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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State, Dept. of Administration v. Bachner Company, Inc. (09/14/2007) sp-6162
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, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| STATE OF ALASKA, | ) | |
| DEPARTMENT OF | ) | |
| ADMINISTRATION, and JIM | ) | |
| DUNCAN, in his official capacity as | ) | |
| (former | ) Commissioner thereof, | ) |
| ) Supreme Court No. S- 12187 | ||
| Petitioner, | ) | |
| ) Superior Court No. | ||
| v. | ) 4FA-02-2674 CI | |
| ) | ||
| BACHNER COMPANY, INC., and | ) | |
| BOWERS INVESTMENT | ) | |
| COMPANY, | ) O P I N I O N | |
| ) | ||
| Respondents. | ) No. 6162 - September 14, 2007 | |
| ) | ||
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Winston S. Burbank, Judge Pro Tem.
Appearances: Marjorie L. Vandor, Assistant
Attorney General, and David W. M rquez,
Attorney General, Juneau, for Petitioner.
John J. Burns, Borgeson & Burns, PC,
Fairbanks, for Respondents.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
We are asked to determine whether a Department of
Administration hearing officer erred when he selected the remedy
for a defective procurement process. Several months after a
procurement contract for a long term lease was awarded, the
hearing officer concluded that three separate irregularities had
occurred during the proposal evaluation process. After
conducting an analysis under AS 36.30.585(b), the Alaska
provision governing remedies for errors committed in the
procurement process, the hearing officer awarded the aggrieved
bidders their proposal preparation costs but declined to order
rescoring of the proposals or cancellation of the lease. The
commissioner adopted the hearing officers decision as his own.
The superior court reversed the commissioner, holding that the
hearing officer had erred in weighing the factors set out in AS
36.30.585(b). Because the hearing officers decision has a
reasonable basis in law and fact, we affirm it. Moreover,
because the hearing officers analysis regarding the appropriate
remedy was both thorough and thoughtful, we adopt that portion of
the decision, which is set out in the Appendix..
II. FACTS AND PROCEEDINGS
A. Facts
The facts in this case are not disputed. In December
2001 the Department of Administration, Division of General
Services (the department), circulated a request for proposals
(RFP) soliciting bids for the lease of roughly 24,000 square feet
of office and storage space in Fairbanks. The space was to be
used by the Department of Transportation. The lease was for a
term of twenty years, with ten additional two-year renewals
exercisable by the department.
Among the companies submitting responsive proposals
were Bachner Company, Inc., Bowers Investment Company, and
McKinley Development. Bachner and Bowers both proposed to lease
existing buildings, while McKinley offered to construct and lease
a new building. A five-member special committee evaluated the
proposals. In February 2002 the procurement officer issued a
notice of intent to award the contract to McKinley, which had
received the highest scores during the evaluation process.
B. Proceedings
In early March 2002 Bachner and Bowers filed separate
bid protests,1 both of which focused on technical irregularities.
The procurement officer denied both protests and declined to stay
the award of the contract to McKinley. On March 26, 2002, the
procurement officer awarded the contract to McKinley and
requested that it begin preparing for the lease. Bachner and
Bowers separately appealed the denials of their bid protests in
April 2002 to the commissioner of the department.
Allegations surfaced in the companies appeals that
there had been improprieties in the scoring process by members
of the proposal evaluation committee. Hearing Officer Andrew
Hemenway heard testimony regarding these and other alleged
improprieties in the evaluation process.
Hearing Officer Hemenway issued a twenty-page decision
in October 2002, which the commissioner adopted as his own.
Hearing Officer Hemenway found that misconduct during the
procurement process had resulted in serious deficienc[ies]. One
member of the evaluation committee had artificially lowered his
scores for Bachner to counteract what he perceived as [another
evaluators] favoritism for that offeror. The committee did not
apply the present value formula in a manner consistent with a
reasonably prudent offerors understanding of the RFP because it
failed to factor in anticipated increases in the consumer price
index.2 Additionally, there was an appearance that factors not
listed in the RFP were considered by several evaluators.
Hearing Officer Hemenway identified three possible
remedies: (1) confirmation of the award to McKinley coupled with
an award of proposal preparation costs to Bachner and Bowers; (2)
remand for rescoring without the one evaluators improperly
adjusted scores; and (3) cancellation of the lease and issuance
of a new RFP. He analyzed the facts of the case using the
factors set out in AS 36.30.585(b)3 to determine which remedy was
most appropriate. He concluded that [o]n balance, the
appropriate remedy would appear to be an award of the full costs
incurred in connection with [Bachners and Bowerss] proposal
preparation.
Bachner and Bowers appealed to the superior court in
November 2002, arguing that the hearing officer erred by failing
to order cancellation or rescoring in addition to awarding
proposal preparation costs. The superior court agreed. It
reasoned that case law makes clear that preserving the integrity
of the procurement system has priority over other factors listed
in AS 36.30.585(b). Because Hearing Officer Hemenway did not
give priority to this factor in his analysis, the superior court
reversed and remanded for reconsideration of what remedy was most
appropriate. We granted the departments petition for review of
the superior courts decision.
III. STANDARD OF REVIEW
When the superior court acts as an intermediate court
of appeal from an administrative decision, we directly review the
agency decision.4 When an administrative agencys interpretation
of a statute involves agency expertise or the determination of
fundamental policies within the agencys statutory function we
apply the rational basis standard of review.5 Under this
standard, we will determine whether the agencys decision is
supported by the facts and has a reasonable basis in law, even if
we may not agree with the agencys ultimate determination.6
IV. DISCUSSION
Because the parties agree that three separate
irregularities occurred in this case, the sole issue we must
decide is whether the hearing officer chose an appropriate
remedy. The department argues that the hearing officer properly
applied AS 36.30.585(b) and acted within his discretion when he
decided to confirm the lease and award the companies their
proposal preparation costs. Bachner and Bowers disagree, arguing
that the hearing officer erred by failing to give priority to a
specific statutory factor.
Deciding what remedy is appropriate is a difficult
endeavor where, as here, a defect in the bidding process is
discovered after the innocent winning bidder has begun
preparation for or performance of a contract. Under such
circumstances equity can be done to disappointed bidders only at
the expense of inequity to the winning bidder.7 Hearing Officer
Hemenways decision undertook a thorough analysis of what remedy
was appropriate in this case. He carefully analyzed the facts
using the various factors listed in AS 36.30.585(b) and evaluated
the benefits and drawbacks of each of the remedies available.
Because Hearing Officer Hemenways analysis was both legally sound
and factually supported, we affirm the remedy he selected.
Because of the thoroughness of his analysis of what remedy was
appropriate in this case, we take the further step of adopting
that portion of his decision. The relevant portion of his
analysis is included in the Appendix, but we first address two
issues raised by Bachner and Bowers in their briefing.
A. The Hearing Officer Correctly Applied AS 36.30.585(b).
Bachner and Bowers argue that Hearing Officer Hemenway
misapplied AS 36.30.585(b) when he did not give extra weight to
the factor that addresses harm to the integrity of the
procurement system. They are incorrect.
Alaska Statute 36.30.585(b) grants the hearing officer
a substantial amount of discretion to determine how to remedy a
documented impropriety in the procurement process. Where a
protest is sustained, the procurement official is instructed to
implement an appropriate remedy after considering the six
specified factors.8 The statute itself does not require that any
one factor be given greater weight than others and, contrary to
Bachner and Bowerss assertions, case law does not hold otherwise.
Previous procurement cases stress the need to ensure an even
playing field for all bidders during the bidding process,9 but
this emphasis does not require that any factor in AS 36.30.585(b)
be given more weight than others when determining an appropriate
remedy. By carefully considering each statutory factor without
giving determinative weight to any single one, Hearing Officer
Hemenway correctly applied AS 36.30.585(b).
B. The Hearing Officer Did Not Err in Concluding that the
Department Would Incur Substantial Costs if the Lease Were
Cancelled.
Bachner and Bowers also argue that the record does not
support the hearing officers conclusion that cancellation of the
disputed lease would result in significant costs to the
department. We cannot agree.
Under the principles set forth in the Restatement
(Second) of Contracts (1981), if the department were to cancel
the lease it would be liable to McKinley for at least the costs
McKinley incurred preparing for the lease.10 The department
specifically requested that McKinley proceed in preparation of
the lease in March 2002, and the record shows that McKinley began
construction of the roughly 24,000 square foot building in May
2002. McKinley necessarily incurred substantial costs when it
commenced construction of such a large building, Hearing Officer
Hemenways conclusion regarding the financial impact of
cancellation on the department was not in error.
V. CONCLUSION
For these reasons and those discussed in Hearing
Officer Hemenways attached decision, we AFFIRM the commissioners
decision to remedy the defective procurement by confirming the
contract to McKinley and awarding full proposal preparation costs
to Bachner and Bowers. To the extent that the superior courts
decision conflicts with the hearing officers decision, it is
REVERSED.
APPENDIX11
BEFORE THE ALASKA DEPARTMENT OF ADMINISTRATION
In the Matter of:
BACHNER COMPANY, INC. and
BOWERS INVESTMENT CO.
Appellants
DGS RFP No. 2002-2500-2984
Dept. of Admin. Case Nos. 02.06/.07
RECOMMENDED DECISION
These consolidated protest appeals concern a Request
for Proposal (RFP) for a real estate lease, issued by the
[Division] of General Services (DGS).
. . . .
E. Remedy
The potential remedies in this case appear to be: (1)
confirm the lease award to McKinley and award Bachner and Bowers
their proposal preparation costs; (2) remand to DGS for
rescoring, applying a reasonable Consumer Price Index (CPI)
adjustment and omitting Mr. Weeds scores, and award the lease to
the highest rated offeror; or (3) cancel the solicitation and
issue a new RFP.
Alaska Statute 36.30.585(b) provides that in
determining an appropriate remedy, the procurement officer must
consider: (1) the seriousness of the procurement deficiencies;
(2) the degree of prejudice to other interested parties or to the
integrity of the procurement system; (3) the good faith of the
parties; (4) the extent to which the procurement has been
accomplished; (5) costs to the agency and other impacts on the
agency of a proposed remedy; and (6) the urgency of the
procurement to the welfare of the state.
(1) Seriousness of the procurement deficiency.
In this case, an evaluator improperly adjusted scores.
This is a serious deficiency in the procurement process.
Nonetheless, it is not a deficiency requiring cancellation,
because the impropriety was limited to one evaluator. Typically,
the remedy for such misconduct is to rescore the proposals
omitting the scores by the evaluator whose conduct was improper.
In addition, the price evaluation did not comply with a
reasonable reading of the RFP. This, too, is a serious
procurement deficiency. The standard remedy for such a
deficiency is to rescore the proposals applying the correct
interpretation of the RFP.
This factor supports rescoring rather than
cancellation. However DGS should have the option of cancellation
(because it did not intend to utilize a CPI adjustment) if
rescoring is deemed appropriate in light of all the
circumstances.
(2) Degree of prejudice to McKinley and integrity of
the procurement system.
Either rescoring or cancellation would result in
substantial prejudice to McKinley. Rescoring, under any
reasonable CPI adjustment, would result in award to another
offeror, and cancellation could also result in award to another.
McKinley has incurred substantial construction costs, and award
to another party would leave McKinley liable for those costs and
would result in the loss of the profits anticipated under the
lease. McKinley is not responsible for the deficiencies in the
solicitation and is not responsible for the delay in the final
administrative decision on the protests.
Bachner argues that McKinley is not substantially
prejudiced because it can recover any damages incurred as a
result of rescoring or cancellation of the solicitation by legal
action against the State of Alaska. However, that McKinley may
have a legal remedy does not mean that those outcomes are without
prejudice to it. It is unlikely that any damages recovered by
McKinley would entirely compensate it for its losses: the State
may have defenses to any legal claims asserted;12 damages would
not include all costs incurred in pursing a remedy, may not
include the indirect impacts of cancellation, and would in any
event come only after a significant delay. While the prejudice
to McKinley may be reduced by the availability of a legal remedy,
it is not eliminated. From the standpoint of prejudice to
McKinley, confirmation of the award is preferable.
With respect to the integrity of the procurement
process, however, cancellation is the preferred remedy.
Impropriety on the part of one evaluator is not necessarily in
itself ground for cancellation. However, in this case there were
apparent defects in the procurement entirely apart from the
actual impropriety on the part of one evaluator. These apparent
defects included: (1) patent ambiguity with respect to use of the
present value analysis; (2) latent ambiguity with respect to CPI
adjustments; and (3) the appearance that inappropriate factors
were considered by the evaluators (proximity to existing DOT
facility and past performance of offerors). Given the nature of
the actual and apparent defects, cancellation would be
appropriate.
Taken together, in light of the substantial risk of
prejudice to McKinley, and the harm to the integrity of the
procurement process, cancellation should be avoided if another
suitable remedy is available.
(3) Good faith.
Impropriety on the part of one evaluator is not
equivalent to bad faith on the part of DGS. Nonetheless, it is
sufficient to establish a breach of the implied contract of fair
and honest consideration. Clearly, an award of the costs of
proposal preparation is appropriate, but this factor does not
support cancellation.
(4) The extent the procurement has been accomplished.
Because procurement was not stayed, the procurement was
completed before the protest appeal was filed. No lease has been
executed as yet, but McKinley has commenced performance in
conformity with its proposal by substantially completing
construction of the new building that DGS expressed an intent to
lease.
Because the procurement has been completed and
substantial performance has begun, this factor supports
confirmation of the notice of award rather than rescoring or
cancellation.
(5) Costs to the agency and other agency impacts of
the proposed remedy.
The potential costs to the agency in the event the
solicitation is cancelled or rescored are significant. It is
only reasonable to anticipate that if the solicitation is
cancelled, the State will be liable for the costs of
construction. In addition, there is a substantial risk that the
State would be liable for additional damages, such as lost
profits. On the other hand, if the award to McKinley is
sustained, the State would likely not be liable to either Bachner
or Bowers for any damages beyond the limits of AS 36.30.585.
Bachner argues that the costs to the State are likely
to be equaled or exceeded by cost savings resulting from an award
to a lower cost offeror. However, even if the out-of-pocket
costs over time are the same, the State would incur a substantial
negative impact because the lower cost facility was, according to
all evaluators, also a less desirable facility. The effect is
that the State would pay a higher cost (Bachner or Bowers bid
price plus damages to McKinley) for a lower rated facility. For
this reason, this factor weighs in favor of confirmation of the
existing award rather than cancellation or rescoring.
(6) Urgency of the procurement.
There does not appear to be any urgency in acquiring
the space at issue, since the existing landlord has indicated a
willingness to extend the lease indefinitely. This factor
supports cancellation and resolicitation.
(7) Other Factors.
. . . .
Another circumstance that should be considered in
fashioning a remedy is the substantial costs incurred by Bachner
and Bowers in pursing their administrative remedy. The failure
to provide full and fair compensation to protestors for out-of-
pocket costs incurred in a solicitation in which there is actual
impropriety could have adverse impacts on the procurement process
generally by insulating procurement decisions from administrative
review and creating the perception that the procurement process
is unfair.
Conclusion
In light of the serious deficiencies in this
procurement, cancellation and resolicitation are the appropriate
remedies unless other factors outweigh that factor. In this
case, the potential costs and other impacts on the State are
substantial, and McKinley would be substantially and unfairly
prejudiced by cancellation or rescoring. On balance, the
appropriate remedy would appear to be an award of the full costs
incurred in connection with proposal preparation. Accordingly, I
recommend that the protest appeal be sustained, that the notice
of intent to award to McKinley be confirmed, and that DGS be
directed to compensate Bachner in the amount of $50,000, and
Bowers in the amount of $30,000 for proposal preparation costs.
/s/
Andrew M. Hemenway
Hearing Officer
_______________________________
1 The other companies that submitted proposals did not
file bid protests and are not parties to this case.
2 The stated price of each bid proposal was adjusted by
applying a specified formula in order to reduce each bidders
total price to a present value figure.
3 AS 36.30.585(b) provides:
In determining an appropriate remedy, the
procurement officer shall consider the
circumstances surrounding the solicitation or
procurement including the seriousness of the
procurement deficiencies, the degree of
prejudice to other interested parties or to
the integrity of the procurement system, the
good faith of the parties, the extent the
procurement has been accomplished, costs to
the agency and other impacts on the agency of
a proposed remedy, and the urgency of the
procurement to the welfare of the state.
4 Gunderson v. Univ. of Alaska, Fairbanks, 922 P.2d 229,
233 (Alaska 1996).
5 Id. (quoting Pub. Employees Local 71 v. State, 775 P.2d
1062, 1063 (Alaska 1989)).
6 Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746
P.2d 896, 903 (Alaska 1987).
7 Delta Data Sys. Corp. v. Webster, 744 F.2d 197, 206 n.5
(D.C. Cir. 1984).
8 AS 36.30.585(a)-(b), set out in full, supra n.3.
9 See Dick Fischer Dev. No. 2, Inc. v. Dept of Admin.,
838 P.2d 263, 267 (Alaska 1992) (ex parte communication between
former commissioner and one-time agent of winning bidder created
appearance of impropriety sufficient to support the States
decision to cancel the project); McBirney & Assocs. v. State, 753
P.2d 1132, 1138 (Alaska 1988) (suggestions made by one bidder
outside the purview of other bidders and the public constituted
impropriety that warranted cancellation of procurement contract).
10 Restatement (Second) of Contracts 349 (1981) provides
in relevant part: [T]he injured party has a right to damages
based on his reliance interest, including expenditures made in
preparation for performance or in performance . . . .
11 As reprinted in this Appendix, the hearing officers
decision has been redacted to delete extraneous discussion. The
original labeling of the hearing officers section headings has
been retained, but footnotes and pages have been renumbered. We
have edited the decision to conform to our technical rules.
12 If the solicitation is cancelled before the lease is
executed, McKinley arguably is not entitled to any award for lost
profits. There is caselaw supporting the conclusion that any
acceptance by the State prior to final resolution of a protest is
conditional and subject to a condition subsequent. See State v.
Johnson, 779 P.2d 778, 782 (Alaska 1989); Dick Fisher Dev. No.
2, Inc. v. Dept of Admin., 778 P.2d 1153, 1155 (Alaska 1989).
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