Federal Elec. Corp. v. Fasi

Decision Date31 October 1974
Docket NumberNo. 5620,5620
PartiesFEDERAL ELECTRIC CORPORATION, a Delaware corporation, Plaintiff-Appellee, v. Frank F. FASI et al., Defendants-Appellants.
CourtHawaii Supreme Court

Syllabus by the Court

1. The technical specifications developed by the City were not sufficiently detailed to afford a basis for full and fair competitive bidding upon a common standard, and as such were totally inadequate for conventional bidding purposes.

2. The City's decision to employ a 'request for proposal' bidding procedure, patterned after the 'two-step formal advertising' bidding method developed by the federal government would have been proper had the City promulgated rules and regulations to insure fair and open competition among bidders. But in opting for neither a conventional procedure nor a pure two-step bidding method, the City patently violated the very essence of competitive bidding.

The method here employed provided the opportunity for favoritism, extravagance and improvidence in awarding a public contract, and the fact that the procedure was susceptible to abuse and manipulation rendered it illegal.

3. A contract cannot be said to have been awarded to the lowest responsible bidder, unless all participants in the bidding process have been invited to respond to the same specifications.

4. While a contracting officer is vested with broad discretion in determining who is the lowest responsible bidder, the discretion allowed him under the method employed by the City exceeded permissible limits.

5. An unsuccessful bidder and taxpayer has standing to assert the invalidity of the bid procedure and the arbitrariness of its bid rejection.

6. An appellee may urge in support of the judgment appealed from any matter appearing in the record, even where his arguments involve an attack on the reasoning of the trial court.

7. Where the trial court has reached a correct conclusion, its decision will not be disturbed on the ground that the reasons it gave for its action were erroneous.

8. Where the responsibility of a bidder is in issue, a hearing is required. A responsible bidder in this context is one who is not only financially responsible, but who is possessed of the judgment, skill, ability, capacity and integrity requisite and necessary to perform the contract according to its terms.

Robert M. Rothwell, Deputy Corp. Counsel, Honolulu (Richard K. Sharpless, Corp. Counsel, Honolulu, of counsel), for defendants-appellants Fasi, Devens and Sakai.

Bert T. Kobayashi, Jr., Honolulu (Kobayashi, Koshiba & Watanable, Honolulu, of counsel), for defendant-appellant Motorola.

Charles B. Dwight, III, and Wayne Nasser, Honolulu (Ashford & Wriston, Honolulu, of counsel), for plaintiff-appellee.

Before RICHARDSON, C. J., OGATA and MENOR, JJ., HAYASHI, Circuit Judge, in place of LEVINSON, J., recused, and KATO, Circuit Judge, in place of KOBAYASHI, J., disqualified.

MENOR, Justice.

This action was brought by Federal Electric Corporation (hereinafter Federal), as an unsuccessful bidder and taxpayer to set aside a contract awarded by the City and County of Honolulu (hereinafter City), to Motorola Communications and Electronics, Inc. (hereinafter Motorola). In addition to Motorola, named as defendants on behalf of the City were Frank F. Fasi, City Mayor, Paul Devens, City Managing Director, and James K. Sakai, City Finance Director. The trial court rendered judgment in favor of Federal, holding that the contract awarded to Motorola was null and void, and specifically finding that the action of the City in awarding the contract to Motorola was arbitrary and capricious, and constituted an abuse of administrative discretion.

The City was seeking to upgrade its police department's communications system through the use of federal funds made available through the Law Enforcement Assistance Administration (hereinafter LEAA). Initially, it had entered into a contract with Motorola for Phase I of the multi-phased endeavor without public advertising or competitive bidding as required by law. As a result, by mutual agreement the contract was rescinded.

Because of the extremely complex technological problems involved in improving the island-wide communications of the Honolulu Police Department (hereinafter HPD), Frank Sites of the firm of Holmes & Narver was hired by the City to consult on the development of technical specifications regarding this project.

Sites prepared the specifications, and upon review and approval of the HPD and Sakai, included them in the bid package, together with provisions relating to general and special conditions. Due to the nature of the project, however, and apparently because the contract had to be awarded before the deadline established by the federal government for the granting of LEAA funds, specifically detailed technical specifications were not formulated. The City, instead, opted for the 'request for proposal' method, which it had never before used, and for which no regulatory guidelines had been provided. LEAA funding at this time dictated that the federal funds be committed by June 30, 1973.

Following the acceptance by the HPD and the City of the Sites specifications, the required notice to bidders was published commencing March 27, 1973. Bidders were informed by this notice that they must first pre-qualify as financially and competently able to perform the requirements of the project. Four firms, including Federal and Motorola, were found qualified to bid.

The specifications prepared by Sites along with allied documents constituting collectively the 'bid package' were made available to pre-qualified bidders on or about April 20, 1973. Only Federal and Motorola submitted bids. The bids were opened on June 1, 1973. The bid submitted by Federal totaled $840,876, that of Motorola $934,248, a difference of $93,372. The bids represented the costs of the different systems and equipment being proposed by each bidder over the term of the five-year period. Both were within the budget originally established by LEAA and the City.

Sites evaluated the bids and asked for and received clarification of the information contained in the proposals of both bidders. His initial evaluation and recommendation to the City was made orally to Sakai on June 18, 1973, and later confirmed by letter dated June 20, 1973. In spite of the lower figure submitted by Federal, Sites found Federal's bid to be unacceptable and consequently Motorola's to be the only responsive, compliant bid.

On June 20, 1973, Sites, through Sakai, requested Federal to answer nineteen questions within five days with respect to its bid. Federal responded on June 25, 1973, and its answers were turned over to Sites. On June 29, 1973, a meeting was held between Federal's representatives and Sakai and Sites, relative to Federal's bid. The next day, June 30, after further discussions between Sites and Sakai, the City notified Motorola that it had been awarded the contract. Sites thereafter again reduced his recommendations to writing in a letter to Sakai, dated July 6, 1973. The contract between the City and Motorola was executed on July 17, 1973.

On reviewing the decision of the trial court, we find the principal issue to be, whether the bidding procedure was inherently defective so as to render the contract invalid. Assuming the validity of the method employed, the question then would be, whether Federal, as the losing bidder, should have been afforded a hearing before its bid was rejected.

I

Clearly, the technical specifications developed by the City with the assistance of its consultant were not sufficiently detailed, definite, and precise to afford a basis for full and fair competitive bidding upon a common standard. Lucas v. Amer. Haw. E. & C. Co., 16 Haw. 80 (1904); Wilson v. Lord-Young Engineering Co., 21 Haw. 87 (1912). As such, they were totally inadequate for conventional bidding purposes.

A fair competition among the bidders is the prime object of (the statute), and anything which tends to impair this is illegal. . . . (The statute) requires such information to be put within the reach of bidders as will enable them to bid intelligently and will enable the official having charge of the proposed work to know whose bid is the lowest. The character of the work and the materials of which it shall be composed must be decided in advance. Lucas, supra, 16 Haw. at 90.

The City instead decided to employ a 'request for proposal' bidding procedure which was obviously patterned after the 'two-step formal advertising' bidding method developed by the federal government. This method is used chiefly by the Armed Services, particularly in areas where the complexity of the system or equipment desired, as well as limitations of time, has rendered unfeasible or inadvisable the prior development by the purchasing authority of its own detailed technical specifications. See 1A J. C. McBride & I. H. Wachtel, Government Contracts § 10-120 (1973); Armed Services Procurement Regulation (ASPR) § 2.501 et seq. (April 1973).

In our opinion, neither case law nor statutory authority in this jurisdiction prohibits a government agency from employing this 'two-step' bidding procedure, so long as that agency has promulgated rules and regulations to insure fair and open competition among bidders. Even then, its use should be strictly limited.

In Step One of the federal procedure, the procurement office advises prospective bidders of the current status of its project, its goals and its objectives. It also provides them with technical specifications which are not in themselves sufficiently detailed to permit bidding by the conventional method. Prospective bidders are then invited to submit for evaluation unpriced technical proposals based on these specifications, goals, and objectives.

These unpriced proposals are thereafter evaluated by the technical personnel of the procuring agency. The proposals, as...

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