Guidesoft, Inc. v. State Protest Comm.

• Decision Date: 02 September 2021
• Docket Number: M2020-00964-COA-R3-CV
• Citation: 642 S.W.3d 388
• Parties: GUIDESOFT, INC. d/b/a Knowledge Services v. STATE PROTEST COMMITTEE, State of Tennessee, et al.
• Court: Tennessee Court of Appeals

642 S.W.3d 388

GUIDESOFT, INC. d/b/a Knowledge Services

v.STATE PROTEST COMMITTEE, State of Tennessee, et al.

No. M2020-00964-COA-R3-CV

Court of Appeals of Tennessee, MIDDLE Section, AT NASHVILLE.

July 7, 2021 Session

FILED September 2, 2021

Permission to Appeal Denied by Supreme Court: January 12, 2022

Darwin A. Hindman, III, and Rachael C. Haley, Nashville, Tennessee, for the appellant, Guidesoft, Inc. d/b/a Knowledge Services.

David R. Esquivel and Jeffrey P. Yarbro, Nashville, Tennessee, for the appellee, UWork.com, Inc., d/b/a Covendis Technologies.

Herbert H. Slatery, III, Attorney General and Reporter; Andrée Sophia Blumstein, Solicitor General; Eugenie B. Whitesell, Senior Assistant Attorney General; and, Janie C. Porter, Senior Assistant Attorney General Education and Employment Division, for the appellee, the State Protest Committee, State of Tennessee.

D. Michael Swiney, C.J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Andy D. Bennett, J., joined.

D. Michael Swiney, C.J.

This appeal concerns a bid protest. UWork.com, Inc., d/b/a Covendis Technologies ("Covendis") successfully bid on a contract to manage a network of temporary workers for the State of Tennessee. Guidesoft, Inc. d/b/a Knowledge Services ("Knowledge Services"), an unsuccessful bidder, filed a protest with the Central Procurement Office ("the CPO"). The CPO dismissed Knowledge Services’ bid for insufficient bond. Knowledge Services appealed to the State Protest Committee ("the Committee"), which denied the appeal. Knowledge Services then filed a petition for common law writ of certiorari in the Chancery Court for Davidson County ("the Trial Court"). After a hearing, the Trial Court dismissed Knowledge Services’ amended petition. Knowledge Services now appeals to this Court, arguing that under Tenn. Code Ann. § 12-3-514(d), its protest bond should be based on 5% of the lowest evaluated cost proposal rather than 5% of the State's estimated maximum liability as found below. We hold, inter alia , that the protest bond statute is meant to protect the State, and the appropriate protest bond amount is based on the costs the State may incur rather than a bidder's proposed cost. Further, the fee relied upon by Knowledge Services to calculate its protest bond is but a small portion of the contract at issue, which is estimated to cost the State $190,000,000. The Committee did not exceed its jurisdiction or act illegally, arbitrarily, or fraudulently. We affirm the Trial Court.

Background

In response to a Request for Proposal ("the RFP") issued by the CPO, Knowledge Services and Covendis bid for a statewide contract to provide managed services for Tennessee's contingent workforce. The RFP called for a managed service provider ("MSP") to manage the State's staff augmentation, to include establishing and managing a sub-vendor network. Knowledge Services was the incumbent MSP. The State's estimated maximum liability under the RFP was $190,000,000. The contractor would be compensated under the contract by retaining a percentage of the maximum bill rate. The MSP fee—the percentage of the bill rate kept by the MSP—would be deducted from the rate received from a sub-vendor. Each bidder was required to submit two separate parts to their bid: a Technical Response, and a Cost Proposal. In the Cost Proposal, each bidder offered a bid rate that was a percentage mark-up of the amounts charged by sub-vendors to the State for labor. The CPO then converted this bid rate to an amount on a Cost Proposal evaluation score sheet, and the bidder with the lowest evaluated cost amount would be assigned all 20 points possible in the category. Higher bidders would be assigned a scaled score based on a formula using the lowest evaluated cost amount. Covendis offered a bid rate representing a .75% mark-up of the sub-vendor charges to the State. Covendis received all 20 points for its Cost Proposal.

In May 2019, the State issued its notice of intent to award the RFP to Covendis. In its notice, the State provided that in the event of a protest, the protest bond was $9,500,000—or 5% of the State's estimated maximum liability under the RFP. In so doing, the CPO applied Tenn. Code Ann. § 12-3-514(d)(2) which bases the protest bond on the State's estimated maximum liability. Knowledge Services timely filed a protest with the CPO asserting that the State acted arbitrarily and capriciously in awarding the contract to Covendis. In its bid protest, Knowledge Services asserted that Covendis lacked sufficient experience in certain key areas. Knowledge Services contemporaneously submitted a protest bond of $71,250—5% of Covendis’ lowest evaluated Cost Proposal of .75% of the estimated maximum liability—rather than the $9,500,000 required by the CPO. It was, and is, Knowledge Services’ contention that Tenn. Code Ann. § 12-3-514 subsection (d)(1) rather than (d)(2) should have been applied here. Nevertheless, the CPO dismissed Knowledge Services’ protest on grounds that its bond was insufficient. Tenn. Code Ann. § 12-3-514 provides as follows, in part:

(b) Any respondent who has submitted a response to a solicitation authorized under this chapter and who claims to be aggrieved in connection with the solicitation, award, or proposed award of a contract may protest to the chief procurement officer. The protest shall be submitted in writing within seven (7) calendar days after the earlier of the notice of the award or intent to award the contract is issued. Any issues raised by the protesting party after the seven-day period to protest shall not be considered as part of the protest. Upon receipt of a protest of a solicitation, award, or proposed award of a contract, and a protest bond as required in subsection (d), a stay of the solicitation, award, or proposed award shall be in effect until the protest is resolved as provided under this section.

***

(d) A protest under this section is not actionable unless the protesting party submits a protest bond contemporaneously with a protest. A protest bond shall be payable to the state in the amount of:

(1) Five percent (5%) of the lowest bid or cost proposal evaluated;

(2) Five percent (5%) of the maximum liability or estimated maximum liability provided in the solicitation;

(3) Five percent (5%) of the estimated maximum revenue, if the solicitation, award, or proposed award is for a contract in which the state receives revenue; or

(4) For no-cost contracts, an amount to be determined by the chief procurement officer.

(e) The protest bond shall be in form and substance acceptable to the state and shall be surrendered to the state after the protesting party has had an opportunity to oppose the payment of the protest bond and after a finding by the protest committee that:

(1) The protest was signed, before or after appeal to the chief procurement officer or protest committee, in violation of subsection (c);

(2) The protest has been brought or pursued in bad faith;

(3) The affected state agency has suffered damages resulting in a loss of funding, increased expenditures, or a disruption in services; the protest was filed in bad faith or in violation of subsection (c); and the protest was not upheld;

(4) The protest did not state on its face a valid basis for protest; or

(5) For any other reason approved by the protest committee.

***

(h) The chief procurement officer, in consultation with the head of the state agency, has authority to resolve the protest. The chief procurement officer shall resolve the protest within sixty (60) calendar days after a protest is filed. The final determination of the chief procurement officer shall be made in writing and submitted to the protesting party, the protest committee, and the comptroller of the treasury. If the chief procurement officer fails to resolve the protest within sixty (60) calendar days, then the protesting party may request that the protest committee meet to consider the protest. The chief procurement officer shall provide the minutes of the protest proceedings to each committee member and to the comptroller of the treasury and shall post the final determination within fifteen (15) business days to the website of the central procurement office. A request for consideration before the protest committee shall be made in writing within seven (7) calendar days from the date of the chief procurement officer's final determination or within seven (7) calendar days following the chief procurement officer's failure to resolve the protest within sixty (60) calendar days after receipt of the protest.

(i) A stay made pursuant to subsection (b) shall not be lifted unless, after giving the protesting party an opportunity to be heard, the chief procurement officer or the protest committee makes a written determination that continuation of the procurement process or the award of the contract without further delay is necessary to protect the interests of the state.

***

(l) Protests appealed to the chancery court from the protest committee shall be by common law writ of certiorari. The scope of review in the proceedings shall be limited to the record made before the protest committee and shall involve only an inquiry into whether the protest committee exceeded its jurisdiction, followed an unlawful procedure, or acted illegally, fraudulently, or arbitrarily without material evidence to support its action.

Tenn. Code Ann. § 12-3-514 (2019).¹

Knowledge Services appealed the CPO's decision to the Committee. After a July 2019 hearing, the Committee denied Knowledge Services’ appeal. The Committee found that pursuant to Tenn. Code Ann. § 12-3-514(e), the CPO had the authority to determine whether a protest bond is acceptable to the State; that the CPO rather than the protesting party determines the amount of the bond based on the type of contract; and that a protest bond in form and substance acceptable to the State was a jurisdictional requirement. Finally, the Committee found that the protest bond should be...