STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
NATIONAL ADVANCED SYSTEMS )
CORPORATION, )
)
Petitioner, )
)
vs. ) CASE NO. 81-1493BID
)
THE SCHOOL BOARD OF ORANGE )
COUNTY, )
)
Respondent, )
)
INTERNATIONAL BUSINESS )
MACHINES CORPORATION, )
)
Intervenor. )
)
RECOMMENDED ORDER
Pursuant to notice, this cause came on for Administrative Hearing before P. Michael Ruff, duly designated Hearing Officer of the Division of Administrative Hearings on January 11-12, 1982; February 16-17, 1982; May 24-25, 1982; and
October 28-29, 1982, in Orlando, Florida.
APPEARANCES
For Petitioner: John A. Barley, Esquire
630 Lewis State Bank Building Post Office Box 10166 Tallahassee, Florida 32302
For Respondent: William M. Rowland, Esquire
301 North Magnolia Avenue Post Office Box 305 Orlando, Florida 32802
For Intervenor: Peter J. Winders, Esquire
Nathaniel L. Doliner, Esquire Exchange National Bank Building Post Office Box 3239
Tampa, Florida 33601 and
Daniel E. O'Donnell, Esquire
400 Colony Square, Suite 1111 Atlanta, Georgia 30361
This cause arose on the petition of National Advanced Systems Corporation (NAS) challenging the validity of a purchase made by the School Board of Orange County, the Respondent, from International Business Machines Corporation (IBM) of certain computer or data processing equipment through a bidding procedure.
On July 26, 1980, after the contract was signed, the Petitioner filed a petition for administrative hearing with the Respondent challenging the Respondent's award of the bid to IBM. The Petitioner also filed a Motion for Stay with the Respondent, praying that the Respondent stay all action in implementing an award to IBM. The Respondent denied the petition for administrative hearing and the Motion to Stay and Petitioner appealed those denials to the Fifth District Court of Appeal. The appeals court determined, on August 15, 1980, that the Petitioner was entitled to a stay if a bond was timely filed. However, on August 26, 1980, the court vacated that previous order because the Petitioner failed to timely file the bond. On May 7, 1981, the Fifth District Court of Appeal determined that an administrative hearing should have been granted to the Petitioner. On June 4, 1981, the Petitioner filed a Motion to Stay the final payment due to IBM by the Respondent and the Respondent denied that Motion to Stay. The Petitioner appealed that order of the Respondent on June 29, 1981, to the Fifth District Court of Appeal. On July 3, 1981, the appeals court denied that Motion to Stay.
Inasmuch as the Fifth District Court of Appeal determined that NAS should be entitled to an opportunity to present evidence and argument pursuant to Section 120.57(1)(b)4, Florida Statutes (Supp. 1980), that its bid was the "lowest and best" response to the bid document, the case was remanded to the School Board of Orange County (Board) to conduct an administrative hearing with the ultimate result that the matter was referred to the Division of Administrative Hearings. National Advanced Systems Corp. v. School Board of Orange County, 397 So.2d 1185 (Fla. 5th DCA 1981).
The Petitioner presented the testimony of witnesses Craig Rinehart, Frank Tracey, Robert Kimbrell, Edward Smith, C. David Brown, Dr. John G. Bolin, William M. Rowland, Jr., Mary Hertsgen, Michael Thomas and John Scoggins. The Respondent and Intervenor presented no witnesses, rather relying on their extensive cross-examination of the Petitioner's witnesses, most of whom were employed by either the Respondent or the Intervenor and/or were involved in the subject procurement process from the initial decision to invite bids in 1979 to the ultimate evaluation and award of the bid to IBM in June of 1980. Ninety- seven exhibits were presented by the parties. Exhibits 32, 34, 36, 37, 38, 39, 44, 45, and 86 were not admitted. Many of the Petitioner's exhibits had only tangential relevance and an appropriate ruling was made conditionally admitting those exhibits which related to the earlier 1979 bidding process, not directly involved herein, the lease purchase arrangement between IBM and the Respondent, not directly involved herein, and other matters regarding the relationship and course of dealing between IBM and the Board, occuring before the promulgation of the May 27, 1980, bidding documents as those matters might tend to substantiate the Petitioner's theory that a favored relationship existed between IBM and the Board such that the bidding documents ultimately drafted and promulgated on May 27, 1980, were designed to improperly favor IBM and render it impossible for NAS to submit the lowest and best bid.
At the conclusion of the proceeding, at the parties request, a transcript of the testimony in the proceedings was filed and the parties requested an extended briefing schedule, concomitantly waiving the thirty-day requirement of Rule 28-5.402. The time for submission of post hearing pleadings was ultimately again extended by agreement of the parties.
All proposed findings of fact, conclusions of law, and supporting arguments of the parties have been considered. To the extent that the proposed findings and conclusions submitted by the parties, and the arguments made by them, are in accordance with the Findings, Conclusions and views stated herein, they have
been accepted. To the extent that such proposed findings and conclusions of the parties and such arguments made are inconsistent therewith, they have been rejected. Certain proposed findings and conclusions have been omitted as not relevant or as not necessary to a proper determination of the material issues presented and delineated above. To the extent that the testimony of various witnesses is not in accord with the Findings herein, it is not credited.
The issues, as mandated by the court opinion, concern whether the Petitioner's bid was a valid response and, even if others bids were responsive to the bid solicitation documents, whether the Petitioner's bid is the lowest and best because: (a) its data processing equipment and services would best accommodate Respondent's present and future needs for such equipment and services at the lowest cost; (b) whether IBM's bid improperly sought to confer the benefit of certain "purchase-option" credits to the Respondent, resulting from their pre-existing rental agreement, unfairly precluding Petitioner's bid from being "lowest and best;" (c) whether IBM's bid imposed substantial additional contractual obligations on the Respondent not provided for in the solicitation documents; (d) whether IBM's bid was based on an interest rate two percentage points higher than the maximum rate of seven and one-half percent authorized by the invitation to bid.
The Petitioner in its petition urges that the Respondent should be required to rescind its agency action which determined that the bid submitted by IBM was the lowest and best and should be obliged to accept the bid submitted by Petitioner or alternatively to pay the Petitioner the full amount of costs and expenses incurred in preparing and submitting its bid in response to the invitation to bid, together with lost revenues and profits to be generated from the sale of the equipment and services to the Respondent.
FINDINGS OF FACT
On October 26, 1976, the School Board of Orange County and ITEL Data Product Corporation (ITEL) entered into a lease agreement providing for the lease of data processing equipment to the Board from ITEL by which ITEL supplied a computer central processing unit (CPU) and related equipment. Concomitantly, by agreement, ITEL provided for servicing and maintenance of the equipment.
In October, 1977, IBM announced its new 303X series of computers with delivery schedules to customers for the newly introduced equipment to take up to two years. IBM has had a long-standing policy, well-known in the data processing industry, of filling customer orders for equipment in the sequence in which they are received, called "sequential delivery." With public agency customers, such sequential orders are not envisioned by the agency nor IBM to be a firm order because of the often protracted procurement process, involving competitive bidding, that public bodies typically have to engage in before making such a major purchase. IBM therefore permits public agencies, such as the School Board in this case, to place non-binding orders in anticipation of a future procurement so that a sequential delivery position will be available to the public agency and thus cause no delay in acquisition of the equipment should IBM become the successful bidder upon a particular procurement. On October 6, 1977, the School Board placed a "reservation" for an IBM 3031 CPU and related data processing equipment. In a letter of October 11, 1978, the School Board informed IBM that this equipment would be needed in approximately November, 1979, subject to availability of funds and subject to IBM being selected as a winning vendor in a competitive bidding process. There was no executed contract or other commitment between IBM and School Board at this point in time.
Sometime in the summer of 1979, the School Board, which had become dissatisfied with the service and maintenance it had received from ITEL pursuant to the ITEL lease, engaged certain members of its staff in a study regarding its future data processing equipment needs. The School Board staff study resulted in a determination by the staff, and ultimately by the Board, to acquire additional data processing equipment capacity in excess of the capacity supplied under the ITEL lease. On August 28, 1979, the School Board terminated the ITEL lease effective December 31, 1979, and on or about September 5th, notified ITEL of that termination. On or about October 2, 1979, after determining that it wished to lease new and greater capacity equipment, the School Board Issued an "Invitation to bid" to eleven vendors, providing for the leasing, with option to purchase, of an IBM 3031 CPU and related equipment "or their equal." In response to this invitation to bid, ITEL, Menrex Corporation, as well as IBM, submitted bids and on November 13, 1979, the School Board rejected all the bids as being not responsive, as it had reserved the right to do in the invitation to bid document.
The rejection of these bids on November 13, 1979, provided only slightly over a month during which the School Board would have to acquire equipment by rental or purchase and have it installed, since the ITEL lease would be terminated on December 31, 1979. Accordingly, acting on the advice of counsel, the School Board determined that it could legitimately develop an interim emergency leasing plan for meeting its data processing needs upon the expiration of the ITEL lease starting December 31, 1979. This leased equipment was expected to be in place for approximately three to six months or until such time as a new bidding effort and procedure could be developed. The School Board, upon advice of counsel, determined that under its procurement regulations, it could rent equipment on a month to month basis without engaging in a competitive bidding process if it solicited quotations from at least three vendors. Thus, on November 13, 1979, the School Board solicited quotations from three potential vendors, Comdisco, ITEL and IBM, for purposes of securing an interim rental of an IBM 3031 CPU, "or equal", and related equipment. IBM and the Petitioner herein, NAS, which is the successor in interest to ITEL, responded to the solicitation of quotations and NAS informed the Board that it could not supply the particular equipment specified, but offered a NAS CPU at a monthly charge and suggested other related equipment to the Board that NAS considered to be suitable. The School Board staff informed NAS that the CPU unit itself would be a suitable alternative to the IBM 3031 CPU mentioned in the solicitation of quotations. On November 20, 1979, the School Board elected to select IBM's quotation and entered into the lease arrangement with IBM on a month-to-month rental basis. NAS did not challenge that action by the School Board.
This rental agreement was entered into on or about December 7, 1979. It was a standard IBM lease and contained a provision whereby IBM offered the customer an option to purchase the equipment, although there was no obligation
imposed therein on the customer to purchase the equipment, which was the subject of the lease. The agreement provided that the customer would be contractually entitled to certain "purchase-option credits" or accruals if it was leasing the equipment on a long-term basis and subsequently elected to exercise the option to purchase that same equipment. IBM grants such purchase-option credits as a general rule in month-to-month rental situations such as this, although they are not always a matter of contractual right on behalf of the customer. In any event, no consideration was shown to have been given at the time of entering this rental agreement to the existence or non-existence of any purchase-option credit provision since the only authorized contract at that time was a month-to- month rental agreement. No purchase or option to purchase which would be
binding on either party was contemplated since both IBM and the School Board were aware that before a purchase of this magnitude could be made, that a competitive bidding procedure must be utilized. Equipment was installed pursuant to the rental agreement in December, 1979. Neither at the time of the contracting, nor at the time of the installation of the IBM 3031 CPU, did NAS or Comdisco challenge the award of the month-to-month rental contract to IBM.
In early 1980, the rental agreement being only temporary, the School Board began studying various alternatives for making a permanent acquisition of needed data processing equipment. In early May of 1980, upon advice of its attorney and various staff members assigned to study the matter, the School Board determined that it would be more economical for the School Board to purchase a CPU and related equipment and service either by cash or installment payment, than to continue renting a CPU and related equipment or to lease those items with an option to purchase as had originally been contemplated in the October, 1979, aborted procurement effort.
Thus, it was that on about April 20, 1980, the School Board appointed a committee of five persons to help draft technical specifications to ultimately be promulgated in bidding invitation documents with a view toward acquiring the required data processing equipment through competitive bidding and ultimate purchase. The committee included School Board employees and outside consultants with knowledge of the field of data processing. The members were: Louis Nall, Education Consultant with the Florida Department of Education; Kim Anderson, Information Systems Consultant with the Florida Department of Education; David Andrews, Coordinator, Systems Support, School Board; Mike Staggs, Coordinator, Operations for the School Board; and Craig Rinehart, Director of the Systems Development/Systems Support staff of the School Board. Upon this committee agreeing upon required specifications for the equipment to be acquired, the bidding documents or "invitation to bid" and related supporting documents were developed by the committee in conjunction with assistance of certain other members of the staff of the Board as well as the School Board's attorney. The bid documents were approved by the School Board on May 27, 1980, and they were issued on May 23, 1980, to eight potential vendors, including NAS, IBM, and Amdahl Corporation.
The bid documents invited bids for the sale of an IBM 3031 CPU and related equipment "or their equal" (plus service and maintenance) for delivery no later than July 15, 1980.
In addition to specifying an IBM 3031 CPU and related equipment "or their equal.," the pertinent specifications contained in the invitation to bid documents provided as follows:
The manufacturer of the equipment described in the bid was required to currently manufacture it and offer for sale or lease along with it, an upgradable attached word processor subsystem the same as, or equal to, the IBM 3031 "attached pro- cessor." The Central Processing Unit, or CPU, being bid had to be capable of hosting or accommodating an attached processor. (The purpose of requiring
this was so that the School Board could later ob- tain more processing capability if and when it needed it, rather than having to pay for more capacity than it needed at the time of the initial purchase. The vendors were not required by the
bidding documents, however, to bid at the time of this procurement for the actual sale of such an attached processor, to be added later.)
The School Board reserved the right to reject any and all bids and to waive any informal- ity in any bid.
The bid documents initially stated that the School Board would not pay any separately stated interest or finance charges in arriving at its total purchase price for all equipment to be
bid.
Each bidder was required to offer a certain number of support or maintenance personnel in the Orlando area at the time the bid was submitted and the Board would enter into a separate service and maintenance agreement with the successful vendor.
NAS did not protest the bid specifications contained in the invitation to bid documents. NAS did request and receive several interpretations and clarifications of the bid documents from the Board in a manner favorable to NAS. These favorable clarifications or interpretations were as follows:
The unavailability of serial numbers for data processing equipment at the time the bid was prepared would not adversely affect the bid's validity.
NAS could temporarily rent equipment from other manufacturers which it could not itself deliver by the July 15, 1980, date required in the bid documents. (emphasis supplied)
NAS would be deemed by the Board to comply with the requirement that support personnel be present in the Orlando area, provided it had the required support personnel in the area at the time the equipment was actually delivered,
rather than at the originally stated time of submission of the bid.
The NAS 7000N CPU, which was a computer
of greater capacity than the IBM 3031, even after the IBM had the attached processor added, was specifically determined by the Board to be con- sidered as equivalent to the IBM 3031 and thus ap- propiately responsive to that specification and the invitation to bid documents.
NAS would be deemed by the Board to comply with the term "manufacturer" even though NAS did not in itself manufacture the equipment, but only marketed it for the maker, Hitachi Corporation.
IBM also had a role in determining and securing clarifications or interpretations of the specifications in the invitation to bid from the School Board. Thus, it was that IBM suggested that the Board could save money if it allowed each vendor (not just IBM) to separately state an interest or finance charge in its bid, since IBM was of the opinion that the Internal Revenue Service would not tax as ordinary income to the vendor any separately stated interest charges or financing charges received by such vendor from a public governmental body such as the School Board. Thus, to the extent that vendors
could save on income taxes from the total payment, if successful, then the School Board could reasonably expect all vendors to submit correspondingly lower bids in response to the invitation to bid.
In response to IBM's request, the School Board amended the bid documents to allow a "separately stated time-price differential" for any item of equipment, not to exceed seven and one-half percent of that item of equipment.
At NAS' request, the School Board also amended the bid documents to state that a single central processor (the NAS 7000N), with equivalent power to the IBM 3031 CPU, which was upgradable in the field, would be an acceptable alternative to the requirement that a separate processor must be capable of being attached to the CPU in order to increase data processing capacity. In fact, the NAS 7000N actually has somewhat greater data processing capacity than the IBM 3031. A further amendment to the bid documents provided that in determining the lowest and best bid, the Board would consider each vendor's total charges for service, maintenance and support of the equipment for a one- year period following the award of bids. Additionally, at the request of IBM, an amendment was approved to the bid documents stating that instead of seeking equipment "new and not refurbished," that that requirement would be changed to "new and not refurbished or not more than one-year old." These amendments were sent to all potential bidders.
Prior to disseminating the May, 1980, invitation to bid documents, the School Board established an Evaluation Committee to review and analyze bids to be received in response to those documents. The Committee was composed of the following individuals: David Brittain, the Director of the Educational Technology Section, Florida Department of Education; William Branch, Director of Computer Service, University of Central Florida; Louis Nall, Education Consultant, Florida Department of Education; Ronald Schoenau, Director of Northeast Regional Data Center, Florida University System; Craig Rinehart, Director of Systems Development/Systems Support of the Orange County School Board; Mike Staggs, Coordinator, Operations of the School Board; David Andrews, Coordinator, Systems Support, School Board; Dale Brushwood, Director of Production Control, School Board; and David Brown, Attorney for the School Board. The Evaluation Committee was charged with conducting a review and analysis in accord with certain instructions given by the Board and to recommend to the Board the bid the Committee believed was the lowest and best bid. The Committee was instructed that objectivity is of prime importance.
Five vendors submitted bids in response to the Invitation documents, as amended. They were NAS, IBM, Amdahl, CMI and Memorex. On June 17, 1980, the bids were opened by the Board. On a recommendation of the Evaluation Committee, the School Board found the bids submitted by CMI and Memorex to be not responsive to the bid documents. The bids submitted by NAS, IBM and Amdahl Corporation were found responsive to the bid document. The Evaluation Committee met for approximately 5 hours evaluating the bids by a number of different criteria, including the consideration of both a one-year and a three-year maintenance cost, as well as an assumption arguendo that the bid documents did not merely call for the IBM 3031 CPU upgradable by the addition of an attached processor, as the specifications actually requested, but instead that the
$330,000 (estimated) attached processor was to be bought at the outset from IBM. The result was that the Evaluation Committee reported that the IBM bid was the lowest and best response, even if the cost of a $330,000 attached processor was added to their bid, which was not actually to be the case because the attached processor was not included in this procurement process. Even had that been
added to the IBM bid, making it the second lowest dollar bidder, the Evaluation Committee still felt it to be the lowest, best bid.
The IBM bid for the 3031 CPU and related equipment was $1,412,643 plus a time-price differential of $58,738 for a total of $1,471,381. The related bid for service, maintenance and support for the first year was $74,201.34, making a grand total for IBM's bid of $1,545,582.34.
The NAS bid for the sale of an NAS 7000N CPU and related equipment was the next lowest bid at $1,575,751 plus a time-price differential of $74,722 for a total of $1,650,473. The accompanying bid for service, maintenance and support for the first year was $64,603. The total of the NAS bid was thus
$1,715,076. The Amdahl Corporation's bid was higher than either IBM or NAS.
In evaluating and in arriving at the decision that the IBM bid was the lowest and best, the Evaluation Committee was concerned with the previous poor record of maintenance and support provided by NAS's predecessor in interest, ITEL Corporation, as well as by the fact that there were then no NAS 7000N computer systems installed in the United States, so that some knowledge of its performance record could thus be gained. Further, the residual value for NAS' equipment had not yet been proven to the extent that IBM's had. Thus, the Committee determined that the IBM bid would still be the lowest and best even had the attached processor, at an estimated cost at time of $330,000, been added to the bid, making it the second lowest in dollar terms because the IBM bid combined the least risk, with the maximum equipment capacity growth flexibility at maximum benefit to the School Board in terms of financial flexibility. The NAS machine would provide more capacity than the Board needed for several years at higher cost, without the Board having an option regarding when that extra capacity should be obtained. The financial flexibility benefit of the IBM bid in terms of allowing for future capacity growth was borne out because the attached processor, by the time it was actually acquired from IBM in 1982, only cost $172,000, due to price decreases made possible by technological advances.
The Evaluation Committee unanimously recommended acceptance of the IBM bid as the lowest and best received, and in official session on June 24, 1980, after hearing presentations by an NAS representative, the School Board unanimously voted to award IBM the contract for the subject equipment.
On July 1, 1980, the contract submitted by IBM was executed by IBM and the School Board. It provided for a purchase by the Board of the equipment and services described above, payable in two installments, $600,000 on or before August 15, 1980, and the balance on or before July 5, 1981. On July 16, 1980, NAS filed a petition for administrative hearing with the Board, also filing an emergency motion for stay with the School Board, seeking a stay of all further agency action on the contracts with IBM, including any payment, pending disposition of the case. On July 29, 1980, the School Board, after hearing argument of NAS counsel, denied that petition for Administrative Hearing and motion for stay on the basis that the contract between the Board and IBM had already been executed and that the NAS request for a 120.57(1), Florida Statutes, hearing was not timely.
On August 4, 1980, NAS appealed the Board's decision to deny a hearing to the Fifth District Court of Appeal and also filed an emergency motion for stay pending appeal. The emergency motion requested the court to prohibit any further action pursuant to the contract, including payment of any sums pending determination of the issues raised in the appeal. On August 15, 1980, the court granted the emergency motion for stay on the condition NAS post a supersedes
bond on or before August 18, 1980. On August 26, 1980, the court vacated that order because of failure to timely post the supersedes bond. The School Board then paid IBM the first installment payment of $600,000, when due, shortly thereafter. On May 6, 1981 the Fifth District Court of Appeal ultimately rendered a decision that NAS ". . . should have an opportunity to present evidence and arguments, pursuant to Section 120.57(1)(b)4, Florida Statutes, (Supp. 1980), that its bid was the lowest and best response to the bid document." Thus, the case was remanded to the Board to conduct an administrative hearing, and the Board referred the matter to the Division of Administrative Hearings.
On June 4, 1981, NAS filed with the Board a motion for stay to prevent the Board from making the final payment to IBM on the purchase price. After hearing arguments of NAS' attorney, the Board, on June 23, 1981, denied the motion for stay and NAS appealed. On July 3, 1981, the Fifth District Court of Appeal affirmed the School Board's denial of the stay. Final payment was thereafter made by the Board to IBM, thus completing the purchase and all performance of the contract.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter of and the parties to this proceeding, pursuant to Section 120.57(1), Florida Statutes.
The major objective of competitive bidding in a situation such as that in the case at bar, is to allow public agencies to make acquisitions which are most advantageous to the public body and the taxpayers which it represents.
This objective applies both to price sought to be obtained as well as other factors to be considered such as obtaining, as in this case, a computer data processing system which was flexible enough to be augmented in capacity when such extra capacity was needed, rather than buying too much additional capacity at the outset, at too great a cost.
The statutory section which addresses the purchase of personal property by a school board is Section 237.02, Florida Statutes, which states that "each board shall develop and adopt policies establishing the plan to be followed in making purchases as may be prescribed by the state board." One must then look to Rule 6A-1.12, Florida Administrative Code, which governs all purchases of personal property by district school boards in Florida. It provides:
Each district school board shall establish purchasing policies which shall include but not be limited by the following:
(5) Bids shall be requested from three (3) or more sources for any authorized purchase exceeding the amounts set forth in the follow- ing district size and amount size and amount scale:
DISTRICT SIZE AMOUNT
Districts with 1-9,999 prior year weighted full-
time equivalent students $2,000
Districts with 10,000-24,999 prior year weighted full-
time equivalent students $3,000
Districts with 25,000 or more prior year weighted full-time equivalent
students $4,000
The school board shall have the authority to reject any or all bids and request new bids.
In acceptance of bids, the school board shall accept the lowest and best bid.
In implementing the above rule, the School Board adopted local rules governing purchases, also requiring bids on purchases of $4,000 or more. They also provide, however, that in an emergency or unusual situation, that provision may be departed from by the Superintendent or his designee and equipment or services may be secured by written or verbal quotations. These local rules also provide that (except in emergencies) the Board should accept the lowest and best bid.
A substantial part of the evidence and testimony adduced by the Petitioner was part of an effort to demonstrate that the IBM 3031 machine, upgradable with an attached processor later, which formed the basis of the School Board's specifications, was really an inferior type of equipment in relation to the NAS 7000N machine because the 7000N had a greater data processing capacity, that the NAS machine would better serve the School Board's needs and that the Respondent accordingly should have opted for the NAS machine and found its offering to constitute the lowest and best bid, an essentially "more machine for the money" argument. In a similar vein, NAS argued that a five-year cost evaluation regarding the purchase and the servicing of equipment bid would be a better approach for the School Board to take.
The specifications state, however, that the evaluation of total cost would be based upon purchase price plus the first year's maintenance in the Board's method of evaluating the bid. Although NAS argued that its machine is bigger in terms of data processing capacity than the IBM 3031, even with the attached processor in operation, the specifications merely ask for an IBM 3031 or equal. The specifications were drafted that way so the School Board would have the flexibility of using the computer capacity it needed at the time the contract was to be let, with the option of adding the attached processor, upgraded capability at a later time when its needs would require, rather than expending an additional estimated $330,000 for an attached processor in conjunction with the instant procurement before it was needed. As found above, this proved to be a sound decision as evidenced by the much reduced price for the processor as shown when ultimately purchased in 1982. Thus, the basic specification for the equipment was drafted on a rational basis.
The more salient point in this examination of the specifications "issue" is that the specifications were set and unchallenged at the time of the bid opening and thereafter and the issue upon which the cause was remanded by the Fifth District Court of Appeal and provided for in the rules, that is, which bidder had the "lowest and best bid," does not include a consideration of whether the equipment specified in the bid documents actually best suited the School Board's needs. No preponderant evidence was adduced to demonstrate that the School Board acted arbitrarily or exceeded its discretion in determining its
specific equipment requirements in this regard, especially in view of the unrefuted evidence in the record showing thorough and intensive study done by an objective evaluation committee made up of both School Board employees and outside consultants.
In any event, NAS has failed to timely challenge the specifications or the contract execution. Instead, it asked for and received various clarifications and interpretations to the 1980 bid specifications which were favorable to it and indeed rendered it assured of submitting a responsive bid. NAS never challenged the basis of the specifications until after it had lost the bid. In a similar vein, NAS never challenged the rental contract between IBM and the School Board, entered into in January, 1980, prior to collaterally attacking it in this proceeding. Even had the rental contract been timely challenged, the above rules only apply to purchases, thus the solicitation of three competitive quotes for rental equipment was not required in the first place.
This failure to timely challenge either bid specifications or the award of a public contract has not been looked upon with favor by Hearing Officers or Courts in most jurisdictions. A persuasive case from another jurisdiction is Saturn Construction Company v. Board of Chosen Freeholders, 181
N.J. Super. 403, 437 A.2d 914, 915 (1981), wherein the Court held that an unsuccessful bidder cannot challenge the specifications in an invitation to bid after the bids are actually opened. A similarly applicable opinion appears in Richardson Engineering Co. v. Rutgers, the State University, 51 N.J. 207, 238 A.2d 673, 679-80 (1968) Florida Courts, Hearing Officers and Administrative Agencies in a like manner have recognized that Courts and Hearing Officers should not lightly disrupt the public procurement process and that a challenge to a procurement process, specifications or award of bid, must be most prompt. See, Dedmond v. Escambia County, 244 So.2d 758, 761 (Fla. 1st DCA 1971); Wayne Blackwell and Company, Inc. v. Department of Health and Rehabilitative Services, 2 F.A.L.R. 648-A (1980).
It has long been the law in Florida, as the Supreme Court recently reaffirmed in Baxter's Asphalt & Concrete, Inc. v. Liberty County, 421 So.2d 505, 507 (Fla. 1982), that "[I]n Florida . . . a public body has wide discretion in soliciting and accepting bids for public improvements and its decision, when based on an honest exercise of this discretion, will not be overturned by a court even if it may appear erroneous and even if reasonable persons may disagree. See, also, Systems Development Corp. v. Department of Health and Rehabilitative Services, 423 So.2d 433 (Fla. 1st DCA 1982). The Second District Court of Appeal in Broward County Rubbish Contractors Association v. Broward County, 112 So.2d 898, 903 (Fla. 2nd DCA 1959), held that a contract award by a public body can only be reversed if arbitrary, capricious, based upon a misconception of law, or is done through ignorance, lack of inquiry, or the result of improper influence. The Court stated: "courts will not determine whether or not the action of public officers is wise, economical or advantageous. Thus, contract awards have only been reversed historically where there have been egregious circumstances attendant to those awards, as where a contract was awarded in a manner obviously favoring the winning bidder through a collusive action by the governmental body and the successful bidder, such as awarding to a "hometown" bidder who was not actually a low bidder. Further, as discussed above, the courts will not substitute their judgment for that of a governmental entity as to whether certain specifications were appropriate (even if that issue was before the Hearing Officer in this proceeding), absent fraud, collusion or some other egregious influence. Awards by a county to the highest bidder have been upheld where a rational
determination was made that the bidder offered the best equipment, material or service. See, Eggart v. Westmark, 45 So.2d 505, 507 (Fla. 1950). Thus, NAS' arguments that its machine would be better for the School Board over a five-year period in terms of cost and maintenance records and could accommodate a larger expanded capacity, really constitute arguments that the specifications did not ask for equipment best suited to the needs of the School Board and are not arguments going to the issue before the Hearing Officer regarding which bid, on the specifications as they stand, was "lowest and best." The School Board made a rational, well-reasoned attempt to consider such facts as financial and growth capacity flexibility, service arrangements and other factors in reaching a well- considered decision, including the appointment of a panel of experts to arrive at the specifications originally and then to evaluate the bids once they were received.
With this theme in mind and with rulings made during the hearing in accordance with it, the Petitioner nevertheless was allowed considerable latitude in exploring the means by which the May, 1980, specifications were arrived at and by which the earlier rental contract was executed in an attempt to show that the rental contract, the specifications and the award of the subject procurement contract resulted from an undue, anti-competitive influence flowing between IBM and the Board and/or members of its staff. Thus, Petitioner delved into the subject of whether the potential entitlement of the Board to purchase option credits and therefore a discounted price on future purchase of equipment, pursuant to the rental contract, was an example of an undue influence in drafting specifications and evaluating bids which prevented the Petitioner from filing the lowest and best bid. So too, the Petitioner's inquiry into the issue of time price differential or "interest" charged by IBM was allowed to the extent that it was relevant on which party submitted the "best" bid. In that vein, the Petitioner explored whether the specification of a single brand of equipment (IBM's), "not greater than one year old," rendered IBM's the only possible "best bid" because of its equipment already being in place. With these contentions in mind, they will be treated serially below.
PURCHASE OPTION CREDITS
The competitive bidding process is designed ultimately to protect the taxpayers who benefit from any price advantage the public body purchasing on their behalf receive. Robinson Electrical Co., Inc. v. Dade County, 417 So.2d 1032 (Fla. 3rd DCA 1982). In re West Palm Beach Laboratory, 3 F.A.L.R. 147-A (August 15, 1980). Purchase option credits, if applicable in a procurement process, as here, afford the public agency a significant means of obtaining the lowest possible price on behalf of the taxpayers. IBM's specific purchase option credit arrangement was involved in a competitive bid process in In Re Honeywell Information Systems, Inc., Protest of Contract Award Requisition X-32, 145 N.J. Super. 187, 367 A.2d 432, 440-441 (4976), cert. denied, 78 N.J. 53,
372 A.2d 318 (1977). That case involved the lease by the State of New Jersey of certain data processing equipment from IBM. The state requested proposals for a data information system and IBM and Honeywell submitted proposals accordingly. IBM deducted $939,000 from its proposed sales price because of purchase option credits which it already had accrued to the state under the pre-existing lease arrangement, the situation in the case at bar. Honeywell challenged that deduction, claiming that the purchase option credits gave IBM an impermissible, competitive advantage over other bidders. The Supreme Court held that the state had not abused discretion in considering those credits, finding "[R]ealistically, the [state] selected the wisest course which produced substantial dollar savings to the state and its taxpayers. Obviously, if the IBM equipment were not purchased in the overall scheme, the state would have
lost the benefits of these credits amounting to approximately $900,000 . . .
." Such discounts to a public body in a bidding procurement process have been approved in Florida. In Preston Carroll Company v. Florida Keys Adqueduct Authority, 400 So.2d 524 (Fla. 3rd DCA 1981), the appeals court rejected a bidder's claim that it had standing to challenge a contract award. The court limited standing in that case to second lowest bidder and the bidder challenging gas determined to be third lowest bidder once certain deductions or discounts allowed by another bidder were considered. There has been no demonstration that the granting of purchase option credits to the Board by IBM violated any provision of law nor that the School Board or IBM acted in an effort to give IBM an unfair advantage vis-a-vis other bidders in its preparation of the specifications or award of the contract because of the purchase option credits available because of the rental agreement (which was competitively arrived at and unchallenged by NAS). Thus, IBM's according the purchase option credit benefit to the School Board was merely an internal business decision as to the price IBM felt it could afford to bid because of its policies regarding discounts and there was no showing that the credits were offered in any manner constituting collusion on the part of IBM or the Board. The taxpayers secured a definite benefit by their allowance.
EQUIPMENT BRAND AND AGE SPECIFICATION
The Petitioner maintains that an unfair advantage was accorded IBM because of the less-than-arms-length relationship between IBM and the Board, which resulted in the specification "IBM 3031 or equal and . . . not greater than one year old" pursuant to paragraphs 10 and 11 of the invitation to bid documents. There has been no preponderant evidence to establish that the specifications were issued to the potential bidders thus tainted. Such specifications have been held as a matter of law to be permissible in Florida and in other states. In Harry Pepper and Associates, Inc. v. Cape Coral, 352 So.2d 1190 (Fla. 2nd DCA 1977), the instructions to bidders provided that a water plant must contain pumps of specified manufacturers or their equal. The lowest bidder submitted a bid listing a different brand of pump. The lowest bidder then attempted to change its bid to specify a pump brand mentioned in the specifications, but the District Court of Appeal held it to be to late to do so. The court noted that the city had two appropriate alternatives, to either award the contract to the next low bidder who met specifications or to reject all bids and readvertise. Fundamental to that decision was the court's opinion that specification by brand name is proper. In an Attorney General opinion, AGO 068-
77 (June 20, 1968), it was found legally permissible to specify a brand name or its equivalent in requesting bids or proposals. That opinion provided that such product specifications are:
Simply a shorthand method of prescribing a set of design characteristics, and pursuant to such a specification, any supplier would be entitled to bid his product. Where the design characteristics of the brand name commodity are not openly ascertainable or available, the agency should make it avail- able to all interested bidders....
Even a specification plainly favoring one brand of equipment without the "or equal" qualification has been held proper in other jurisdictions. In Otter Tail Power Co. v. MacKichin, 270 Minn. 262, 133 N.W. 2d 511, 517-518 (965) the Minnesota Supreme Court sustained specifications favoring certain Fairbanks Morse engines because:
The municipality must be allowed a reasonable latitude in determining what type of equipment will best suit its needs. It is not necessary for the municipality so to prepare its specifi- cations that every manufacturer of that type
of equipment can meet the competitive price
of every other manufacturer. Plaintiff's
counsel developed certain evidence from which it might appear that the village officials and
their consulting engineers favored the Fairbanks Morse product from the outset. . . . We cannot agree, however, that this preference infects that transaction with illegality. Moreover,
they were not unaware of the fact that that company provided adequate supplies and parts, accessible service, and factory representatives which were available on short notice. Even though, the record may indicate a partiality
to the product of the successful bidder, we do not feel that under the facts in this case it can be fairly said that there was a suggestion of fraud, favoritism, or corruption, which would taint the contract with illegality or prevent fair competition which would provide the best results at the lowest price for the protection of the municipality.
This is a persuasive decision particularly applicable to the facts of this case inasmuch as the specifications here had the further qualification of the IBM brand "or equal" making it an even more remote possibility that this evidences partiality by the Board. Further, serious consideration was given to the relative histories of the companies in providing adequate supplies, parts, accessible service, and factory representatives to handle problems on short notice.
There has been simply no showing that any preference for the IBM equipment or service so tainted the bidding and procurement process here as to render it impossible for NAS or other bidders to submit a truly competitive, responsive or "best" bid.
WHETHER IBM IMPOSES "ADDITIONAL OBLIGATIONS"
NAS has contended that IBM's bid was unresponsive because, by submitting its own contract to the Board as part of its bid, IBM imposed substantial additional obligations on the Board with the use of its own contract in a manner precluded in the invitation to bid documents. There was no evidence in this proceeding of any additional "substantial obligation" imposed by the form of the contract submitted either by IBM or NAS. Indeed both parties sought, and had approved, certain changes, clarifications, amendments, and interpretations to the specifications contained in the bid documents which were favorable to each and then submitted proposed contracts incorporating those interpretations and amendments with the ultimate result that both bids were declared "responsive."
Such an additional obligation would invalidate a contract only if the change affects the amount of the bid by giving, in this case IBM, an advantage or benefit not enjoyed by other bidders. Liberty County v. Baxter's Asphalt & Concrete, Inc., 421 So.2d 505 (Fla. 1982); Harry Pepper & Associates, Inc. v. Cape Coral, Supra. Thus, Florida courts have found additional obligations sought to be imposed by a bidder to be material only where they result in significant price advantage to that bidder, and there has been no evidence to show that the contract terms and conditions proposed by IBM offered any significant price advantage to IBM over NAS. See, Glatstein v. Miami, 399 So.2d 1005 (Fla. 3rd DCA 1981).
TIME PRICE DIFFERENTIAL
As found above, the time price differential was allowed by an amendment to the bid specifications, to be separately stated, so that each bidder could get that much of its revenue from a successful bid tax free and thus theoretically incorporate the potential savings in a lower bid price to the School Board. Thus, the amendment stated that the bidders could submit a time price differential not to exceed 7-1/2 percent of the amount of the bid. There is no question that the evidence establishes, as found above, that IBM's time price differential of $58,700 was less than 7-1/2 percent of its bid price. Aside from the question raised by the Petitioner regarding whether IBM's bid included a time-price differential in excess of the specified amount, the fact remains than even if that had been the case, IBM's bid was still less than the NAS bid in terms of total dollar price. Whether IBM's bid includes a markup for cost of money as Petitioner contends, or any other factor resulting from private internal pricing decisions which resulted in the IBM bid submitted, is of no consequence to the School Board, to the taxpayers upon whose behalf the School Board acts, nor to the other bidders, so long as the price submitted by IBM was not arrived at by any fraud or collusive arrangement, which has not been proven.
In summary, in the case at hand, there has been adduced no preponderant evidence to show dishonesty, arbitrariness or capriciousness in the manner in which the School Board determined IBM's bid to be the lowest and best. On the contrary, the preponderant weight of the evidence and the above Findings of Fact establish that the bidding process involved herein and the pre-existing relationship with IBM was fraught with considerable integrity and objectivity and that no conspiracy existed to favor IBM in awarding of the instant bid. Inasmuch as there has been no showing of dishonesty, arbitrariness or capriciousness throughout the Board's dealings with the parties, beginning with the October, 1979, lease purchase invitation to bid and proceeding forward through ultimate award of the purchase contract to IBM, it is concluded that IBM's bid was the lowest and best.
Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence in the record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is
RECOMMENDED:
That a final order be entered by the School Board of Orange County denying the relief requested by the Petitioner.
DONE and ENTERED this 22nd day of September, 1983, in Tallahassee, Florida.
P. MICHAEL RUFF, 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 22nd day of September, 1983.
COPIES FURNISHED:
John A. Barley, Esquire
630 Lewis State Bank Building Post Office Box 10166 Tallahassee, Florida 32302
William M. Rowland, Esquire Post Office Box 305 Orlando, Florida 32802
Peter J. Winders, Esquire Nathaniel L. Doliner, Esquire Post Office Box 3239
Tampa, Florida 33601
Daniel E. O'Donnell, Esquire
400 Colony Square, Suite 1111 Atlanta, Georgia 30361
James L. Scott, Superintendent Orange County Public Schools Post Office Box 271
Orlando, Florida 32802
| Issue Date | Proceedings |
|---|---|
| Nov. 12, 1983 | Final Order filed. |
| Sep. 22, 1983 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Nov. 08, 1983 | Agency Final Order | |
| Sep. 22, 1983 | Recommended Order | Deny Petitioner's relief from decision to award bid on computers to Intervenors. |
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