Monday, March 24, 2014

New Procurement Cases Shed Light on Owner's Discretion

Two new procurement cases shed light on the extent of a public agency’s discretion during an alternative procurement process.  In an unreported decision out of New Jersey, Patock Const. Co. v. New Jersey Sch. Dev. Auth., A-1305-13T3, 2014 WL 85300 (N.J. Super. Ct. App. Div. Jan. 10, 2014), one of the design-builders proposing on a project protested its disqualification based on a conflict of interest.  The lead architect identified by the design-builder had previously worked for the school district, and the school district made a determination that the architect’s involvement in the project was substantive such that the architect had information that gave the design-build team an unfair advantage.  Indeed, in the design-builder’s proposal to the school district highlighted the proposed architect’s role in developing the bridging documents as an advantage in selecting the design-build team.  Unfortunately for the proposer, when the school district determined that the design-builder was correct in stating that its architect’s involvement gave the design-builder an advantage, the school district then determined that the advantage was unfair to the other proposers and disqualified the entire team.  The court upheld the school district’s determination, consistent with other alternative procurement cases across the country that acknowledge the vast amount of discretion given to public agencies to determine conflicts of interest and disqualify teams based on the conflicts, stating, “Although not bound by an agency's determination on a question of law, our courts give ‘great deference’ to an agency's ‘interpretation of statutes within its scope of authority and its adoption of rules implementing’ the laws for which it is responsible.”
In Cmty. Mar. Park Associates, Inc. v. Mar. Park Dev. Partners, LLC, 2014 WL 415955 (N.D. Fla. Feb. 4, 2014), the highest scored proposers for a design-build project decided to play fast and loose with the business entity that entered into the eventual contract with the public agency.  The project consisted of the development of a public maritime park, and the authorizing legislation required that the public agency enter into a contract with the highest scored proposer from the procurement.  Unfortunately, the lead company in the joint venture that achieved the highest score had financially collapsed between the RFQ and the RFP.  The representatives of the joint venture did not disclose the financial collapse to the public agency, and instead, created a single purpose shell entity to enter into the contract.  The court held that the public agency did not have the authority to negotiate and/or enter into any contract with any other entity than the entity that submitted pursuant to the RFQ.  Absent such authority, the lower court declared the contract to be void and required the developer/design-builder to disgorge (a rather graphic term meaning pay back) the money paid to it by the public agency, and the appellate court affirmed this ruling.
“In its prior orders granting summary judgment, the Court concluded that the Development Agreement had been awarded to a shell entity, i.e., MPDP, and not the firm selected as the most highly qualified through the CCNA competitive qualifications procedure, which was Land Capital. The Court found that this irregularity constituted a material noncompliance with the CCNA. Although in Florida a public body has “wide discretion” to implement competitive award procedures for public improvements and courts will not interfere when the procedures are “based on an honest exercise of this discretion,” Liberty Cnty. v. Baxter's Asphalt & Concrete, Inc., 421 So.2d 505, 507 (Fla.1982)."  The Court in this case concluded that CMPA had no discretion under the statute to award the professional services portion of the Development Agreement to an entity that was not affiliated with the firm deemed “most highly qualified” within the meaning of the CCNA and which did not compete at all in the qualifications portion of the award process. Also, because no other competitive award procedures were used, the Court concluded that the entire Development Agreement was void and that disgorgement of money paid under the void public contract was required. Additionally, the Court entered a preliminary injunction, requiring MPDP to deposit with the Court any money it received as profit from the design-build contract, up to the sum of $460,786, in order to preserve the status quo until the amount of disgorgement could be determined.
The court acknowledged that Florida law recognizes an exception to the requirement to pay back money paid if the void contract was not the result of bad faith on the part of the parties; however, the court found the exception to be inapplicable because the representatives of the developer affirmatively misrepresented the financial stability of the entity proposing and failed to provide updated information regarding the entities financial capacity during the procurement.  The court also chastised the representatives for stating to the public entity that the proposing entity was a “joint venture”, when the eventual proposing entity was actually a shell LLC.  The proposers defended their actions explaining that they were not using the term as a legal one; however, court recognized that the term “joint venture” has a specific legal meaning and indicates that each party to the joint venture has joint and several liability toward the owner.  In contrast, the actual contracting entity was a shell LLC, thus limiting the participants’ liability to their contribution to the LLC, the exact opposite of a joint venture.
The lessons behind these two cases?  Although a public agency has a great deal of discretion to manage its procurement process, if it violates the rules of the procurement or its own rules pertaining to selection, its conduct may be the subject of a protest.  Another valuable lesson for proposers is not to misrepresent qualifications or structure to the owner.  Even if the public agency in the CMPA case wanted to continue to work with the developer, it would have been prevented from doing so because the contract was void against public policy.  Finally, don’t banter around legal terms like “joint venture” unless you know what you are talking about.   Legal terms have meaning, and by using them you may be making a representation that you do not intend. 

1 comment:

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