Judges: ARNOLD H. POLLOCK
Agency: Department of Health
Latest Update: Sep. 05, 1984
Summary: Unsuccessful bidder on case did not show party who received award was shown favoritism and his bid, though unusual in form, was not prohibited.
84-0614STATE OF FLORIDA
DIYISION OF ADMINISTRATIYE HEARINGS
ELIZABETHAN DEVELOPMENT, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 84-0614BID
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent, )
)
and )
) TOWNSEND, SHEFFIELD AND UNDERWOOD ) VENT13RE; STATE OF FLORIDA, ) DEPARTMENT OF GENERAL SERVICES ) and KENNETH R. MCGURN, )
)
Intervenors. )
)
RECOMMENDED ORDER
Consistent with the Notice of Hearing furnished to all parties, a hearing was held in this case before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings, in Gainesville, Florida on June 11, 1984. The issue for consideration here was whether Intervenor, Kenneth R. McGurn, submitted the lowest and best responsive bid on the pertinent Palatka Turnkey Lease No. 590:8030.
APPEARANCES
For Petitioner: James J. Travis, Esquire
Post Office Box 1396
Winter Haven, Florida 33880 For Respondent: James A. Sawyer, Jr., Esquire
District III, Legal Counsel 1000 Northeast Sixteenth Avenue Gainesville, Florida 32609
For Intervenor
TSU: William L. Townsend, Esquire Post Office Drawer D Palatka, Florida 32077
For Intervenor
DGS: Stephen J. Kubick, Esquire Staff Attorney
Department of General Services
452 Larson Building Tallahassee, Florida
For Intervenor
McGurn: Linda McGurn, Esquire
1717 Northeast Ninth Street Gainesville, Florida 32609
BACKGROUND INFORMATION
The Department of Health and Rehabilitative Services (DHRS), in the latter part of 1983, solicited proposals from developers interested in constructing a building for lease to it in Palatka, Florida. Several proposals were submitted by various bidders, including Petitioner, Elizabethan Development, Inc., (Elizabethan), and on December 22, 1983, DHRS recommended to the Department of General Services (DOS) that the Intervenor, Kenneth R. McGurn be awarded this contract. DGS concurred in this recommendation and, on January 11, 1984, notified all parties of its intent to recommend the proposal by McGurn to the Governor and Cabinet. On January 16, 1984, Petitioner filed a Notice of-Protest of the bid award, and thereafter, filed a formal written protest on January 24, 1984 with Respondent's District III Facilities Services manager in Gainesville. On April 27, 1984, Townsend, Sheffield, Underwood Ventures (TSU) requested permission to intervene as did DGS and McGurn. All three parties were granted permission to intervene on May 10, 1984.
At the hearing, Petitioner presented the testimony of Alan Taylor, Vice-President of Elizabethan, and Petitioner's Exhibits one and two; Respondent presented the testimony of Joseph Lambert, Administrator of Facilities Services for DHRS in Tallahassee, and DHRS Exhibit one; Intervenor, TSU presented the testimony of Dr. Joseph M. Perry, Professor of Economics and Chairman, Department of Economics at the University of North Florida, and Dr. Elton Scott, Professor of Finance Economics at Florida State University (as an adverse witness), and TSC
Exhibits one and two; DGS presented the testimony of Ms. Mary
Goodman, Chief, Bureau of Property Management for DGS, and Dr. Scott, and DGS Exhibit one; and Mr. McGurn testified in his own behalf.
Several of the parties submitted post-hearing Proposed Recommended Orders which include Findings of Fact and Conclusions of Law. These proposed Findings of Fact and Conclusions of Law have been adopted herein only to the extent that they are expressly set out in the Findings of Fact and Conclusions of Law which follow. They have been otherwise rejected as contrary to the better weight of the evidence, not supported by the evidence, irrelevant to the issues, or legally erroneous. They have been otherwise rejected as contrary to the better weight of the evidence, not supported by the evidence, irrelevant to the issues, or legally erroneous.
FINDINGS OF FACT
This case concerns what is-called a "Turnkey Lease". The program was developed by the State of Florida in 1971. It encompasses a situation where by agencies seeking space for their operations may, after a specific need is determined that cannot be filled by existing adequate space, solicit competitive bids from developers for the provision of land and the construction of a building thereon sufficient to-meet the agency's needs, for lease specifically to the agency requesting it.
The Bureau of Property Management within DGS was given the initial responsibility to develop the guidelines, promulgate the rules, and seek statutory authority for such a program. The Bureau's current role is to work with agencies requesting this program. The agency certifies the need to the Bureau in addition to the fact that there is no available existing space present. The Bureau then determines agency needs and gives the agency the authority to solicit the bids for the turnkey project. Once the bids are then received, evaluated, and a recommendation for an award is forwarded by the agency to DGS, DGS reviews the supporting documents required by the provision of the Florida Administrative Code and either concurs or does not concur in the recommendation. If DGS concurs, the submitting agency is notified and is permitted to then secure the lease. Once the lease has been entered into; it is then sent back to DGS for review and approval as to the conditions; and thereafter the plans and specifications for the building are
also referred to DGS for review and approval as to the quality and adequacy as well as code compliance.
Section 255.249 and Section 255.25, Florida Statutes, set forth the requirements for soliciting and awarding bids for lease space in an amount in excess of 2,500 square feet. This provision requires that an award of this nature be made to the lowest and best bidder, and DCS utilizes that standard in evaluating and determining whether or not it will concur with an agency's recommendation.
In the instant case, DHRS advertised for bids for the construction of office space in Palatka, Florida for its District III facilities. Before seeking to solicit bids, the District III staff conducted a search for other possible existing space within a five mile radius of the downtown area and located no adequate facilities. Thereafter, a Certification of Need was processed for a solicitation of proposals and approval was granted by DGS to follow through with the solicitation. A preproposal conference was advertised and held on October 14, 1983, and after project review by those present at the conference, bid opening date was set for November 22, 1983. Thirty-two bid packages were distributed and twelve bidders submitted proposals. The public bid opening was held as scheduled at 2:00 p.m., on November 22, 1983, in Palatka, Florida by Robert E. Litza, Facilities Services Coordinator for DHRS District III.
Of the bids submitted by the twelve bidders, the lowest hid was rejected because of the failure of the bidder to comply with the requirements of the bid package. Of the remaining eleven bids, the four lowest were evaluated with the understanding that additional higher bids would be evaluated if the four lowest bids were found to be unacceptable. Among the four bids considered were bids of Chuck Bundschu, Inc., Kenneth
R. McGurn, one of the Intervenors (McGurn submitted five prices scheduled for his bid and of these, only one was considered); Elizabethan, Petitioner herein; and TSU.
Only three bids are pertinent to the discussion here. They are #8-C (McGurn); #11 (Elizabethan); and #12 (TSU). In pertinent particulars, these bids provided as to rental costs:
| 8-C | 11 |
| 12 |
1st | yr | $14.00/$220,808 | $8.95/$ 61,916.10 | S | 7.16/$ 49,532.88 |
2nd |
yr |
14.00/ |
220,8088 |
8.95/ |
141,159.40 |
7.35/ |
115,924.20 |
3rd | yr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 7.62/ | 120,182.64 |
4th | yr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 8.08/ | 127,437.76 |
5th | yr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 8.33/ | 131,380.76 |
6th | vr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 8.59/ | 135,481.48 |
7th | yr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 8.86/ | 139,739.92 |
8th | yr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 9.19/ | 144,944.68 |
9th | yr | 14.00/ | 220,808 | 8.95/ | 141,159.40 | 9.58/ | 151,095.76 |
10th yr 14.00/ 220,808 | 8.95/ | 141,159.40 | 10.09/ | 159,139.48 |
Renewal Option |
|
|
|
|
1st yr3.00/47,316 | 9.93/ | 156,615.96 | 10.51/ | 165,763.72 |
2nd yr3.00/47.316 | 9.93/ | 156,615.96 | 10.99/ | 173,334.28 |
3rd yr3.00/47.316 | 9.93/ | 156,615.96 | 11.48/ | 181,062.56 |
4th yr3.00/47.316 | 9.93/ | 156,615.96 | 11.99/ | 189,106.28 |
5th yr3.00/47.316 | 9.93/ | 156,615.96 | 12.51/ | 197,307.72 |
Total Basic Overall |
|
|
|
|
Lease 1-15 yrs $1,971,500 | $2,115,430.50 | $2,181,434.12 |
Average Sq.Ft. for 15 yrs $8.60 |
$9.20 |
$9.58 |
A recommendation by the evaluation committee which met at DHRS District III, that McGurn's bid be selected, was forwarded to DGS in Tallahassee through the Director of DHRS's General Services in Tallahassee on December 22, 1983. The terms of the successful bid and the reasons for its being considered lowest and best are discussed below.
The successful bid for the lease in question, lease number 590:8030, upon completion of the committee's evaluation was also evaluated by Ms. Goodman in the Bureau of Property Management of DGS. She also considered the McGurn bid to be the lowest and best of the eleven non-disqualified bids. In that regard, not only Mr. McGurn's bid but all of the twelve bids received were considered and reviewed not only at the local level but at DHRS and DGS headquarters as well.
In her evaluation of the proposal and the bids, Ms. Goodman considered the documentation submitted by DHRS. This included a letter of recommendation supported by a synopsis of all proposals, the advertisement for bids, and any information pertinent to the site selection process.
In determining the McGurn's bid was the lowest as to cost of all the bids, Ms. Goodman compared the average rate per square foot per year for each. This did not take into con- sideration pro-ration of costs per year, but strictly the average over the fifteen year probable term of the lease (ten years basic plus five year option). According to Ms. Goodman, this same method of calculating cost has been used in every lease involving a turnkey situation and in fact in every lease since 1958 - as long as she has been with DGS. This particular method, admittedly, is not set forth in any rule promulgated by DGS. However, the agencies are instructed by DGS to advertise and bidders to bid on an average square foot basis, the basis utilized by Ms. Goodman and her staff in analyzing the bids submitted.
In that regard, the request for proposals does not, itself, indicate how the calculation of lowest cost would be made by DHRS and DGS but it does tell prospective bidders what information to submit. This procedure has been followed exclusively in situations like this for may years and many of the bidders here have bid before using this same system. All bidders are considered on the same footing in an evaluation. They are notified of what information will be considered along with that of all the other bidders. Further, anyone who inquires as to the basis for evaluation will be given a straight and complete answer as to the method to be used.
Petitioner contends that McGurn's bid does not conform to either the normal bidding procedure followed by contractors in this type of procurement over the past years or to the normal bidding procedures adopted by Respondent, DHRS. It urges that the questioned bid is non-responsive and front-end loaded to the detriment of DHRS.
With regard to the front-end loading objection, Mr. Taylor, testifying for Petitioner, attempted to indicate by graphic evidence that Elizabethan's bid, which he claims is not front-end loaded, is cheaper to the State than that of McGurn. Due to the large rental cost of the McGurn bid in the opening years of the lease, the State would have to borrow money to make
the large rental payments; the interest cost of which, when added to the $3.00 cost in the option years, raises the cost considerably and makes the bid not the lowest. Though Mr.
Taylor testified to this he failed to produce any independent evidence to support it. In addition, Taylor urges, under the McGurn schedule, McGurn would recoup his entire construction debt (approximately $423.00 plus interest) in the first four years of the lease: Comparing the two bids, it appears that the State would pay McGurn approximately $494,500.00 more than it would pay Elizabethan for the same period during the first seven years of the lease. Considering this, it is Taylor's belief that McGurn's profit after the fourth year is excessive. He contends also that when, after the tenth year, McGurn's rental rate drops to $3.00 per square foot for the remaining five years which constitutes the option period of the lease, the State could not afford to leave the low figure and as a result, the ten year lease is converted to a l5 year lease which is unresponsive. Further, the $3.00 figure for the last years, which would ostensibly show a loss to McGurn, is misleading in that there would be sufficient income from the advance profit garnered in years 5 to 10, when invested, to cover the soft costs and more in these later years.
Admitting that because of its involvement in other turnkey projects in Florida, Elizabethan is aware of the State policy on cost evaluation, Taylor contends that while his bid does not violate State policy, McGurn's bid does because it would be fiscally irresponsible for the State to pay so much up front. This conclusion is his opinion, however, and not supported by any independent evidence.
Both expert witnesses, Respondents Scott and Perry, who testified for the Intervenor, TSU, agree that the present value of money should be considered in evaluating rental costs. Their major point of difference is in the percentage of discount rate to be applied. Dr. Perry urges that use of the 10% rate mandated by the U. S. Government in its procurements of this nature. Dr. Scott, on the other hand, considers this to be too high and urges a rate in the area of 3% be used. The significance of this is that at the lower of the range spread, McGurn's bid is lowest. At the higher end, TSU's bid is lowest. From 5.7% up to below 6%, Petitioner's bid is lowest.
Whichever would be appropriate, the State has not adopted the present value of money methodology and the policy followed by the State is not to consider that methodology in
analyzing costs. State policy is to use only the average rental methodology.
There is, in addition, no prohibition against front- end loaded bids encompassed within this policy. By the same token, there is nothing in the bid package issued to all prospective bidders that in any way stipulates the method of computing lease costs or prohibits from loaded bids.
DGS zone rates, criteria stipulating the maximum agencies can send on rent without approval by DGS, are not part of the bid package and do not constitute a factor in determining whether a bid is conforming or not. These zone rates may be waived by DGS at the time the proposed award is submitted for DGS approval. In practice, within the memory of Joseph Lambert, HRS' Administrator of Facilities Services, who administers the Department's leasing program, he cannot recall DGS ever denying a DHRS request for waiver of the maximum zone rate in any case where it was pertinent. In this case, since the lease payments at-least in the second through tenth years-of the McGurn bid exceed the zone limits, the award would have to be approved by the Governor and Cabinet in addition to DGS. It has not yet been placed on the Cabinet agenda because of the protests filed.
As was stated before, there are no rules governing the evaluation of bids for leases of this nature. Oral instructions given to each agency, when applied here, reveal that the McGurn bid, as was seen above, has an average cost of $8.86 per square foot per year. TSU's bid costs $9.58 per square foot per year, and Elizabethan's bid costs $9.29 per square foot per year. These same calculations are followed on all turnkey and non- turnkey leases in the State.
The reason the State uses this process instead of the present value of money methodology is that it is easy. DGS statistics indicate that at least 50% of the landlords in the approximately $32,000,000 worth of leases presently existing with the State are "Mom and Pop" landlords. These people are not normally trained lease evaluators. By using the straight average rental rate method, there are no arbitrary variables. It has always worked because people can understand it and all agencies which lease property in the State follow this
procedure. In the opinion of Ms. Goodman, the costs involved in utilizing the present value of money methodology would far outweigh the paper savings to be gained, notwithstanding the testimony of Dr. Perry to the contrary.
With regard to the option issue, it was the position of DGS in reviewing the proposals that the very low $3.00 lease cost per square foot in the last five years (the option period) did not make the McGurn bid unresponsive. There were no limits imposed upon the bidders except that a five year option to a ten year lease be included. Were it not there, the bid would be unresponsive. DGS would issue approval for a ten year lease with a five year option but not a fifteen year lease. Ms. Goodman cannot recall a situation in which an option was not exercised by it if the need for the space continued though there have been some instances where option costs have been renegotiated.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding.
In its petition contesting the award of this lease to Intervenor, McGurn, Elizabethan argues that McGurn's bid is front-end loaded and is, therefore, non-responsive. It also contends that the low rental payments during the five year option period make these years too attractive to reasonably pass up and thereby convert the advertised ten year lease into an unresponsive fifteen year lease.
Section 255.25, Florida Statutes (1983), provides in pertinent part:
(2)(a) Except as provided in paragraph (b), no state agency shall lease a building or any part thereof unless prior approval of the lease conditions and of the need therefore is first obtained from the division. Any approved lease may include an option to purchase or an option to renew the lease, or both, upon such terms and conditions as are established by the division subject to final approval by the head of the Department of General Services.
. . . .
(3)(a) No state agency shall enter into a lease as lessee for the use of 2,000 square feet or more of space in a privately owned building except upon advertisement for and
receipt of competitive bids and award to the lowest and best bidder. The division shall have the authority to approve a lease for 2,000 square feet or more of space that covers more than 1 fiscal year, subject to the provisions of Section 216.311, if such lease is, in the judgement of the division, in the best interests of the state.
At Section 255.249(2), Florida Statutes (1983), the legislature also provided:
(2) The department shall promulgate rules pursuant to chapter 120 providing:
Procedures for soliciting and accenting competitive proposals for leased space of 2,000 square feet or more in privately owned buildings, for evaluating proposals received, and for exemption from competitive bidding requirements of any lease the purpose of which is the Provision of care and living space for Persons.
A standard method for determining square footage or any other measurement used as the basis for lease payments or other charges.
Acceptable terms and conditions for inclusion in lease agreements.
Maximum rental rates, by geographic areas or by county, for leasing privately owned space.
Pursuant to that authority and direction by the legislature, DGS promulgated Rule 13D-7.10, Florida Administrative Code, which provides in pertinent part:
Evaluations of proposals will be made jointly by the Division of Building Construction and Maintenance and the User Agency on the basis of price, design, characteristics of construction, completion date, location (including environment or characteristics of surrounding neighborhood public transportation availability of parking facilities, and availability of
satisfactory dining facilities, and conformance to the User Agency program, performance specifications, and floor layout plan.
The User Agency the presents the entire "project review package" (including the User Agency's specific recommendation, justification in support of the recommendation, and the proposed lease contract) to the Division of Building Construction and Maintenance.
Neither the pertinent statutes nor the rule promulgated thereunder stipulates a method for determining the "lowest" bidder. This is left to the discretion of the agency and DGS, since 1958, and certainly since "turnkey" leases were first utilized in 1971, has used the average rental value methodology as a matter of policy. While admittedly this policy has not been incorporated in a published rule, the evidence clearly recognizes, and Elizabethan's representative admits, that it is well known among bidders, including Elizabethan, on this type of contract and would be clearly explained to anyone who took the trouble to inquire as did Mr. McGurn here.
When DGS, as here, elects not to incorporate its method on determining cost in a rule but to rely on agency policy, it may be required, thereafter, to defend its policy when challenged, State, Department of Administration v. Harvey,
356 So. 2d 323 (Fla. 1st DCA 1977). It must be prepared to show valid reason for its use of the policy. Here the agency showed, through the testimony of Ms. Goodman, an official who has had considerable experience with bids of the very nature as considered here, that the use of the average cost methodology, in accordance with DGS policy, is valid for this type of procurement. It is simple and easily understandable by the type of bidder who, the witness indicates, makes up by far the largest class of bidder in these procurements. This is a valid reason for the use of this methodology. See also, Anheuser- Busch, Inc., v. Department of Business Regulation, 393 So. 2d 1177 (Fla. 1st DCA 1981).
It having been concluded that Intervenor's bid was lowest, the remaining obligation is to determine if it-was also the "best" bid as is also required by the statute. Numerous factors other than cost were considered in evaluating the bids submitted here. No formulae exist to define the word "best".
Each agency is given wide latitude in establishing what it considers the "best" submission and this is not inconsistent with the provisions of Rule 13D-7.10, supra, which requires DGS to coordinate with the user agency in evaluation of submissions. The agency's exercise of this discretion is to be given great weight in any judicial or quasi-judicial action arising out of it, Austin v. Austin, 350 So. 2d 102 (Fla. 1st DCA 1977). If the agency thereafter acts reasonably and in good faith, its decision will not generally be overturned even if it appears to some to be erroneous or based on facts upon which reasonable men may differ, System Development v. Department of Health and Rehabilitative Services, 423 So. 2d 433, (Fla. 1st DCA 1982).
Here there is no prohibition against bids such as that submitted by Mr. McGurn. It is responsive to the solicitation and its terms fall, for the most part, within the lawful limits of the agency's procurement authority. Even in that area in which it does not, that of the zone limitation, this deficiency can be waived by DGS and the cost approved by the Governor and Cabinet. The procurement need not, therefore, fall on that basis.
Any dissatisfaction Petitioner may have with the bid solicitation and award process is not subject to resolution at this forum now. Under the provisions of Section 120.54(5), Florida Statutes (1983)
(5) Any person regulated by an agency or having a substantial interest in an agency rule may petition an agency to adopt, amend, or repeal a rule to provide the minimum public information required by Section 120.53.
That has not been done by either Elizabethan as to front-end loaded bids or by TSU as to the present value method in calculating the lowest bidder.
RECOMMENDATION
Based on the foregoing, it is, therefore;
RECOMMENDED THAT DHRS License Number 590:8030 be awarded to Kenneth R. McGurn.
RECOMMENDED this 5th day of September, 1984, in Tallahassee, Leon County, Florida.
ARNOLD H. POLLOCK
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkwav
Tallahassee, Florida 32301
Filed with the Clerk of the Division of Administrative Hearings this 5th day of September, 1984.
COPIES FURNISHED:
David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood 8Oulevard
Tallahassee, Florida 32301
Morgan Staines, Esquire 2204 East Fourth Street Santa Ana, California 92705
Thomas D. Watry, Esquire 1200 Carnegie Building
133 Carnegie Way Atlanta, Georgia 30303
Steven W. Huss, Esquire Department of Health and
Rehabilitative Services 1317 Winewood boulevard
Tallahassee, Florida 32301
Ronald W. Thomas, Executive Director Department of General Services
115 Larson Building Tallahassee, Florida 32301
Steven W. Huss
Assistant General Counsel Department of Health and
Rehabilitative Services 1317 Winewood Blvd.
Tallahassee, Florida 32301
Gary J. Anton, Esquire
P.O. Box 1019
Tallahassee, Florida 32302
Harden King, Agency Clerk Assistant General Counsel Department of Health and
Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 406 Tallahassee, Florida 32301
Docket for Case No: 84-000614BID
Orders for Case No: 84-000614BID
| Issue Date |
Document |
Summary |
|
Sep. 05, 1984 |
Recommended Order
|
Unsuccessful bidder on case did not show party who received award was shown favoritism and his bid, though unusual in form, was not prohibited.
|
