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Fairbanks School District v. Bowers Office Products (9/25/92), 851 P 2d 56
Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
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THE SUPREME COURT OF THE STATE OF ALASKA
FAIRBANKS NORTH STAR BOROUGH )
SCHOOL DISTRICT, )
) Supreme Court File No. S-4525
Appellant, ) Superior Court File No.
) 4FA-89-1463 Civil
BOWERS OFFICE PRODUCTS, INC., ) O P I N I O N
Appellee. ) [No. 3888 - September 25, 1992]
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Niesje J. Steinkruger, Judge.
Appearances: Paul H. Cragan and Gordon
W. Duval, Hughes, Thorsness, Gantz, Powell &
Brundin, Fairbanks, for Appellant. James N.
Reeves, Bogle & Gates, Anchorage, for
Before: Burke, Matthews, Compton and
Moore, Justices. [Rabinowitz, Chief Justice,
This dispute arose after the Fairbanks North Star
Borough School District (school district) requested
proposals and awarded contracts to obtain copier
services for a three year period. Bowers Office
Products, Inc. (Bowers), an unsuccessful bidder, sued
the school district. The superior court concluded that
the school district had breached its implied promise to
fairly and honestly consider Bowers' proposal, awarded
Bowers its bid preparation costs and cancelled the
copier contracts. The school district appeals. We
I. FACTUAL AND PROCEDURAL BACKGROUND
Beginning in late 1986, Bowers provided copier service
under a three year contract with the school district.
In June 1989, near the expiration of the Bowers
contract, the school district advertised a Request for
Proposal (RFP) to obtain copier service for the next
three years. The school district reserved the right to
reject any or all bids and the option to obtain copier
service on the basis of other competitively arranged
government contracts. Bowers made several objections
to the form and content of the bid solicitation.
In July the school district issued its Notice of Intent
to Award the copier service contracts to Pitney Bowes
and Kodak. Bowers submitted a written protest and made
an oral appeal to the School Board. After discussing
Bowers' protest, the School Board unanimously voted to
award the contracts to Pitney Bowes and Kodak. Bowers
filed suit claiming that the school district's decision
was illegal and requested damages and an injunction
against the performance of the contracts.
The superior court denied Bowers' request for a
temporary restraining order. The court also denied
Bowers' first motion for summary judgment holding that:
1. The school district is under no
legal duty to publish in a request for
proposals the relative weights which will be
applied to the evaluation factors contained
in the request for proposals; and
2. The request for proposals at
issue in this case, on its face, complied
with the School Board Policy1 requiring
"competitive"purchasing practices; . . .
After considering new cross motions for summary
judgment, the court made several findings and
conclusions. The court found that while the action was
an administrative appeal pursuant to AS 22.10.020(d),
it would "handle the case de novo in the sense that the
court allowed the parties to augment the record."
Regarding the merits, the court summarized as follows:
The court finds that the District's
cumulative action and inaction in conducting
an evaluation and award process for the
contract for copiers pursuant to RFP 9005 was
arbitrary and capricious and the District
failed to meet its implied contractual
obligation for an honest and fair
consideration of all proposals. . . .
. . . Plaintiff is entitled to
damages for this breach of contract.
In reaching this conclusion, the court found that: 1)
the school district had failed to respond to Bowers'
request for clarification of the RFP; 2) Pitney Bowes
failed to comply with the RFP because its reference
letters were not sent directly from its clients to the
school district; 3) Pitney Bowes was allowed to
substitute a different copier 19 days after proposals
were submitted to remedy deficiencies the school
district noted in Pitney Bowes' first submission; and
4) the school district did not conduct a satisfactory
inquiry into whether the Kodak copiers met RFP
The court denied a motion by Bowers to cancel the
contracts and denied a motion by the school district to
remand the matter to the school district for correction
of the errors identified. Upon reconsideration, the
court ordered as follows:
This court, upon review of the
evidence presented, does not find, as a
matter of law, that cancellation of the
contracts is the appropriate remedy. The
issue of what remedy, legal or equitable, is
appropriate in this case is a question of
fact to be determined at trial. . . .
To the extent that this court's
[previous] orders . . . limit the plaintiff
to money damages of bid preparation costs
these orders are vacated.
Following a five day trial, the court affirmed its
earlier findings and discussed "additional
irregularities" which supported its summary judgment
that the school district had breached its implied
contractual duty to treat Bowers' proposal fairly and
honestly.2 The court found that Bowers was entitled to
damages in the amount of $29,516.30 for bid preparation
costs. Moreover, the court found that "the aggrieved
bidder has demonstrated that the integrity of the
process as it actually took place resulted in failing
to fulfill the requirements of competitiveness, and the
Court must use the remedy of cancelling the contract."
The court also awarded Bowers costs and attorney's fees
pursuant to Alaska Civil Rules 79 and 82. The school
II. STANDARD OF REVIEW
The issue of the appropriate standard for our review of
this case is complicated by the manner in which the
matter proceeded. The parties brought their dispute
before the superior court as an administrative appeal
pursuant to AS 22.10.020(d). However, the parties
engaged in discovery and augmented the record before
the court with documentary evidence and live testimony.
In the typical administrative appeal based only on an
agency record, we give no deference to the decision of
the superior court and independently scrutinize the
administrative action. Tesoro Alaska Petroleum Co. v.
Kenai Pipe Line Co., 746 P.2d 896, 903 (Alaska 1987).
In the context of an administrative appeal with an
augmented record we will continue our independent
scrutiny with regard to new documentary evidence.
However, we will accept the superior court's findings
of fact based on live testimony unless it appears that
such findings are clearly erroneous. Cf. Ursin
Seafoods, Inc. v. Keener Packing Co., Inc., 741 P.2d
1175, 1178 (Alaska 1987) (substitution of judgment
standard is appropriate for interpretation of a
contract based exclusively on documentary evidence,
while clearly erroneous standard is applicable where
extrinsic testimonial evidence is involved).
The school district does not challenge the findings of
fact made by the superior court. Rather, the school
district contends that the court erred in its
application of law to the facts and in its conclusion
that the school district breached its duty to fairly
and honestly consider Bowers' proposal. Therefore, we
will independently scrutinize the school district's
actions to determine if the school district breached a
duty as to Bowers.
III. THE SCHOOL DISTRICT DID NOT BREACH ITS DUTY TO
FAIRLY AND HONESTLY CONSIDER BOWERS' PROPOSAL
In King v. Alaska State Housing Authority, 633 P.2d
256, 263 (Alaska 1981), we recognized that a government
agency which solicits bids for goods or services has an
implied contractual duty to fairly and honestly
consider bids and we established the appropriate
standard for determining whether this duty had been
[I]n exchange for a bidder's investment
of the time and resources involved in bid
preparation, a government agency must be held
to an implied promise to consider bids
honestly and fairly. Breach of this implied
contract on the part of an agency entitles a
disappointed bidder to recover the costs
incurred in preparation of the bid. We also
hold, in accordance with the Court of Claims
decisions, that the "reasonable basis"
standard for review of administrative
decisions, see Jager v. State, 537 P.2d 1100,
1107-08 (Alaska 1975); Kelly v. Zamarello,
486 P.2d 906, 916-17 (Alaska 1971), is
applicable in this situation. See Keco
Industries, Inc. v. United States, 492 F.2d
1200, 1203-04 (Ct. Cl. 1974).
633 P.2d at 263 (footnote omitted).
We have relied on Kelly for the proposition that when
applying the reasonable basis standard, "we merely seek
to determine whether the agency's decision is supported
by the facts and has a reasonable basis in law, even if
we may not agree with the agency's ultimate
determination." Tesoro Alaska, 746 P.2d at 903.
Neither party contends that the school district is not
subject to the implied duty of an agency, articulated
in King, to fairly and honestly consider bid proposals.
Rather, the parties disagree regarding whether the
school district breached this implied duty.
The school district challenges the list of problems the
court found with the proposal review process,
contending that some of the problems identified were
not real defects, that any defect which occurred did
not constitute a breach of the implied promise and that
any breach did not harm Bowers.
Bowers contends that the determination of whether a
variance in a bid is sufficiently material to make the
bid non-responsive to a request for proposal is a
"judgment call committed to the discretion of the
Superior Court." Bowers argues that the court properly
concluded that the bid of Pitney Bowes was non-
responsive because of noncompliance with a customer
reference letter requirement and improper substitution
of a different copier. Bowers argues that the court
properly concluded that the bid of Kodak was non-
responsive because of a failure to prove the date of
manufacture of equipment.
We have required a disappointed bidder to meet a high
standard of proof in order to recover for breach of an
agency's implied promise to consider bids honestly and
fairly. King, 633 P.2d at 263. In King, we found the
following language from a decision of the United States
Court of Claims helpful for determining whether a
bidder has met this standard:
The ultimate standard is . . . whether
the government's conduct was arbitrary and
capricious toward the bidder-claimant. We
have likewise marked out four subsidiary, but
nonetheless general, criteria controlling all
or some of these claims. One is that
subjective bad faith on the part of the
procuring officials, depriving a bidder of
the fair and honest consideration of his
proposal, normally warrants recovery of bid
preparation costs. A second is that proof
that there was no reasonable basis for the
administrative decision will also suffice, at
least in many situations. The third is that
the degree of proof of error necessary for
recovery is ordinarily related to the amount
of discretion entrusted to the procurement
officials by applicable statutes and
regulations. The fourth is that [a] proven
violation of pertinent statutes or
regulations can, but need not necessarily, be
a ground for recovery. The application of
these four general principles may well depend
on (1) the type of error or dereliction
committed by the Government, and (2) whether
the error or dereliction occurred with
respect to the claimant's own bid or that of
633 P.2d at 263 n.7 (citations omitted) (quoting Keco Industries,
Inc. v. United States, 492 F.2d 1200, 1203-04 (Ct. Cl.
1974)). Applying the Keco criteria, we conclude
that the superior court should not have disturbed the
school district's decisions and contract awards.
First, the court specifically found that the school
district was not "out to get"Bowers, that the school
district's actions did not rise "to the level of
favoritism or a rigged process"and that the school
district "tried very hard to make this procedure go
right." These findings are not consistent with
"subjective bad faith." Compare Heyer Products Co.,
Inc. v. United States, 140 F.Supp. 409, 413 (Ct. Cl.
1956) (concluding that a breach of the implied contract
had occurred if facts were as alleged and
"advertisement for bids was a sham").
Second, notwithstanding some flaws, there is a
reasonable basis for the school district's award. The
copier evaluation committee carefully considered
several proposals, including Bowers'. The record
indicates that the copiers Bowers offered were
rejected, at least in part, because of unsatisfactory
performance. The court never found fault with the
evaluation committee's determinations regarding the
relative merits of the various proposals based on the
performance and cost of the equipment proposed.3
Third, Alaska's statutory scheme gives school districts
broad discretion in their procurement decisions. AS
14.14.060(h). Therefore, courts should exercise great
caution before disturbing a school district's contract
award. This is especially true in this case where the
school district had the option to reject all proposals
it received and obtain copier service on the basis of
another government contract.
Fourth, Bowers makes no claim that the school district
violated any statutes or regulations. Compare, State,
Dep't of Educ. v. Nickerson, 711 P.2d 1165, 1169
(Alaska 1985) (upholding award of bid preparation costs
where an agency violated statutory requirements).
In short, our review of the record leads us to the
conclusion that the school district's conduct towards
Bowers was not arbitrary or capricious. In light of
the broad discretion granted to school districts
regarding procurement decisions under AS 14.14.060(h),
we conclude that the superior court did not afford
proper deference to the decisions of the school
district. We are persuaded by the school district's
arguments that the following technical flaws which the
trial court found in the proposal review process did
not, either individually or collectively, constitute a
breach of the implied contractual duty.4
1. Pitney Bowes' noncompliance with
the reference letters requirement.
The RFP required that reference letters be sent
directly from a bidder's clients to the district.
Instead, Pitney Bowes obtained the letters and included
them in its proposal. The court determined that this
variance gave Pitney Bowes a competitive advantage and
made its bid non-responsive.
In awarding a contract to Pitney Bowes, the school
district implicitly determined that this minor variance
did not render Pitney Bowes' proposal non-responsive.
Based on our review of the record, we conclude that
there was a reasonable basis for this implicit
determination. See Chris Berg, Inc. v. State, Dep't of
Transp. and Pub. Facilities, 680 P.2d 93, 94 (Alaska
1984). The letters of reference the school district
received from Pitney Bowes were substantially similar
to letters received from other bidders. Moreover, the
school district removed any possible advantage this
irregularity afforded Pitney Bowes by directly
contacting a Pitney Bowes client for a reference.
2. The date of manufacture of
The RFP required that the copier equipment must have
been manufactured within five years prior to the date
of the contract. We conclude that the school district
had a reasonable basis for its implicit determination
that Kodak's bid was responsive to this requirement and
for its award of the contract to Kodak. The
determination of whether the school district had a
reasonable basis for its decision should be made based
on the information the school district had at the time
it awarded the contracts. At the time of the awards,
the school district had requested and received
assurances from Kodak which provided a reasonable basis
for a conclusion that Kodak could satisfy the date of
3. Pitney Bowes' substitution
of the M-522 copier.
The school district considered and ultimately accepted
a late-entry low volume copier bid from Pitney Bowes.
However, the record reflects that in determining that
Pitney Bowes should receive the award, the school
district considered only the merits of the copier
Pitney Bowes originally proposed. We conclude that the
school district eliminated any possibility of
unfairness to other bidders by considering only Pitney
Bowes' original submission in making the award. We can
perceive no restriction in the law which would prevent
the school district from accepting a better copier from
Pitney Bowes once it had determined, based on the
original submissions of all the bidders, that Pitney
Bowes should be awarded the contract.5
Based on the facts presented, we conclude that the
school district had a reasonable basis for its
determination that it should award contracts to Pitney
Bowes and Kodak. Further, we conclude that the school
district's actions were not arbitrary or capricious as
to Bowers. As a matter of law, the school district did
not breach its implied duty to fairly and honestly
consider Bowers' proposal.
It follows from our conclusion that the superior court
erred in failing to grant summary judgment in favor of
the school district, in awarding Bowers its bid
preparation costs and in canceling the contracts
awarded to Kodak and Pitney Bowes.
The judgment of the superior court is REVERSED and the
award of attorney's fees to Bowers is VACATED. The
court is directed to enter judgment in favor of the
school district on its motion for summary judgment.
1. It is the school district's written policy to "purchase
competitively, without prejudice, and to seek maximum
educational value for every dollar expended."
2. The court reasoned as follows:
I don't find that the School
District was out to get the Plaintiff. I do
not think that the people that were acting
for the School District -- I don't think it
rises to the level of favoritism or a rigged
process. However, I think the effect of the
process was a series of flaws that compounded
each other to the point that the duty was
The School District tried very hard
to make this procedure go right. There is no
doubt about it. I'm not sure what else they
could have done with the tools that they had
available at the time. It's clear that there
was inadequate staff. The School District
was at a critical time where they had three
new schools coming on line, a historical
moment in what was happening in Fairbanks.
There was simply not enough time or enough
staff or enough expertise and training.
There simply were not enough man-hours to do
the kind of job it appears that the School
District was trying to do. I don't fault
them for trying.
. . . .
I don't find that there was any
intentional action in this particular case.
It's a case of misfeasance, not malfeasance.
The task was simply performed improperly, and
there were other factors going on in the
District that caused it. These were a series
of events waiting to happen, and they were
simply beyond the staff's ability to control
in that the District was trying to run a
process, but it just didn't have all the
tools to run [it] at that time.
3. The court did find an "irregularity"in that the
committee considered some copier features which the
court did not feel were expressly identified in the
RFP. However, we conclude that the RFP implicitly put
these features in issue. Therefore, the committee was
justified in its consideration of these features.
4. In their briefs, neither party addresses one perceived
flaw which the court cited in support of its summary
judgment against the school district. Bowers asked for
clarification of the reference letter requirement in
the RFP. The court found that "Bowers did not submit
reference letters because it was unable to meet the
requirement under its interpretation. The district
neither clarified nor corrected Bowers' reasonable
interpretation despite its promise to do so."
We conclude that the school district's failure to
clarify a requirement of the RFP was harmless in this
case. The record shows that the school district
evaluated Bowers' proposal even though it lacked
reference letters and that the proposals of other
bidders prevailed on their merits.
5. Following trial the court identified several
"additional irregularities"which it found lent support
to its summary judgment against the school district.
We conclude that these "irregularities"did not amount
to a breach of the school district's promise to
honestly and fairly evaluate the proposals.