STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LINDER-FUNK-FREGLEY-OERTEL ) INTEREST, )

)

Petitioner, )

)

vs. )

)

DEPARTMENT OF CORRECTIONS, ) CASE NO. 93-0875BID

)

Respondent, )

and )

) ARC DEVELOPMENTAL COMPANIES, ) INC., )

Intervenor. )

)

RECOMMENDED ORDER

This matter came on for hearing in Tallahassee, Florida, before Robert T. Benton, II, Hearing Officer of the Division of Administrative Hearings, on March 1, 1993, and finished the following day. The hearing transcript reached the Division of Administrative Hearings on March 17, 1993, after certain depositions had been filed post-hearing. The last errata sheet was filed on March 23, 1993.

On petitioner's motions, time for filing proposed recommended orders was extended until April 8, 1993. The attached appendix addresses proposed findings of fact by number. The intervenor filed a motion to strike on April 16, 1993, which was disposed of by order entered April 29, 1993.

APPEARANCES

For Petitioner: M. Christopher Bryant, Esquire

Oertel, Hoffman, Fernandez & Cole, P. A. 2700 Blair Stone Road, Suite C Tallahassee, Florida 32314-6507

For Respondent: Steven Ferst, Esquire

Office of General Counsel

Florida Department of Corrections 2601 Blair Stone Road Tallahassee, Florida 32399-2500

For Intervenor: Martha Harrell Chumbler, Esquire

Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.

P. A. Drawer 190 Tallahassee, Florida 32302

STATEMENT OF THE ISSUES

Whether the Department of Corrections (DOC) acted arbitrarily or illegally in selecting ARC Developmental Companies, Inc. (ARC) as the intended lessee under a proposed lease, Lease No. 700:0606? Whether, as DOC now advocates in its proposed recommended order, DOC should award the lease to LFFO because ARC's proposal is non-responsive? Whether DOC's interests would be best served by starting over?

PRELIMINARY STATEMENT

On or about July 13, 1992, DOC issued a request for proposals (the RFP), soliciting approximately 205,805 square feet (+ 3%) of office space for a headquarters complex in Tallahassee. The DOC has given the lease contemplated by the RFP a number, 700:0606.

Only ARC and petitioner Linder-Funk-Fregley-Oertel Interest (LFFO) responded to the RFP. On December 18, 1992, DOC notified both ARC and LFFO of its conditional or contingent intention to award Lease Number 700:0606 to ARC.

LFFO filed a notice of protest within the time allowed and, subsequently, a timely formal written protest, since amended, which DOC forwarded to the Division of Administrative Hearings, in accordance with Section 120.53(5)(d)2. and 120.57(1)(b)3., Florida Statutes (1992 Supp.).

At the hearing, LFFO called as its witnesses Messrs. Neil Evans, Robert Pace, Dennis Fitzgerald, and Stephen Kubik. LFFO also introduced the depositions of Messrs. Arthur Collins, Fred Harris, Terrence Shirey, and Jeffrey Piemont. Mr. Kubik and Mr. Piemont testified as expert witnesses.

DOC called Mr. Ron Kronenberger, DOC's Assistant Secretary for the Office of Management and Budget, who testified at hearing, and offered the depositions of Messrs. Stephen Kubik and James Biddy. ARC called Mr. Arthur Collins and offered the deposition of Mr. David Arnspiger. In addition to depositions, the parties jointly offered Exhibits Nos. 1-19.

Evidence was adduced on three issues explicitly raised in LFFO's amended petition: (1) whether ARC's bid bond was responsive; (2) whether the financial information ARC provided before DOC announced its conditional award was responsive either (a) to the RFP, or (b) to DOC's requests for supplemental information; and (3) whether making a contingent award offered ARC another, illegal opportunity to satisfy RFP requirements. A fourth issue, identified in DOC's attachment to the parties' joint pre-hearing stipulation, was also litigated: whether ARC's proposal contemplates a lease-purchase.

In its proposed recommended order, DOC takes the position that its original conclusion that ARC's proposal was responsive to the RFP was mistaken. DOC is now of the view that the financing ARC proposes requires legislative approval, which has not been obtained. For this reason, DOC now proposes to award the lease to LFFO.

FINDINGS OF FACT

1. In a single headquarters complex in Tallahassee, DOC has decided to consolidate administrative offices now scattered among various buildings. To that end, DOC's RFP for Lease No. 700:0606 seeks 56,154 square feet of office space by January 1, 1994, and (after other current leases expire) an additional

   149,651 square feet of adjoining office space for occupancy on March 31, 1995. The RFP requires that DOC have the right to renew for each of two successive five-year terms, after an initial ten-year term.

   
   

2. ARC has an option to purchase land on which it proposes to build all the office space it would lease to DOC. The RFP assumes that the office buildings to be leased do not yet exist, and requires only that "turn key" facilities be available at the times specified in the RFP. LFFO owns one of the buildings housing DOC offices now, and proposes to borrow money at commercial rates to finance construction of additional office space on adjacent land it already owns.

   
   

3. After evaluating the competing proposals, DOC concluded that they were both responsive to the RFP, and assigned each points. ARC received a score of

   97.66 points and LFFO received a score of 96.66 points. Over the initial ten- year term, ARC's proposal would require DOC to pay $30,175,129.10, while LFFO's proposal calls for payments aggregating $30,718,454.30 over the initial ten-year term. Joint Exhibit No. 4.

   
   

   Problematic Undertaking

   
   

4. The RFP calls for some form of monetary assurance that a proposer will contract with DOC, if selected. Specifically, Paragraph IV(L) states:

   
   

   1. All Proposals shall include a Proposal Security Fee which may be in the form of cash, a Cashier's Check or Proposal Bond, and shall be in the amount of Ten Thousand Dollars ($10,000), payable to the Department of Corrections.

   2. The agency reserves the right to reject any security tendered. The Proposal Security fee ties [sic] will be returned with[in] thirty (30) calendar days after the agency and the accepted proposer have executed a written lease.

      
      

      Joint Exhibit No. 1 at 32. The purpose in requiring a security fee or a proposal bond was to satisfy DOC of the proposers' good faith, "that they intended to enter into a contract" (T.72) with DOC, if given the opportunity.

      
      

5. LFFO met the security fee requirement with a $10,000 cashier's check, while ARC submitted a bond issued by Highlands Insurance Company of Houston, Texas (Highlands), at the behest of Brown & Root Building Company (Brown & Root). Designated as principal on the bond, Brown & Root and, in the event of Brown & Root's default, Highlands, as surety, are obligated to pay DOC $10,000, on conditions stated in the bond, which, however, could never arise, because Brown & Root did not submit a proposal to DOC. The bond specifies the undertaking:

   
   

   [I]f the Obligee [DOC] shall accept the bid of the Principal [Brown & Root] and the Principal shall enter into a contract with the Obligee in accordance with the terms of such bid, and give such bond or bonds as may be specified in the bidding or contract documents with good and sufficient surety for the faithful

   performance of such contract and for the prompt payment of labor and material furnished in the prosecution thereof, or in the event of the failure of the Principal to enter such contract and give such bond or bonds, if the Principal shall pay to the Obligee the difference not to exceed the penalty hereof between the amount specified in said bid and such larger amount for which the Obligee may in good faith contract with another party to perform the work covered by said bid, then this obligation shall be null and void, otherwise to remain in full force and effect.

   
   

   Joint Exhibit No. 2. Signed by the president of Brown & Root and an attorney in fact for Highlands, the bid bond submitted with the ARC proposal misidentifies Brown & Root as the bidder for DOC's "State Headquarter Building," a reference to proposed Lease No. 700:0606. Joint Exhibit No. 2.

   
   

6. Brown & Root is a general contractor named in ARC's proposal as a member of the "ARC Team." Joint Exhibit No. 2 at 41, and section entitled "Construction Phase Management Plan"; T.72, 239. But ARC is the bidder, the offeror making ARC's proposal, as Mr. Arthur R. Collins, the sole officer, director and shareholder of ARC, has clearly and consistently stated. Deposition of Collins, at 44-45. This is also clear from the four corners of the ARC proposal itself. There is no partnership or joint venture agreement between ARC and Brown & Root. Deposition of Collins, p. 42; T. 59-60, 255.

   
   

7. Mr. Collins testified that a letter to ARC from Brown & Root constitutes "a letter agreement" between ARC and Brown & Root, which "essentially gives ARC Developmental Companies all rights to market and represent Brown & Root Building Company specifically as relates to this particular project." Deposition of Collins, p. 44. Otherwise stated, ARC and Brown & Root have an "agreement in principle" (T.239) under which Brown & Root is "responsible for design, build and finance, all three components." (T.240)

   
   

8. There are, however, "ongoing negotiations as to some of the details" (Deposition of Collins, p. 44) and the "final terms and conditions are under negotiation," (T.255) or were at the time of the hearing. ARC's proposal did not contain the letter said to embody the agreement in principle between it and Brown & Root, nor did the letter come in evidence at hearing. Apparently nobody has ever signed anything on behalf of ARC purporting to bind ARC to any agreement, even in principle, between ARC and Brown & Root.

   
   

9. Whether or not ARC contemplated that Brown & Root would perform all financing, designing and building, it is ARC to whom DOC had to look to accept responsibility to perform as DOC's contractor. The RFP specifies that the successful proposer cannot assign or transfer the contract "or his power to execute such contract" to any person without prior written consent of the agency. Joint Exhibit No. 1, p. 34, IV(T). The RFP also provides that a "transfer shall not be requested prior to completion of the facility and acceptance by the agency." Joint Exhibit No. 1, p. 34, IV(T).

10. DOC would not have accepted a proposal without a security fee or proposal bond. T. 138. DOC concluded that the bid bond furnished with ARC's proposal provided the assurance the RFP sought. T. 138-139. But the bid bond does not assure that DOC will receive $10,000, in the event that ARC refuses to execute a lease, if its proposal is accepted. Although the bid bond represents ARC's effort to fulfill the security deposit requirement set out in paragraph IV(L) of the RFP, (Deposition of Collins at 42, 43), the bid bond does not purport to bind ARC in any way. The bid bond submitted with ARC's proposal makes no mention of ARC Developmental Companies, Inc. Joint Exhibit No. 2; T. 75.

    
    

11. While LFFO suffered a detriment in submitting its security deposit: loss of use of $10,000 for a period already lasting several months; and the proposal bond ARC submitted cost it nothing (although Brown & Root presumably paid the premium), it is not clear that ARC enjoyed a material competitive advantage, as a result. But the RFP security requirement also sought to protect DOC's investment of time and money in evaluating proposals it solicited. The security deposit requirement cannot, under DOC policy not called into question here, be waived; and ARC's proposal is not responsive to the requirement.

    
    

12. DOC's determination that the bid bond constitutes good security cannot withstand scrutiny. DOC's conclusion that the bond was sufficient was based on the bid bond itself, and on nothing else. T. 138-139. Construing the bid bond to meet the RFP's "earnest money" requirement is an arbitrary distortion of its terms. The purpose of requiring a security deposit or a proposal bond -- to provide the contracting agency some assurance that the successful bidder would in fact enter into a contract with the agency (T.72) -- was frustrated. The bid bond submitted by ARC provides no security whatsoever to DOC that ARC will enter into a contract with the agency.

    
    

    Ability, Financial Resources, History and References

    
    

13. Paragraph V(H) of the RFP indicated that an evaluation committee would review all proposals to determine, among other things, the

    
    

    [c]omposition of the group submitting the proposal and their financial resources available to accomplish this project.

    
    

    Joint Exhibit No. 1, pp. 44-5. The RFP also speaks of financial criteria that the proposer itself must meet:

    
    

    S. Qualification of Proposers:

    Each proposer shall be required, before the award, to show to the complete satisfaction of the agency that he has the necessary facilities, ability and financial resources, to furnish the service and facilities as specified herein in a satisfactory manner, and he may also be required to show past history and references which will enable the agency

    according to the foregoing requirements and will justify the agency in assessing his the proposal.

    
    

    Joint Exhibit No. 1, p. 34, IV (strike through and emphasis in original). The RFP states that time is of the essence, which may account for the concern it evinces over the financial ability of proposers.

    
    

14. ARC has furnished DOC no balance sheet, audited or otherwise. In its proposal, information ARC provided relating to its financial resources consisted of a single credit report dated September 22, 1992, which disclosed only:

    
    

    NO PUBLIC RECORDS OR OTHER INFORMATION IN FILE VER INC 01-13-92, NO CREDIT REFS GIVEN

    
    

    Joint Exhibit No. 2. The testimony at hearing did not establish what financial resources ARC has acquired, if any, since its incorporation last year.

    
    

15. ARC is involved with one other project, for which financing is currently being sought (T.249-252), but otherwise has no real estate development experience. T.254. Among things lenders who finance real estate development consider are "the history and the experience of the borrower or borrowing entity, . . . their numbers, . . . their financial capacity . . . what type of equity injection [they] are going to put into the deal, whether it be cash or hard land . . . ." T.153. ARC did not demonstrate its ability to "inject" any equity into this project.

    
    

    Tax-Exempt Financing Proposed

    
    

16. ARC's proposal contains a September 18, 1992, letter from the Donaldson, Lufkin & Jenrette Securities Corporation, addressed to Brown & Root, the body of which states in its entirety:

    
    

    Regarding the issuance of tax-exempt debt to finance the proposed facility to be leased to the Florida Department of Corrections, as their state headquarters office building.

    Donaldson, Lufkin & Jenrette is pleased to participate in the successful development of the proposed project. Based upon current market conditions and the procurement of credit enhancement or an investment grade rating for the issue, we are confident that we can successfully underwrite a public offering of tax-exempt bonds.

    
    

    Joint Exhibit No. 2. This is not a firm commitment, only an undertaking to use "best efforts." Deposition of Shirey, p.24. After receiving the proposals, DOC solicited additional financial information from LFFO and from ARC by letters dated October 19, 1992, which state:

    
    

    The request for proposal stipulated that additional information pertaining to your capabilities to perform the project to our satisfaction may be necessary.

    The Chief of the Bureau of Finance and Accounting is charged with gathering the necessary information for determining if your group can realistically perform the project. This is considered a pass/fail criteri[on].

    
    

    Joint Exhibit No. 8. The letters instructed both proposers to "[p]rovide a plan to finance both the construction and subsequent operation of the facility," including detailed information on all financing arrangements, specifically:

    
    

    1. A description of all financing arrangements (i.e. - debt, equity, lease agreement, etc.).

    2. A description of the proposed sources of financing for the construction and operation of the facility. Documentation should include specific commitment statements from financiers.

    3. The principal amount of debt to be issued or equity to be committed to finance the project.

    4. The annual interest rate for each debt component.

    5. A debt amortization schedule.

    6. An analysis of projected cash flow for both the construction period and the term of the lease.

    7. A description and value of all collateral to be pledged.

       
       

       Joint Exhibit No. 8. DOC anticipated that the proposers would respond with the financing plan they actually intended to use to finance construction of the project. Deposition of Biddy, p. 18; T. 98.

       
       

17. In response to DOC's October 19, 1992, letter, ARC submitted a second letter from Donaldson, Lufkin & Jenrette, dated October 22, 1992. Joint Exhibit No. 11. The second Donaldson, Lufkin & Jenrette letter stated, in part:

    
    

    1. The final amount of the debt will be dependent on the final plan and specifications provided by the contractor and architect and negotiations with the ultimate investor. The final debt amount will be made available prior to the closing. The financing will provide

       100 percent of the funds necessary to construct the project.

    2. The final interest rate or rates. (See Number 3 above).

    3. Debt Ammorization schedule. (See numbers

    3 & 4 above).

    An accompanying Memorandum of Terms summarized some of the RFP requirements, gave a brief description of the property on which ARC has an option, and stated:

    
    

    FINANCING: Construction/Permanent financing will be obtained by selling tax exempt certificates of participation (the "Certificates") in the Lease Agreement.

    Proceeds from the sale of the Certificates will fund construction and provide permanent financing for the Facility.

    . . .

    It is anticipated that the Certificates will be rated or credit enhanced by a policy of municipal bond insurance.

    
    

    SECURITY: Certificate holders will be secured by an undivided interest in payments received pursuant to the Lease. Certificate holders will be additionally secured by a deed on the Property recorded in the name of the trustee on behalf of Certificate holders.

    
    

    Joint Exhibit No. 11. DOC was evidently satisfied with LFFO's response to its letter of October 19, 1992. Joint Exhibit No. 11. Following ARC's October 22, 1992, response to DOC's October 19, 1992 letter, however, DOC wrote ARC requesting still more financial information. DOC's letter stated:

    
    

    Thank you for responding so promptly to our letter of October 19, 1992 concerning the financial viability of the proposal submitted by ARC Development Companies, Inc. However, we do not see in your response the level of detail that is necessary to alleviate the concerns we have.

    
    

    Joint Exhibit No. 14. In response to this letter, ARC wrote DOC a letter dated November 6, 1992. Joint Exhibit No. 15. The response included a cash flow analysis, which assumed a bond issue of $27 million repayable over 20 years, with interest at 8 3/4 percent; along with a resolution from the City of Midway, purporting to authorize the creation of a nonprofit corporation to issue some

    $29 million worth of revenue bonds to finance the construction of the project (in Tallahassee). Joint Exhibit No. 15. The cash flow analysis assumed

    $170,000 would be borrowed from some other, unidentified source, and did not indicate how cash flow shortfalls projected for 1994 and 1995 were to be covered.

    
    

18. At ARC's October 23, 1992, oral presentation to DOC officials, Mr. Collins emphasized that ARC's proposal was based on tax-exempt financing. Joint Exhibit No. 7, pp. 9, 27, 60, 72-73. ARC's post-submittal correspondence with DOC concerning financial arrangements reiterated reliance on tax exempt financing. Joint Exhibits Nos. 11, 14, 17 and 18. Mr. Collins' testimony at hearing assumed tax exempt financing would be available to ARC to build and operate the proposed headquarters.

    Contingent Award

    
    

19. On December 18, 1992, DOC announced its decision to award Lease No. 700:0606 to ARC, contingent upon ARC's "providing to the Department within 45 days of this notice, and to the Department's satisfaction, sufficient commitments to ensure ARC's ability to finance construction of the project as presented in their proposal." Joint Exhibit No. 16. The December 18, 1992, award letter shows on its face that the Department was not "completely satisfied" with ARC's financing proposal at the time it made the award. Mr. Kronenberger admitted as much in his testimony. T. 146.

    
    

20. At hearing DOC's Mr. Kronenberger also testified that the award was made contingent so that DOC could satisfy itself that ARC's proposal did not contemplate a lease-purchase and that tax-exempt financing was appropriate for this project. T. 131-132. The contingent award letter made no reference, however, either to a lease-purchase or to the tax-exempt nature of the proposed financing. Joint Exhibit No. 16; T. 145, 147.

    
    

21. Before December 18, 1992, ARC's proposed financing involved the City of Midway's authorizing a nonprofit corporation to issue bonds. Joint Exhibit No. 14. Mr. Collins' testimony at hearing suggested that ARC has now abandoned efforts to involve the City of Midway with financing the project. To allow ARC to substitute another financing proposal at this juncture would afford ARC a competitive advantage over LFFO, and would constitute an arbitrary departure from prescribed procedure.

    
    

22. DOC's letters of inquiry during the proposal evaluation process were intended to elicit from the proposers "the financing plan" they actually intended to use. Deposition of Biddy, p. 18; T.98. Allowing ARC 45 additional days to submit an acceptable financing proposal gave it a material competitive advantage over LFFO. ARC could "shop around" for financing as the intended awardee, and not merely as a bidder. "[I]f a developer . . . had an award in hand, he would be in a very advantageous situation to shop [for] the best deal he could get . . . considering rate, term, structure, price, so forth "

    T.154.

    
    

    Governmental Lessee

    
    

23. ARC's proposal to use tax-exempt financing raises "two types of concerns. One is the ability to get the tax opinion and do the deal, and then there's the issue of state law." Deposition of Kubik, p. 50. Unless reputable tax counsel are of the opinion that (possibly imputed) interest paid from lease payments to holders of bonds or certificates of participation sold (to raise the money needed to build DOC's headquarters building) as tax-exempt qualify for tax exemption under the Internal Revenue Code, the paper cannot be marketed as tax- exempt.

    
    

24. The purpose of the pertinent Internal Revenue Code provisions is to subsidize state and local governments, not private developers, by allowing governmental borrowing at lower rates. Certain financing arrangements involving private developers may, however, entail issuance of tax-exempt securities where state or local government is, in economic effect, borrowing money, legal technicalities notwithstanding. Deposition of Piemont, p. 40.

    
    

25. One such arrangement involves state or local government as a lessee under a lease including an agreement to purchase, so that the governmental entity is "building equity" (T.23) (or, if the facility depreciates, bearing the

    loss.) Certificates of participation in the stream of lease payments, or bonds to be retired by applying lease payments, are then sold as tax-exempt securities. The test is "that the income derived from the obligations be from the payment of governmental lessees to provide essential function facilities." Deposition of Arnspiger, p. 9

    
    

26. Brown & Root's financial consultant contemplates a lease under which DOC would have the option to purchase the property, after ten years, for "the amount remaining on the indebtedness." Deposition of Arnspiger, p. 14. In the twentieth year, the price "would be a dollar." Id. "For tax purposes the owner of the facility would be the lessee." Deposition of Harris, p. 11. A lease under which a governmental tenant expressly agrees to purchase the premises may be economically equivalent to a lease with an option to purchase at a nominal price so low as to be "irresistible."

    
    

27. Florida law limits the circumstances under which state agencies can borrow money and pledge the state's taxing power to repay the debt. T.136. Section 255.25(1)(b), Florida Statutes (1992 Supp.) provides:

    
    

    (1)(b) When specifically authorized by the Appropriations Act and in accordance with s. 255.2501, if applicable, the Division of Facilities Management may approve a

    lease-purchase, sale-leaseback, or tax-exempt leveraged lease contract or other financing technique for the acquisition, renovation, or construction of a state fixed capital outlay project when it is in the best interest of the state.

    
    

    Specific authorization in an earlier Appropriations Act authorized the Division of Facilities Management to approve a tax-exempt financing technique for acquisition of office space for DOC, but that authorization expired unused.

    
    

28. Here the RFP solicited offers by lessors to execute a standard state lease on a form drafted by the Department of General Services and attached as an appendix to the RFP. Under the standard state lease, the lessor retains ownership of the building at all times. The lessee is not obligated to file a form 8038 with the Internal Revenue Service or to monitor for compliance with arbitrage restrictions imposed by Section 148 of the Internal Revenue Code, both of which would be necessary if tax-exempt obligations were sold to finance the building. Deposition of Piemont, pp. 16-22.

    
    

29. ARC's proposal amounts to an offer to employ a financing technique for the acquisition and construction of a state fixed capital outlay project that the legislature has not approved. ARC's proposal is not responsive to the RFP because the method of financing the proposal contemplates cannot be accomplished if the parties execute a standard state lease, as contemplated by the RFP.

    
    

    CONCLUSIONS OF LAW

    
    

30. Since DOC referred petitioner's hearing request to the Division of Administrative Hearings, in accordance with Section 120.53(5)(d)2., Florida Statutes (1992 Supp.), "the division has jurisdiction over the formal proceeding." Section 120.57(1)(b)3., Florida Statutes (1992 Supp.).

    Burdens of Proof

    
    

31. In Department of Transportation v. Groves-Watkins Constructors, 530 So.2d 912 (Fla. 1988), the Court held that an agency's free-form decision to reject all bids must stand, in the absence of proof that "the agency acted fraudulently, arbitrarily, illegally or dishonestly." 530 So.2d 914.

    
    

32. While it is one thing to defer to an agency's judgment that budgetary constraints, a reordering of agency priorities or external economic conditions make it wise for the agency to defer or forgo goods or services; see Couch Construction Co. v. Department of Transportation, 361 So.2d 172 (Fla. 1st DCA 1978); Willis v. Hathaway 95 Fla. 608, 117 So. 89 (1928); it is another to oust the Division of Administrative Hearings from its traditional role of recommending agency action on the basis of fact, policy and law established in a neutral forum, when the question is which of two (or more) competing bidders is entitled to the award. See Capeletti Brothers v. Department of Transportation,

    499 So.2d 855 (Fla. 1st DCA 1986); McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977).

    
    

33. The First District has nevertheless extended the narrow Groves-Watkins standard of review to situations where an administrative agency elects to choose among competing bidders, and let the contract. E.g. Procacci v. State Department of Health and Rehabilitative Services, 603 So.2d 1299 (Fla. 1st DCA 1992); Moore v. Department of Health and Rehabilitative Services, 596 So.2d 759 (Fla. 1st DCA 1992); Scientific Games v. Dittler Bros., Inc., 586 So.2d 1128 (Fla. 1st DCA 1991).

    
    

    Issues Framed

    
    

34. Against this background, the parties agreed, in effect, that the issues to be decided were whether DOC had acted arbitrarily or illegally in deciding to award Lease No. 700:0606 to ARC. After evaluating the evidence adduced at the formal hearing, however, DOC has reconsidered the decision it had made earlier. Now, in its proposed recommended order, DOC asks for a recommendation that LFFO, not ARC, be awarded the lease.

    
    

35. While the case is pending at the Division of Administrative Hearings, DOC is statutorily disabled from taking "action with respect to the formal hearing, except as a party litigant." Section 120.57(1)(b)3., Florida Statutes (1992 Supp.). The agency's change of heart should be seen, therefore, in the same light as a change of position by any other party to the litigation that does not lead to an agreed disposition. The issues framed by the parties in their written stipulation are not subject to unilateral revision.

    
    

    ARC's Proposal Nonresponsive

    
    

36. A request for proposals sets out specifications which proposals filed in response must meet in substance in order for the proposer to qualify as a competitor for the contract to be let. The request for proposals is the standard against which proposals are measured to determine whether they are eligible for consideration. Here the request for proposals also prescribed certain procedures for evaluation of the proposals. Specifications in invitations to bid, like "[w]ords in [almost] an[y] instrument should be given their natural or most commonly understood meaning." Tropabest Foods, Inc. v. State Department of General Services, 493 So. 2d 50, 51-2 (Fla. 1st DCA 1986). The same is true regarding requests for proposals.

37. "Although a bid containing a material variance is unacceptable . . . not every deviation from the invitation is material." Robinson Electrical Co.

    v. Dade County, 417 So. 2d 1032, 1034 (Fla. 3d DCA 1982); Tropabest Foods, Inc.

    v. State Department of General Services, 493 So. 2d 50, 52 (Fla. 1st DCA 1986); Glatstein v. Miami, 399 So. 2d 1055 (Fla. 3rd DCA) rev. den. 407 So. 2d 1102 (Fla. 1981). Unless the variance from specifications frustrates governmental requirements, it "is only material if it gives the bidder a substantial advantage over the other bidders and thereby restricts or stifles competition." Tropabest Foods, Inc. v State Department of General Services, 493 So. 2d 50, 52 (Fla. 1st DCA 1986); Harry Pepper & Associates, Inc. v. City of Cape Coral, 352 So. 2d 1190, 1193 (Fla. 2d DCA 1977). The same principle applies to proposals at variance with specifications in requests for proposals. System Development Corp. v. Department of Health and Rehabilitative Services, 423 So.2d 433 (Fla. 1st DCA 1982).

    
    

38. Here the security deposit requirement set out in the request for proposal was not complied with, ARC failed to demonstrate that it has the ability and financial resources necessary to perform, and the contingent award procedure deviated from RFP requirements.

    
    

    One test for measuring whether a deviation in a bid is sufficiently material to destroy its competitive character is whether the variation affects the amount of the bid by giving the bidder an advantage or benefit not enjoyed by the other bidders. Harry Pepper & Association

    v. City of Cape Coral, 352 So. 2d 1190, 1193 (Fla. 2nd DCA 1977) (ren. den. 1978).

    
    

    But public procurement is more than a contest between vendors. The overriding requirement is that the proposal comprise an offer to supply what the public authority has specified a need for.

    
    

39. DOC sought to lease office space on the terms and conditions set out in a standard state lease. LFFO made an offer in conformity with the RFP. ARC's proposal, on the other hand, is an offer to lease facilities ARC would only be able to build if it is allowed to use the credit of state government to arrange financing. Because this cannot be accomplished under the terms and

    conditions of a standard state lease, ARC's proposal is nonresponsive. An award to ARC in these circumstances would be arbitrary and illegal, both because ARC's proposal is nonresponsive and because of Section 255.25(2), Florida Statutes (1992 Supp.)

    
    

    Further Reconsideration Possible

    
    

40. Although nonresponsive, ARC's proposal raises important issues. ARC has never protested the RFP requirements, and has no right to complain now. Capeletti Brothers, Inc. v. Department of Transportation, 499 So.2d 855 (Fla. 1st DCA 1987) rev. den. 509 So.2d 1117. Nor is whether to draw another RFP a decision for a hearing officer to make. Procacci v. State Department of Health and Rehabilitative Services, supra. But starting over is an option for DOC, even at this point in the proceedings, Caber Systems v. Department of General Service, 530 So.2d 325 (Fla. 1st DCA 1988), one which DOC might be well advised to consider.

41. Rightly or wrongly, ARC and members of the "ARC team" were persuaded that DOC could pay less than the rent LFFO asks over the proposed lease's 20- year term (including both renewal periods) yet end up owning the property free and clear, if the project were financed with tax-exempt securities. If that is, indeed, the case, DOC might do well to seek legislative approval necessary to draw an RFP to solicit proposals for office space using financing techniques that would reduce the cost and increase the benefit to DOC over the long term, even if this entailed temporarily postponing consolidation of its Tallahassee offices.

RECOMMENDATION

It is, accordingly, RECOMMENDED:

That DOC reject ARC's proposal as nonresponsive and consider seeking the necessary approvals to draw an RFP soliciting proposals for a headquarters building that would eventually belong to the State of Florida.

DONE AND ENTERED this 5th day of May, 1993, in Tallahassee, Florida.

ROBERT T. BENTON, II

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 5th day of May, 1993.

APPENDIX

Petitioner's proposed findings of fact Nos. 1-6, 8, 11, 13-17, 19-36, 39-

41, 43, 44 and 46 have been adopted, in substance, insofar as material.

With respect to petitioner's proposed finding of fact No. 7, DOC's determination of responsiveness was tentative, free-form action.

Petitioner's proposed findings of fact Nos. 9, 10, 18, 38, 47, 48, 49 and

52 pertain to subordinate matters.

With respect to petitioner's proposed finding of fact No. 12, the undertaking assumed Brown & Root had submitted a proposal.

Petitioner's proposed finding of fact No. 37 pertains to an immaterial matter.

With respect to petitioner's proposed finding of fact No. 42, the issuance of certificates can defeat tax exemption if certain requirements are not observed.

With respect to petitioner's proposed finding of fact No. 45, the distinction between a lease including an agreement to purchase and a lease with the option to purchase is not necessarily dispositive for tax purposes.

With respect to petitioner's proposed findings of fact Nos. 50 and 51, ARC's proposal contemplates a lease with an option to purchase.

With respect to petitioner's proposed finding of fact No. 53, Mr. Piemont testified that one of the requirements for "on behalf of" financing "is that the governmental entity gets actual ownership." Deposition of Piemont, p. 41.

Respondent's proposed findings of fact Nos. 1-11, 13, 14, 16, 17, 18, 20,

23, 25, 26, 27, 28, 30, 37, 38, 44-49, 58, 60, 64 and 65 have been adopted, in substance, insofar as material.

With respect to respondent's proposed finding of fact No. 12, the exact cause of the differential was not proven.

Respondent's proposed findings of fact Nos. 15, 32-36, 39-42, 51, 61, 62,

71, 72, 73 and 74 pertain to subordinate matters.

Respondent's proposed findings of fact Nos. 19, 21, 22, 43, 63, 75 and 76 have been rejected as contrary to the weight of the evidence.

With respect to respondent's proposed findings of fact Nos. 24 and 29, DOC witnesses testified that absent a bond the proposal would have been rejected as non-responsive; the bond ARC submitted was the equivalent of no bond at all.

With respect to respondent's proposed finding of fact No. 31, the award letter shows on its face DOC's misgivings about ARC's ability to finance the project.

With respect to respondent's proposed findings of fact Nos. 50, 52--57, 67, 68, 69 and 70 the proposed findings are correct only in the sense that "purchase", "ownership", and the like are understood to mean "for tax purposes."

With respect to respondent's proposed finding of fact No. 66, if a government entity is lessee, a non-governmental lessor may issue certificates of participation in the lease payments.

Intervenor's proposed findings of fact Nos. 1-4, 7, 9, 10, 13, 14, 19, 21, 23, 26 and 28 have been adopted, in substance, insofar as material.

With respect to intervenor's proposed finding of fact No. 5, it is not clear what Brown & Root's contractual obligations are.

With respect to intervenor's proposed finding of fact No. 6, the bond does not constitute an offer or proposal.

Intervenor's proposed findings of fact Nos. 8 and 25 have been rejected as contrary to the weight of the evidence.

Intervenor's proposed findings of fact Nos. 11, 12, 15, 16, 17, 22, 29, 30 and 31 pertain to subordinate matters.

With respect to intervenor's proposed findings of fact Nos. 18 and 20, ARC's financing proposal was non-responsive, whether or not such an approach might be viable, if responsive to the RFP and otherwise lawful.

With respect to intervenor's proposed finding of fact No. 24, insofar as it is not predicated on hearsay, there was no showing that any rating agency, insurer or bond fund is aware of applicable Florida law.

With respect to intervenor's proposed finding of fact No. 27, what is required for tax purposes does not depend on whether the lessee has a legal right to forgo the purchase.

COPIES FURNISHED:

M. Christopher Bryant, Esquire

Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507

Tallahassee, FL 32314-6507

Stephen Ferst, Esquire

Florida Department of Corrections 2601 Blair Stone Road Tallahassee, FL 32399-2500

Martha Harrell Chumbler, Esquire Carlton, Fields, Ward, Emmanuel,

Smith & Cutler, P.A.

215 South Monroe Street, #500 Tallahassee, FL 32301

Harry K. Singletary, Jr. Secretary

Department of Corrections 2601 Blair Stone Road Tallahassee, FL 32399-2500

Louis A. Vargas, Esquire General Counsel

2601 Blair Stone Road Tallahassee, FL 32399-2500

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

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

================================================================= AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF CORRECTIONS

LINDER-FUNK-FREGLEY-OERTEL INTEREST

Petitioner,

1. DOAH CASE NO. 93-O875BID

   
   

   DEPARTMENT OF CORRECTIONS,

   
   

   Respondent,

   and

   
   

   ARC DEVELOPMENTAL COMPANIES, INC.,

   
   

   Intervenor.

   /

   
   

   FINAL ORDER

   
   

   This matter comes before the Secretary of the Department of Corrections (the "Department") for consideration and final agency action after an administrative hearing was conducted before Robert T. Benton, II, Hearing Officer, Division of Administrative Hearings, Department of Administration. A Recommended Order was rendered by the Hearing Officer on May 5, 1993.

   Intervenor filed Exceptions to Recommended Order on May 17, 1993 and a Motion to Abate Issuance of Final Order on June 17, 1993. Petitioner filed Exceptions to Recommended Order on May 17, 1993, Motion to Strike on May 19, 1993 and a Response to Motion to Abate on June 18, 1993.

   
   

   Based upon the Department's review of the case, it is hereby ordered that:

   
   

   1. The Department rejects findings of fact number 11, 12, 21, 22 and 27 of the Recommended Order. The reasons for such rejection are contained in the Department's Ruling on Intervenor's Exceptions to the Recommended Order which are a part of this Final Order.

      
      

   2. The remaining findings of fact in the Recommended Order are accepted and incorporated into this Final Order.

      
      

   3. The Department adopts the Conclusions of Law contained in its Proposed Order, and the Hearing Officer's Conclusions of Law to the extent they do not conflict with the former, and incorporates them into this Final Order.

   4. Therefore, based on the above, including the Hearing Officer's determination that the bid of Intervenor was non- responsive, the Department awards the lease pursuant to Request for Proposals No. 700:0606 to Petitioner, Linder-Funk-Fregley Oertel Interest as the sole responsive bidder.

      
      

      RULING ON PETITIONER'S EXCEPTIONS TO RECOMMENDED ORDER

      
      

   5. The exceptions filed by Petitioner object to the Hearing Officer's conclusions of law and recommendation to the Department. Florida Administrative Code Rules 23-5.404 and 33-20.005(3) only permit a party to file exceptions to findings of fact.

      
      

      RULING ON INTERVENOR'S EXCEPTIONS TO RECOMMENDED ORDER

      
      

   6. Intervenor's exceptions to paragraphs 38 and 39 of the Recommended Order object to conclusions of law. Florida Administrative Code Rules 28-5.404 and 33-20.005(3) only permit a party to file exceptions to findings of fact.

      
      

   7. Intervenor's exception to, finding of fact number 11 is accepted by the Department and incorporated into this Final Order. In addition, it should be noted that the following statement in finding of fact number 11 is actually a conclusion of law and not a finding of fact:

      
      

      The security deposit requirement cannot, under DOC policy " not called into question here, be waived; and ARC's proposal is not responsive to the requirement.

      
      

   8. Intervenor's exception to finding of fact number 12 is accepted by the Department and incorporated into this Final Order. Furthermore, it should be noted the statements that the Department was arbitrary and that the bid bond provided no security that ARC will enter into a contract, is actually a conclusion of law and not a finding of fact.

      
      

   9. Intervenor's exception to finding of fact number 21 is accepted by the Department and incorporated into this Final Order. Moreover, the statement that the Department was arbitrary is a conclusion of law and not a finding of fact.

      
      

   10. Intervenor's exception to finding of fact number 22 is accepted by the Department and incorporated into this Final Order. ARC's proposal always considered the use of tax exempt financing as its "financing plan," and that never changed. The Request for Proposals never contemplated either vendor having absolute and final financing terms when they submitted their proposals.

       
       

   11. Intervenor's exception that finding of fact number 27 is a conclusion of law is accepted by the Department and incorporated into this Final Order. However, the last sentence in finding of fact number 27 is not a conclusion of law. Moreover, although not in the record, the specific authorization referred to by the Hearing Officer in this paragraph did not expire unused but was actually vetoed by the Governor of the State of Florida in July of 1992.

       
       

   12. Intervenor's exception to finding of fact number 29 is denied. There is substantial competent evidence in the record to establish that the ARC proposal was either a lease-purchase or a financing technique subject to section 255.25, Florida Statutes. Additionally, Intervenor's statements supporting this exception are conclusions of law.

       RULING ON PETITIONER'S MOTION TO STRIKE

       
       

   13. Petitioner's Motion to Strike Attachments to and Portions of Intervenor's Exceptions to Recommended Order is granted for the reasons stated in the Motion. Furthermore, the attachments to Intervenor's Exceptions are irrelevant to the issuance of this Final Order. ARC's proposal was deemed non- responsive because it constituted a lease-purchase arrangement or a financing technique subject to section 255.25, Florida Statutes, and not a lease as required by the Request for Proposals. The April 16, 1993 letter makes no determination as to this issue.

       
       

       RULING ON INTERVENOR'S MOTION TO ABATE

       
       

   14. Intervenor's Motion to Abate Issuance of Final Order is denied. The issue of the responsiveness of ARC's proposal was fully litigated during the administrative hearing.

This order may be appealed within thirty days by filing a notice of appeal with the agency and the district court of appeal. Except in cases of indigence, the court will require a filing fee and the ,agency will require payment for preparing the record on appeal. For further explanation of the right to appeal, refer to Section 120.68, Florida Statutes, and the Florida Rules of Appellate Procedure.

DONE AND ORDERED this 20th day of June, 1993 in Tallahassee, Florida.

HARRY K. SINGLETARY, SECRETARY

Department of Corrections 2601 Blairstone Road

Tallahassee, Florida 32399-2500

(904) 488-2326

COPIES FURNISHED:

Christopher Bryant (via certified mail) Oertel, Hoffman, Fernandez & Cole

P.O. Box 6507

Tallahassee, Florida 32314-6507

Martha Harrell Chumbler (via certified mail) Carlton, Fields, Ward, Emmanuel

Smith & Cutler, P.A.

P.O. Box 190

Tallahassee, Florida 32302

Steven S. Ferst Department of Corrections Assistant General Counsel 2601 Blairstone Road

Tallahassee, Florida 32399-2500

Charles TerreIl Department of Corrections 2601 Blairstone Road

Tallahassee, Florida 32399-2500

Robert T. Benton, II, Hearing Officer Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Filed in the .official records of the Department of Corrections on this 28th day of June, 1993.

LESLIE S. RODES, Agency Clerk

Docket for Case No: 93-000875BID

Orders for Case No: 93-000875BID