Opinion ID: 1258933
Heading Depth: 3
Heading Rank: 1

Heading: Alleged Bias in the Bidding Process

Text: When soliciting bids for goods and services, a government agency has an implied contractual duty to consider bids in a fair and honest manner: [I]n exchange for a bidder's investment of the time and resources involved in bid preparation, a government agency must be held to an implied promise to consider bids honestly and fairly. Breach of this implied contract on the part of an agency entitles a disappointed bidder to recover the costs incurred in preparation of the bid... . [T]he reasonable basis standard for review of administrative decisions, see Jager v. State, 537 P.2d 1100, 1107-08 (Alaska 1975); Kelly v. Zamarello, 486 P.2d 906, 916-17 (Alaska 1971), is applicable in this situation.[ [6] ] See Keco Industries, Inc. v. United States, [203 Ct.Cl. 566], 492 F.2d 1200, 1203-04 (1974). King v. Alaska State Hous. Auth., 633 P.2d 256, 263 (Alaska 1981) ( King II ). A review of the entire record persuades us that KILA's bid was fairly and honestly considered. [7]
Majoros was responsible for all DOC procurements under statewide programs. [8] KILA objects to Majoros' participation in the procurement process, claiming that Majoros was not impartial as required by AS 44.62.350, and that his partiality resulted in a competitive advantage to Allvest. Alaska Statute 44.62.350 governs the appointment of hearing officers to hear and adjudicate disputes under the Administrative Procedure Act: The governor shall assign a qualified, unbiased, and impartial hearing officer, with experience in the general practice of law, to conduct hearings under this chapter. Relying on this provision, KILA contends that Majoros was required to be impartial in reviewing the protest letter. However, the application of AS 44.62.350 is governed by AS 44.62.330(b), which reads in relevant part: The procedure of an agency not listed in (a) of this section shall be conducted under AS 44.62.330-44.62.630 only as to those functions to which AS 44.62.330-44.62.630 are made applicable by the statutes relating to that agency. Neither the Department of Administration nor DOC are among the agencies listed in AS 44.62.330(a), and thus they are not covered by the Administrative Procedure Act. In addition, AS 36.30.670(a) expressly exempts from the Administrative Procedure Act informal hearings such as the one in which the Department of Administration reviewed the denial of KILA's bid protest. Therefore, AS 44.62.350 does not apply to a procurement officer's decision regarding a bid protest or to informal hearings held subsequent to a protest appeal. Nevertheless, the inapplicability of AS 44.62.350 does not relieve Majoros of the obligation to review bid protests in an impartial and unbiased manner. Our review of the record, and in particular our consideration of Majoros' response to KILA's letter of protest, persuades us that none of KILA's objections demonstrate bias or a lack of impartiality on Majoros' part. [9] KILA has not shown that Majoros was biased either in approving the PEC recommendation to award the contract to Allvest or in reviewing and rejecting KILA's protest letter. [10] We further conclude that none of KILA's objections prove that Allvest gained a competitive advantage by virtue of Majoros' decision. Taken individually or cumulatively, the alleged variances to which KILA objects are not material. [11]
KILA asserts that DOC official Marianne McNabb's involvement in the preparation of the RFPs and her involvement in a prior program audit of Allvest's Cordova Center in Anchorage violated the Executive Branch Ethics Act, AS 39.52.010-.960. [12] Specifically, KILA argues that McNabb's prior involvement with Allvest prohibited her from participating in the bid process. [13] Prior to being hired by DOC, McNabb was employed by Allvest as vice-president of operations from October 1987 through December 1988. [14] The hearing officer rejected KILA's contention: KILA alleges a violation of the State ethics law although no explanation is provided as to what specific provision of AS 39.52 is alleged to have been violated. No evidence was brought forward or even hinted at that would suggest that Ms. McNabb benefitted in any way from her former association with Allvest or that she was not honest, truthful, and unbiased in her evaluation of Allvest facilities. Ms. McNabb was not a member of the PEC and testimony established that her only involvement with the solicitation, evaluation, or award of the contract was to suggest minor changes in the scope of work section of the RFP after her input was solicited by DOC and suggested some wording changes in the final contract. No evidence was presented to suggest that her input resulted in an advantage or disadvantage for either proposer. Our review of the record leads us to conclude that substantial evidence supports the hearing officer's findings. As the State notes, McNabb's involvement was limited to advancing some suggestions for the scope of work section of the RFP and the geographic and professional criteria for selecting the PEC members. McNabb had neither a personal nor a financial interest in the contract in question. Any personal or financial interest she may have had was insignificant. Therefore, her actions did not violate the Act. See AS 39.52.110(b)(1). [15] One final observation should be made in regard to this issue: KILA contends that pursuant to AS 39.52.240, McNabb should have requested an opinion from the Attorney General as to her apparent conflict of interest. As indicated above, in the absence of any personal or financial interest in the contract, and given the fact that McNabb did not participate in or influence the PEC's contract award process, she was not required to contact the Attorney General regarding the alleged conflict.
KILA also claims the State's allowance of Allvest's substitution of facilities after the award of the contract resulted in an unlawful competitive advantage to Allvest that requires voiding the contract. In order to establish a competitive advantage, KILA must prove that a material variance was effected in the contract: Not all amendments to competitively bid contracts are prohibited, only those regarded as material. The concept of materiality in this context has not been satisfactorily captured in a single phrase. One court has spoken of an essential change of such magnitude as to be incompatible with the general scheme of competitive bidding; another has phrased the question to be whether the amendment so varied from the original plan, was of such importance, or so altered the essential identity or main purpose of the contract, that it constitutes a new undertaking. These formulations simply recognize that the materiality concept prohibits those changes which tend to be subversive of the purposes of competitive bidding. Kenai Lumber v. LeResche, 646 P.2d 215, 221 (Alaska 1982) (footnotes omitted). [16] Five factors determine whether a contract change constitutes a material variance: (1) the legitimacy of the reasons for the change; (2) whether the reasons for the change were unforeseen at the time the contract was made; (3) the timing of the change; (4) whether the contract contains clauses authorizing modifications; [and] (5) the extent of the change, relative to the original contract. Id. (footnotes omitted). The hearing officer applied the five factors and concluded that the amendment was not a major variation of the original plan nor did it so alter the essential identity or main purpose of the contract that it constituted a new undertaking. Based on the facts, supporting testimony, and evidence presented, the hearing officer determined: (1) that there were legitimate reasons for the change in facilities; (2) that DOC did not foresee the reasons for the change at the time the contract was signed, and that Allvest acted in good faith; (3) that given the necessity to have an operative facility by January 1, 1990, the contract amendment was timely; (4) that the State consistently allows contract modifications when they are in its best interests; [17] and (5) that the modification did not interfere with the intent of the contract  to secure a correctional facility in the Fairbanks area  and that [t]he specific site of the facility was not relevant to the functioning of the program. We conclude that the hearing officer's factual findings have substantial support in the record and that his interpretation of material variance has a reasonable basis in law. KILA advances numerous other improprieties and alleged illegalities in the contracting process. Our review of these points in light of the entire record and applicable law persuades us that none have merit. [18]