STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

KOHNO CORPORATION, U.S.A., )

)

Petitioner, )

)

vs. ) CASE NO. 92-2731BID

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in this case in Tallahassee, Florida on May 19, 1992 before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For the Petitioner: Randy Cropp

Corporate Representative 1615 Clare Avenue

West Palm Beach, Florida 33401

For the Respondent: Susan P. Stephens, Esquire

Dept. of Transportation

605 Suwannee Street, MS - 58

Tallahassee, FL 32399-0458 STATEMENT OF THE ISSUES

The issue for consideration in this case was whether the Respondent, Department of Transportation, should reject all offers for office space under lease No. 550:0234, for the Regional Toll Office of the Florida Turnpike Authority in Palm Beach County.

PRELIMINARY MATTERS

By letter dated March 18, 1992, Patricia C. Crosby, Business Manager for the Department's Office of Toll Operations, advised all offerors who had submitted quotes for office space for the intended lease of property for the West Palm Beach Regional Toll Office that all offers would be rejected because the Department had received less than the required three responsive quotes.

Thereafter, on April 14, 1992, the Department notified all offerors of their right to protest its action, and by letter dated April 24, 1992, John S. Sanford, agent of the Petitioner, Kohno Corporation, filed a letter of protest. By letter dated May 5, 1992, the file was forwarded to the Division of Administrative Hearings for appointment of a Hearing Officer, and by Notice of Hearing dated May 8, 1992, the undersigned set the matter for hearing in Tallahassee on May 19, 1992, at which time it was held as scheduled.

At the hearing, Petitioner presented Ms. Crosby's testimony and that of Steven M. Spitzer, a Department operations management consultant for toll plazas; Eldon Blaxton, an audit administrator for the Department; Mary Goodman, Director of Lease Administration for the Department of General Services; and John S. Sanford. Petitioner also introduced Petitioner's Exhibits 1 through 15. Respondent also called Ms. Crosby, and by Deposition, introduced the testimony of John Berry, formerly Director of Toll Operations for the Department; and Deborah J. May, Regional Manager of the Department's toll plaza operations from Ft. Pierce to Lantana, Florida. Respondent also introduced Respondent's Exhibits A & B, the depositions, and C through J.

A transcript was provided. Subsequent to the hearing, Respondent submitted Proposed Findings of Fact. Petitioner's submittal, though not formal Proposed Findings of Fact, contained statements of fact which will be so considered.

Both submittals have been ruled upon in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. In late December, 1991, the Department decided to seek space for a move of its regional toll operations office currently located in Lake Worth, Florida. This office provides administrative support for toll personnel and the distribution of supplies and maintenance equipment for the nine toll plazas between Ft. Pierce and Lantana.

   
   

2. This move was sought because the Department had outgrown its current office and concurrently therewith, a decision was made to seek a more centralized location to better service the existing and two additional toll plazas sought.

   
   

3. Under the existing procedures before letting any lease the Department must seek and receive approval of the Department of General Services, (DGS), leasing office for the proposal. Consistent therewith, a letter of agency staffing was prepared to justify the amount of space the office would need. DGS approved the Department's request for the lease on December 27, 1991, and assigned lease No. 550:0234 to the procurement action. By that approval, the Department was authorized to begin soliciting quotes for the lease of 2,985 square feet of office space. Since the proposed lease was for less than 3,000 square feet, under existing DGS rules the procurement did not have to be competitively bid.

   
   

4. The Department's request to DGS sought office space in either Jupiter or Palm Beach Gardens and described the requirement for the property as being centrally located on Florida's Turnpike between the Ft. Pierce and Lantana plazas.

   
   

5. Six prospective landlords submitted quotes for this space. They were Worth Realty and Management Co. Inc.; Cascio Real Estate, Inc.; Elizabethan Interiors; Petitioner, Kohno Corporation, USA; Deitz Realty Company; and Paramount Real Estate Services, Inc.

   
   

6. Several of the quotes submitted by other than Petitioner, Deitz Realty and Paramount Realty, were rejected right away for various reasons. The Worth Realty quote was rejected because the proposed location, (Lake Worth), the current location, did not meet the basic geographic criteria specified by the Department, and in addition, the future status of the building was uncertain because the owners had recently declared bankruptcy. Cascio Real Estate's bid required a $2,000.00 non-refundable deposit just to hold the space until a lease

   was signed, which the Department was not authorized to post, and Elizabethan's space was eliminated because it had been leased prior to the Department evaluation. This left three quotes for consideration - those of Petitioner, Deitz and Paramount. These three quotes were evaluated on the basis of the criteria, equally applied to all, which was specified by the Department's regional office in conjunction with its lease coordinator.

   
   

7. Review revealed that Petitioner offered 2,925 square feet of space on the second floor of its building. The Department was seeking 2,985 square feet of space and any space for future growth over Petitioner's initial offering of 2,925 square feet would have been on a different floor, losing the contiguity of the office. The Department also preferred ground floor space for ease of access for the numerous deliveries and pick ups of supplies which takes place at the regional office as well as for the convenience of the many visitors to the office. Petitioner claims the distance from its parking area to its proposed office was minimal and serviced by elevator, but the Department's preference is still valid. In addition, the space offered by Petitioner included a private balcony and a private bathroom in that area which would be designated as the regional manager's office. This type of accommodation is considered inappropriate for state offices. In addition, Petitioner's space was not already built out and would have required some remodeling to be usable by the Department.

   
   

8. The Director of the toll facilities office, who had the ultimate authority to select the best quote, rejected Petitioner's submittal as non- responsive because it contained 60 feet less than the 2,985 square feet called for. This 60 square feet, however, is well within the 3% leeway which Ms. Goodman indicated was the standard for determining the responsiveness of an offer. Notwithstanding the fact that the square footage was within acceptable parameters, this does not necessarily mean the evaluator had to consider it as functionally acceptable, and he did not. In addition, he considered the second story location and the unacceptable private bath and balcony as adverse factors.

   
   

9. Petitioner's space was offered at $15.85 per square foot for the first year of a six year lease with an increase of 5% per year over the term of the lease. Deitz Realty's property was quoted at $22.65 per square foot for the first year of the least with a 4% increase per year over the term of the lease. Paramount's property in the Sun Bank Building was also offered at $22.65 per square foot with the same increase as Deitz. Petitioner's offer would have saved in excess of $100,000.00 over the term of the lease. Price, however, was not the primary consideration when the various quotes were evaluated. More important was the operational need of the regional office, and therefore, the Department did not attempt to negotiate a lower price with any of the offerors even though it was entitled to do so under DGS's interpretation of the controlling leasing procedures. Instead, the Department considered of higher priority the ground floor location; the location closer to a Turnpike entrance; the potential for growth and where that growth would be located; and whether the space offered was ready for occupancy or would require modification.

   
   

10. Based on all those considerations, the Department determined that the space proposed in Fairway Center, at $22.65 per square foot was more desirable and better suited to its needs than that offered by Petitioner at a lower price.

    
    

11. However, because of correspondence received from the Petitioner, the Secretary of the Department of Transportation ordered an internal audit of the lease process utilized here. As a part of that audit, the auditor interviewed the personnel who had participated in the lease process both at the Department

    and at DGS; reviewed the statutes and both Department's rules and procedures relevant to this procurement; and reviewed the lease proposals.

    
    

12. The report of this audit, accomplished according to normal Departmental procedure, indicated that only two of the six quotes received were responsive - those of Petitioner and Elizabethan Interiors, whose property had already been leased prior to evaluation. The other four offers were determined to be non-responsive either because the price exceeded the maximum rate allowed or for being outside the defined geographic area even though the Governor and Cabinet could approve an exception. This included Fairway Center.

    
    

13. The audit report also concluded that in conducting this procurement, the Department had complied with normal leasing procedures and guidelines for this type of procurement.

    
    

14. The report thereafter recommended that because of the above, it was in the best interests of the state to begin to re-solicit offers for this procurement, and also recommended that all offers already received be rejected. It further recommended that in any future procurement the requisite criteria to be used be documented in advance even though the procedure for leases of under 3,000 square feet of property did not require such documentation.

    
    

15. Department of Transportation procurement procedures require that at least three responsive quotes be forwarded to the Department of General Services for evaluation. In the instant case, the audit conducted at the behest of the Secretary established that only two responsive bids had been received. This situation req uired a re-bidding or a new solicitation and based on that determination, all bids, including Petitioner's, were rejected. Petitioner's protest was filed as a result of that rejection.

    
    

    CONCLUSIONS OF LAW

    
    

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

    
    

17. The burden of proof in this case is upon the unsuccessful bidder which seeks to establish its entitlement to an award. Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1DCA 1981). Here, therefore, Petitioner has the burden to establish by a preponderance of the evidence that the Department's decision to reject all offers was not the result of a fair, full and honest exercise of its discretion. Liberty County v. Baxter's Asphalt and Concrete, 421 So.2d 505 (Fla. 1982).

    
    

18. An agency has wide discretion in soliciting and accepting bids and a decision based upon an honest exercise of that discretion may not be overturned by a Hearing Officer even if reasonable persons disagree with the outcome. C.H. Barco Contracting Co. v. State, Department of Transportation, 483 So.2d 796 (Fla. 1DCA 1986). The issue is whether the purpose of the competitive bid process has been subverted, and the Hearing Officer's sole responsibility is to ascertain whether the agency acted fraudulently, arbitrarily, illegally or dishonestly. Department of Transportation v. Groves-Watkins Constructors, 530 So.2d 912, 914 (Fla. 1988).

    
    

19. While an agency has wide discretion in evaluating bids and awarding contracts, it may not act arbitrarily or capriciously, nor can its decision be based on bias or favoritism. An agency action has been held to be arbitrary

    where it is not supported by facts or logic or is despotic. Agrico Chemical Company v. Department of Environmental Regulation, 565 So.2d 759, 763 (Fla. 1DCA 1989). The review for arbitrariness is limited, however. An agency's action needs to show only a rudimentary rationality to be supportable. Adam Smith Enterprises, Inc. v. Department of Environmental Regulation, 553 So.2d 1260, 1273 (Fla. 1DCA 1989). The Hearing Officer's review may not substitute his or her judgement for that of the agency but may insure only that the agency has used reason rather than whim in arriving at its decision. Id. at 1273.

    
    

20. Here, the Department, upon the advice of the auditor, chose to reject all offers on the basis that Departmental procurement procedures require a minimum of three responsive offers from which a choice can be made. Paragraph (1)(e)2.a., PROCEDURE, of DOT Topic No. 375-040-900-b, PROCESSING LEASES FOR REAL PROPERTY, provides:

    
    

    To negotiate a lease for space in the private sector or in a publicly owned facility, three

    (3) documented quotes must be obtained for a lease that is not competitively bid.

    
    

21. The Department determined that of the six offers received, only that of Elizabethan Interiors and that of the Petitioner were responsive. All others were, for one reason or another, determined to be non-responsive and Petitioner has not presented any evidence to show the disqualified offers should have been found responsive. Its argument in its post hearing submittal that Mrs. Goodman indicated excessive price would not disqualify an offeror because other avenues could be pursued to make it effective is not persuasive. Admittedly the excessive offers could have been approved by the Governor and Cabinet, but price was not, alone, the reason for declaring the other offers non-responsive.

    
    

22. Petitioner's argument is based on the fact that it's offer met all the Department requirements for this project and was superior to all other offers received, especially that of Fairway. Petitioner overlooks the fact that the Fairway offer was declared non-responsive.

    
    

23. Evaluating Petitioner's offer on its merits, however, shows that it did not, in reality, meet the Department's requirements. Disregarding the fact that the space offered was less than requested because it still fell within the 3% criteria, but other factors show it to be unacceptable. Notwithstanding the fact it was serviced by an elevator, it was a second floor property and the Department wanted first floor direct access. Any expansion into additional space would have had to have been into a noncontiguous area, even if in the same building, and this was not what the Department wanted. The space offered was not built out, that is, partitioned and ready for use. It would have required modification prior to move in. Further, the space which would have been occupied by the office manager contained a private bathroom and balcony. Though provided at no extra expense, these accoutrements are not acceptable for state offices. It is contra to the Department policy to provide them. Finally, the Petitioner's property was located further away from the Turnpike than was considered appropriate. Taken together, these deficiencies identified by the Department would have been sufficient to reject Petitioner's offer even if there had been a sufficient number of responsive offers.

    
    

24. With regard to the financial aspects of the potential leases, Petitioner's offer of $15.85 per square foot with annual increases of 5 percent would result in a saving over the potential 6 year life of each lease of more than $100,000.00 over the cost of the competitor's property. However, since

    this was not a competitive bid, price alone was not the determining factor. The agency, relying on the other factors described above, concluded that Fairway's more expensive choice was the superior one, and had it not been for the disqualifying factor of an insufficient number of responsive offers, would have awarded to it. Taken together, the agency's action was both rational and appropriate under the circumstances.

    
    

25. On balance, Petitioner has failed to satisfy its burden to establish, by a preponderance of the evidence, that the Department's decision to reject all offers, based as it was on the demonstrated deficiencies in each of the disqualified offers, was whimsical or arbitrary. By the same token, it has also failed to show that the agency action was either illegal, fraudulent or dishonest.

RECOMMENDATION

Based on the foregoing Findings of Fact and conclusions of Law, it is, therefore:

RECOMMENDED that the Department of Transportation enter a Final Order in this case dismissing the protest of Kohno Corporation, U.S.A., in regard to the Department's rejection of all offers in the procurement of lease No. 550:0234 for the Regional Toll Office of the Florida Turnpike Authority in Palm Beach County, Florida.

RECOMMENDED this 16th day of June, 1992, in Tallahassee, Florida.

ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 1992.

APPENDIX TO RECOMMENDED ORDER

The following constitutes my specific rulings pursuant to

Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case.

FOR THE PETITIONER:

1. Accepted but location was not the only basis for not choosing Petitioner's property.

2. Accepted. Size alone was not the disqualifying factor.

3. Rejected as an exercise in semantics. The Department made it very clear that it desired its office to be on a floor which provided direct access to the public and for deliveries without the necessity for the use of an elevator.

4. Accepted and incorporated herein.

FOR THE RESPONDENT:

1. - 6. Accepted and incorporated herein.

7. - 11. Accepted and incorporated herein.

12. - 15. Accepted and incorporated herein.

16. - 18. Accepted and incorporated herein.

1. Accepted and incorporated herein.

2. & 21. Accepted and incorporated herein.

22. - 25. Accepted and incorporated herein.

26. & 27. Accepted and incorporated herein.

28. & 29. Accepted and incorporated herein.

30. Accepted.

COPIES FURNISHED:

Randy Cropp

Corporate Representative Kohno Corporation, U.S.A. 1615 Clare Avenue

West Palm Beach, Florida 33401

Susan P. Stephens, Esquire Department of Transportation 605 Suwannee Street, MS-58 Tallahassee, Florida 32399-0458

Ben G. Watts Secretary

Department of Transportation Haydon Burns Bldg.

605 Suwannee Street

Tallahassee, Florida 32399-0458

Thornton J. Williams General Counsel

Department of Transportation

562 Haydon Burns Bldg. 605 Suwannee Street

Tallahassee, Florida 32399-0458

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should consult with the agency which will issue the Final Order in this case concerning its rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency which will issue the Final Order in this case.

Docket for Case No: 92-002713BID

Orders for Case No: 92-002713BID