Shook Heavy and Environmental Const. Group, a Div. of Shook, Inc. v. City of Kokomo

Decision Date05 April 1994
Docket NumberNo. 49S00-9401-CQ-59,49S00-9401-CQ-59
Citation632 N.E.2d 355
PartiesSHOOK HEAVY AND ENVIRONMENTAL CONSTRUCTION GROUP, A DIVISION OF SHOOK, INC., Plaintiff, v. CITY OF KOKOMO, Defendant.
CourtIndiana Supreme Court

Michael W. Currie, Arter & Hadden, Columbus, OH, Robert Zeigler, Lacava, Zeigler & Carter, Indianapolis, for plaintiff.

Thomas J. Trauring, Fell, McGarvey, Trauring & Wilson, Kokomo, for defendant.

SULLIVAN, Justice.

In response to a certified question from the United States District Court of the Southern District of Indiana, 1 we hold that an unsuccessful bidder does not have a cause of action under Indiana law for an injunction prohibiting a city from awarding a public contract to the selected bidder if the unsuccessful bidder's legal theory is that the selected bidder is not the lowest responsible and responsive bidder as required under Ind.Code Ann. § 36-1-9-3 (Burns 1993).

This question arises out of plans by the City of Kokomo to construct a municipal sludge composting facility. Under Ind.Code § 36-1-9 (the "Public Purchasing Statute"), 2 the City was required to solicit sealed bids according to a strict statutory regime and award the contract to the lowest responsible and responsive bidder. Shook Heavy & Environmental Construction Group ("Shook") submitted a bid pursuant to the City's solicitation. When the bids were opened, the City announced that another bidder was the lowest responsible and responsive bidder and that it intended to award the contract to that bidder. Shook filed suit in United States District Court for the Southern District of Indiana, seeking to enjoin the award of the contract on the basis that deficiencies in the bid of the apparent low bidder caused that bidder's bid to be not the lowest responsible and responsive bid. The district court preliminarily enjoined the award of the contract and has asked this court whether Shook has a cause of action for an injunction as a matter of Indiana law. We conclude that no cause of action for an injunction on these grounds is available to an unsuccessful bidder under the statutory, common, or constitutional law of Indiana.

Statutory Law

As a preliminary matter, we note that the competitive bidding requirements followed by the City in this case were created by the legislature in the Public Purchasing Statute. Not all public purchases require competitive procurement procedures. In general, only supplies, goods, machinery, packaged software, and equipment must be acquired through competitive bids. Ind.Code Ann. §§ 36-1-2-9.5 and 36-1-9-1 (Burns 1993). On the other hand, procurements of personal services such as architectural and engineering, legal, and investment banking services are not included within the scope of the Public Purchasing Statute and, therefore, not subject to it. Because Shook would have had no legal right to have its bid for the Kokomo project even considered by the City absent the legislature's enactment, it is appropriate that we begin by reviewing whether the legislature has also enacted provisions concerning the enforcement of the Public Purchasing Statute.

The legislature has provided a statutory right to enforce the Public Purchasing Statute under two circumstances.

First, Ind.Code Ann. § 34-4-17 (Burns 1986 & Supp.1993) (the "Public Lawsuit Statute") 3 permits citizens or taxpayers of the municipality in question to bring an action questioning the validity or construction of any public improvement by the municipality. The "public lawsuit" provisions are grounded in the historical principle that competitive bidding statutes are "enacted for the benefit of property holders and taxpayers and not for the benefit or enrichment of bidders." 10 EUGENE McQUILLIN, LAW OF MUNICIPAL CORPORATIONS § 29.29 (1990). This principle has been acknowledged on a number of occasions by this court, e.g., State ex rel. Sekerez v. Lake Superior Court (1975), 263 Ind. 601, 602, 335 N.E.2d 199, 200, and the Court of Appeals, e.g., Irwin R. Evens & Son v. Airport Authority (1992), Ind.App., 584 N.E.2d 576, 582; Rice v. Scott County School District (1988), Ind.App., 526 N.E.2d 1193, 1197. 4

Second, Ind.Code Ann. § 24-1-2-7 (Burns 1991) 5 confers on private individuals the right to challenge the award of a government contract where the governmental entity and successful bidder have engaged in collusion or fraud. City of Auburn v. Mavis (1984), Ind.App., 468 N.E.2d 584, 585. This statute addresses the concern this court expressed in Gariup v. Stern (1970), 254 Ind. 563, 566, 261 N.E.2d 578, 581, when we observed that a "bidder invests considerable time, effort and money in submitting a bid and is pecuniarily damaged if illegal procedures are used to his disadvantage."

An unsuccessful bidder could challenge the award of a contract under either of these two statutes but only if, in the first case, the unsuccessful bidder was a citizen or taxpayer of the municipality or, in the second case, the unsuccessful bidder alleged collusion or fraud. Neither of these circumstances are applicable to Shook. Shook is not a citizen or taxpayer of Kokomo 6 and does not allege collusion or fraud.

Furthermore, the legislature has specifically provided by statute for the appeal of certain municipal decisions. See, e.g., Ind.Code Ann. § 36-1-10-15 (Burns 1993) (authorizing appeals of decisions by political subdivisions to lease or lease purchase structures, transportation projects, and systems); Ind.Code Ann. § 36-7-14-1332, -1333, and -1336 (Burns 1989) (authorizing appeals of assessments of impact fees); Ind.Code Ann. § 36-9-38-27 (Burns Supp.1993) (authorizing appeals of Barrett Law assessments). Ind.Code Ann. § 34-4-17.5 (Burns 1986 & Supp.1993) sets forth specific procedures governing actions pursuant to explicit appeal procedure statutes.

From the foregoing, we conclude that the legislature has not provided any statutory basis upon which an unsuccessful bidder that is not a citizen or taxpayer of the municipality in question and where collusion or fraud in the award of the contract is not alleged can bring an action seeking to enjoin the award of the contract. Furthermore, we believe that there is a strong inference that the legislature specifically intends that there be no cause of action, such inference being drawn from the fact that the legislature has provided a specific appeal procedure for certain municipal decisions but not for decisions awarding contracts under the Public Purchasing Statute.

Common Law

Shook does not contend that it has a statutory right to a cause of action for an injunction prohibiting the City from awarding the contract. Rather, Shook seeks recognition of such a right under common law.

Shook argues that if only taxpayers are entitled to enforce the provisions of the competitive bidding statutes, it is likely that only a public decision that increases the price of a contract to the political subdivision will be challenged. For example, in plaintiff's view only an unsuccessful bidder, and not a taxpayer, is likely to challenge a decision in which inferior materials are substituted for those specified in the original bid solicitation but where the bid price remains the same. The public interest, Shook argues, dictates that an unsuccessful bidder be permitted to intervene in such circumstances.

Plaintiff also argues that a secondary purpose of statutes like the Public Purchasing Statute is to protect the sanctity of the competitive bidding process. Confidence that a level playing field is available for all contractors is essential, Shook argues, to maintain an active and competitive bidding environment for municipal construction. Allowing unsuccessful bidders to seek injunctive relief when statutory procedures are not adhered to clearly would further this goal.

However, there are important public policy arguments in favor of denying unsuccessful bidders the ability to seek injunctive relief. First, there is a clear public interest in expeditious construction of public works projects. Nowhere is time money more than in the construction field. And prompt completion of public construction projects is often important from a public safety standpoint. Second, the cost of litigating contracts awarded under competitive bidding statutes--perhaps multiple lawsuits in respect of a single contract award if more than one unsuccessful bidder seeks relief--could pose a serious threat to public treasuries.

Both sets of arguments are strong. In the end, the choice as to which is the appropriate policy is within the purview of the legislature, not this court, absent constitutional difficulties.

Both parties cite this court's decision in Gariup v. Stern, 254 Ind. 563, 261 N.E.2d 578, in support of their position. In Gariup, this court considered a lawsuit, brought by an unsuccessful bidder and a group of concerned taxpayers, to enjoin the award of a public contract for construction of a new school building. In analyzing the complaint, this court recognized that the unsuccessful bidder did not have a cause of action under the public lawsuit statute. Rather, this court held such an action is a "private lawsuit." 254 Ind. at 566, 261 N.E.2d at 582. Shook contends that this conclusion creates a common law cause of action for an unsuccessful bidder, separate and independent from that permitted under the public lawsuit statute.

We do not believe that Gariup need be read that way. In fact, this court in Gariup dismissed the entire cause of action for failure to comply with the technical requirements of the Public Lawsuit Statute. We believe that Gariup is properly understood to mean simply that an unsuccessful bidder has no cause of action under the Public Lawsuit Statute unless that bidder is a citizen or taxpayer of the municipality. While concluding that the unsuccessful bidder's lawsuit would be a private, not a public lawsuit, Gariup does not hold that the unsuccessful bidder would have standing to maintain the private lawsuit. 7

We...

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