Appellant Bay Cities Paving & Grading, Inc. (hereafter appellant or Bay Cities), appeals from an order and judgment denying its petition for a writ of mandate. Pursuant to that petition, Bay Cities challenged the action of the City of San Leandro (hereafter City) in awarding a public works contract to a competing contractor, real party in interest and respondent Oliver DeSilva, Inc., doing business as Gallagher & Burk (hereafter G&B), the lowest bidder on the project. Bay Cities, the second lowest bidder, alleged that the City could not properly award the contract to G&B because a missing page in G&B's bid was a material deviation from the contract specifications. We reject this contention and therefore affirm the judgment.
On September 4, 2012,
The City provided prospective bidders with a "Contract Book" for the project which contained, among other things, copies of the required proposal
On October 23, the City opened the bids it had received for this project. All of the bidders submitted bid bonds as security for their bids. The lowest bid on the contract was submitted by G&B in the amount of $4,846,700. Bay Cities submitted the second lowest bid in the amount of $5,359,725, i.e., over $500,000 more than the G&B bid.
However, the bid package that G&B had submitted was missing page 33, which was the first page of its bid bond. G&B's bid package did include the second page of the bond (p. 34 of the entire bid), which contained the signatures of both the surety's attorney in fact and G&B's president, as well as notary certificates for both signatures. On October 23, G&B submitted the first page of its bid bond to the City, albeit after the sealed bids had been opened.
On October 26, Bay Cities filed a bid protest with the City; it argued that G&B's bid was "nonresponsive and must be rejected" because of the omitted page of G&B's bid bond. On October 30, G&B's attorney wrote to the City, stating that his client's initial failure to include the first page of the two-page bid bond "was due to an inadvertent error," and continued by noting that the City "may waive this irregularity and award the contract to G&B" because "the irregularity is minor and waivable by the City ...." That letter continued by citing legal authorities G&B's counsel contended supported that position.
In an October 31 letter, City engineer Mark Goralka acknowledged receipt of Bay Cities's bid protest but notified it that the City had determined that G&B's bid was accompanied by an enforceable bond and that the omission of the cover page of the two-page bid bond "can be waived as an inconsequential bid defect." Goralka also advised that the City would proceed with awarding the contract to G&B.
On November 19, the City received a letter from G&B's bid bond surety, Travelers Casualty and Surety Company, confirming that the bid bond it had issued in connection with the project "was approved and authorized by" it,
That same day, the City Council of San Leandro unanimously adopted a resolution which identified G&B's bid as the lowest responsible bid for the project, rejected all other proposals or bids, waived "any irregularities in the proposal or bid of" G&B, and awarded the contract for the project "to the lowest responsible bidder therefore, to wit, [G&B] ...." The November 19 resolution also established that if G&B was unable to execute the contract for this project, the City Manager was authorized to award the project to the next lowest responsible bidder and to "take all actions necessary to recover any bid security from the low bidder necessary to make the City whole in its acceptance of the lowest bid."
The following day, November 20, appellant filed a petition for a writ of mandate and a complaint in the Alameda County Superior Court. It also filed an ex parte application for a temporary restraining order contesting the City's award of the contract to G&B. The trial court conducted a hearing on that application on November 26; two days later it denied appellant's request for a temporary restraining order.
On January 16, 2013, that court held a hearing on appellant's petition for a writ of mandate and, a week later, denied it. In its January 23, 2013, order, the trial court stated: "The City of San Leandro put out a project to bid and all prospective bidders were required to submit a bid bond with their bids. The City provided all prospective bidders with a form Bid Bond. Gallagher & Burk submitted a bid that failed to include page 33 (the terms of the form bid bond) but included page 34 (the signature page for the bid bond). The City staff concluded that the bid bond was enforceable (Letter of 10/31/12) and the City Council formally waived the irregularity and accepted the bid (Resolution dated 11/19/12.) [¶] The court finds substantial evidence to support the City's decision that Gallagher & Burk's failure to submit page 33 with its bid package was a `minor irregularity' not affecting the amount of the bid that did not give Gallagher & Burk an advantage or benefit not allowed to other bidders. (Notice to Bidders, para 10, 27.) The bid bond was a form document so that it was apparent that the signature page 34 referred to the prior text [on] page 33. In addition the signature page independently identified the project at issue. The City reasonably concluded that a court would read page 34 in the context of the form bid bond and enforce the bid bond. (Civil Code 1647.)"
On January 23, 2013, the trial court filed a judgment denying Bay City's petition for writ of mandate. On February 21, 2013, appellant filed a timely notice of appeal.
"Appellate review of the award of a public contract is governed by certain well-established principles. In a mandamus action arising under Code of Civil Procedure section 1085, we limit our review to an examination of the proceedings before the agency to determine whether its findings and actions are supported by substantial evidence. [Citations.] `Our review is limited to an examination of the proceedings to determine whether the City's actions were arbitrary, capricious, entirely lacking in evidentiary support or inconsistent with proper procedure. There is a presumption that the City's actions were supported by substantial evidence, and [petitioner/plaintiff] has the burden of proving otherwise. We may not reweigh the evidence and must view it in the light most favorable to the City's actions, indulging all reasonable inferences in support of those actions. [Citations.] Mandamus is an appropriate remedy to compel the exercise of discretion by a government agency, but does not lie to control the exercise of discretion unless under the facts, discretion can only be exercised in one way. [Citations.]' [Citation.]" (MCM Construction, Inc. v. City and County of San Francisco (1998) 66 Cal.App.4th 359, 368 [78 Cal.Rptr.2d 44] (MCM); see Ghilotti Construction Co. v. City of Richmond (1996) 45 Cal.App.4th 897, 900 [53 Cal.Rptr.2d 389] (Ghilotti).)
In its briefs to us, appellant argues that the standard of review in this case is primarily the "independent judgment" test. To the extent our disposition of this appeal requires us to decide questions of statutory interpretation or to determine whether the City's action violated a relevant law, we exercise our independent judgment. (Schram Construction, Inc. v. Regents of University of California (2010) 187 Cal.App.4th 1040, 1052 [114 Cal.Rptr.3d 680]; see Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 361 [87 Cal.Rptr.2d 654, 981 P.2d 499]; Valley Crest Landscape, Inc. v. City Council (1996) 41 Cal.App.4th 1432, 1437 [49 Cal.Rptr.2d 184] (Valley Crest).) However, as we will explain, the dispositive issue in this case is a factual one which we review under the substantial evidence standard.
"`The importance of maintaining integrity in government and the ease with which policy goals underlying the requirement for open competitive bidding may be surreptitiously undercut, mandate strict compliance with bidding requirements. [Citation.]' [Citation.]" (MCM, supra, 66 Cal.App.4th at p. 369.) However, the rule that requires "`strict compliance with bidding requirements does not preclude the contracting entity from waiving inconsequential deviations.' [Citation.]" (Ibid.; see Ghilotti, supra, 45 Cal.App.4th at p. 908.) Rather "a deviating bid must be set aside despite the absence of corruption or actual adverse effect on the bidding process ..." only if the deviation is "capable of facilitating corruption or extravagance, or likely to affect the amount of bids or the response of potential bidders. [Citations.]" (Ghilotti, supra, 45 Cal.App.4th at p. 908.)
In the present case, appellant does not dispute the authority summarized above, which establishes that the City has the discretion to "waive inconsequential deviations from contract specifications in a public contract bid." (Ghilotti, supra, 45 Cal.App.4th at p. 900.) Indeed, in this case, the City's discretion to waive inconsequential or nonmaterial defects in the bids submitted for this public contract project was expressly confirmed in both the San Leandro Municipal Code and in provisions of the "Notice to Bidders" that was issued for this specific project.
"These considerations must be evaluated from a practical rather than a hypothetical standpoint, with reference to the factual circumstances of the case. They must also be viewed in light of the public interest, rather than the private interest of a disappointed bidder. `It certainly would amount to a disservice to the public if a losing bidder were to be permitted to comb through the bid proposal or license application of the low bidder after the fact, [and] cancel the low bid on minor technicalities, with the hope of securing acceptance of his, a higher bid. Such construction would be adverse to the best interests of the public and contrary to public policy.' [Citation.]" (Ghilotti, supra, 45 Cal.App.4th at pp. 908-909.)
The only alleged deviation from competitive bidding requirements that we address in this appeal is that one page of G&B's bid bond was missing from the bid it originally submitted in connection with this project. Appellant contends the City exceeded or abused its discretion by waiving this bid irregularity.
Substantial evidence establishes that G&B used the City's standard bid bond form. The City provided all prospective bidders with this standard form and the bidders were instructed if not required to use that form if they elected to provide a bond as their bid security. Furthermore, the bid package that G&B initially submitted contained page 2 of G&B's two-page bid bond, and the preprinted text on this form mirrored the bid bond form that the City had generated for this specific project. Among other things, that text identified the document as a "Bid Bond" for the "BART-Downtown Pedestrian Interface" project, and it included the City's project number for the project. From this information, the City was able to determine that G&B had used the City's standard form bid bond.
By the same token, the material provided in G&B's original bid, which included the second page of its bid bond, was sufficient to establish that G&B satisfied the bid security requirement by actually obtaining the required bid bond from an approved surety. The City's standard bid bond was, as the trial court phrased it, a "form document" which required only a few insertions by the specific bidder.
Regarding item (3), there can be no dispute that the City had actual notice of the date the G&B bid was submitted.
Appellant does not dispute the substantial evidence supporting the City's determination in this case but, instead, attempts to lessen its impact by characterizing the issue on appeal as a question of law, subject to de novo judicial review. However we are not persuaded by appellant's various legal theories.
Appellant's first theory is that the City's attempted contract with G&B is null and void as a matter of law because G&B's failure to provide a bidder's bond violated a statutory requirement. (Citing, e.g., Miller v. McKinnon (1942) 20 Cal.2d 83, 87-88 [124 P.2d 34].) Thus, it argues: "Because G&B's bid did not include the mandatory bid security at bid time, G&B's bid was incomplete and materially non-responsive and, consequently, ineligible for award." Such was so, appellant argues, because "there was an utter lack of bid security because there were no terms to which the surety was agreeing to be bound." Appellant reiterates this argument in its reply brief, contending numerous times that there was no "valid bid bond" or "no enforceable bid bond" supplied with G&B's bid.
Appellant's legal rule is inapposite, however, because the City found that G&B did secure its bid with a bid bond. And, as noted above, that determination is supported by substantial evidence. Thus, the record undermines appellant's premise that G&B completely failed to comply with the bid bond requirement.
Appellant next contends that the question of whether the absence of the cover page of G&B's bid bond from its original bid package rendered the bond unenforceable was a question of law. To support this argument, appellant relies on authority reflecting the general principle of contract law that the interpretation of a contract is a judicial function. (Citing, e.g., Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839]; Civ. Code §§ 1635-1661.) However, this principle has no bearing on the specific determination by the City which is the subject of this appeal. At that stage in the process, the City was not required to interpret any substantive provision in any of the bonds submitted by the bidders on this project, but only to determine whether the bidders complied with the bid security requirement. Here, substantial evidence supports the City's finding that G&B did substantially comply with that requirement, notwithstanding that a page of documentation was missing from its original bid package.
Specifically, appellant erroneously relies on Taylor Bus Service, Inc. v. San Diego Bd. of Education (1987) 195 Cal.App.3d 1331 [241 Cal.Rptr. 379] (Taylor Bus). That case involved a public contract for school bus transportation in a San Diego school district. The appellant was the low bidder and was conditionally awarded the contract. However, the district subsequently rescinded the conditional award after finding that the appellant failed to comply with competitive bidding requirements. Thereafter, the trial court denied the appellant's petition to compel the district to reverse its decision and award the contract to the appellant. The Taylor Bus court affirmed the trial court's denial of the petition.
The first issue addressed in Taylor Bus, supra, 195 Cal.App.3d at page 1341, was whether the school district violated the appellant's constitutional right to due process by rescinding the conditional award without first conducting a hearing. In concluding that no such hearing was required, the court noted, among other things, that a public agency's determination whether a contract bid is responsive is materially less complex than the question whether a bidder on a public contract is responsible. In this context, the court observed that "[i]n most cases, the determination of nonresponsiveness will not depend on outside investigation or information ...." (Id. at p. 1342.) The Taylor Bus court also stated that, notwithstanding a public agency's "inherent discretionary power" to disregard minor or insubstantial variations from bid specifications, the determination whether a bid is responsive "does not have, in most cases, the complex and external nature of a determination of nonresponsibility." (Ibid.)
The Taylor Bus appellant also claimed that, even if it was afforded due process, the school district abused its discretion by determining that the appellant's bid was nonresponsive and rescinding the conditional award of the contract to the appellant. (Taylor Bus, supra, 195 Cal.App.3d at p. 1344.) In addressing this claim, the court applied a substantial evidence standard of
Appellant's most developed theory on appeal is that the defect in G&B's bid could not properly be waived as an inconsequential or immaterial deviation because it gave G&B an advantage or benefit over other bidders. As noted at the outset of our discussion, a bid defect cannot be considered inconsequential if it gives the bidder an unfair competitive advantage. (Ghilotti, supra, 45 Cal.App.4th at p. 900.) Here, appellant contends that, as a matter of law, G&B enjoyed such an advantage. To support this theory, appellant relies primarily on Valley Crest, supra, 41 Cal.App.4th 1432.
Valley Crest, supra, 41 Cal.App.4th 1432, was a mandate proceeding involving a "park project" for the City of Davis. Specifications for the project required that the bidder perform at least 50 percent of the work itself and that it "set forth the percentage of work to be performed by each subcontractor." (Id. at p. 1435.) However, the low bidder on the project, North Bay, submitted a bid which indicated that 83 percent of the work would be done
The Valley Crest court reversed the trial court's decision, finding that the North Bay bid contained a material defect that the city could not properly waive. (Valley Crest, supra, 41 Cal.App.4th 1432.) The court reasoned that the subcontractor percentage requirement, although not a requirement of public contract law, was nevertheless a material element of the contract specifications for the project. Furthermore, North Bay's bid defect was not a minor variance from that specification; it failed to comply with that requirement. This mistake was material, the court found, because it gave North Bay an unfair advantage in the bidding process by establishing a ground for North Bay to withdraw its bid without having to forfeit its bond pursuant to the statutory procedure set forth in the Public Contract Code.
As the court explained, "[m]isstating the correct percentage of work to be done by a subcontractor is in the nature of a typographical or arithmetical error. It makes the bid materially different and is a mistake in filling out the bid. As such, under Public Contract Code section 5103, North Bay could have sought relief by giving the City notice of the mistake within five days of the opening of the bid. That North Bay did not seek such relief is of no moment. The key point is that such relief was available. Thus, North Bay had a benefit not available to the other bidders; it could have backed out. Its mistake, therefore, could not be corrected by waiving an `irregularity.'" (Valley Crest, supra, 41 Cal.App.4th at p. 1442, fn. omitted.)
First, appellant argues that the omitted page of G&B's bid gave G&B the actual option of deciding after bid opening whether it wanted to be bound by the bid bond. Under this theory, the only reason that the City had recourse against the G&B bond in the event G&B rejected the public contract was because it permitted G&B to correct its bid after the bid opening by submitting supplemental material, i.e., the first page of its bond. As a consequence, appellant contends, G&B's bid "improperly was supplemented after the bid deadline." To appellant, this allegedly improper supplementation by G&B and the City's acceptance of it proves that G&B had an unfair advantage in the bidding process because, after the bids were submitted and opened, G&B could have elected not to provide the missing page and thereby avoid liability under its bond.
However, this argument misstates the basis upon which the City found that it was proper to award the contract to G&B. Before that award was made, appellant's general counsel had addressed a letter to the City arguing that G&B's bid was "materially defective." The City responded not by relying in the slightest on any supplementation theory, but with these statements: "The central issue is whether the material submitted at bid opening would constitute a legally enforceable bid bond. It is the City's belief that the bid bond information submitted was enforceable, and that the omission of the bid bond cover page can be waived as an inconsequential bid defect. The City had the signature of the obligor and the bonding company at bid opening, which would make the bond enforceable." (Italics added.)
Thus, the record undermines appellant's contention that the City allowed any sort of "supplementation" of, or belated addition to, G&B's bid. Rather, the City determined that G&B's original bid was supported by a valid bid bond. This fact materially distinguishes Valley Crest, supra, 41 Cal.App.4th 1432. As discussed above, in that case, North Bay was actually permitted to correct the mistake in its bid before the City accepted it. (Id. at pp. 1436-1437.) Nothing comparable to that happened here.
The flaw in this logic comes from characterizing any opportunity to dispute the validity of a bond as a competitive advantage in the bidding process itself. The idea that somebody might attempt to avoid a contractual obligation is not evidence that he has an actual competitive advantage. Indeed, any of the bidders for this project could conceivably have disavowed its contract with the surety that issued its bidder's bond by arguing that the bond was unenforceable for one reason or another. This speculation aside, the City in this case made a factual determination that the omitted page from G&B's original bid package did not create an actual unfair advantage because the information that was submitted established compliance with the bid bond requirement. Appellant cannot undermine that factual determination by relying solely on speculation.
Appellant argues that Valley Crest, supra, 41 Cal.App.4th at page 1442, "instructs" that "what is relevant is whether a bid deviation provides the bidder the opportunity to avoid being bound," regardless whether the bidder attempted or even intended to withdraw its bid. Thus, appellant insists that it does not matter whether G&B actually secured a bid bond in the first instance or whether that bond was actually enforceable because the mere fact that the defect in G&B's bid gave it an opportunity to contest the validity of the bond precluded the City from waiving that defect as a matter of law.
Ghilotti, supra, 45 Cal.App.4th 897, helps to illustrate our point. That case involved competing bids on a road construction project in the City of Richmond. The contract specifications included a provision that the contractor would itself perform "`contract work amounting to not less than 50 percent of the original total contract price.'" (Id. at pp. 900-901.) However, the lowest bid, by a company called GBCI, showed that "it would be subcontracting 55.44 percent of the total contract price." (Id. at p. 901.) After a protest by the second lowest bidder, the city decided to "waive the 50 percent requirement as `nonsubstantive and inconsequential'" and awarded the contract to GBCI. (Id. at p. 902.) Thereafter, the trial court issued an order denying a petition for writ of mandate to prevent the city from awarding the contract to GBCI, which the Ghilotti court affirmed. (Id. at p. 903.)
The Ghilotti court emphasized the factual and individualized nature of the inquiry as to whether a bid variation results in an unfair competitive advantage in the bidding process, and ultimately concluded that the appellant had failed to carry its burden on appeal of proving that GBCI had an actual unfair competitive advantage. (Ghilotti, supra, 45 Cal.App.4th at pp. 906-907.) In reaching its decision, the court rejected the contention that a
The Ghilotti court also acknowledged that a bid defect cannot be waived if it would allow the bidder to withdraw its bid without forfeiting its bid bond, but it found that the appellant in that case had not relied on this theory in the trial court. (Ghilotti, supra, 45 Cal.App.4th at p. 912.) In any event, the Ghilotti court rejected the contention that "... Valley Crest stands for the proposition that a potential competitive advantage precludes waiver of a bid irregularity, without the necessity of showing any actual advantage." (Ghilotti, at p. 912, fn. 6.) Rather, the reason that the Valley Crest court found that the bid deviation in that case gave North Bay a competitive advantage was because North Bay could have obtained relief under the Public Contract Code "as a matter of law," and also because the city in that case expressly gave North Bay the opportunity to withdraw its bid. (Ghilotti, at p. 912, fn. 6.)
Ghilotti reinforces our conclusion, and the conclusion of the trial court, that appellant has failed to carry its burden of proving that the City abused its discretion by awarding the BART contract to G&B. The City's determination that the omitted page of the G&B bid was an inconsequential deviation from the competitive bidding requirements was a factual conclusion supported by substantial evidence. Furthermore, appellant's abstract theory of a potential competitive advantage does not undermine the City's determination or otherwise prove that the City abused its discretion.
A unifying theme running throughout appellant's arguments on appeal is that we must disregard the substantial evidence supporting the City's determination that the G&B bid deviation was inconsequential because that deviation was material as a matter of law. However in making these arguments, appellant repeatedly confuses a rule of law with an issue of law. For example, appellant contends that both Ghilotti and Valley Crest recognize "the well-established rule of law that a bidder has an unfair advantage over others if it has an opportunity to avoid its bid without penalty." By the same token, however, this authority vividly illustrates that the facts of a given case dictate whether this legal rule applies. In Valley Crest, the evidence established that the bidder had the option of withdrawing its bid without penalty, while the evidence in Ghilotti did not compel that same factual conclusion.
Finally, appellant mistakenly relies on this court's decision in MCM, supra, 66 Cal.App.4th 359. That case involved a public contract for a construction project at the San Francisco airport. The city rejected as nonresponsive a bid submitted by MCM and awarded the contract to a company that had
The second independent reason that the city was not required to waive the defects in the MCM bid was that the city's factual determination that those deviations were material was supported by substantial evidence. (MCM, supra, 66 Cal.App.4th at pp. 374-375.) The city had found that the defects in MCM's bid afforded MCM an actual competitive advantage by allowing it to withdraw its bid without having to forfeit its bid bond. (Id. at pp. 375-376.) Evidence in the record supporting that conclusion showed that "... MCM had not only an actual opportunity to withdraw its bid, but also was entitled to do so under the provisions of Public Contract Code section 5103." (Id. at p. 376.) In light of this evidence, we affirmed the city's determination that MCM had a competitive advantage not available to other bidders, which established that the "... City was without power to waive the deviation." (Id. at p. 377.)
Appellant purports to find support in our opinion in MCM, noting that we said there that "[t]he City was without power to waive the deviation." (MCM, supra, 66 Cal.App.4th at p. 377.) However, we reached that conclusion only after affirming the city's factual determination that the bid defect in that case was material and not inconsequential. Indeed, we cited Ghilotti, supra, 45 Cal.App.4th at page 906, for the proposition that the question whether "`"a bid varies substantially or only inconsequentially from the call for bids is a question of fact." [Citation.]'" (MCM, supra, 66 Cal.App.4th at p. 375.) Here, we apply precisely the same rules that we applied in MCM, albeit to a very different set of facts.
For all of these reasons, we conclude that appellant has failed to establish that the City abused its discretion by waiving the deviation in G&B's bid as inconsequential.
The judgment and order of the superior court denying appellant's petition for a writ of mandate are affirmed.
Kline, P. J., and Brick, J.,
Furthermore, the "Notice to Bidders" sent out by the City to the prospective bidders contained two provisions specifically allowing the City to waive minor irregularities. Section 10 of that document reads: "CITY'S RIGHT TO REJECT BIDS: The right is reserved, as the interest of the City may require, to reject any and all bids, or to waive any informality or minor irregularity in the bids." Section 27, the final provision of the "Notice to Bidders," then concludes with this sentence: "The City reserves the right to waive any bid irregularities not affecting the amount of the bid, except where such waiver would give the low bidder an advantage or benefit not allowed other bidders."
Public Contract Code section 5103 states: "The bidder shall establish to the satisfaction of the court that: [¶] (a) A mistake was made. [¶] (b) He or she gave the public entity written notice within five working days, excluding Saturdays, Sundays, and state holidays, after the opening of the bids of the mistake, specifying in the notice in detail how the mistake occurred. [¶] (c) The mistake made the bid materially different than he or she intended it to be. [¶] (d) The mistake was made in filling out the bid and not due to error in judgment or to carelessness in inspecting the site of the work, or in reading the plans or specifications."
