Local Government Law Bulletin April 27, 2012

Court Doors Remain Closed to Disappointed Bidders Challenging Competitive Bidding Process on Government Contracts

In the case of Groves v. Embarq Payphone Services, Inc. (December 6, 2011), the Court of Appeals affirmed two longstanding principles in court challenges to government contract bidding processes: 1) a disappointed bidder does not have standing to bring a lawsuit challenging a government contract bidding process; and 2) an appropriate public official may challenge a government contract bidding process only if there is evidence of fraud, abuse, or illegality.

The Groves case involved a contract bidding process run by the Department of Corrections (DOC) and the Department of Technology, Management and Budget (DTMB). The request for proposal solicited bids for the installation and maintenance of inmate telephone systems at the DOC facilities. A committee was established to recommend a bidder who offered the best value with respect to technical criteria and price. Seven companies submitted proposals, including plaintiff Secures Technologies, Inc. (Secures), which had previously provided work to the DOC and defendant Public Communications Services, Inc. (PCS), which was awarded the government contract at issue.

Believing the committee handled the bidding process unfairly, Secures and its employees filed suit against DOC, DTMB, and PCS, claiming that the committee permitted PCS to alter its bid price after the deadline without extending the same opportunity to the other bidders and that the committee erred in evaluating the bids. Secures and its employees sought an order nullifying the awarded contract and requiring a new bidding process. The trial court dismissed the claim for lack of standing, and Secures and its employees appealed.

In affirming the trial court’s dismissal, the Court of Appeals noted that the courts of Michigan have never recognized that a disappointed bidder has a right to challenge a government contract bidding process because competitive bidding on public contracts is designed for the benefit of taxpayers, not those seeking the contract. As such, neither the entity bidding on a government contract, nor its employees have an expectancy in the contract to be awarded or a harm distinct from the general public, and therefore, do not have standing to challenge the bidding process in court.

The Court of Appeals further noted that the purpose of competitive bidding to protect the public interest by guarding against favoritism, fraud, and corruption, and by securing quality work at the lowest practicable price. Finding that litigation seeking to second-guess a public official’s exercise of discretion in awarding a contract is antithetical to this purpose, the Court of Appeals also affirmed the principle that the only circumstance in which an action seeking review of a government contract bidding process is appropriate is where a proper public official challenges the process with evidence of fraud, abuse, or illegality.

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