Domar Electric, Inc. v. City of Los Angeles

• Decision Date: 28 December 1994
• Docket Number: No. S036526,S036526
• Citation: 9 Cal.4th 161,885 P.2d 934,36 Cal.Rptr.2d 521
• Court: California Supreme Court
• Parties: , 885 P.2d 934, 63 USLW 2410 DOMAR ELECTRIC, INC., Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent; Bailey Controls Company, Intervener and Respondent.

Page 521

36 Cal.Rptr.2d 521

9 Cal.4th 161, 885 P.2d 934, 63 USLW 2410

DOMAR ELECTRIC, INC., Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent Bailey Controls Company, Intervener and Respondent.

No. S036526.

Supreme Court of California In Bank.

Dec. 28, 1994.

Rehearing Denied Feb. 23, 1995.

Kamine, Steiner & Ungerer, Bernard S. Kamine and Phyllis M. Ungerer, Los Angeles, for plaintiff and appellant.

James K. Hahn, City Atty., Pedro B. Echeverria, John F. Haggerty and Christopher M. Westhoff, Asst. City Attys., Los Angeles, for defendant and respondent.

Louise H. Renne, City Atty., San Francisco, Mara E. Rosales, Joseph S. Avila, Bill Lann Lee, Constance L. Rice and Kevin S. Reed, Los Angeles as amici curiae on behalf of defendant and respondent.

Jones, Day, Reavis & Pogue, Gerald W. Palmer and Patricia W. Davies, Los Angeles, for intervener and respondent.

BAXTER, Justice.

We granted review in this case to determine whether a city charter requirement that contracts subject to competitive bidding be awarded to the "lowest and best regular responsible bidder" prevents the chartered city and its agencies from requiring potential contractors to comply with a subcontractor outreach program that involves no bid preferences, set-asides or quotas. Our examination of the relevant charter provisions and the purposes underlying the goals of competitive bidding leads us to conclude that the outreach program does not violate the charter. Accordingly, we reverse the judgment of the Court of Appeal and remand the matter to allow that court to address other issues not previously reached.

I. FACTUAL AND PROCEDURAL BACKGROUND

The City of Los Angeles (hereafter the City) is governed by a charter which ordinarily requires competitive bidding on contracts involving the expenditure of more than $25,000. (L.A. City Charter, § 386(b). ¹ ) With exceptions not applicable here, the charter provides that such contracts "shall be let to the lowest and best regular responsible bidder." (§ 386(f).)

On March 29, 1983, the City's mayor issued Executive Directive No. 1-B, which declared it was the policy of the City "to utilize Minority and Women-Owned Business Enterprise[s] [MBE's and WBE's] in all aspects of contracting relating to procurement, construction, and personal services." ² The directive explicitly declared that the City, "through the City Council and it's [sic ] respective Boards and Commissions, will ensure that Minority Business Enterprises have the maximum opportunity to participate in the performance of contracts and subcontracts. In this regard, the City will take all responsible steps to ensure that Minority and Women-Owned Business Enterprises have the maximum opportunity to compete for and perform contracts and services." The directive also contained general guidelines for implementing this policy.

Subsequently, the United States Supreme Court decided City of Richmond v. J.A. Croson Co. (1989) 488 U.S. 469, 109 S.Ct. 706, 102 L.Ed.2d 854, which involved a challenge to a municipality's program that required prime contractors awarded city construction contracts to subcontract at least 30 percent of the dollar amount of each contract to minority firms. In that case, the high court found that the mandatory set-aside for minority subcontractors violated the equal protection clause of the United States Constitution because there was no direct evidence of past discrimination. Thereafter, on March 6, 1989, the Mayor of the City issued Executive Directive No. 1-C, which was "intended to clarify the implementation of Executive Directive 1-B in light of the Richmond v. Croson decision...."

Although Executive Directive No. 1-C declared that the previous directive "remains intact and in force," it revised the intended policy of the City, as follows: "It is the policy of the City of Los Angeles to provide Minority Business Enterprises (MBEs), Women Business Enterprises (WBEs) and all other business enterprises an equal opportunity to participate in the performance of all city contracts. Bidders and proposers shall assist the city in implementing this policy by The Los Angeles Board of Public Works (hereafter the Board) established an outreach program patterned after Executive Directive No. 1-C. Under the Board's program, the adequacy of a bidder's good faith in conducting subcontracting outreach efforts to MBE's, WBE's and other business enterprises (OBE's ³) is to be determined by utilizing the factors listed in the mayor's directive, including evaluations of the bidder's efforts to identify and select specific work items in projects for subcontracting out to MBE's, WBE's and OBE's, to conduct advertising on selected work, and to provide information to and negotiate in good faith with interested subcontractors. ⁴ Although the Board provides estimates of the level of MBE and/or WBE participation which might be achieved in each particular bid situation (1 percent in the instant project), the program makes clear that the failure to meet In October 1991, the Board issued a request for bids on a contract to provide a computer control system for the Hyperion Secondary Sewage Treatment Plant. The bid package specified that bidders would be required to submit documentation of their compliance with the outreach program. In particular, the package contained a document called a "bidder's checklist" which detailed all pages of the bid required to be submitted for the bid to be considered responsive. This checklist included the statement: " 'Good Faith Effort Documentation Checklist': I have used this checklist, initialed each step and have signed the form. I will submit this checklist along with required documentation no later than three (3) City working days following the close of Board business the day bids are received." Additionally, at the bottom of the bidder's checklist was the following statement: "I have carefully read and completed each and every applicable page of the Proposal. I am aware that the failure to submit the appropriate pages of the Proposal, properly completed and signed, may render my bid non-responsive and subject to rejection by the Board of Public Works." This statement was followed by a line for the bidder's signature.

                [885 P.2d 936] taking all reasonable steps to ensure that all available business enterprises, including local MBEs and WBEs, have an equal opportunity to compete for and participate in city contracts."  (Italics added.)   Under Executive Directive No. 1-C, contracting agencies of the City were directed to evaluate the good faith efforts made by bidders and proposers in their outreach to MBE's, WBE's and other business entities according to nine factors.  Subsequent guidelines issued by the mayor's office clarified that a tenth factor, which purported to measure a bidder's good faith with reference to certain anticipated levels of MBE and WBE subcontractor participation, should no longer be considered in evaluating bids
                the anticipated participation level shall not by itself disqualify any bidder from consideration for a contract award nor result in a determination of lack of reasonable MBE/WBE participation.  Thus, a bidder gains no advantage from meeting the anticipated participation[885 P.2d 937]  level nor a disadvantage from not meeting it
                

Three companies submitted bids for the project. Of these, Domar Electric, Inc. (hereafter Domar) submitted the apparent lowest monetary bid of $3,335,450. However, the bid was declared nonresponsive due to Domar's failure to timely provide the required good faith effort documentation within the three-day deadline. The Board awarded the contract to Bailey Controls Company, which had submitted the next lowest monetary bid of $3,987,622.

Domar filed a petition for a writ of mandate and/or prohibition in the superior court seeking, among other things, to prevent the City from entering a contract on the subject project with any contractor other than itself. After an alternative writ was issued, the superior court denied Domar's petition, finding that "the requirement of the MBE/WBE outreach program attachment is not illegal and/or unconstitutional or precluded by case authorities. The requirement serves an important and significant public policy which does not set any quotas or improper goals." Domar's petition for a writ of mandate in the Court of Appeal was denied, as was its petition for review.

After a final judgment was entered, Domar appealed on the grounds that: (1) the outreach program violates the City's charter; (2) the program violates Public Contract Code section 2000, which permits compliance with an outreach program to be predicated on either demonstrating good faith in seeking MBE and WBE participation or meeting specific goals and requirements for such participation; and (3) the program is unconstitutionally race-conscious in violation of the federal equal protection clause and the holding in City of Richmond v. J.A. Croson Co., supra, 488 U.S. 469, 109 S.Ct. 706. The Court of Appeal, in a split decision, reversed the superior court judgment. After finding that authorization for the outreach program was not expressly set forth in the charter, the appellate court determined that the Board's rejection of Domar's bid based on the failure to submit outreach documentation violated charter section 386(f), which requires that contracts be awarded to the "lowest and best regular responsible bidder." Because it found a charter violation, the court did not reach the other two contentions. We granted the City's petition for review.

II. DISCUSSION

The procedures and requirements relating to the competitive bidding of municipal contracts are set forth in large part at section 386 of the City's charter. Those relevant to this case are described below.

With certain exceptions not pertinent here, section 386(b) provides that the City "shall not be, and is not bound by any contract involving the expenditure of...