STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ELIZABETHAN DEVELOPMENT, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 84-4440

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

) KENNETH R. McGURN, )

)

Petitioner, )

)

vs. ) CASE NO. 85-0842

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

A final hearing was held on these consolidated cases on August 30, 1985, in Gainesville, Florida, before Donald D. Conn, a duly designated Hearing Officer of the Division of Administrative Hearings. The parties were represented by:

Petitioners: James J. Traviss, Esquire

Post Office Box 1396

Winter Havens, Florida 33882-1396 (Elizabethan Development, Inc.)

Linda C. McGurn, Esquire Post Office Box 2900 Gainesville, Florida 32602 (Kenneth R. McGurn)

Respondent: David P. Gauldin

Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

At the hearing, Alan Taylor testified on behalf of Elizabethan Developments Inc., Kenneth R. McGurn testified on his own behalf and the Department of Health and Rehabilitative Services called George A. Smith to testify. Two exhibits

were introduced on behalf of Elizabethan Development, Inc., five on behalf of Kenneth R. McGurn and two on behalf of the Department of Health and Rehabilitative Services. A transcript of the hearing was filed on September 24, 1985.

Petitioners, Elizabethan Development, Inc. and Kenneth R. McGurn, have protested the decision of Respondent, the Department of Health and Rehabilitative Services, to reject all bids for the lease of certain properties as being an arbitrary and capricious decision, and each seeks the award of that lease.

The parties were allowed to submit posthearing proposed findings of fact pursuant to Section 120.57(1)(b)4, Florida Statutes. A ruling on each timely filed proposed finding of fact has been made as reflected in the Appendix to this Recommended Order. Petitioner, Elizabethan Development, Inc. did not submit proposed findings of fact but did submit a Memorandum of Law and Argument which has been considered although no specific ruling thereon can be made.

FINDINGS OF FACT

1. On or about March 8, 1984, Elizabethan Development, Inc. (Elizabethan) submitted a bid in response to an invitation to bid on lease number 590:8032. This bid was a "flat bid" providing for the same cost of $10.05 per square foot for each of the ten years under the basic lease, and the same amount during the five year renewal period. The annual rental costs under Elizabethan's bid for 13,424 square feet of leased space would have been $134,911.20 per year.

   
   

2. On or about March 7, 1984, Kenneth R. McGurn (McGurn) submitted a bid in response to an invitation to bid on lease number 590:8032. As submitted, McGurn's bid contained three different proposed rental rates, but he subsequently withdrew two of these proposals. His remaining bid was a "front- end loaded bid" providing for a higher cost per square foot in the early years under the lease, and a lower cost at the end of the ten year term of the basic lease which would then be lowered even more during the five year renewal period. Prior to submitting his bid, McGurn contacted Respondent and was told that a front-end loaded bid was acceptable, and further that it would be evaluated using an "average cost" methodology.

   
   

3. Specifically, McGurn's bid called for a cost of $13.00 per square foot in years one through nine, $6.00 per square foot in the tenth year, and 3.00 per square foot during each year of the five year renewal period. The annual rental costs for 13,424 square feet of lease space during the first nine years would be

   $174,512, during the tenth year $80,544, and during the renewal period $40,272. By adding these annual rental costs and then dividing by the fifteen year term of the basic lease plus renewal periods, the average annual rental costs under McGurn's bid were determined to be $123,501.

   
   

4. The bids submitted by Elizabethan and McGurn were for "turnkey" construction of administrative offices and clinics for Respondent's Children's Medical Services in Alachua County. A third bid was also received for this lease from Hobco, Inc. All bids were submitted timely and were then reviewed by Respondent for responsiveness and to determine which was the lowest responsive bid.

   
   

5. Respondent determined that McGurn had submitted the lowest responsive bide, and on May 7, 1984, informed the three bidders of its intent to award lease number 590:8032 to McGurn. However, since the initial rental rate

   proposed by McGurn of $13.00 per square feet exceeded the approved zone rate by more than ten percent, the matter still had to be presented to the Governor and Cabinet, sitting as head of the Department of General Services, for their approval prior to an actual award.

   
   

6. On September 6, 1984 the award of the lease was considered by the Governor and Cabinets, and following discussion about the front-end loading in the McGurn bid, Respondent and staff of the Department of General Services were directed to reevaluate the bids, including utility costs associated with each. Respondent also began negotiations with McGurn to modify his front-end loaded bid in order to provide a flat rate equal to the average square foot cost over the fifteen year period of the front-end bid. On September 14, 1984, McGurn informed Respondent that he was modifying his bid "to provide that the average bid amount of $9.20 per square foot is paid equally over the 15 year period." This brought the rental rate under his bid within ten percent of the approved zone rate and obviated the necessity of obtaining the approval of the Governor and Cabinet, sitting as head of the Department of General Services, before Respondent could make an award.

   
   

7. Nevertheless, Respondent proceeded to prepare to report back to the Governor and Cabinet on this item at their next meeting, September 20, 1984, and developed the reevaluation of utility costs under these bids that had previously been requested. George A. Smith, a representative of Respondent, testified that prior to the meeting on September 20 it was his impression that the item would be pulled from the agenda since the modified average bid amount of $9.20 per square foot was within ten percent of the approved zone rate, and he so advised McGurn. As a result, McGurn did not attend the meeting of the Governor and Cabinet on September 20, 1984. At the meeting, both Respondent and staff of the Department of General Services asked that the item be withdrawn from the agenda. After discussion, the item was withdrawn with an indication from a representative of Respondent that all bids would be rejected and the lease rebid. Thereafter, Respondent did reject all bids, and Petitioners timely filed their requests for a hearing.

   
   

8. The discussion which took place at the Cabinet meeting on September 20, 1984 included the methodology used by Respondent in evaluating these bids. Specifically, thee Respondent's practice of using the "average cost" method to evaluate bids was questioned and an alternative, "present value", was discussed. This discussion did not result in any formal action at the September 20 meeting concerning the methodology to be used by state agencies in evaluating bids, but did surface an issue which was felt to be worthy of further review and examination. The discussion did contribute to Respondent's decision to reject all bids, which was the course of action that it considered to be in the best interest of the state. A representative of Respondents reported to the Governor and Cabinet during this discussion that using the present value method of evaluating bids with a prevailing interest rate of 11.44 percent, the third bidder Hobco, Inc., would actually have been the low bidder. By this time, however, Hobco had withdrawn from the bid process.

   
   

9. The Invitation to Bid to which Petitioners responded contained the following provision:

   
   

   The Department of Health and Rehabilitative Services reserves the right to reject any and all bids, waiver any minor informalities or

   technicality in bids received, and to accept that bid deemed to be the lowest and best; and, if necessary, to reinstate procedures for soliciting competitive proposals.

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this case. Section 120.57(1), Florida Statutes.

    
    

11. The Department of General Services has adopted certain rules governing the competitive bid process which state agencies must follow. Specifically, all agencies must competitively bid the lease of 2,000 square feet or more, and award to the lowest and best bidder. Rule 13D-7.092, Florida Administrative Code. The state has been divided into ten zones and maximum rental rates have been established for each zone. Section 255.245(1),(2), Florida Statutes. If the rental rate bid on a proposed lease is more than ten percent above the maximum rental rate for the zone, the lease must be presented to the Governor and Cabinet, sitting as head of the Department of General services, for approval. Rule 13D-7.20(8), Florida Administrative Code. Additionally, Rule 13D-7.20(9), Florida Administrative Code, provides that no lease shall be presented to the Governor and Cabinet unless:

    
    

    1. The user agency has obtained competi- tive bids on this project on at least two occasions.

    2. The user agency has determined that the proposed lease is the lowest and best, and the Bureau (of Property Management) has concurred therewith.

    3. The head of the user agency certifies to the Bureau that the proposed lease is

       in the best interest of the state.

       
       

       Finally, Rule 13D-7.10, Florida Administrative Code, sets forth procedures and requirements for "turnkey" leases such as the one in this case.

       
       

12. The bidding procedures in this case complied with Rules 13D-7.10 and 13D-7.20(8), and the bid was properly presented to the Department of General Services both because this was a proposed turnkey lease and also because the rental rate bid by McGurn was more than ten percent above the approved zone rate. The Department of General Services and the Governor and Cabinet acted properly and within their authority in reviewing this proposed lease and requesting additional cost comparisons, and had this item under review when the Department of Health and Rehabilitative Services, Respondent, asked that the matter be withdrawn from their agenda in order to rebid this lease. However, it does not appear from the record presented in this case that the provisions of Rule 13D-7.20(9)(a) and (c) were met at the time of the second Cabinet meeting on September 20, 1984, and therefore the Governor and Cabinet could not have approved this lease had Respondent not withdrawn it from their consideration. Having failed to establish that the prerequisites to a "turnkey" lease set forth in Rule 7.20(9) have been satisfied the relief sought by Petitioners should be denied.

    
    

13. Petitioners assert that Respondent acted arbitrarily and capriciously when it withdrew this matter from consideration by the Governor and Cabinet, decided to reject all bids and indicated it would rebid the lease. It is clear

    from the terms of the Invitation to Bid that Respondent reserved the right to reject all bids and rebid, and the courts have recognized the authority of public agencies to reject all bids. 64 Am.Jur 2d, PUBLIC WORKS AND CONTRACTS, Section 75. However, this authority is not unbridled and is subject to the requirement that it not be exercised in an arbitrary or capricious manner.

    Wood-Hopkins Contracting Co. v. Roger J. Au and Son, Inc., 354 So.2d 446 (Fla. 1st DCA 1978); Solar Energy Control, Inc. v. State, Department of Health and Rehabilitative Services, 377 So.2d 746 (Fla. 1st DCA 1979).

    
    

14. In this case Petitioners have been afforded the hearing on Respondent's rejection of all bids which the court in Solar Energy Control held they were entitled to, but there is no allegation, much less proof, that any personal bias affected Respondent's decision in this case, as was alleged in Solar Energy Control. If an agency takes action based upon the personal considerations of agency decision-makers, it may be found that the agency has acted arbitrarily or capriciously.

    
    

15. The court in Wood-Hopkins Contracting held that Jacksonville Electric Authority acted arbitrarily and capriciously in rejecting the low bid on a construction contract and proposing to award to the next lowest bidder. In this case, the court quoted from Hotel China and Glassware Company v. Board of Public Instruction, 130 So.2d 78, 81 (Fla. 1st DCA 1961) as follows:

    
    

    Under this system (competitive bidding), the public authority may not arbitrarily or capri- ciously discriminate between bidders, or make the award on the basis of personal preference.

    
    

    Unlike the situation in Wood-Hopkins Contracting, Respondent here has not discriminated between bidders because it has rejected all bids; it has not made an award and has shown no personal preference in making its decision.

    
    

16. The facts in the instant case are significantly different from those in Couch Construction Co. v. Department of Transportation, 361 So.2d 172 (Fla. 1st DCA 1978). In Couch the Department of Transportation rejected all bids on a construction project but failed, in its Final Order, to consider significant changes in circumstances that had occurred since its preliminary decision to reject all bids. Specifically, the court in Couch reversed the Department of Transportation because its Final Order issued on April 25, 1978, rejecting a bid for failure to attend a mandatory pre-bid conference, failed to take into account the discontinuance in January, 1978 of mandatory pre-bid conferences.

    An agency's preliminary decision to reject bids has to be evaluated in light of events occurring between preliminary agency action and final agency action following a formal Section 120.57(1) hearing, and if intervening circumstances change significantly preliminary agency action may have to be reversed.

    
    

17. It is significant for purposes of this case that the Legislature enacted Chapter 85-122, Laws of Florida, between the time the Respondent made its preliminary decision to reject all bids in September, 1984 and when this final hearing was held which will ultimately result in a Final Order. According to Couch, the Respondent's Final Order should account for this intervening enactment which, in fact, supports Respondent's contention that it did not act arbitrarily and capriciously. The discussion about "average cost" and "present value" evaluation of leases which took place at the meeting of the Governor and Cabinet on September 20, 1984 surfaced a policy issue regarding the state's bidding of leases which contributed to Respondent's decision to reject all bids. The fact that the Legislature has required the "present value" evaluation of

    leases by enacting Chapter 85-122 confirms that Respondent acted in the State's best interest when it reconsidered its decision to make an award based on an "average cost" evaluation, and instead decided to rebid the lease and use "present value" in evaluating subsequent bids.

    
    

18. Petitioners have therefore failed to establish that Respondent acted arbitrarily or capriciously in rejecting all bids. The evidence proves, to the contrary, that Respondent's actions were consistent with the Invitation to Bid and applicable rules of the Department of General Services. Respondent has a responsibility to protect the best interests of the State and also to obtain the approval of the Department of General Services under the facts of this case. It was perfectly appropriate for Respondent to decide to reject all bids when during the review and approval process prescribed by rule, it appeared that the State's best interests would not be protected by making an award. The Respondent did not deviate from any formally adopted rule in taking this action, and its action is consistent with intervening action by the Legislature. While this intervening action is obviously not the grounds for Respondent's preliminary action, it does show there was a rational basis for the action and that Respondent did not act arbitrarily or capriciously.

    
    

19. McGurn argues that he was misled by Respondent that this lease would not be discussed at the September 20, 1984 Cabinet meeting and that he failed to attend due to the advice of Respondent. In fact, a discussion of this lease did take place at that meeting but there was no formal action by the Governor and Cabinet. Representatives of Respondent independently announced that they had decided to reject all bids and rebid the lease after listening to the discussion, and therefore the item was withdrawn. There is no evidence that Respondent purposely deceived McGurn but simply advised him based upon the best information available at the time. Further review by Respondent lead to the decision to reject all bids and when Respondent reached that decision, Petitioners were informed.

RECOMMENDATION

Based upon the foregoing, it is recommended that Respondent issue a Final Order rejecting all bids and otherwise denying the relief sought by Petitioners.

DONE and ENTERED this 21th day of October, 1985, at Tallahassee, Florida.

DONALD D. CONN

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 21th day of October, 1985.

APPENDIX TO RECOMMENDED ORDER CASE NO. 84-4440 and 55-0842

Rulings on Petitioner McGurn's Proposed Findings of Fact: (Petitioner has not complied with Rule 22I-6.31(3) by failing to include citations to the record supportive of proposed findings. Nevertheless, rulings thereon have been made.)

1-3 Rejected as not based upon competent substantial evidence.

Hearsay alone is not sufficient to support a finding of fact.

1. Adopted in Finding of Fact 2.

2. Adopted in Finding of Fact 2, 4.

3. Adopted in Finding of Fact 4 as to the "responsiveness" of McGurn's bid, but otherwise rejected as immaterial and unnecessary.

4. Adopted in Finding of Fact 4, 5.

5. Adopted in Finding of fact 5.

6. Adopted in Finding of Fact 5, except for the statement that "such agreement by Kenneth R. McGurn removed the objections of the front end load . . ." since this is argument rather than a proposed finding of fact and is also not supported by the record.

7. Adopted in Finding of Fact 5.

8. Adopted in Adopted in Finding of Fact 6, 7 with the exception of the statement after the word "notwith- standing" which is rejected as argument which is not based upon competent substantial evidence in this record.

9. Rejected as immaterial and unnecessary.

10. Adopted in Adopted in Finding of Fact 7 with the exception of the phrase "an arbitrarily selected date" which is argument rather than a proposed finding of fact.

11. Rejected as immaterial and unnecessary.

12. Rejected as immaterial and unnecessary.

16-17 Rejected as not based on competent substantial evidence in this record.

8 Rejected as immaterial and not based on competent substantial evidence in this record.

Rulings on Respondent's Proposed Findings of Fact: 1,2 Adopted in Finding of Fact 1-3.

1. Adopted in Adopted in Finding of Fact 4.

2. Rejected as a conclusion of law rather than a proposed finding of fact.

5,6 Rejected as unnecessary other than as adopted in Finding of Fact 4.

1. Adopted in Finding of Fact 4.

2. Adopted in Finding of Fact 5.

3. Rejected as immaterial and unnecessary.

4. Adopted in Finding of Fact 5. 11,12 Adopted in Finding of Fact 6.

1. Rejected as not based on competent substantial evidence. The record does not establish that the "Governor and Cabinet strongly recommended" any action, only that a discussion took place during which Respondent independently announced its decision to reject all bids.

2. Rejected as immaterial and unnecessary.

15,16 Rejected as argument rather than proposed findings of fact.

1. Adopted in Finding of Fact 8.

2. Rejected as unnecessary and immaterial.

COPIES FURNISHED:

James J. Traviss, Esquire Post Office Box 1396

Winter Haven, Florida 33882-1396

Linda C. McGurn, Esquire Post Office Box 2900 Gainesville, Florida 32602

David P. Gauldin Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

David Pingree, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

Docket for Case No: 84-004440

Orders for Case No: 84-004440