DLS, Bureau of Municipal Finance Law
The Supreme Judicial Court upheld a high school construction contract even though the successful bidder misrepresented its qualifications since there was no evidence of corruption in the bidding process. The case is Fordyce v. Town of Hanover, 457 Mass. 248 (2010).
In 2009 the Town of Hanover decided to go out to bid for the construction of a new high school. Where a public construction project has, as here, an estimated cost in excess of ten million dollars, State statute ( M.G.L. Ch. 149 Sec. 44A) requires a contract to be awarded to "the lowest responsible and eligible general bidder," which means the contractor must have a certificate of eligibility issued by the Commonwealth Division of Capital Asset Management and Maintenance (DCAM). There is a second requirement that the contractor be prequalified to bid on the project by a four-member town building committee which makes its determinations by evaluating responses to questions contained in a written request for qualifications. In the case at hand, nine firms were prequalified by the Hanover prequalification committee to bid on the project. One of the firms was Callahan, Inc. (Callahan).
When bids were received, the Town of Hanover awarded the high school construction project to Callahan which was the low bidder with a base price of thirty-seven million dollars. The next lowest bidder was about one million dollars higher. Bid protests were then filed by unsuccessful bidders with the Attorney General who is statutorily responsible for enforcement of the bid laws pursuant to M.G.L. Ch. 149 Sec. 44H. The bid protesters claimed that Callahan provided fraudulent information to the town committee by misrepresenting its construction experience. They demanded that Callahan be disqualified as an eligible bidder and the contract be awarded to another bidder. The Attorney General investigated the claims and sided with the protesters. The Attorney General stated that Callahan had committed fraud and should not have been awarded the contract. The Attorney General found that Callahan had knowingly misrepresented itself as the successor corporation to another general contracting company and had exaggerated its role in building a new high school in North Andover. Nevertheless, the Town of Hanover declined to terminate the contract and construction commenced on the high school. In response, ten taxpayers of the town brought suit in Superior Court pursuant to M.G.L. Ch. 40 Sec. 53. They sought an injunction to halt construction and requested that the contract be rescinded. In November 2009 the Superior Court judge granted a preliminary injunction thereby stopping work on the school. The town promptly appealed to an Appeals Court judge who vacated the preliminary injunction on the grounds that the halt in construction would result in substantial cost for the town. On further appeal by the ten taxpayers, the case was heard by the Supreme Judicial Court.
The Supreme Judicial Court declared that the standard of review for the appeal was whether the Superior Court judge had abused his discretion in granting the injunction. The test for issuing a preliminary injunction is the likelihood of the plaintiffs prevailing at trial. In this regard, a critical issue which had to be resolved by the Supreme Judicial Court was whether the Superior Court judge had erred in concluding that Callahan's misrepresentations as to its work experience constituted fraud within the meaning of M.G.L. Ch. 149 Sec. 44D even though there was no evidence of detrimental reliance by the town committee in prequalifying Callahan as a bidder. In interpreting the statute the Court had to consider legislative intent. According to the Court, the term "fraud" in M.G.L. Ch. 149 must be given its common law meaning which necessarily includes detrimental reliance. In light of the legislative history of M.G.L. Ch. 149 and the objectives of the competitive bidding statutes, the Court concluded that the term "fraud" in M.G.L. Ch. 149 meant more than an intentional misrepresentation by a general contractor.
Under the facts presented, the Court ruled there was no fraud committed by Callahan. Where there were affidavits by members of the town committee stating that they were not misled by Callahan's intentional misrepresentations and where there was no evidence of corrupt conduct or collusion by any member of the town prequalification committee, the town was permitted, but not required, to terminate the contract upon learning of the intentional misrepresentation. The Court rejected the Attorney General's interpretation of the statute that knowingly false or misleading statements automatically disqualified a bidder from entering into a contract with a municipality. In the Court's view, however, any general contractor who makes material misrepresentations could still receive sanctions, such as, a debarment or suspension by DCAM which issues certificates of eligibility as discussed above.
With its decision in Fordyce, the Court did not reinstate the injunction thereby allowing the school construction to continue in a timely manner. In the absence of detrimental reliance, a municipality has discretion in the bidding process and is not required to terminate a contract which it believes serves its interest.