We are asked to determine whether a Department of Administration hearing officer erred when he selected the remedy for a defective procurement process. Several months after a procurement contract for a long term lease was awarded, the hearing officer concluded that three separate irregularities had occurred during the proposal evaluation process. After conducting an analysis under AS 36.30.585(b), the Alaska provision governing remedies for errors committed in the procurement process, the hearing officer awarded the aggrieved bidders their proposal preparation costs but declined to order rescoring of the proposals or cancellation of the lease. The commissioner adopted the hearing officer's decision as his own. The superior court reversed the commissioner, holding that the hearing officer had erred in weighing the factors set out in AS 36.30.585(b). Because the hearing officer's decision has a reasonable basis in law and fact, we affirm it. Moreover, because the hearing officer's analysis regarding the appropriate remedy was both thorough and thoughtful, we adopt that portion of the decision, which is set out in the Appendix.
The facts in this case are not disputed. In December 2001 the Department of Administration, Division of General Services (the department), circulated a request for proposals (RFP) soliciting bids for the lease of roughly 24,000 square feet of office and storage space in Fairbanks. The space was to be used by the Department of Transportation. The lease was for a term of twenty years, with ten additional two-year renewals exercisable by the department.
Among the companies submitting responsive proposals were Bachner Company, Inc., Bowers Investment Company, and McKinley Development. Bachner and Bowers both proposed to lease existing buildings, while McKinley offered to construct and lease a new building. A five-member special committee
In early March 2002 Bachner and Bowers filed separate bid protests,
Allegations surfaced in the companies' appeals that there had been improprieties in the scoring process by members of the proposal evaluation committee. Hearing Officer Andrew Hemenway heard testimony regarding these and other alleged improprieties in the evaluation process.
Hearing Officer Hemenway issued a twenty-page decision in October 2002, which the commissioner adopted as his own. Hearing Officer Hemenway found that misconduct during the procurement process had resulted in "serious deficienc[ies]." One member of the evaluation committee had artificially lowered his scores for Bachner "to counteract what he perceived as [another evaluator's] favoritism for that offeror." The committee "did not apply the present value formula in a manner consistent with a reasonably prudent offeror's understanding of the RFP" because it failed to factor in anticipated increases in the consumer price index.
Hearing Officer Hemenway identified three possible remedies: (1) confirmation of the award to McKinley coupled with an award of proposal preparation costs to Bachner and Bowers; (2) remand for rescoring without the one evaluator's improperly adjusted scores; and (3) cancellation of the lease and issuance of a new RFP. He analyzed the facts of the case using the factors set out in AS 36.30.585(b)
Bachner and Bowers appealed to the superior court in November 2002, arguing that the hearing officer erred by failing to order cancellation or rescoring in addition to awarding proposal preparation costs. The superior court agreed. It reasoned that case law "makes clear" that preserving the integrity of the procurement system "has priority" over other factors listed in AS 36.30.585(b). Because Hearing Officer Hemenway did not give priority to this factor in his analysis, the superior court reversed and remanded for reconsideration of what remedy was most appropriate. We granted the department's petition for review of the superior court's decision.
When the superior court acts as an intermediate court of appeal from an administrative decision, we directly review the agency decision.
Because the parties agree that three separate irregularities occurred in this case, the sole issue we must decide is whether the hearing officer chose an appropriate remedy. The department argues that the hearing officer properly applied AS 36.30.585(b) and acted within his discretion when he decided to confirm the lease and award the companies their proposal preparation costs. Bachner and Bowers disagree, arguing that the hearing officer erred by failing to give priority to a specific statutory factor.
Deciding what remedy is appropriate is a difficult endeavor where, as here, a defect in the bidding process is discovered after the innocent winning bidder has begun preparation for or performance of a contract. Under such circumstances equity can be done to disappointed bidders "only at the expense of inequity" to the winning bidder.
Bachner and Bowers argue that Hearing Officer Hemenway misapplied AS 36.30.585(b) when he did not give extra weight to the factor that addresses harm to the integrity of the procurement system. They are incorrect.
Alaska Statute 36.30.585(b) grants the hearing officer a substantial amount of discretion to determine how to remedy a documented impropriety in the procurement process. Where a protest is sustained, the procurement official is instructed to "implement an appropriate remedy" after considering the six specified factors.
Bachner and Bowers also argue that the record does not support the hearing officer's
Under the principles set forth in the Restatement (Second) of Contracts (1981), if the department were to cancel the lease it would be liable to McKinley for at least the costs McKinley incurred preparing for the lease.
For these reasons and those discussed in Hearing Officer Hemenway's attached decision, we AFFIRM the commissioner's decision to remedy the defective procurement by confirming the contract to McKinley and awarding full proposal preparation costs to Bachner and Bowers. To the extent that the superior court's decision conflicts with the hearing officer's decision, it is REVERSED.
BEFORE THE ALASKA DEPARTMENT OF ADMINISTRATION
In the Matter of:
BACHNER COMPANY, INC. and
BOWERS INVESTMENT CO.
DGS RFP No.2002-2500-2984
Dept. of Admin. Case Nos. 02.06/.07
These consolidated protest appeals concern a Request for Proposal (RFP) for a real estate lease, issued by the [Division] of General Services (DGS).
. . . .
The potential remedies in this case appear to be: (1) confirm the lease award to McKinley and award Bachner and Bowers their proposal preparation costs; (2) remand to DGS for rescoring, applying a reasonable Consumer Price Index (CPI) adjustment and omitting Mr. Weed's scores, and award the lease to the highest rated offeror; or (3) cancel the solicitation and issue a new RFP.
Alaska Statute 36.30.585(b) provides that in determining an appropriate remedy, the procurement officer must consider: (1) the seriousness of the procurement deficiencies; (2) the degree of prejudice to other interested parties or to the integrity of the procurement system; (3) the good faith of the parties; (4) the extent to which the procurement has been accomplished; (5) costs to the agency and other impacts on the agency of a proposed remedy; and (6) the urgency of the procurement to the welfare of the state.
(1) Seriousness of the procurement deficiency.
In this case, an evaluator improperly adjusted scores. This is a serious deficiency in the procurement process. Nonetheless, it is not a deficiency requiring cancellation, because the impropriety was limited to one evaluator. Typically, the remedy for such misconduct is to rescore the proposals omitting the scores by the evaluator whose conduct was improper.
In addition, the price evaluation did not comply with a reasonable reading of the RFP. This, too, is a serious procurement
This factor supports rescoring rather than cancellation. However DGS should have the option of cancellation (because it did not intend to utilize a CPI adjustment) if rescoring is deemed appropriate in light of all the circumstances.
(2) Degree of prejudice to McKinley and integrity of the procurement system.
Either rescoring or cancellation would result in substantial prejudice to McKinley. Rescoring, under any reasonable CPI adjustment, would result in award to another offeror, and cancellation could also result in award to another. McKinley has incurred substantial construction costs, and award to another party would leave McKinley liable for those costs and would result in the loss of the profits anticipated under the lease. McKinley is not responsible for the deficiencies in the solicitation and is not responsible for the delay in the final administrative decision on the protests.
Bachner argues that McKinley is not substantially prejudiced because it can recover any damages incurred as a result of rescoring or cancellation of the solicitation by legal action against the State of Alaska. However, that McKinley may have a legal remedy does not mean that those outcomes are without prejudice to it. It is unlikely that any damages recovered by McKinley would entirely compensate it for its losses: the State may have defenses to any legal claims asserted;
With respect to the integrity of the procurement process, however, cancellation is the preferred remedy. Impropriety on the part of one evaluator is not necessarily in itself ground for cancellation. However, in this case there were apparent defects in the procurement entirely apart from the actual impropriety on the part of one evaluator. These apparent defects included: (1) patent ambiguity with respect to use of the present value analysis; (2) latent ambiguity with respect to CPI adjustments; and (3) the appearance that inappropriate factors were considered by the evaluators (proximity to existing DOT facility and past performance of offerors). Given the nature of the actual and apparent defects, cancellation would be appropriate.
Taken together, in light of the substantial risk of prejudice to McKinley, and the harm to the integrity of the procurement process, cancellation should be avoided if another suitable remedy is available.
(3) Good faith.
Impropriety on the part of one evaluator is not equivalent to bad faith on the part of DGS. Nonetheless, it is sufficient to establish a breach of the implied contract of fair and honest consideration. Clearly, an award of the costs of proposal preparation is appropriate, but this factor does not support cancellation.
(4) The extent the procurement has been accomplished.
Because procurement was not stayed, the procurement was completed before the protest appeal was filed. No lease has been executed as yet, but McKinley has commenced performance in conformity with its proposal by substantially completing construction of the new building that DGS expressed an intent to lease.
Because the procurement has been completed and substantial performance has begun, this factor supports confirmation of the
(5) Costs to the agency and other agency impacts of the proposed remedy.
The potential costs to the agency in the event the solicitation is cancelled or rescored are significant. It is only reasonable to anticipate that if the solicitation is cancelled, the State will be liable for the costs of construction. In addition, there is a substantial risk that the State would be liable for additional damages, such as lost profits. On the other hand, if the award to McKinley is sustained, the State would likely not be liable to either Bachner or Bowers for any damages beyond the limits of AS 36.30.585.
Bachner argues that the costs to the State are likely to be equaled or exceeded by cost savings resulting from an award to a lower cost offeror. However, even if the out-of-pocket costs over time are the same, the State would incur a substantial negative impact because the lower cost facility was, according to all evaluators, also a less desirable facility. The effect is that the State would pay a higher cost (Bachner or Bowers' bid price plus damages to McKinley) for a lower rated facility. For this reason, this factor weighs in favor of confirmation of the existing award rather than cancellation or rescoring.
(6) Urgency of the procurement.
There does not appear to be any urgency in acquiring the space at issue, since the existing landlord has indicated a willingness to extend the lease indefinitely. This factor supports cancellation and resolicitation.
(7) Other Factors.
. . . .
Another circumstance that should be considered in fashioning a remedy is the substantial costs incurred by Bachner and Bowers in pursing their administrative remedy. The failure to provide full and fair compensation to protestors for out-of-pocket costs incurred in a solicitation in which there is actual impropriety could have adverse impacts on the procurement process generally by insulating procurement decisions from administrative review and creating the perception that the procurement process is unfair.
In light of the serious deficiencies in this procurement, cancellation and resolicitation are the appropriate remedies unless other factors outweigh that factor. In this case, the potential costs and other impacts on the State are substantial, and McKinley would be substantially and unfairly prejudiced by cancellation or rescoring. On balance, the appropriate remedy would appear to be an award of the full costs incurred in connection with proposal preparation. Accordingly, I recommend that the protest appeal be sustained, that the notice of intent to award to McKinley be confirmed, and that DGS be directed to compensate Bachner in the amount of $50,000, and Bowers in the amount of $30,000 for proposal preparation costs.