Chesapeake Thermite Welding, LLC v. Dep't of Transp.
| Decision Date | 17 October 2022 |
| Docket Number | 548 C.D. 2021 |
| Parties | Chesapeake Thermite Welding, LLC, d/b/a CTW, Petitioner v. Department of Transportation, Respondent |
| Court | Pennsylvania Commonwealth Court |
Chesapeake Thermite Welding, LLC d/b/a CTW (CTW) petitions for review of the determination of the Acting Executive Deputy Secretary (Secretary) of the Department of Transportation (Department) that dismissed CTW's bid protest regarding the Intermodal Terminal Rehabilitation project in Beaver, Pennsylvania (Project), because CTW lacked standing to file a protest against the Department and because the protest is barred by sovereign immunity. CTW presents three issues for our review. First, CTW argues that the Department's Bureau of Rail Freights, Ports, and Waterways (Bureau) lacked compelling justification to reject CTW's bid, and that the Secretary's determination was arbitrary and capricious an abuse of discretion, or an error of law. Second, CTW argues that the Rail Freight Preservation and Improvement Act (Act)[1] which, in relevant part, authorizes the Department to provide grants to railroad companies to undertake capital projects to maintain, improve, and rehabilitate rail freight transportation services, does not except such grants from competitive bidding under the Procurement Code, 62 Pa. C.S. §§101-4604, where the grantee is an agent of the Department. Third, CTW argues that the contract between the Department and grantee is a contract for procurement of construction, subject to Section 102(f) of the Procurement Code, 62 Pa. C.S. §102(f). After careful review, we conclude that the contract for the Project is not a contract for procurement of construction under the plain language of Section 102(f) of the Procurement Code, because its primary purpose is not to procure construction for the Department, but rather to procure construction for the grantee, a private entity. Accordingly, we affirm the Secretary's May 4, 2021 determination.
The relevant facts as found by the Secretary are as follows. CTW filed a protest on March 11, 2021, regarding the Project. Secretary 5/4/21 Determination at 1. The protest concerned the invitation to bid under which a private company, Pittsburgh Intermodal Terminals, Inc. (PIT), through its Project manager, Railroad Solutions, Inc. (RSI), solicited bids on December 24, 2020. Id. After review, PIT ultimately awarded the contract to Keystone Railroad Services (KRS) and not to CTW. Id. at 7. The Project is to be funded by a grant made through the Rail Freight Assistance Program (RFAP), one of the grants authorized by the Act, to assist in the construction or rehabilitation of local railroad lines primarily used by businesses within the Commonwealth. Id. The RFAP provides 70% of the funding for the Project, and the owner, in this case PIT, provides the remaining 30% of the funding. Id.
The Secretary determined that CTW's protest was timely under the Procurement Code, which the Department does not dispute. Secretary 5/4/21 Determination at 1-2. The Secretary also determined that a hearing was not necessary to render a decision, which CTW does not dispute. Id. The Department filed a motion to dismiss on March 18, 2021, requesting the summary dismissal of CTW's protest because CTW lacked standing to file its protest, and because the Department lacked jurisdiction over a private procurement under the Procurement Code. Id. at 3. The Department noted that CTW's counsel previously represented a different entity, K.W. Reese, Inc. (KWR), in a protest "containing the same set of facts" present here, and that CTW's protest should be dismissed for the same reasons.[2] Id. The Secretary stated that here, as in the earlier KWR case, she must resolve "exactly what role the Department played, who the active parties are in this bid protest, which parties entered into the ensuing contract, and whether or not [the Department] is a contract holder as defined in the Procurement Code." Id. The Secretary determined that here, as in the earlier KWR Determination, the Department "is not the contract holder or the purchasing agent" as defined under the Procurement Code, and granted the Department's motion to dismiss. Id. at 4. Nevertheless, the Secretary addressed CTW's and the Department's arguments as if she had reached the merits of the case. Id.
The Secretary found that here, similar to the KWR case, the Department entered into a Rail Freight Grant Agreement (Grant Agreement) with PIT,[3] which "succinctly enumerates the role of the Department in this matter." Secretary 5/4/21 Determination at 4. The Secretary determined that the Grant Agreement is clear that the Department's role in the Project is as a "grantor, with an oversight on how these monies are expended." Id.; see also R.R. at 165a. The Secretary also determined that the Grant Agreement required PIT to secure competitive bids for expenditures exceeding $5,000, to develop bid specifications, advertise, open bids, and award the contract to the lowest responsive bidder. Secretary 5/4/21 Determination at 4; see also R.R. at 169a.
CTW argued that because the Department required PIT to comply with competitive bidding laws, that PIT was acting as an agent for the Department, citing in support Pennsylvania Federation of Teachers v. School District of Philadelphia, 484 A.2d 751 (Pa. 1984), which struck down as unconstitutional part of the Public School Employees' Retirement Code[4] that increased the basic retirement contribution rate for Public School Employees' Retirement System members prior to the effective date of the legislation. In so doing, the Supreme Court rejected the Commonwealth's argument that public school districts are independent employers and are not part of the Commonwealth. Pennsylvania Federation of Teachers, 484 A.2d at 753. The Secretary determined that CTW's argument that PIT was the Department's agent was "not well taken because there is a significant distinction between a public school and a private company." Secretary 5/4/21 Determination at 5. The Secretary determined that it is well established that public school districts are agents of the Commonwealth, to which the legislature delegated the responsibility to provide public education, and that school districts are publicly owned and operated, which the Supreme Court explained in Pennsylvania Federation of Teachers. Id. In contrast, the Secretary determined that PIT is a "privately owned entity" and the grant funds are merely to assist in defraying the cost of construction, maintenance and repair performed on rail lines owned by a private entity within the Commonwealth. Id.; see also R.R. at 165a. The Secretary determined that "evidence of a state government providing grants with a private entity is not sufficient to establish control by a government agency, and such relationship as grantor/grantee does not automatically transform a private entity into an agent of the government." Secretary 5/4/21 Determination at 5.
The Secretary next addressed CTW's argument that because the Project is funded by an RFAP grant with a primary purpose of construction, that the grant is not a grant but is rather a "procurement contract" under Section 102(f) of the Procurement Code. Secretary 5/4/21 Determination at 5-7. CTW argued generally that railway projects are public improvements that may not be altered without the approval of the Commonwealth or the Public Utility Commission, citing McNulty Brothers Company v. Pennsylvania Railroad Company, 116 A. 362 (Pa. 1922), Bachrach v. Huntingdon & Broad Top Mountain Railroad & Coal Company, 133 A. 641 (Pa. 1926), and the Pennsylvania Law Encyclopedia, 41 P.L.E. Railroads §4 (Matthew Bender & Company, Inc. 2022). CTW further argued that the Bureau Project Management Policy describes the grant as necessary to assist the Bureau in the development and construction of rail improvement projects, and deems the grant funded projects to be construction. R.R. at 131a-34a. CTW further argued that because the Project work is construction related, that Section 102(f) of the Procurement Code should apply.
The Department responded that bid protest procedures set forth in Section 1711.1(a) of the Procurement Code, 62 Pa. C.S. §1711.1(a), apply only to contracts as defined in the Procurement Code, and not to grants. Section 102(f) of the Procurement Code, 62 Pa. C.S. §102(f), states:
This part does not apply to grants. For purposes of this part, a grant is a furnishing of assistance by the Commonwealth or any person, whether financial or otherwise, to any person to support a program. This term does not include an award whose primary purpose is to procure construction for the grantor. Any contract resulting from such an award is not a grant but a procurement contract. (Emphasis added.)
The Secretary reviewed Section 102(f) of the Procurement Code and determined "[t]hat exception does not apply here however, because the primary purpose of the construction that comprises the Project is for the benefit of PIT and not the Department," and that the exception argued by CTW is "simply not applicable." Secretary 5/4/21 Determination at 6. The Secretary further explained that even if Section 102(f) of the Procurement Code applied for sake of argument, any contract resulting from the award would be between PIT and the successful contractor, and would therefore not satisfy the definition of "contract" under Section 103 of the Procurement Code, 62 Pa. C.S. §103, which requires that all contracts with the Commonwealth be reviewed and signed under the Commonwealth Attorneys A...
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