § 32-2-68(b) (applicable to the Georgia Department of Transportation) . Although this “firm bid rule” is interpreted in many jurisdictions, and in connection with federal procurement matters, to prevent the withdrawal of a bid except in very limited circumstances, the law in Georgia in this regard prior to 1998 was further complicated by a state statute which would permit either party to withdraw its bid unless and until the other party has “assented to all the terms” and thereby accepted the bid. O.C.G.A. § 13- 3-2. This apparent conflict in Georgia procurement law has been resolved by the courts of Georgia in the following fashion: bidders may withdraw their bids at any time, even after bid opening and prior to acceptance, unless the bid by its terms is required to be kept open for acceptance at the option of the other party for a defined period of time, and provided further that this “option” is supported by separate legal consideration. Amwest Surety Insur. Co. v. Ra-Lin & Assocs., Inc., 216 Ga. App. 526, 455 S.E.2d 106 (1995); Peerless Casualty Co. v. Housing Auth. of Hazelhurst, 228 F.2d 376 (5th Cir. 1955). Acceptance of the bid, and the cutting off of any right to withdraw the bid offer, may be evidenced in various ways. For instance, DOAS regulations provide that the issuance of a written purchase order to a successful offeror within the time allowed by the bidding documents results in a binding contract without further action by either party. See LPS Constr. Co. v. Georgia. Dept. of Defense, 228 Ga. App. 486, 491 S.E.2d 920 (1997).
Prior to 1998, the courts also allowed bids to be withdrawn in contracts rescinded when the following circumstances have been demonstrated:
1. If the mistake is of such consequence that enforcement would be unconscionable;
2. If the mistake relates to the substance of the consideration;
3. If the mistake occurred regardless of the exercise of ordinary care;
4. If it is possible to return the other party to its prebid position; and
5. If the mistaken bidder gives prompt notification of the mistake and its intention to withdraw.
First Baptist Church of Moultrie v. Barber Contracting Co., 189 Ga. App. 804, 377 S.E.2d 717 (1989). If the party receiving the bid knew, or had reason to know, of the mistake, then the mistaken bidder’s right to equitable relief was more assured. See State Highway Dept. of Georgia v. MacDougald Constr. Co., 54 Ga. App. 310, 187 S.E. 734 (1936); Peerless Casualty Co. v. Housing Auth. Of Hazelhurst, 228 F.2d 376 (1955). Even if the bidder’s mistake resulted from the bidder’s negligence, Georgia courts granted the mistaken bidder relief in circumstances in which the other contracting party was not prejudiced by the bid withdrawal. First Baptist Church of Moultrie v. Barber Contracting Co., supra (citing O.C.G.A. § 23-2-32).
O.C.G.A. § 13-10-22 to permits the withdrawal of public contract bids containing bid mistakes after bid opening, without forfeiting its bid bond, under certain circumstances. A bid containing a mistake may be withdrawn after bid opening if: (1) the bidder has made an appreciable error in the calculation of the bid that can be documented by clear and convincing evidence; (2) such errors can be clearly shown by objective evidence drawn from inspection of the original work papers or other materials used in preparing the bid; (3) the bidder serves written notice on the public entity which invited the proposals prior to award of the contract and not later than 48 hours after the opening of bids, excluding Saturdays, Sundays and legal holidays; (4) the bid was submitted in good faith and the mistake was due to calculation or clerical error, an inadvertent omission, or a typographical error as opposed to an error in judgment; and (5) the withdrawal of the bid will not result in undue prejudice to the public entity or other bidders by placing them in a materially worse position than if the bid had never been submitted.
If the bid is withdrawn, the other bids will be considered as if the withdrawn bid had not been submitted. If the project is re-let for bids after the bid is withdrawn, the withdrawing bidder cannot submit a bid on the re-solicitation, and the withdrawing bidder cannot supply any material or labor to the project for compensation and cannot subcontract work on that project. O.C.G.A. § 13-10- 22(c) & (d). This law does not apply to Georgia DOT projects, but it applies to most, if not all, state and local public projects. However, O.C.G.A. § 32-2-69(d) does contemplate the lowest bidder might be released by GDOT because of an “obvious error” in the bid.
In connection with private construction contracting, bidders should note carefully the “private law” created by the parties’ bid documents and contracts. Those contractually created rights and remedies may restrict or enlarge the rights of mistaken bidder. In the public arena, agencies, authorities and local governments may have promulgated detailed rules and regulations regarding bid mistake situations, and mistaken bidders are cautioned to know and follow those administrative procedures. See, e.g., Section 5-5042(g) City of Atlanta Procurement and Real Estate Code.
B. The Georgia DOT Rule
Whatever rules and rights may apply in connection with the withdrawal of bids to other Georgia public agencies, the Georgia DOT operates, as is the case with other procurement procedures, according to a different standard. The facts of a 1997 Georgia Supreme Court decision illustrate the rights of a bidder to withdraw its bid to the Georgia DOT. Georgia Dept. of Transportation v. American Insur. Co., 268 Ga. 505, 491 S.E.2d 328 (1997). In this case, the bidder acknowledged a $300,000.00 unilateral bid mistake and requested that its bid be withdrawn. The Georgia DOT refused to do so. The Georgia Supreme Court acknowledged that a bidder could withdraw an offer at any time before actual acceptance under the common law, even if no bid mistake argument is present. However, the court found that a Georgia statute requiring the submittal of a bid bond to the Georgia DOT, and the forfeiture of that bond upon the bidder’s refusal to go forward with the contract, overrode the common law right of a bidder to withdraw its bid. The Georgia statute authorized the Georgia DOT to relieve the bidder of its unilateral mistake, but the court found that the statute did not require the DOT to do so. As a result, the bidder’s bid bond was forfeited and the bidder was denied equitable relief from its bid mistake.
C. Subcontractor Bid Mistakes
The right of a mistaken bidder to withdraw its bid or to seek equitable relief is complicated by the bidder’s status as a subcontractor or supplier. In most jurisdictions, if the prime contractor relied upon the mistaken subcontractor’s bid in making a contract offer to the owner, and the prime contractor is obligated to the owner for the performance of the construction contract, then the subcontractor is estopped to withdraw its bid. The rationale for this variation in the law of bid mistakes is that the prime contractor has relied, to its detriment, on the subcontractor’s bid, and this prejudice to the general contractor dictates that the mistaken subcontractor, as opposed to the relying prime contractor, accept the consequences of the bid mistake. See Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757 (1958); see O.C.G.A. § 13-3-44(a); Foley Co. v. Warren Eng’g, Inc., 804 F. Supp. 1540 (N.D. Ga. 1992) (applying Georgia law).
The equitable doctrine of “promissory estoppel” will not be applied, however, to hold a mistaken subcontractor to a bid in the following circumstances:
1. If the subcontractor’s bid is so low as to indicate obvious error;
2. If the general contractor has not, in fact, relied on the subcontractor bid;
3. If the subcontract bid can be withdrawn or modified before it is relied upon by the prime contractor; or
4. If the terms of the subcontractor proposal indicate that the bid is amendable or not firm, so that it should not have been reasonably relied upon by the prime contractor.
X. BID PROTEST PROCEDURES
A. Standing To Complain
In order to challenge the bidding process or the award of a contract on a
Georgia public project, the complaining party first must establish that it has the “standing” to protest. In Georgia, that “standing” requirement is met if the protestor can satisfy a two-part test:
(1) The action complained of must cause, or must threaten to cause immediately, an “injury in fact” to the protesting party;
(2) The protesting party must have a legal interest which is “arguably within the zone of interests to be protected” by the state competitive bid laws.
Amdahl Corp. v. Georgia Dept. of Admin. Services, 260 Ga. 690, 398 S.E.2d 540 (1990). In addition to these standing requirements, a federal court applying the Georgia law has demanded of the protesting party some showing of a connection between the injury and the challenged action, as well as the likelihood that a favorable decision will redress the injury. S.J. Groves & Sons Co. v Fulton County, 920 F.2d 753 (11th Cir. 1991). These “standing” factors have been applied in a number of Georgia cases to establish that a disappointed low, responsible and responsive bidder, as well as a group or association of bidders, have standing to challenge an illegal, untimely, non-responsive bid or an unauthorized bid procedure. Hilton Constr. Co. v. Rockdale County Bd. Of Education, 245 Ga. 533, 266 S.E.2d 157 (1980); City of Atlanta v. J.A. Jones Constr. Co., 260 Ga. 658, 398 S.E.2d 369 (1990); Metric Constructors, Inc. v. Gwinnett County, 729 F. Supp. 101 (N.D. Ga. 1990).
If, however, the protesting bidder is not in a position to demand an award of the contract if its protest is successful, then the bidder typically has no standing to complain. Thus, a bidder who is the third lowest bidder would not have standing to challenge the award of the contract to the apparent low bidder, unless the protesting party also challenged the entitlement of the second-low bidder to a contract award. Similarly, a subcontractor generally has no right to protest the award, or non-award, of a contract to a prime contractor. Southeast Grading, Inc. v. City of Atlanta, 172 Ga. App. 798, 324 S.E.2d 776 (1984). At the same time, a resident of the city, county or state whose funds are being spent in connection with the public contract award, or the taxpayers within that particular public jurisdiction, have been found to have appropriate standing to challenge an improper public contract award. Ferguson v. Randolph County, 211 Ga. 103, 84 S.E.2d 70 (1954) (Taxpayers were permitted to protest county road construction contracts which were awarded by one of the county commissioners in violation of competitive bid regulations).
B. Bid Protest Procedures
The bidding documents and the procurement rules and regulations which govern the contract award process for the particular public entity are the first place to look for procedural guidance in a bid protest situation. In connection with certain federally funded or even local construction projects, the public owner’s procurement regulations, or federal procurement regulations, which attach to federal funding, may make available an administrative framework for the pursuit of a bid protest. Although the law generally would require that a disappointed bidder exhaust its administrative remedy before seeking the court’s involvement, especially if the available administrative procedure could grant the relief desired by the protesting party, it is unclear in Georgia that exhaustion of administrative remedies is a necessary precondition to the pursuit of equitable or legal relief in the courts. See Hilton Constr. Co. v. Rockdale County Bd. Of Education, 245 Ga. 533, 266 S.E.2d 157 (1980).
C. Administrative Protest Procedures
An example of an available administrative framework for bid protest is found in the procurement regulations of the City of Atlanta. Sections 5-5111 to 5- 5116, City of Atlanta, Procurement and Real Estate Code (Supp. No. 50, 3-91). The City of Atlanta’s bid protest procedure requires that the protest be pursued within ten days after the bidder knew or should have known of the facts giving rise to the protest, and not later than 30 days after notification of the contract award. Significantly, the decision of the City’s hearing officer in connection with any such bid protest is afforded considerable weight in any subsequent appeal. City of Atlanta v. Bankhead Enterprises, Inc., 224 Ga. App. 840, 482 S.E.2d 466 (1997) (hearing officer’s decision will be upheld if there is any evidence to support it). The procurement appeals officer’s decision is “final and conclusive” unless it is found to be “arbitrary, capricious, fraudulent or clearly erroneous.” Section 5-5116(5), City of Atlanta, Procurement and Real Estate Code (Supp. No. 50, 3-91). In addition to those stated grounds for an appeal, a disappointed bidder is always free to argue that it was denied “due process” as a result of the failure of the public authority to afford it a meaningful hearing and bid protest opportunity. See City of Atlanta v. J.A. Jones Constr. Co., 195 Ga. App. 72, 392 S.E.2d 564, rev’d on other grounds, 260 Ga. 658, 398 S.E.2d 369 (1990).
D. Judicial Protest Procedures
Regardless of whether there exists an administrative procedure for protesting a public procurement, a protesting party with standing can challenge the procurement process or contract award in the Georgia courts. In this regard, the protesting party’s best opportunity for meaningful success is an action to enjoin the contract award. Challenges to public bids or public procurement processes are more likely to receive favorable judicial treatment if they are made quickly and before a contract has been awarded. See, e.g., Int’l Business Machines Corp. v. Evans, 265 Ga. 215, 453 S.E.2d 706 (1995). At this early stage, equitable relief in the form of a temporary restraining order or preliminary injunction preventing the award of the contract is the primary focus of the disappointed bidder. If the protesting party delays in taking action, then the public owner may successfully argue that it has been unduly prejudiced by the delay, regardless of whether the protesting party has a legitimate complaint. At the same time, the courts do have the power to void or set aside a contract award made in violation of state procurement requirements. Glynn County v. Teal, 256 Ga. 174, 345 S.E.2d 347 (1986) (State procurement voided even though contract awarded and performance begun); Floyd v. Thomas, 211 Ga. 656, 87 S.E.2d 846 (1995) (County procurement voided).
1. Limitations on injunctive relief
The availability of equitable injunctive relief to a disappointed bidder in Georgia is complicated by several factors. First, a party is entitled to injunctive relief only if it can demonstrate that the absence of an injunction will cause “irreparable injury” to the complaining party. If a complaining party is viewed as having an “adequate remedy at law” (i.e., if a lawsuit for damages will adequately compensate the complaining party), then the extraordinary remedy of injunctive relief will not be granted by the courts. See Metropolitan Atlanta Rapid Transit Auth. v. Wallace, 254 S.E.2d 822 (1979); Hilton Constr. Co. v. Rockdale County Bd. of Education, 266 S.E.2d 157 (1980). Other factors which may influence a court’s denial of a request for injunctive relief in a bid protest situation are the likely prejudice to be suffered by the public as a result of any contract award delay, as well as the failure of the protesting party to pursue an available and seemingly-adequate administrative protest procedure. Mark Smith Constr. Co. v. Fulton County, 248 Ga. 694, 285 S.E.2d 692 (1982) (hardship imposed on the public by a delay in the construction of a fire station); Hilton Constr. Co. v. Rockdale County Bd. of Education, supra (Protestor failed to exhaust administrative remedies which might have stopped the contract award).
E. Bid Protest Damages
The adequacy of judicial relief in bid protest circumstances is further limited in Georgia by the Georgia Supreme Court’s holding that a disappointed bidder is “only entitled to an award of reasonable costs of bid preparation.” City of Atlanta v. J.A. Jones Constr. Co., 260 Ga. 658, 398 S.E.2d 369 (1990). This rule, which also appears to be the majority rule in other jurisdictions, denies to a disappointed bidder the right to recover its anticipated profit in connection with a contract improperly awarded to another. The court’s rationale is that to hold otherwise would unduly punish the tax-paying public. It is possible, in theory at least, for a disappointed bidder to seek damages from the involved public officials personally, where the violation of the competitive bidding requirements resulted from willful or malicious acts, or from fraud or corruption by those public officials. City of Atlanta v. J.A. Jones Constr. Co., supra. However, the utility of such a right is doubtful. Although in certain circumstances the disappointed bidder in Georgia also may seek to recover its attorney’s fees incurred in the protest process, it seems clear that the disappointed bidder can achieve meaningful success in a bid protest situation only if the contract award to another can be enjoined. See Credle v. East Bay Holding Co., 263 Ga. 907, 440 S.E.2d 20 (1994).
XI. SPECIAL RULES GOVERNING CONTRACTS FOR GOODS – ARTICLE TWO OF THE UCC.
Construction contracts are typically viewed by the law as contracts for construction “services.” Where, however, the construction contract involves solely the purchase of “goods” (i.e., materials or equipment), then the special legal principles incorporated into the Georgia Uniform Commercial Code come into play. O.C.G.A. § 11-2-101 et seq. Within the construction industry, supplies and equipment frequently are contracted for through the use of purchase orders. In this process, it is not uncommon for contractors to issue and then rely on purchase orders which are not signed and returned by the receiving party, as well as for the parties involved in the contracting process to exchange conflicting and unsigned purchase orders. In these circumstances, the Georgia Uniform Commercial Code follows certain rules in defining the contract rights and responsibilities of the parties. Those rules differ, to some extent, from what contracting parties might expect to encounter in the construction contracting process.
For example, the Uniform Commercial Code may create a contract between parties who exchange unsigned purchase orders and begin performance, even though the terms of those exchanged purchase orders are different or in conflict. The Uniform Commercial Code may determine that the terms of the contract formed are those which both purchase orders agree upon, plus any new and different terms in the last purchase order to be sent, unless those new and different terms are timely objected to by the other party. If those new and different terms are timely objected to, then the UCC may still create contract terms on the basis of the application of a “rule of reason” in defining contract terms. For example, if the delivery schedule was not agreed upon in the exchanged purchase orders, then the UCC may write into the parties’ contract the requirement of a “reasonable” delivery schedule.
The dangers of such a statutory determination of contract rights and liabilities are obvious. Those engaged in buying construction supplies through the issuance of purchase orders are cautioned to observe the following bidding procedures:
When Issuing A Purchase Order—
1. The purchase order should state that the purchase order can be accepted, and a contract created, only if the acceptance is limited to the terms of the purchase order offer.
2. Establish a system for insuring that you receive a signed purchase order acknowledgment—limited to the original purchase order terms—before going forward with contract performance.
3. If you receive a response which varies or adds terms, promptly object to any new or different terms which should not be included as part of your contract.
When Responding To A Purchase Order—
1. Promptly respond to the purchase order. Your silence, and the start of contract performance, may create a contract, which is governed by the purchase order terms.
2. Clearly indicate in your response that your acceptance of the purchase order is expressly made subject to the offeror’s agreement to each of your new or different terms.