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Paul Wholesale et al v. State et al (12/22/95), 908 P 2d 994
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, telephone (907) 264-0607, fax (907) 276-
THE SUPREME COURT OF THE STATE OF ALASKA
PAUL WHOLESALE, B.V./HOLS )
TRADING, GmbH, J.V., ) Supreme Court No. S-6658
) Superior Court No.
v. ) 3AN-94-4639 Civil
STATE OF ALASKA, DEPARTMENT ) O P I N I O N
OF TRANSPORTATION AND PUBLIC )
FACILITIES, ANCHORAGE ) [No. 4300 - December 22, 1995]
INTERNATIONAL AIRPORT; DAVID )
GREEN GROUP, A JOINT VENTURE, )
DAVID GREEN GROUP, A JOINT )
VENTURE, ) Supreme Court No. S-6678
PAUL WHOLESALE, B.V./HOLS )
TRADING, GmbH, J.V.; STATE )
OF ALASKA, DEPARTMENT OF )
TRANSPORTATION AND PUBLIC )
FACILITIES, ANCHORAGE )
INTERNATIONAL AIRPORT, )
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Peter A. Michalski, Judge.
Appearances: Bruce E. Davison and Shelby
Nuenke-Davison, Davison & Davison, Inc.,
Anchorage, for Paul Wholesale, B.V./HOLS
Trading, GmbH, J.V. Elizabeth J. Hickerson,
Assistant Attorney General, Anchorage, Bruce
M. Botelho, Attorney General, Juneau, for the
State of Alaska. Robert J. Dickson,
Atkinson, Conway & Gagnon, Inc., Anchorage
for David Green Group, a Joint Venture.
Before: Rabinowitz, Matthews, Compton and
Eastaugh, Justices. [Moore, Chief Justice,
COMPTON, Justice, dissenting.
After soliciting public bids for a five-year contract
to operate the duty-free concession at Anchorage International
Airport (AIA), AIA awarded the contract to the second highest
bidder, David Green Group d/b/a Aero Trading (DGG). AIA is a sub-
agency of the Alaska Department of Transportation and Public
Facilities (DOT&PF). AIA awarded the contract to DGG after
determining that the high bidder, Paul Wholesale B.V./HOLS
Trading, GmbH, A Joint Venture (PW), did not have the requisite
retail experience. PW protested and appealed to the superior
court. While PW's appeal was still pending, DOT&PF cancelled the
solicitation. DOT&PF also took the position that an order of
this court entered in a prior appeal taken by PW invalidated the
contract with DGG. In view of DOT&PF's cancellation of the
solicitation, the superior court then dismissed PW's appeal as
moot. PW and DGG both appeal. Each argues it should be awarded
the contract. We affirm the superior court's dismissal for
mootness because we hold that DOT&PF had a reasonable basis to
cancel the solicitation.1
II. FACTS AND PROCEEDINGS
In February 1994 AIA, a sub-agency within DOT&PF,
solicited public bids for the operation of AIA's duty-free
concession and for general merchandise sales in AIA's north
terminal. AIA conducted a prebid conference on March 15, to
allow prospective bidders to recommend changes in the bid
requirements.2 AIA received two written comments from potential
bidders on March 17. In response to the suggestions made by
potential bidders, AIA changed some of the bid provisions and
revised the invitation to bid.
On March 25, after the comment period closed, a
potential bidder, DGG, wrote AIA requesting alteration of the
financial information requirement so that DGG could be a
responsive bidder. DGG wrote: "If a workable exception to this
requirement of audited financial statements for Alaskan
businesses who might otherwise qualify as bidders could be worked
out, we might then be able to enter a qualifying-responsive bid."
DGG was an Alaskan concern. On April 6 AIA issued an addendum
that permitted as an alternative to two years of audited
financial statements, "limited review financial statements" with
the two most recent annual U.S. income tax returns.
PW, a Dutch and German joint venture, submitted one of
only three bids received by AIA.3 Although PW's bid contained
the highest minimum monthly guaranteed income, AIA determined
that PW did not have the necessary retail experience, and that PW
had not submitted a bid deposit that complied with the bidding
requirements. AIA notified PW that it intended to award the
contract to DGG, the second highest bidder. Upon learning of
AIA's rejection of its bid, PW provided AIA with additional
information about its retail experience.4 PW formally protested
to DOT&PF the notice of intent to award the contract to DGG; PW
attributed any failure on its behalf to meet the responsiveness
requirements to ambiguous bid documents. On May 20 DOT&PF
concluded that the bid documents could be interpreted to require
either retail or wholesale experience. Consequently, DOT&PF
directed AIA to rescind its notice of intent to award to DGG, and
instead, to issue an intent to award to PW.
DGG then filed suit in the superior court, seeking a
temporary restraining order, a preliminary injunction, and
summary judgment to prevent AIA from entering into a contract
with PW. DGG also administratively appealed DOT&PF's decision.
On June 3 DOT&PF denied the appeal and directed AIA to issue an
award to PW. DOT&PF concluded that it was in AIA's best interest
to waive any defects in PW's bid since PW submitted the highest
monthly minimum guarantee and was found to be responsive,
responsible, and qualified. AIA awarded the contract to PW on
On June 30 the superior court granted summary judgment
in favor of DGG, permanently enjoined AIA from awarding the
concession contract to PW, and ordered the State to award the
contract to DGG. AIA awarded DGG the contract and expedited its
execution. The State and DGG signed the five-year term
concession contract on July 13. It required DGG to begin
concession sales on September 1, 1994.
PW filed an emergency appeal in this court seeking
review of the June 30 summary judgment and injunction. We heard
PW's appeal on August 8. On August 10 we issued an order which
reversed the superior court's June 30 order awarding the bid to
DGG and vacated the injunction against award of the contract to
PW. We remanded the case to the superior court with directions
to remand the proceeding to DOT&PF to (1) make findings whether
the bid documents require retail experience; (2) make findings
whether PW had, in fact, the retail experience required by the
bid documents; and (3) certify those findings to the superior
DOT&PF interpreted our reversal of the superior court's
order as invalidating the contract with DGG. Consequently, AIA
informed DGG that DGG had no contract because of the supreme
DOT&PF delegated authority to Lowell Humphrey, the
Airport Director, to make the required findings on remand. On
August 17 Humphrey filed findings with the superior court
certifying that (1) the bid documents required retail experience
and (2) PW did not demonstrate the retail experience required by
the bid documents. PW moved in the superior court to vacate the
findings, requested a trial de novo on the issue of retail
experience, and requested reinstatement of the concession
agreement to PW. On August 23 PW filed and personally served a
memorandum containing a description of events allegedly
demonstrating that AIA had engaged in improprieties and "actual
favoritism and personal bias" for DGG and against PW. PW also
filed and personally served the same day an affidavit executed by
attorney Thomas P. Owens, Jr., describing events which PW claims
demonstrated bias and favoritism by AIA for DGG and against PW.
On August 24 DOT&PF advised PW and DGG that it had
"decided to cancel the invitation for bid" for the AIA duty-free
concession. The next day, DOT&PF filed a motion to dismiss the
entire superior court case because "recent action" by DOT&PF
rendered all issues moot. In support, DOT&PF submitted the
affidavit of Michael A. Barton, the DOT&PF Commissioner.
Commissioner Barton affied that he had determined that (1) the
solicitation "contained specifications that were subject to more
than one reasonable interpretation"; (2) "allegations of
irregularity" raised a "possible appearance of impropriety that
may undermine public confidence in the integrity of the
procurement process"; and (3) the costs and delay "caused by the
foregoing, together with protection of public confidence in the
procurement," rendered an award "not in the best interest of the
State." PW opposed the motion for dismissal. DGG filed two
motions for a temporary restraining order and a permanent
injunction to enjoin AIA and DOT&PF from rejecting all bids and
cancelling the invitation to bid. DOT&PF opposed DGG's motions.
DOT&PF secured a new agreement with the incumbent
contractor to continue to operate the concession beyond August
31. On September 7 the superior court heard oral argument on the
pending motions of DOT&PF and DGG. On September 26 the superior
court issued a final order granting DOT&PF's motion to dismiss
and denying DGG's motions for injunctions. PW appealed. We
granted PW's motion to consider the appeal on an expedited basis.
AIA issued a new invitation to bid for the duty-free
and general merchandise concession on October 7. The new
invitation unambiguously states that retail experience is
required for a bidder to be eligible for award of the contract.
Bids on this offering were due December 14, 1994. After hearing
argument on the appeals on December 12, we stayed the opening of
PW argues that the superior court erred in dismissing
the case because DOT&PF improperly cancelled the invitation to
bid. DOT&PF responds that the court correctly dismissed the case
because a reasonable basis supported cancellation of the
invitation; the bid protest appeal was consequently moot. DOT&PF
claims to have acted within its discretion in cancelling the
A. Standard of Review
To determine whether the superior court erred in
dismissing the case, we must consider whether DOT&PF acted within
its discretion in cancelling the solicitation. Thus, we review
the bid cancellation under the standard of whether there was a
reasonable basis for the administrative decision. Kila, Inc. v.
State, Dep't of Admin., 876 P.2d 1102, 1105 (Alaska 1994); Dick
Fischer Dev. No. 2, Inc. v. Department of Admin., 838 P.2d 263,
266 (Alaska 1992); Jager v. State, 537 P.2d 1100, 1107-08 (Alaska
B. DOT&PF's Cancellation of the Solicitation Had a
DOT&PF argues that it cancelled the solicitation
because an award was not in the public interest since (1) the bid
specifications were ambiguous and might lead to an award to a
bidder without sufficient retail experience to serve the public
adequately; (2) the allegations associated with the procurement
procedures raised the appearance of impropriety that might
undermine the public confidence in the procurement process; and
(3) cancellation would avoid continued litigation that would not
cure the problems associated with the procurement.
PW and DGG challenge each of these rationales. We will
address each in turn.
1. Ambiguous qualifications
The bid documents discuss bidder qualifications:
To participate in this bid offering, a bidder
must demonstrate at least four years of
qualifying experience since January 1, 1990.
A year of qualifying experience is defined as
one period of twelve consecutive months in
owning and operating either a duty-free
and/or general merchandise retail business
that generated gross sales of at least $1.0
million per year.
AIA, DOT&PF, the superior court, and the bidding
parties have interpreted the provision differently throughout the
process. DGG argues that the bid invitation required retail
experience. PW and DOT&PF both agree that the bid qualifications
were ambiguous regarding retail experience. It was PW's theory
below that "retail" could be read to modify only "general
merchandise" and that consequently duty-free wholesale business
could be counted as qualifying experience. AIA intended the
qualification provision to require either duty-free retail or
general merchandise retail experience. AIA apparently did not
anticipate that wholesale duty-free experience would qualify.
DOT&PF concluded in May that it was reasonable to interpret the
bid qualifications as requiring either retail or wholesale duty-
free experience. In June DOT&PF and AIA opposed DGG's motions
for preliminary injunction and summary judgment, in part on the
ground the bid invitation could be read to allow wholesale duty-
free experience. Yet, when asked by this court in August to
clarify whether the bid documents required retail experience,
DOT&PF certified that they did. The superior court concluded
that the bid documents required retail experience. At a minimum,
the varying interpretations demonstrate that the bid document
language is far from clear.6 The provision could reasonably be
read to permit duty-free wholesale experience to qualify. We
conclude that DOT&PF had a reasonable basis for finding that the
qualifications were ambiguous.
We consider the state procurement code, state
regulations, and airport procurement regulations in deciding
whether ambiguity could be a basis for cancelling a bid
solicitation. Although AS 36.30.850(b)(8) exempts AIA from the
state procurement code, the code may be used as a guide for
airport procurements. Alaska Statute 36.30.350 provides in
pertinent part that "[a]n invitation to bid . . . may be
cancelled or any or all bids . . . may be rejected in whole or
in part . . . when it is in the best interests of the state in
accordance with regulations adopted by the commissioner." AS
36.30.350. Similarly, although 2 Alaska Administrative Code
(AAC) 12.860 was adopted under the state procurement code, it
provides guidance to AIA in procurement decisions. 2 AAC 12.860
provides in part:
After the opening of bids or proposals or
after notice of intent to award but before
award, all bids or proposals may be rejected
in whole or in part by the chief procurement
officer or the head of a purchasing agency
issuing the solicitation. Reasons for
rejection include the following:
. . . .
(2) ambiguous or otherwise inadequate
specifications were part of the solicitation;
(3) the solicitation did not provide for
consideration of all factors of significance
to the state;
. . . .
(7) the award is not in the best interests of
Airport procurement regulations provide that DOT&PF
"will, in its discretion, for any reason, reject all proposals or
withdraw the competitive proposal offer." 17 AAC 40.340(e)(5)
(emphasis added). Although this regulation uses the word
"proposal," DOT&PF argues that the regulation governs the
procedures for competitive bids. Clearly, this regulation
provides DOT&PF with broad discretion.
Additionally, the invitation to bid expressly allows
AIA to reject any bids if rejection is in the airport's best
The Airport reserves the right to reject any
bids and to waive any defect if it determines
that rejection or waiver is in the Airport's
best interest. In addition, the Airport
reserves the right to advertise for new bids
or to award the concession privilege in any
manner it believes is in its best interest.
The Airport is not obligated to enter into
any agreement with any bidder. The Airport
is not responsible for any cost associated
with the preparation or submission of bids.
The contract, statutes and regulations give DOT&PF
broad authority to cancel a solicitation.
DGG argues that ambiguity would not be a sufficient
basis for cancelling the solicitation. In effect, PW argues that
the ambiguity is irrelevant, because PW provided supplemental
(post bid-opening) information that satisfied the qualifying
requirements, and that as high bidder, it should be awarded the
contract. The dissenting opinion also notes that ambiguity could
not justify cancelling the solicitation because, PW having
submitted supplemental qualifying information, DGG gained no
competitive advantage. Dissent at 2.
We need not and do not decide whether ambiguity alone
would justify cancelling the solicitation, because ambiguity was
only one of the grounds for cancelling the solicitation, and
because DOT&PF concluded that the three reasons "together with
protection of public confidence in the procurement, render award
not in the best interest of the State." As we previously noted,
DOT&PF had a reasonable basis to find that the qualification
provision was ambiguous ("subject to more than one reasonable
interpretation"). We conclude that it was reasonable for DOT&PF
to include ambiguity in the reasons for cancellation and that
when viewed together, the reasons given by DOT&PF justified
DOT&PF's finding that award was not in the State's best interest.
Further, although DGG and PW each argue that any
ambiguity would not justify cancellation (and also that each is
entitled to be awarded the contract), the materiality of the
dispute about the meaning of the qualifications provision is
evident from the fact DGG and PW still actively dispute whether
PW (or DGG) satisfied the experience requirements as written or
as interpreted at different times by AIA and DOT&PF.7 But for
the September 26 order of dismissal, it is likely the parties
would still be litigating that dispute in the superior court.
DOT&PF was not unreasonable in thinking cancellation would do
more to protect the public interest than continued litigation
about what the solicitation meant. Considering that DOT&PF
possesses broad discretion and can reject bids "for any reason,"
DOT&PF did not abuse its discretion by relying on ambiguity as
one of the reasons for cancelling the solicitation.
2. Appearance of impropriety
On August 23, 1994, PW filed and personally served on
the Department of Law attorney representing AIA and DOT&PF in the
superior court (1) a detailed memorandum chronologically
discussing events PW argued supported its claim that AIA was
biased against PW and for DGG, and (2) the affidavit of Thomas P.
Owens, Jr. DOT&PF announced the cancellation August 24, and on
August 25 Commissioner Barton executed his affidavit listing the
appearance of impropriety as a ground for cancellation.
On appeal PW lists nineteen allegations of possible
impropriety demonstrating AIA or DOT&PF favoritism to DGG, but
argues that agency improprieties do not justify cancellation,
that PW should be awarded the contract, and that improprieties
attributable to DGG should eliminate it as a bidder.
DGG argues the alleged appearance of impropriety did
not justify cancellation. It focuses on the innocence of its
March 25, 1994, letter to AIA, while ignoring the remainder of
PW's catalogue of asserted improprieties.
DOT&PF claims that the appearance of impropriety
supports its cancellation of the bids. DOT&PF relies on this
court's decisions in Dick Fischer Development No. 2, Inc. v.
Department of Administration, 838 P.2d 263 (Alaska 1992), and
McBirney & Associates v. State, 753 P.2d 1132 (Alaska 1988), for
the proposition that "the appearance of impropriety and
impropriety in fact are sufficient to void procurement
McBirney involved the State's attempt to consolidate
the state offices in downtown Fairbanks through a sole source
procurement to McBirney. 753 P.2d at 1132-33. The Attorney
General's Office advised the State to void the contract "because
the Grand Jury findings revealed that the lease was 'tainted by
favoritism.'" Id. at 1135. The State cancelled the lease and
McBirney sued. Id.
On appeal, we reviewed the purposes and requirements of
It has been said about the competitive
bidding process generally that "[t]he whole
matter is to be conducted with as much
fairness, certainty, publicity, and absolute
impartiality as any proceeding requiring the
exercise of quasi-judicial authority."
In keeping with this rule, courts have
guarded against the award of a public
contract to a bidder who has received an
unfair competitive advantage over other
Id. at 1136 (footnotes and citation omitted). We concluded that
"the impropriety derives from the fact that the suggestions [by
McBirney to the governor's office] were made outside the purview
of other bidders and the public." Id. at 1138. Thus, we held
that the State permissibly voided the lease due to the bidding
In Fischer, the State accepted Fischer's bid for the
construction of the Anchorage Office Complex (AOC). 838 P.2d at
265. Before bid protests could be resolved, the State cancelled
the AOC project, giving three reasons for the cancellation: lack
of legislative support, problems with financing, and impropriety
surrounding the bidding process. Id. at 266. On appeal, we
considered whether there was a reasonable basis for the State's
decision to cancel the project. Id. Regarding the third reason,
the issue was "whether the mere appearance of impropriety is
enough to taint the entire bidding process." Id. at 267. We
noted that "[e]ven the appearance of impropriety threatens the
goals of the process . . . ." Id. We held that an ex parte
communication between the State and a one time agent of Fischer
gave rise to "the appearance of impropriety." Id. We further
held "that the concern over impropriety in the bidding process
was sufficient to support the State's decision to cancel the
project."8 Id. We concluded that any of the three reasons was
enough to justify the State's cancellation of the project. Id.
PW argues that those cases are distinguishable because
they concerned cancellations due to the improprieties of the
successful highest bidder, not the second highest bidder.
Notwithstanding that distinction, PW reads those cases too
narrowly. Fischer and McBirney demonstrate that impropriety can
be grounds for cancellation of bidding, regardless of who is
involved in the impropriety.9 Further, PW has argued vigorously
that the State also engaged in impropriety. Given PW's
allegations, the policy behind Fischer and McBirney is equally
In arguing that DOT&PF should not have cancelled the
solicitation, DGG disputes that AIA expressed any bias against
PW. DGG asserts, however, that even if bias existed, such bias
is not critical if the record supports the award. DGG reasons
that if there is a rational basis for the decision to award the
contract, any bias is immaterial.
DGG relies on Fischer, 838 P.2d at 266, to support its
argument that if there is a reasonable basis for the
administrative decision to award a contract, the existence of
subjective bad faith by the decision maker does not require the
decision to be overturned. However, Fischer does not stand for
that proposition. In Fischer, we looked to Keco Industries, Inc.
v. United States, 492 F.2d 1200 (Ct. Cl. 1974), which listed four
factors to aid in identifying a wrongful rejection:
(1) subjective bad faith on the part of the
officials, depriving the bidder of fair and
honest consideration of the proposal; (2)
proof that there was no reasonable basis for
the administrative decision; (3) the amount
of discretion entrusted to the procurement
officials; and (4) violation of a pertinent
838 P.2d at 266 (citing Keco, 492 F.2d at 1203-04).
Whether an agency had a reasonable basis for its
rejection of bids or cancellation of a project does not
necessarily eliminate the significance of an alleged impropriety.
First, the factors listed in Fischer are "four subsidiary, but
nonetheless general, criteria controlling all or some of these
claims." King v. Alaska State Hous. Auth., 633 P.2d 256, 263 n.7
(Alaska 1981) (emphasis added). We have specifically stated
"that proof that there was 'no reasonable basis' for the
administrative decision will also suffice, at least in many
situations," to demonstrate the agency's conduct was arbitrary
and capricious. Id. (emphasis added). Despite DGG's
representations to the contrary, this court has not concluded
that an agency decision which has a reasonable basis must be
upheld even in the face of the appearance of impropriety.
"Subjective bad faith" and "no reasonable basis" are only two
factors for consideration. The court must also consider the
other factors -- the amount of agency discretion, and whether the
agency violated the relevant law. Additionally, "[t]he
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 a competitor." Id. Thus,
DGG's argument that DOT&PF should not cancel a "correct
decision," even when the decision maker was biased, is not
Although DOT&PF primarily focuses on one event
suggesting impropriety -- DGG's March 25 letter to AIA seeking an
exception to a bid requirement -- DOT&PF refers in its brief to
PW's other assertions. Likewise, its notice of cancellation
referred to PW's allegations made in the superior court. Several
of PW's allegations potentially create the appearance of agency
In its March 25 letter to AIA, DGG stated: "If a
workable exception to this requirement of audited financial
statements for Alaskan businesses who might otherwise qualify as
bidders could be worked out, we might then be able to enter a
qualifying-responsive bid." Consequently, AIA added Addendum No.
3 which changed the requirement pursuant to DGG's request.10
DGG's communication with AIA, after the public comment period
closed, directly resulted in the issuance of Addendum No. 3.
Without Addendum No. 3, DGG may have been unable to bid on the
PW also claimed that after the May 3 bid opening
revealed PW was the highest bidder, a DGG principal called AIA,
left an "urgent" request to be called back, and arranged a May 5
meeting with AIA to review the PW bid documents. According to
PW, an AIA memorandum adopting DGG's adverse interpretation of
the PW bid was written after the May 5 DGG-AIA meeting, but was
backdated to May 3.
Additionally, DOT&PF admits that a discussion between
DOT&PF Central Region Director Horn, current AIA Director
Humphrey, DOT&PF Commissioner Campbell, and Deputy Commissioner
Sandvik, which occurred before Horn issued his May 20 decision,
may have compromised Horn's independence. In his decision, Horn
states that he considered DGG's May 17 and 18 protest documents,
as well as all other documents relevant to PW's bid. However, an
electronic mail message regarding the DOT&PF-AIA discussion
suggests that Horn may not have independently decided the issue.11
While the electronic mail message does not prove any faulty
procedure, it contributes to an appearance of impropriety when
considered in conjunction with other circumstances regarding the
When DGG protested the May 20 decision to award PW the
contract, DGG requested that "a person who has not had a prior
involvement in these issues be designated to decide the David
Green Group protest." DGG questioned whether DOT&PF was in "a
position to offer a fair and impartial officer to decide this bid
protest," considering that both the Commissioner and Assistant
Commissioner had already committed themselves on two appeal
issues. DOT&PF denied DGG's request and DOT&PF Central Region
Director Horn decided the protest despite his prior involvement.
DOT&PF admits that "in retrospect, it would have been more
appropriate if another agency employee had ruled on the appeal
rather than Horn, as argued by DGG."
DOT&PF also admits that "it would have been more
consistent with the bid documents if the Central Region Director,
rather than the Airport Director, had issued the findings of
facts pursuant to the Alaska Supreme Court's August 10th order."
This court remanded to the superior court to remand to DOT&PF to
make specific findings.12 DOT&PF, however, delegated authority to
Airport Director Humphrey to make the findings on remand.
Further, PW offered the Owens' affidavit concerning a
conversation with Airport Director Humphrey.13 Owens' description
of the conversation supported an inference AIA was biased toward
awarding the contract to an Alaskan company:
On the evening of May 7, 1994, I was
introduced to Lowell Humphrey, at the Egan
Center, during the Catholic Social Services
Ball. He was introduced to me as the manager
of the International Airport. I had not met
him before. After introductions, I stated
that I understood the Airport had just
awarded the duty-free contract to the Pauls
Group. Mr. Humphrey became somewhat agitated
and stated the Airport would NEVER award that
contract to an "off-shore" company and that
they had awarded it to a "local" group. This
is not a direct quote (curse words omitted),
but very close. Mr. Humphrey made his
statement in a deliberate and determined
manner. Mr. Humphrey made an additional
comment to the effect that the contract would
only go to a "local" contractor, but I cannot
remember his exact words. I did not comment
further, and the conversation soon ended.
Owens' affidavit alleged bias by Humphrey, DOT&PF did not offer a
rebutting affidavit from Humphrey or anyone else, and Humphrey
made the August 16 decision that favored DGG following our August
10 remand. The Owens affidavit consequently provided some
support for PW's claims that the process was tainted by
We need not and do not decide whether PW's account of
those events was accurate or whether PW's assertions of
impropriety were valid. It is enough that PW's assertions were
not patently frivolous. Considering the circumstances and
allegations in the aggregate, DOT&PF had a reasonable basis to
conclude that there was "a possible appearance of impropriety
that may undermine public confidence in the integrity of the
procurement process." Given the nature of PW's allegations and
the content of the Owens' affidavit, DOT&PF could permissibly
choose to cancel the solicitation. It was not required to mount
a costly and lengthy judicial rebuttal that, even if successful
in court, might ultimately fail to remove a public perception of
taint. DOT&PF argues on appeal that cancellation was "the only
reasonable way" to ensure that "the process was above reproach."
It is not necessary to decide whether that approach was the only
reasonable way to achieve that goal; under the circumstances it
was not unreasonable to select that approach.
3. Cost and delay of litigation
DOT&PF also contends that the cost and delay of the
present litigation justified cancellation of the solicitation.
PW argues that cancelling a bid invitation because an aggrieved
bidder used the bid protest procedures would set a poor precedent
and undermine the integrity of the public procurement process.
If DOT&PF had investigated or litigated the allegations
of impropriety, without cancelling the solicitation, the
resulting delay would have extended long past September 1, 1994,
the date the concession was supposed to begin. Further, if DGG
had begun operating the concession on September 1, and the
investigation later revealed that DGG had acted improperly during
the process, litigation to rescind the contract would likely have
ensued. Full exploration of PW's charges of impropriety would
have resulted in substantial expense and delay, and likely would
have distracted DOT&PF, AIA, and State officers from other
duties. Further, PW and DGG still disagree about whether either
satisfied the bid qualifications. The potential cost and delay
associated with such disputes would have been great. As such,
there was a reasonable basis for DOT&PF to rely on this factor as
one of the reasons for cancellation.
The contracting agency's authority to reject any or all
bids is broad. 17 AAC 40.340(e)(5) (stating that DOT&PF "will,
in its discretion, for any reason, reject all proposals or
withdraw the competitive proposal offer"). DOT&PF's decision to
cancel the offering, reject all bids, revise the bid documents,
and reissue the offering was not unreasonable under the
circumstances. We conclude that DOT&PF had a reasonable basis
for cancelling the solicitation and did not abuse its discretion.
C. Cancellation of the Solicitation Mooted the Appeal
The superior court refused to consider whether PW
demonstrated retail experience because the court concluded that
as a result of the cancellation "the underlying procurement
challenge is now moot."
PW argues that we should not consider the appeal moot
because DOT&PF would be able to preclude judicial scrutiny of
improper conduct by simply cancelling a solicitation, declaring
all bid protests moot, and ordering a rebid. PW contends that
this would detract from the public's confidence in the
procurement system and would create a disincentive for bidders to
enforce their rights and ensure a fair and open system of
bidding. Thus, PW argues that finding this case moot would harm
the public interest.
DOT&PF argues that the bid protest which prompted this
appeal is moot because DOT&PF cancelled the solicitation and
rebid the concession contract.
We have concluded that DOT&PF did not abuse its
discretion in cancelling the solicitation and rebidding the
contract. Consequently, the previous solicitation no longer
exists, and the remaining issues on appeal are moot. "A claim is
moot if it has lost its character as a present, live
controversy." Kleven v. Yukon-Koyukuk School Dist., 853 P.2d
518, 523 (Alaska 1993) (quoting United States v. Geophysical
Corp., 732 F.2d 693, 698 (9th Cir. 1984)).15
We AFFIRM the superior court's final order dismissing
the action below.
COMPTON, Justice, dissenting.
In my view the three reasons proffered by DOT&PF for
cancelling the bid solicitation are not supported by the record.
I would therefore hold that there was no reasonable basis for
DOT&PF's decision to cancel the bid solicitation.
PW complains that the bid solicitation was ambiguous in
that "duty free and/or general merchandise retail business" was
susceptible to different meanings. First, I do not agree with
the court's conclusion that this clause is ambiguous. The fact
that different parties placed different interpretations on the
clause seems hardly conclusive that the clause is ambiguous.
See, e.g., Village Inn Apts. v. State Farm Fire & Cas. Co., 790
P.2d 581, 583 (Utah App. 1990) (A contract term "is not
ambiguous . . . merely because one party assigns a different
meaning to it in accordance with his or her own interests.").
Given the public's present-day perception of the legal
profession, conjuring an ambiguity out of the plain language of
the bid solicitation clause may be seen by some as "lawyers at
play in the halls of our court."
As a bid solicitation is an implied contract, King v.
Alaska State Hous. Auth., 633 P.2d 256, 263 (Alaska 1981), it is
appropriate to borrow from the principles of contract
construction. "Common sense and good faith are the leading
characteristics of all constructions of contracts." 17A Am. Jur.
2d Contracts ' 342 (1991). The court concludes that "the
provision could reasonably be read to permit duty-free wholesale
experience to qualify," but does not elaborate. I believe the
only common sense reading of the bid solicitation clause is that
it requires retail experience, either duty-free or general
Second, and more importantly, the court's conclusion
that the clause is ambiguous is irrelevant. DGG gained no
competitive advantage over PW, since PW was permitted to provide
evidence that it met the retail experience requirement. After
submission of this evidence, DOT&PF determined that PW did not
have the requisite retail experience. That determination has not
been reviewed, in view of DOT&PF's cancellation of the
solicitation. Since the conclusion that the retail experience
clause is ambiguous is irrelevant, it cannot support the bid
PW complains that DOT&PF was biased against it, as it
was not a local business. The evidence for this comes from two
incidents.17 First, DGG submitted an untimely written request to
DOT&PF that the bid requirements be amended to allow for "limited
review financial statements" in place of audited balance sheets.
DOT&PF acceded to this request, and so amended the bid
solicitation. Written comments and suggestions on the bidding
terms were permitted, and DGG's comments were of public record.
This case is therefore unlike McBirney & Assocs. v. State, 753
P.2d 1132 (Alaska 1988), where the ex parte communications were
not public record. Id. at 1138 ("[T]he impropriety derives from
the fact that the suggestions were made outside the purview of
other bidders and the public."). PW does not suggest that the
alteration was impermissible even if it did broaden the pool of
prospective bidders. It would be hard pressed to make such a
complaint, since it is in the public interest that as many
businesses as are able to provide a service be qualified. I do
not see how DOT&PF's acceptance of an otherwise perfectly proper
written comment four days after the comment period closed
suggests any bias or impropriety.
Tom Owens' affidavit describes the second incident.
DOT&PF denies that the incident occurred as Owens describes, but
because of the untimeliness of the presentation of the affidavit,
neither DGG nor DOT&PF has had an opportunity to present a
different version of what happened. Nonetheless, the court cites
DOT&PF's reliance on the affidavit in concluding that there was a
reasonable basis to cancel the solicitation. The question is not
whether DOT&PF relied on the affidavit. If a fact-finder were to
find that Owens either misunderstood what Humphries said, or
misrepresented what Humphries said, and that Humphries did not
suggest any bias against PW, then this becomes a non-issue.
Certainly Owens' rationalization for not coming forward sooner
suggests that he was biased; it was not until he learned to whom
the contract was being awarded that he came forth. Given his
wife's involvement in the duty-free business, his recollection
may be questioned. This issue is foreclosed from consideration
by this court's resolution of the case. Neither DGG's submission
of written comments, nor Tom Owens' affidavit support PW's claim
that the DOT&PF was biased against it.
Regarding the "appearance of impropriety," this case is
distinguishable from both McBirney, supra, and Dick Fischer Dev.
v. Department of Admin., 838 P.2d 264 (Alaska 1992). In McBirney
there was actual, substantial impropriety (enough to lead to a
grand jury investigation), while in Fischer there was an ex parte
communication between Commissioner Rudd and Al Parrish, an agent
of Fischer, about the project. Fischer, 838 P.2d at 267. It was
disputed whether Parrish was an agent of Fischer at the time of
the communication, but there was no dispute that a discussion did
take place. Id. Thus, there was an opportunity for impropriety
to occur. In the present case, no ex parte communication between
DGG and DOT&PF has been shown. The only documented contact
between DGG and DOT&PF was the written request to alter the bid
specifications, a solicited request that was four days tardy.
Had the request been timely, there is no evidence that the action
taken in response to it was improper. I agree that actual
impropriety need not be proven. However, I do not agree that the
mere possibility that there could have been an impropriety is
The present case is more akin to Kila, Inc. v. State,
Dept. of Admin., 876 P.2d 1102 (Alaska 1994) than it is to
McBirney or Fischer. In Kila, the unsuccessful bidder alleged
"numerous . . . improprieties and . . . illegalities in the
contracting process." Kila, 876 P.2d at 1109. The court found
them all to be without merit. Id. at 1106-09. Faced with a
similar litany of unsubstantiated allegations, the court today
finds an appearance of impropriety, not by examining each
allegation, but by "considering the circumstances and allegations
in the aggregate." This, I suggest, makes the whole greater than
the sum of the parts. For example, the court finds that Diane
Barth's e-mail message "does not prove any faulty procedure," but
nevertheless concludes, without explaining why, that the e-mail
message "contributes to an appearance of impropriety when
considered in conjunction with other circumstances regarding the
bidding." Either the e-mail message evidences a "faulty
procedure," and therefore implies impropriety, or it does not.
The "when considered in conjunction with other circumstances"
proviso is used enough by the court that one begins to wonder if
there is any fire behind all the smoke. By effectively holding
that even the possibility of the appearance of impropriety is
enough to cancel a bid solicitation, the court carries the rule
established in McBirney and Fischer to a new, and unwarranted,
I view the issue of continuing costs arising from
litigation as a makeweight argument. The costs of litigation
continue. Indeed, the cancellation has generated litigation. If
the cost of litigation justifies cancellation, then every bid
solicitation that is contested in court may be cancelled by the
government with impunity. DOT&PF has not provided any estimate
of savings which might result from cancelling the bid
solicitation. This is understandable; it probably cannot. I
agree with PW that cancelling a bid solicitation because an
aggrieved bidder used the bid protest procedures sets a poor
We have held that "in 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." King, 633 P.2d at 263. When
a government agency cancels a bid solicitation without a
reasonable basis, it breaches this implied promise. Because the
reasons advanced by DOT&PF for cancelling the bid are either
irrelevant (ambiguity), unsupported by the record (impropriety),
or insupportable as a matter of law (continuing costs of
litigation), I would hold that there was no reasonable basis for
its decision to cancel the bid.
1 We entered an order February 8, 1995, affirming the
superior court's order. This opinion explains our reasons for
2 The invitation to bid solicited oral and written
comments on the bidding terms:
The Airport will consider any suggestion,
comment, or request for additional
information concerning the bid documents if
presented at the March 15, 1994, prebid
conference or submitted in writing [address
given] by 1 p.m. Monday, March 21, 1994 . . .
3 Paul Wholesale B.V. and HOLS Trading, GmbH formed a
joint venture to bid on the AIA duty-free concession. Paul
Wholesale, B.V., a Dutch corporation, conducts duty-free business
operations in Holland, Russia, and Germany. Paul Wholesale is a
duty-free retailer and wholesaler, supplying products and
services to large international companies. Hols Trading, GmbH, a
German corporation, operates wholesale distribution and retail
sale activities in more than four different countries.
4 The third bidder has not appealed and is not a party to
5 We lifted the stay February 8, 1995, when we issued our
order affirming the superior court's September 26, 1994 order of
6 It is likely DOT&PF read our August 10 remand order to
imply that we considered the language to be at least unclear. If
the bid documents unequivocally required retail experience, there
would have been no reason for us to remand for DOT&PF to make
findings whether the bid documents required retail experience.
7 Also, AIA rejected the supplemental information
supplied by PW about its retail sales experience because it was
from a "different business entity." PW challenged that rejection
in the superior court and also raises it on appeal. Were there a
rational basis for that rejection, the meaning of the bidder
qualification provision would become critical. The dispute about
its meaning would be not just relevant but dispositive.
DGG argues the bid competition was not affected by any
ambiguity. Similarly, the dissent argues that DGG gained no
competitive advantage over PW. Dissent at 2. But if the
specifications had clearly required retail duty-free experience,
PW would have had an opportunity to find a joint venture partner
that had the requisite experience. Considered in context of PW's
vigorous claim that AIA favored DGG and disfavored PW, those
arguments fail to demonstrate that DOT erred in citing ambiguity
as one reason for cancellation.
8 In Fischer, we discussed McBirney:
In McBirney, we held that a demonstrated
impropriety justified cancellation of a
contract between the State and McBirney &
Associates. Id. at 1137. In reaching our
conclusion, we cited NKF Engineering, Inc. v.
United States, 805 F.2d 372 (D.C. Cir. 1986).
In NKF, the court noted that the appearance
of impropriety was reason enough to
disqualify a bidder. Id. at 376. The goal of
the competitive bidding process is "to
prevent fraud, collusion, favoritism and
improvidence in the administration of public
business." McBirney, 753 P.2d at 1135-36
(quoting Gostovich v. City of West Richland,
75 Wash. 2d 583, 452 P.2d 737, 740 (1969)).
Even the appearance of impropriety threatens
the goals of the process and Fischer cannot
legitimately claim that the ex parte
communication did not create the appearance
of impropriety. We hold, therefore, that the
concern over impropriety in the bidding
process was sufficient to support the State's
decision to cancel the project.
Fischer, 838 P.2d at 267.
9 PW argues that such a rule would allow low bidders to
force cancellations by intentionally engaging in impropriety.
Given PW's assertions that the State was receptive to DGG's
allegedly improper acts, we need not consider whether the State
could cancel a solicitation as a result of a lower bidder's
impropriety which the State undisputably rebuffed.
Further, this case is unusual because, as the result of
the protests and appeals, AIA awarded the contract to DGG and PW
at different times. Generally, as was the situation in Fischer
and McBirney, the highest bidder would receive the award and the
unsuccessful bidders would challenge the award based on the
successful bidder's alleged impropriety. In this case, it was
PW, the highest bidder, which challenged not only the propriety
of DGG's efforts, but the entire bid process including AIA's
10 Addendum No. 3 states in pertinent part:
In place of audited balance sheets, the
bidder may submit limited review financial
statements prepared by a certified public
accountant and signed by both the certified
public accountant and an authorized officer
of the bidder for the two most recent
calendar or bidder fiscal years. If the
bidder submits limited review financial
statements, the bidder must also submit
copies of its U.S. tax returns for the two
most recent calendar or bidder fiscal years.
11 Diane Barth, the Chief of Leasing, sent an electronic
mail message to Greg Brown, Leasing Officer, on May 17, stating:
I have just had a tele conversation with
Lowell Humphrey. He had a discussion with
John Horn, Helvi Sandvik, and Bruce Campbell
this morning. Both Helvi and Bruce read the
bid specs and concluded that it was possible
to interpret the bidder qualifications to
allow for a duty free wholesaler. It is also
their position that it is much easier to
defend a high bid than a second highest bid.
I asked if that meant we were to rebid.
Lowell said the decision was to award to the
We are to prepare something for John Horn's
signature regarding this. Lowell also
thought that we should issue an intent to
award and allow for 5 days - he thought that
was the fair thing to do. We are not to ask
the Dept. of Law this one question.
12 The Invitation to Bid also provided in pertinent part
that the DOT&PF Central Region Director decides appeals:
To appeal the award, an aggrieved bidder must
file a written appeal with the Alaska
Department of Transportation and Public
Facilities' Central Region Director within
five days after the date of the notice of
intent to award and send copies of the
written appeal to all other bidders. If a
timely appeal is filed, the Airport will not
award the agreement until the Central Region
Director issues a written response. At his
discretion, the Central Region Director may
hold a hearing to consider the aggrieved
13 Owens' wife owns Artique, Ltd., which has operated in
conjunction with the incumbent airport duty-free concessionaires
for the last five years.
14 DGG claims that the Owens' affidavit should be stricken
because PW did not bring this information forward previously and
if PW had raised this evidence earlier, DOT&PF would not have
delegated the authority to Humphrey. Owens executed the
affidavit August 22. PW filed it on August 23 as a supplement to
PW's August 19 motion to vacate Humphrey's August 16 findings.
Owens' affidavit explains that although Owens informed PW's
counsel of the encounter with Humphrey "very early on in this
litigation," Owens "refused to execute an affidavit, because of
[his] wife's involvement with Duty Free Shoppers [the duty-free
shop prior to this dispute] and her request that [he] not become
involved in the dispute between the Pauls Group and the Green
Group." Owens changed his mind after learning that AIA's
response to the supreme court and superior court orders was to
award the contact to DGG. Apart from whether PW might have used
other means (such as taking Owens' deposition) to disclose this
information sooner, the pertinent question is whether DOT&PF
could properly take PW's assertions and the newly-revealed Owens'
affidavit into account when deciding whether to cancel the
solicitation. Because Commissioner Burton, in cancelling the
solicitation, referred to the allegations of impropriety, and
because those allegations were based in part on the Owens'
affidavit, we find it appropriate to consider the existence of
Owens' affidavit in deciding whether there was a reasonable basis
for DOT&PF to find a possible appearance of impropriety.
15 Normally we will refrain from deciding questions where
events have rendered the legal issues moot. Brandon v.
Department of Corrections, 865 P.2d 87, 92 n.6 (Alaska 1993)
(citing Hayes v. Charney, 693 P.2d 831, 834 (Alaska 1985)).
However, "where the matter is one of public concern and is
recurrent but is capable of evading review," there is a public
interest exception to the mootness doctrine. Hayes, 693 P.2d at
834 (quoting Doe v. State, 487 P.2d 47, 53 (Alaska 1971)). The
remaining issues are not of that character.
16 That PW and DGG may still dispute whether PW had the
requisite retail experience to comply with the bid solicitation
requirements does not mean that the retail experience clause is
ambiguous, but merely that the parties disagree about the
application of that clause to the particular facts of this case.
17 The court refers to the PW memorandum "chronologically
discussing events PW argued supported its claim that AIA was
biased against PW and for DGG," but wisely does not rely on the
allegations contained in this memorandum to support its
conclusion that there was a reasonable basis for DOT&PF to cancel
the bid solicitation. The allegations are wholly
unsubstantiated, often irrelevant, and largely do not, even if
proven, suggest impropriety or impermissible activity. To cite
but one example, PW alleged as a distinct incident of bias that
"AIA purposely or negligently ignored that Bruce Davison was
[PW's] designated contact person when it contacted Mr. van der
Kolk." PW does not explain how it was prejudiced by this alleged
mistake, or how the allegation, even if true, indicates bias