Rental Equip. Co. v. Meridian Eng'g Co.

• Decision Date: 09 April 1974
• Docket Number: Civil No. 216-1974
• Citation: 10 V.I. 421
• Parties: RENTAL EQUIPMENT CO., INC., Plaintiff v. MERIDIAN ENGINEERING CO., INC., et al., Defendants
• Court: U.S. District Court — Virgin Islands

10 V.I. 421

RENTAL EQUIPMENT CO., INC., Plaintiff v. MERIDIAN ENGINEERING CO., INC., et al., Defendants

Civil No. 216-1974

District Court of the Virgin Islands Div. of St. Croix

April 9, 1974

Action by lowest bidder on government contract to have contract awarded preferred bidder set aside and a contract awarded plaintiff. District Court, Young, J., held that an advertisement for bids is merely an invitation to make an offer, and where government advertisement, through clerical error, stated that Preferred Bidders Act would not apply, plaintiff's bid was lowest, defendant was given the contract as the preferred bidder, plaintiff was not notified of the error or that defendant had received the contract, defendant began work and plaintiff had purchased trucks to use for the work, plaintiff could not have the contract set aside and a contract awarded to plaintiff.GEOFFREY W. BARNARD, ESQ., Christiansted, St. Croix, V.I., for plaintiff

NICHOLS & SILVERLIGHT, ESQS., Christiansted, St. Croix, V.I., for defendants

YOUNG, District Judge

MEMORANDUM OPINION, ORDER AND JUDGMENT

This is an action to set aside a road construction contract awarded under the Preferred Bidders Act, 31 V.I.C. § 236a, and to enjoin its performance. The Act, the pertinentprovisions of which are set out in the footnote 1,¹ establishes limited preferences for certain categories of bidders on government contracts. A "preferred bidder" is defined as a person who was born in the Virgin Islands or who has resided at least eight years in the Virgin Islands. It also includes a corporation or partnership in which the majority interest is held by native-born Virgin Islanders or by persons who have resided in the Virgin Islands for at least eight years. The "preferred bidder," whether a person or a company, must maintain his or its principal place of business in the Virgin Islands. Under § 236a (b) the Government "shall purchase or contract" with a preferred bidder if the cost to the Government is within 15% of the low bid and the quality of the preferred bidder's services are equivalent to those of lower bidders.

The instant case arises from an Invitation to Bid extended by the Government on December 4, 1973, regarding resurfacing work on the East End Road between Tide Village and Green Cay. Through a clerical error, the advertisement stated that the "Preferred Bidders Act #2995,approved 4/16/71, will not apply."² In due course bids were received, among them the low bid from Rental Engineering Co., Inc. [hereinafter "Rental"] in the amount of $346,959.36, and a slightly higher one from Meridian Engineering Co., Inc. [hereinafter "Meridian"] in the amount of $348,416.38. Meridian qualified as a preferred bidder; but Rental did not, since it is a wholly-owned subsidiary of Devcon International Corp., a Florida corporation, and thus is not owned by Virgin Islanders. Correcting the error in the advertisement for bids, the Government applied the Preferred Bidders Act and awarded the contract to Meridian; a Notice to Proceed issued on March 15, 1974. Shortly thereafter Meridian began performance of its contract. Meanwhile, Rental alleges that in reliance upon its position as low bidder it "invested substantial sums in preparation for the work described." Indeed, the Government never notified Rental of the error in the advertisement and invitation to bid and, further, did not notify Rental of the award of the contract to Meridian.

On March 22, 1974, Rental brought suit against Meridian and the Government to have "the contract . . . set aside as having been awarded contrary to law, and [to have] . . . the contract . . . awarded to Rental Equipment Co., Inc., as low bidder." On the same day, Rental moved for a temporary restraining order under F. R. Civ. Pro. Rule 65, and supported this motion with an affidavit alleging that Rental was being "irreparably damaged." A TRO was issued ex parte at 4:48 P.M. on the 22nd. On March 26, 1974, Meridian moved to dissolve the TRO on the grounds that it did not conform with the procedural requirements of Rule65(b) and (c). This motion came on for hearing March 27, at which hearing it first appeared that at the time of the issuance of the TRO Meridian had already partially performed the contract work, to the extent of laying one mile of proposed four mile road base,³ and was suffering substantial daily losses as a result of the TRO. At this hearing, as well, Rental first advanced its argument that the Preferred Bidders Act was unconstitutional. It was decided at the hearing that the TRO would be continued, if Rental would post a suitable bond to cover Meridian's losses, until a hearing and decision on Rental's claims for permanent relief could be had. On March 28, a $150,000 bond was put up; an evidentiary hearing on the merits of the case was held March 29.⁴ The decision of this Court vacating the TRO and denying Rental relief was made on April 5, 1974. The reasons for this decision are set out in the remainder of this Opinion.

I. Policies Favoring Completion of Partially ExecutedGovernmental Construction Contracts

[1] Litigation involving pending governmental contracts is generally disfavored by the courts. E.g., Black-hawk Heating & Plumbing Co. v. Driver, 433 F.2d 1137, 1141 (D.C. Cir. 1970) ("the mere fact that a party has standing to sue does not entitle him to render uncertain for a prolonged period of time government contracts . . ."). Thus the doctrine of laches is strictly applied to plaintiffs who seek to challenge executed or partially executed public contracts. See Barrett v. Union Bridge Co., 117 Ore. 220, 225, 243 P. 93, 96 (1926); Drenning v. Topeka, 148 Kan. 366, 370-71, 81 P.2d 720, 723-24 (1938). Furthermore,judicial discretion in such cases should be exercised with reference to considerations of "public interest." See M. Steinthal & Co. v. Seamans, 455 F.2d 1289,1302 (D.C. Cir. 1971); cf. Virginian Ry. v. System Federation No. 40, 300 U.S. 515, 552, 57 S.Ct. 592, 81 L.Ed. 789 (1937). For example, the mere fact that a successful bid is adjudged "untimely, unresponsive, contrary to the terms of the invitation, void and of no effect" does not mean an unsuccessful bidder is entitled to any relief, and indeed the "granting of any relief is unusual." William F. Wilke, Inc. v. Department of the Army, 485 F.2d 180, 182 (4th Cir. 1973) aff'g 357 F.Supp. 988 (D. Md.); accord 52 Comp. Gen. 215 (1972) (opinion of Comptroller General that let contracts should be cancelled only if their illegality is "palpable" on the face of the enabling statute).

In the instant case, the detriment to public interests from cancelling or voiding Meridian's contract is two-fold. On the one hand, there is an interest in speedy completion of the road project. If Meridian's contract were voided, there would ensue an additional delay while a new contract was bid on.⁵ Then too, the start-up procedures which Meridian has already undertaken would have to be repeated. On the other hand, there is the financial loss which cancellation would entail to the public. It is highly likely that Meridian could recover from the Government for the work already done on a quantum meruit or implied contract theory. See, generally, 65 Am. Jur.2d Public Works & Contracts §§ 151 et seq.; 56 Am.Jur.2d Municipal Corporations §§ 519 et seq. This recovery would include start-up expenses normally allocable over an entire job. In its new contract to complete the road the Government would have to pay forall these start-up expenses again. Finally, the price of the new contract might be affected by intervening inflation and shortages. In sum, it clearly appears that the public interest would be harmed by the cancellation of Meridian's partially executed construction contract.

An analogous result is reached under the traditional balancing of harms analysis employed in determining the appropriateness of injunctive or other equitable relief. City of Harrisonville v. W. S. Dickey Clay Manuf. Co., 289 U.S. 334, 77 L.Ed. 1208, 53 S.Ct. 602 (1933); cf. Restatement of Torts § 941. If the injunction is granted in the present case, the harm to the Government will consist in the delay and substantial financial loss noted above. Even if it be assumed that Meridian cannot recover against the Government for work done, the costs of its work must still be weighed against injunctive relief since they will then be borne by Meridian. In any case, Meridian will be compelled to forego its profit on its contract and bear the expenses and uncertainties of attempting to recover against the Government. By comparison, the harm to Rental in the event its requested injunction is denied seems relatively slight.⁶ Apparently Rental's major preparatory expense in reliance upon its low bid was the purchase of several trucks, the cost of which should substantially be recoverable through use in other construction work or resale. This contrasts with Meridian's large, nonrecoverable expenses of starting-up, maintaining an asphalt plant, and assembling crews of construction workers. It might be added that the benefit which Rental's lower bid price offered the Government was trivial—there was less than a $2,000 difference from Meridian's bid. Furthermore, it is far from clear that if Meridian's performance is enjoined Rental will actually obtainthe new contract, see n. 5 supra, and thus make good its reliance losses. A final point with regard to balancing harms is the special weight to be given to harms imposed upon the citizenry when the Government is enjoined. "Where an important public interest may be prejudiced, the reasons for denying the injunction may be compelling." 289 U.S. supra at 338. For such reasons, equitable relief is not often an appropriate remedy in suits regarding partially executed public construction contracts, and the parties to such contracts, and third persons, should generally be left to their remedies at law, if any.

II. Award of Construction Contract to Meridian WasProper Under Preferred...