H & W CONTRACTING v. City of Watertown

Decision Date15 August 2001
Docket Number No. 21671, No. 21675., No. 21654
Citation633 N.W.2d 167,2001 SD 107
PartiesH & W CONTRACTING, LLC, and Jamie Frentz, a Taxpayer and Elector of the City of Watertown, Petitioners and Appellants, v. CITY OF WATERTOWN, Municipal Corporation, Defendant and Appellee, and Pipestone Concrete, Inc., Intervenor and Appellee.
CourtSouth Dakota Supreme Court

Thomas J. Welk of Boyce, Murphy, McDowell & Greenfield, Matthew McCaulley of Hynes & McCaulley, LLC, Sioux Falls, for petitioners and appellants.

Roy A. Wise of Richardson, Groseclose, Wyly, Wise & Sauck, Aberdeen, for appellee City of Watertown.

Mark E. Salter of Cutler, Donahoe & Mickelson, Sioux Falls, for appellee Pipestone Concrete.

GILBERTSON, Justice

[¶ 1.] The City of Watertown (City) advertised for bids on a project to replace a portion of its storm sewer. The lowest bidder was Pipestone Concrete, Inc. (Pipestone). H & W Contracting, LLC (H & W) was the next lowest bidder. After the contract was awarded to Pipestone, H & W sued City claiming it should have been awarded the contract because of irregularities in Pipestone's bid. The circuit court granted summary judgment in favor of City. We affirm.

FACTS AND PROCEDURE

[¶ 2.] On March 23, 2000, City issued an invitation for bids on a project involving the replacement of a major lift station and a portion of the storm sewer. As part of this process, City hired Allen Erickson, of HDR Engineering, to prepare documents associated with the project as well as review and recommend bids. When preparing bids, each contractor was required to complete a detailed bid sheet, which listed separate prices for various items of work to be performed. For most items, the contractors were required to list a "unit bid price" and an "amount bid," which was the unit bid price multiplied by the number of units to be used. Several items, however, required the contractors to only list a "lump-sum" or total price. City received five bids on the project, which were opened on April 13, 2000. Pipestone's bid was $1,863,430.00. The next lowest bid was from H & W, for $1,907,129.55.

[¶ 3.] As part of his responsibility to City, Erickson prepared a "bid tabulation" for each individual bid. A "bid tabulation" checks a bid for errors by using a spreadsheet to compare the number of units and unit bid price for each item comprising the bid. The totals using this comparison were then compared with the total bid amount. When this process was performed on Pipestone's bid, two discrepancies were found. On item 39, which involved amounts allocated to traffic control devices, Pipestone had inserted $11,000 in the column marked "unit bid price." It had then carried that number across to the "amount bid" column. When the bid tabulation multiplied the quantity of traffic control devices (5,088) by the $11,000 figure listed as the unit bid price, the total bid amount for the entire project would have increased to $57,820,438.00, or thirty-one times the total indicated on the actual bid.1 The bid tabulation also indicated a minor error on line 69.2

[¶ 4.] On April 17, 2000, Erickson informed Pipestone of the errors in its bid. At that time, Pipestone faxed Erickson a quote from Pipestone's subcontractor for that item. The bid from the subcontractor for item 39 was $10,176 and was dated prior to the bid opening. That figure had been rounded up to $11,000 to account for damage incurred throughout the project. Instead of subdividing the price per unit, Pipestone had entered the total price on the bid sheet. Figuring backward from $11,000, the unit price was $2.16. The unit price of the other four bidders on this item ranged from $2.00 to $3.00.3 Pipestone also agreed to correct the error on line 69. After these errors were corrected, Erickson created a new bid tabulation. The new bid tabulation totaled Pipestone's bid at $1,863,438.00, an increase of $8.

[¶ 5.] Erickson explained the discrepancies to Larry Little, City's Public Works Director. Little agreed with Erickson's assessment that the $11,000 unit bid price was intended to be the amount bid and any other interpretation would be "ridiculous." Little recommended the Pipestone bid to the city council, which accepted the bid. The city council forwarded a contract to Pipestone, which was signed on May 18, 2000.

[¶ 6.] On May 10, 2000, H & W filed an application for peremptory writs of prohibition and mandamus. In its application, H & W requested that the circuit court prohibit City from awarding the contract to Pipestone and direct City to award the contract to H & W. H & W's application was later amended to add a request for declaratory relief. At a hearing on May 19, 2000, Pipestone was allowed to intervene. In addition, Jamie Frentz was joined as a petitioner, based on his standing as a taxpayer and citizen of Watertown.4 The circuit court ruled that H & W lacked standing, as a disappointed bidder, to challenge the award of the contract. It denied the writs of prohibition and mandamus because Frentz had an adequate legal remedy, namely the declaratory relief that he sought. The parties then moved for summary judgment on Frentz' request for declaratory relief. The circuit court found Pipestone's bid contained two obvious clerical errors, and that the errors had not provided any competitive advantage over other bidders. The circuit court decided that the legislative intent of the competitive bidding laws had not been violated by the correction of such errors. Therefore, it granted summary judgment in favor of City. H & W and Frentz appeal, raising three issues:

1. Whether H & W, as a disappointed bidder, has standing to challenge an alleged violation of South Dakota's competitive bidding laws. 2. Whether a municipality may correct a clerical error on a bid for a public contract.

3. Whether H & W and/or Frentz were entitled to writs of mandamus and prohibition requiring City to award the contract to H & W.

STANDARD OF REVIEW

[¶ 7.] Our standard of review on a circuit court's grant of summary judgment is well settled, "we will affirm only if all legal questions have been decided correctly and there are no genuine issues of material fact." Estate of Juhnke v. Marquardt, 2001 SD 26, ¶ 5, 623 N.W.2d 731, 732 (citations omitted). The parties have agreed that no issues of material fact exist. Therefore, we need only determine whether the circuit court correctly applied the law. Id.

ANALYSIS AND DECISION

[¶ 8.] 1. Whether H & W, as a disappointed bidder, has standing to challenge an alleged violation of South Dakota's competitive bidding laws.

[¶ 9.] Whether a party has standing is a legal conclusion, which we review under the de novo standard. City of Deadwood v. Summit, Inc., 2000 SD 29, ¶ 9, 607 N.W.2d 22, 25; Kankakee County Bd. of Review v. Property Tax Appeal Bd., 316 Ill.App.3d 148, 249 Ill.Dec. 186, 735 N.E.2d 1011, 1014 (2000). In general, a party establishes standing by showing "that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant." Agar School Dist. No. 58-1 v. McGee, 527 N.W.2d 282, 284 (S.D.1995) (quoting Parsons v. South Dakota Lottery Comm'n, 504 N.W.2d 593, 595 (S.D.1993)). Therefore, to have standing, H & W must show some actual or threatened injury caused by City's actions.

[¶ 10.] H & W claims, in light of the errors on Pipestone's bid, it was the lowest responsible bidder and is therefore legally entitled to the contract. In Tri-State Milling Co. v. Board of County Com'rs, 75 S.D. 466, 68 N.W.2d 104 (1955), this Court addressed a similar situation. In that case, the lowest bidder sued the County when he was not awarded the contract. In deciding whether the lowest bidder was an "aggrieved person" under the statute, we stated, "[t]he requirement that contracts shall be let to the lowest responsible bidder is intended for the protection of the public rather than that of the bidders. No legally enforceable right vested in the appellant merely because it was ostensibly the lowest bidder." Id. at 468, 68 N.W.2d at 105. This holding recognizes that City's advertisement for bids merely invites offers. The bids submitted by contractors are offers to contract. Even the lowest responsible bid on a public contract does not give rise to any private right of enforcement until it has been accepted. See SDCL 5-18-2, -3 (giving a city "the right to reject any and all bids."); La Mar Constr. Co. v. Holt County, 542 S.W.2d 568, 569-70 (Mo.Ct.App.1976); 10 McQuillin, Municipal Corporations § 29.77 (3rd Ed. Rev.). Like Tri-State Milling Co., H & W holds no entitlement to the contract, even if it were the low bidder, and therefore can show no actual or threatened injury as a result of City's actions.

[¶ 11.] However, "a taxpayer need not ... suffer special injury to himself to entitle him to institute an action to protect public rights."5Agar School Dist., 527 N.W.2d at 284. H & W is organized as a limited liability company under the laws of Minnesota and has its principal place of business in Sioux Falls. Therefore, H & W does not have standing as a Watertown taxpayer.

[¶ 12.] Despite this general rule, a large number of jurisdictions have adopted an exception, which allows disappointed bidders to challenge the award of a public contract, acting as private attorneys general on behalf of the public.6 Standing has been bestowed in cases of "fraud, corruption or acts undermining the objective and integrity of the bidding process." Connecticut Associated Builders and Contractors v. City of Hartford, 251 Conn. 169, 740 A.2d 813, 821 (1999) ("CABC"); Metro. Air Research Testing Auth., Inc. v. Metro. Gov't of Nashville, 842 S.W.2d 611, 617 (Tenn.Ct.App.1992) ("MARTA"); Walt Bennett Ford, Inc. v. Pulaski County Special School Dist., 274 Ark. 208, 624 S.W.2d 426, 428 (1981); Aqua-Tech, Inc. v. Como Lake Protection and Rehabilitation Dist., 71 Wis.2d 541, 239 N.W.2d 25, 31 (1976); Trap Rock Ind.,...

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