Opinion ID: 1124217
Heading Depth: 2
Heading Rank: 2

Heading: Remedies Under the Procurement Code

Text: Ultimately, the Hearings Officer's decision was that the award of the contract to Ameritech was in violation of HRS § 103D-303(g). In other words, the Hearings Officer decided in CARL's favor. Nonetheless, CARL requests review of the Hearings Officer's other conclusions that, essentially, there were no other violations of the procurement code. CARL's appeal from a favorable decision, its requested relief, and the arguments in its briefs make clear that this appeal is an attempt to obtain relief beyond that afforded by the Hearings Officer. Although we agree with CARL that the violations of the procurement code were not limited to the faulty evaluation of the proposals, the number of violations of the procurement code has no bearing on the remedies available. Therefore, rather than address the Hearings Officer's conclusions on each alleged violation, we discuss only those necessary to determine CARL's remedy. Unlike the American Bar Association's Model Procurement Code for State and Local Governments (ABA Model Code), after which it was modeled, see Stand. Comm. Rep. No. S8-93, in 1993 Senate Journal at 39, or, apparently, any other jurisdiction's procurement code, the State Procurement Code provides that [t]he procedures and remedies provided for in this part, and the rules adopted by the policy office, shall be the exclusive means available for persons aggrieved in connection with the solicitation or award of a contract, ... to resolve their claims or differences. The contested case proceedings set out in chapter 91 shall not apply to protested solicitations and awards[.] HRS § 103D-704. [16] The remedies available to a person aggrieved in connection with the solicitation or award of a contract are described in HRS §§ 103D-705 to 103D-707. HRS § 103D-705 provides that [t]he provisions of section 103D-706 and section 103D-707 apply where it is determined administratively under sections 103D-701, ... and 103D-709, or upon judicial review or action under section[] 103D-710 ..., that a solicitation or award of a contract is in violation of the law. Sections 103D-706 and 103D-707 provide: [§ 103D-706] Remedies prior to an award. If prior to award it is determined that a solicitation or proposed award of a contact is in violation of law, then the solicitation or proposed award shall be: (1) Cancelled; or (2) Revised to comply with the law. [§ 103D-707] Remedies after an award. If after an award it is determined that a solicitation or award of a contract is in violation of law, then: (1) If the person awarded the contract has not acted fraudulently or in bad faith: (A) The contract may be ratified and affirmed, provided it is determined that doing so is in the best interests of the State; or (B) The contract may be terminated and the person awarded the contract shall be compensated for the actual expenses reasonably incurred under the contract, plus a reasonable profit, prior to the termination; (2) If the person awarded the contract has acted fraudulently or in bad faith: (A) The contract may be declared null and void; or (B) The contract may be ratified and affirmed if the action is in the best interests of the State, without prejudice to the State's rights to such damages as may be appropriate. In making the determination whether ratification of the contract is in the best interest of the State, the following factors are among those considered: (A) The costs to the State in terminating and resoliciting; (B) The possibility of returning goods delivered under the contract and thus decreasing the costs of termination; (C) The progress made toward performing the whole contract; and (D) The possibility of obtaining a more advantageous contract by resoliciting. HAR § 3-126-38(a)(4). Thus, the award of the contract before it has been determined whether the solicitation or proposed award is in violation of law effectively limits the relief available to the person aggrieved by the solicitation or award. Where the contract has not yet been awarded, it is still possible to cancel the solicitation and proposed award, or to correct the violation. Once the contract has been awarded, whether or not it is in violation of law, and notwithstanding the prejudice to the aggrieved person or the public, the contract may still be ratified, providing it is in the best interests of the State. Moreover, the further performance on the contract has proceeded, the more likely it is, given the applicable factors, that ratification of the contract is in the best interests of the State, effectively eliminating any remedy, either to the public or the protestor, from an illegally entered contract.
This case provides an example of the difference in available remedies once the contract has been awarded. CARL contended before the Hearings Officer, and maintains on appeal, that Ameritech's proposal should not have been considered because (1) it was not responsive to the RFP, and (2) Ameritech was disqualified from submitting a proposal due to its participation in developing the specifications for the RFP. [17] The Hearings Officer did not address these issues, presumably because of his conclusion that the real focus of this case was the evaluation procedures. CARL urges us to reach these issues on appeal because it contends that, where Ameritech's proposal was nonresponsive or Ameritech was precluded from bidding, this court may disqualify Ameritech's proposal and award the contract to CARL, the only remaining responsive offeror. Had the contract not been executed, the relief CARL seeks would have been available. If the Hearings Officer had agreed with CARL, prior to the award of the contract, he could either have ordered the cancellation of the solicitation and precluded Ameritech from submitting a proposal on any subsequent solicitation based on the same specifications or have revised the solicitation to comply with law by eliminating Ameritech's proposal from consideration, which would have had the same effect. HRS § 103D-706. [18] Because the contract had already been executed, however, even if the Hearings Officer or this court agreed that Ameritech's proposal should not have been considered, the only remedy available is ratification or termination of the contract pursuant to HRS § 103D-707, not the award of the contract to CARL as the only responsive, qualified offeror. Because the award of the contract so severely limits the relief available, HRS § 103D-701(f) provides that, [i]n the event of a timely protest [to the chief procurement officer or the head of a purchasing agency] under subsection (a), no further action shall be taken on the solicitation or the award of the contract until the chief procurement officer, after consultation with the head of the using agency, or the head of the purchasing agency, makes a written determination that the award of the contract without delay is necessary to protect substantial interests of the State. (Emphasis added.) In this case, however, Kane executed the contract with Ameritech on January 25, 1996; there was no substantial interest determination made until March 13, 1996. We hold, therefore, that the award of the contract to Ameritech was in violation of HRS § 103D-701(f). Moreover, the record establishes as a matter of law that Kane's execution of the contract was in bad faith. CARL's timely protest was received on January 3, 1996. Unebasami instructed Kane on January 4 not to award the contract to Ameritech unless he, Unebasami, issued a substantial interest determination, and further instructed Kane to draft a reply for his signature. Kane proceeded to deny the protest directly, without Unebasami's review, on January 9. CARL received the denial on January 12 and timely filed a request for reconsideration on January 22; Kane executed the contract with Ameritech on January 25. The Hearings Officer concluded that, [w]hen Mr. Kane denied [CARL's] protest on January 9, 1996, it was not unreasonable for him to believe that pursuant to section 103D-701(e), his decision was final and conclusive[,] COL 20, and that [i]t was also not unreasonable for Mr. Kane to believe that after his final decision was issued on January 9, 1996, and before any administrative proceeding was commenced under HRS § 103D-709, there was no pending protest under HRS § 103D-701(a) that would require that no action be taken on the award of the Contract. COL 21. COL 20 and 21 are actually findings of fact, and, therefore, reviewed under the clearly erroneous standard. [19] We hold that the finding that Kane acted reasonably is clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record. HRS § 103D-710(e)(5). Notwithstanding HRS § 103D-701(e), which provides in part that [a] decision under subsection (c) shall be final and conclusive[,] the implementing regulations specifically provide for reconsideration of the decision of the chief procurement officer or the head of the purchasing agency and treat the decision after reconsideration as the final decision rendered pursuant to HRS § 103D-701. HAR § 3-126-8 (1995) provides: Request for Reconsideration. (a) Reconsideration of a decision of the chief procurement officer or the head of a purchasing agency may be requested by the protestor, appellant, any interested party who submitted comments during consideration of the protest, or any agency involved in the protest. The request for reconsideration shall contain a detailed statement of the factual and legal grounds upon which reversal or modification is deemed warranted, specifying any errors of law made or information not previously considered. (b) Requests for reconsideration of a decision of the chief procurement officer or the head of a purchasing agency shall be filed not later than ten working days after receipt of such decision. (c) A request for reconsideration shall be acted upon as expeditiously as possible. The chief procurement officer or the head of a purchasing agency may uphold the previous decision or reopen the case as such officer deems appropriate. (d) The decision under subsection (c) shall be final and the protesting bidder or offeror shall be informed: (1) Whether the protest is denied or sustained; and (2) If the protest is denied, the protestor's right to an administrative proceeding pursuant to subchapter 5. (e) The protesting bidder or offeror shall inform the State within five working days after the final decision if an administrative appeal will be filed. An appeal shall be filed within seven calendar days of the determinations under ... this section[.] (Emphasis added.) Even if, as the Hearings Officer implicitly found, Kane was unaware of CARL's January 22 request for reconsideration when he executed the contract on January 25, the period during which such a request could be filed had not yet expired. Pursuant to HAR § 3-126-8(b), CARL had until January 26, 1996, to file its request for reconsideration. Therefore, it was not reasonable for Kane to believe, on January 25, that his denial of the protest was final and conclusive and that there was no pending protest that would require him to suspend any further action. The Hearings Officer implicitly concluded that Kane should not be charged with knowledge of the applicable regulations; his reliance on HRS § 103D-701 was sufficient to make his execution of the Ameritech contract reasonable. We disagree. First, by virtue of his position as the head of a purchasing agency with authority to enter contracts, Kane is certainly chargeable with knowledge of the regulations applicable to public procurement. Second, Kane had actual knowledge of those regulations. His initial denial of CARL's protest cited, as its basis, a regulation in the same subchapter as HAR § 3-126-8. Third, Kane could not rely on the finality of his decision under HRS § 103D-701(e), inasmuch as his denial of the protest was in violation of HRS § 103D-701(c), given his failure to inform CARL of its right to review. The record, therefore, not only belies the findings that Kane's execution of the contract was not unreasonable; it demonstrates bad faith. HAR § 3-126-36(c) (1995) provides in pertinent part that [s]pecific findings of reckless disregard of clearly applicable laws or rules must support a finding of bad faith. [20] Once CARL's timely protest was filed, and during its pendency, Kane was prohibited by the Code and its implementing regulations from executing the contract until the chief procurement officer made a written substantial interest determination. Kane was certainly aware of HRS § 103D-701(f) and was specifically informed by Unebasami that, pursuant to HAR § 3-126-6, the Library was not to award the contract during the pendency of the protest. Kane's disregard of the mandate of clearly applicable law, as well as the specific directions of Unebasami, was, at best, reckless. In his zeal to have the project completed before the end of the legislative session, Kane prematurely awarded the contract in violation of law, effectively restricting CARL's opportunity to participate in a fair solicitation should it prevail on its protest. We therefore hold that Kane's conduct was in bad faith.
No written determination that would even arguably meet the requirements of HRS § 103D-701(f) was made until March 13, 1996. In its entirety, the written determination consisted of a statement by the Administrator of the State Procurement Office, Unebasami, in a memo to Kane, that [p]ursuant to Section 103D-701(f) and based upon our review, it has been determined that the award of the contract to Ameritech without delay is necessary to protect the substantial interests of the State. With respect to this written substantial interest determination, the Hearings Officer concluded that [t]he determination that substantial State interests were involved allowed [the Library] and [Ameritech] to proceed under the Contract despite the pendency of [CARL's] protests. COL 23. COL 23 is in violation of ... statutory provisions. HRS § 103D-710(e)(1). A determination that substantial State interests were involved is not sufficient, under the plain language of HRS § 103D-701(f), to allow the Library to proceed with the contract despite CARL's protest. Not only must substantial State interests be involved, but the delay required to resolve the solicitation protest must threaten to impair those interests such that award of the contract without delay is necessary to protect  them. HRS § 103D-701(f) (emphasis added). The Hearings Officer also concluded that 24. [CARL] did not meet its burden of proving by a preponderance of evidence that the CPO's decision of March 13, 1996, finding that the award of the Contract to [Ameritech] without delay was necessary to protect the substantial interests of the State despite [CARL's] protest was in violation of the law or violated the Constitution, statutes, regulations, or the terms and conditions of the solicitation. The only FOF relevant to COL 24 referred to Kane's February 6 and 16 memos to Unebasami, reciting the arguments made therein. The Hearings Officer also found that: 276. By memorandum to Mr. Kane dated March 13, 1996, the CPO determined that the award of the Contract to [Ameritech] without delay was necessary to protect the substantial interests of the State. To the extent that the Hearings Officer found that Unebasami was the Chief Procurement Officer with authority to make the substantial interest determination pursuant to HRS § 103D-701(f), we hold that finding is clearly erroneous, and COL 24 is, therefore, wrong. HRS § 103D-203 provides in pertinent part that: The chief procurement officer for each of the following state entities and the several counties shall be: . . . . (7) The department of educationthe superintendent of education; and (8) The remaining departments of the executive branch of the State and all governmental bodies administratively attached to themthe administrator of the procurement office of the department of accounting and general services. HRS § 103D-204 establishes the office of the administrator of the procurement office and provides that [t]he administrator shall be the chief procurement officer for the governmental bodies of the executive branch other than the University of Hawaii and the department of education, and those governmental bodies administratively attached thereto.  (Emphasis added.) Responsibility for operating the Library ultimately rests with the Board of Education, but the Library is administratively attached to the department of education. See 1981 Haw. Sess. L. Act 150, § 7 at 300-04 (transferring responsibility for operation of library system from Department of Education to Board of Education through State Librarian); but see Hse. Conf. Comm. Rep. No. 20, in 1981 House Journal, at 905-06 (Through this bill, the public library system is hereby placed under the sole and direct control of the Board of Education, to be administered by the State Librarian, and is placed in the Department of Education for administrative purposes only. (Emphasis added.)). Therefore, Unebasami, the administrator of the State Procurement Office, was not authorized to make the substantial interest determination in this case, and his March 13, 1996 memo to Kane did not satisfy the requirement of HRS § 103D-701(f). Nowhere in the record is there evidence that there was a proper substantial interest determination made by the Superintendent of Education; thus, the Library's continued work on the contract, as well as the January 25 execution of the contract, was in violation of HRS § 103D-701(f). [21] Moreover, COL 24 is wrong for substantive, as well as procedural, reasons. Even if Unebasami had been authorized to make the substantial interest determination, his written determination failed to identify, and the Hearings Officer failed to make findings regarding, the State interests implicated and how those interests would be impaired by delay. The general rule established by HRS § 103D-701(f) is that a timely protest halts solicitation and contract activities until the protest is resolved. By maintaining the status quo during the pendency of a protest, violations of the procurement code can be rectified before the work on the contract has proceeded so far that effective remedies, for the protestor and the public, are precluded by expense and impracticality. Because the Code both shortens deadlines for filing protests and applications for review and expedites the administrative hearings process, the delay contemplated is minimal, generally a few months. [22] There are, however, situations where a delay of several months before a contract may be awarded would have serious repercussions on the continuation of essential State functions. It is in these situations that the solicitation or award is allowed to proceed, upon a written determination that the award of the contract without delay is necessary to protect the substantial interests of the State. HRS § 103D-701(f). As the commentary to ABA Model Code § 9-101, which is substantively identical to HRS § 103D-701(f), explains: In general, the filing of a protest should halt the procurement until the controversy is resolved. In order to allow essential governmental functions to continue, Subsection (6) provides that the [State] may proceed with the solicitation or award of the contract, despite the protest, upon a determination in writing by the Chief Procurement Officer or the head of the Purchasing Agency that such action is necessary. It is expected that such a determination will occur only in those few circumstances where it is necessary to protect a substantial interest of the [State]. (Emphasis added.) The Hearings Officer apparently found that Unebasami's determination was based on Kane's February 6 and 16 memos, but failed to enter any FOF or COL that the interests cited therein were substantial and would be harmed by delay on the contract. Unebasami's March 13, 1996 letter to Harris certainly suggests that he relied more on Kane's assessment of the merits of CARL's protest than on any evaluation of the impact on State interests. Although the merits of CARL's protest is a necessary and proper basis for Kane's decision under subsection 701(c), consideration of the merits of CARL's protest has no place in the substantial interest determination required by subsection 701(f). Indeed, if the contracting officials could both deny the protest and authorize performance of the contract based on their assessment of the merits, subsection 701(f) would be meaningless. Moreover, if an erroneous assessment of the merits of the protest by the contracting officials could result not only in denial of the protest, but also in the elimination of any remedy because the contract has been awarded and performed based on that same assessment, there would be little purpose served by review of the decision as provided for in HRS §§ 103D-709 and 103D-710. To the extent that the substantial interest determination was based on an assessment of the merits of CARL's protest, we hold that it was improper and did not satisfy HRS § 103D-701(f). To the extent that Unebasami relied on the interests cited in Kane's February 6 memo, we hold that CARL met its burden of proving by a preponderance of the evidence that continued performance on the contract pending resolution of its protest was not necessary to protect substantial State interests. Kane's memo argued that the contract with the current vendor, DRA, had expired on June 30, 1995 and that service could terminate at any time, without significant notice, thereby adversely impacting library operations. The complete cessation of library automation services is the only argument advanced by Kane that even approaches impairment of a substantial State interest requiring award of the contract without delay. The record, however, shows by a preponderance of the evidence that performance of the Ameritech contract without delay was not necessary to maintain library automation services. Keith Fujio, who was employed by the Library as the Director of the Management Information Branch and the Administrative Services Officer, with responsibility for administration of contracts, all purchases, and payroll, was called as a witness by the Library. On cross-examination by CARL, he testified that his staff had communicated with DRA and the indication we were given [was that,] because of all these subsequent problems that arose, they would still support us on a month-to-month extension agreement. He further testified that the maintenance contract with DRA renews automatically from year to year if both parties agree to all the terms and that his understanding was that DRA was willing to continue providing services under its contract until the protest was resolved and a new vendor commenced providing services. Fujio's testimony was undisputed. Therefore, although the State may have a substantial interest in continuing library automation services, award of the contract to Ameritech without delay was not necessary to protect that interest, and CARL proved as much by a preponderance of the evidence. The rest of Kane's memo to Unebasami merely describes how the library would be inconvenienced by maintaining the status quo during any delay in performing the contract and identifies no substantial interest of the State that would suffer. Accordingly, we hold that COL 24 is wrong and that the award of and performance on the Ameritech contract was in violation of HRS § 103D-701(f). We further hold that a substantial interest determination, pursuant to HRS § 103D-701(f), must specifically identify the State interests involved and articulate why it is necessary for the protection of those interests that the contract be awarded without delay.