Low bid doesn’t always mean winning bid

By Michael Hermes

A Wisconsin court of appeals recently clarified how much discretion a municipality has at the bid-awarding stage and what remedies are available for low-bidding companies that don’t get the project.

DMK Inc., an Oconto Falls-based sand, gravel and road construction company, submitted bids for five road reconstruction projects in Pittsfield. The bids were to be let in spring 2003. DMK was the lowest bidder on each project, but Pittsfield didn’t award DMK the contracts.

At a Town Board meeting, board members discussed whether DMK was a “responsible bidder.” The town’s conclusion was that DMK should be awarded two projects.

But the town conditioned the award on DMK immediately signing a waiver stating it would not sue the town for the three projects it didn’t receive. DMK agreed to sign the waiver that evening if it was awarded three jobs. The town then rescinded its motion and awarded the contracts to the next lowest bidder.

DMK sued for lost profits. While the trial judge stated the actions of the Pittsfield Town Board “violated the smell test,” he concluded that the law didn’t allow DMK’s claim.

DMK appealed. An appeals court agreed with the trial court in a decision scheduled for future publication.

The appeals court reaffirmed the broad discretion of a municipality in determining whether a contractor is a “responsible bidder.” DMK argued that the town could not impose additional conditions on an award because that precedent could lead to corruption.

If a municipality could condition an award, then kickbacks, free work on the side or donations to certain organizations could be common. The appeals court simply found that the Town Board’s ultimate decision was that DMK was “not responsible.”

The result for contractors is that a municipality can offer a conditional award. If the bidder doesn’t accept the conditions, the bidder can be deemed “not responsible,” and the municipality is immune from suit.

The second major impact of the appeals court’s decision is that a disappointed bidder may not sue for lost profits. While a 1976 Wisconsin Supreme Court case seemed to suggest that was the law in Wisconsin, this decision leaves no doubt.

As a result, a contractor that feels it has been wronged by a municipality has only one available remedy: It may sue for a court order stopping the municipality from awarding the contract to another party until a court can review the municipality’s decision for abuse of discretion.

For contractors, the problem with this remedy is that there is no guarantee the contractor will actually receive the project. Even if a court determines that a municipality abused its discretion in awarding a project to someone who was not the low bidder, the court cannot force the municipality to award the contract to the lowest bidder.

The best result would be for the contract to be re-let.

In addition, contractors must consider the effect of suing a municipality for not receiving a project. The fallout from a lawsuit could be that a savvy municipality could put sufficient conditions on an award so a bidder might not want the project.

Or a municipality could make a finding that the bidder was “not responsible” and award the contract to the next lowest bidder. Given the expenses involved in a lawsuit, few disappointed low bidders would see a benefit to challenging the municipality.

Although the DMK case involved road reconstruction projects, the impact of this opinion could extend to any municipal contract. Low bidders finding themselves on the wrong end of municipal decisions and looking to challenge those decisions should contact their attorneys immediately.

There are strict time limits that must be followed to appeal the decision. The injunction should get filed immediately to prevent work from beginning with the alternate contractor.

Copyright © 2006 The Daily Reporter Publishing Co.