Opinion ID: 1124217
Heading Depth: 2
Heading Rank: 4

Heading: CARL is Entitled to its Costs and Attorneys' Fees

Text: We agree with the Library and Ameritech that CARL is not entitled to the remedy it seeksrecission of the contract with Ameritech and award of the contract to CARL. However, we agree with CARL that it may recover its costs of preparing its proposal and its attorneys' fees incurred in its protest.
In concluding that his authority to fashion a remedy was limited to HRS § 103D-707, the Hearings Officer did not consider HRS § 103D-701(g), which provides: In addition to any other relief, when a protest is sustained and the protesting bidder or offeror should have been awarded the contract under the solicitation but is not, then the protesting bidder or offeror shall be entitled to the reasonable costs incurred in connection with the solicitation, including bid preparation costs other than attorney's fees. Although this provision is contained in the subsection governing initial agency review and not in HRS § 103D-709, which governs review by the Hearings Officer, hearings officers have jurisdiction to review determinations made pursuant to HRS § 103D-701 de novo. HRS § 103D-709(a). Therefore, hearings officers have jurisdiction and authority to act on protested solicitations and awards in the same manner and to the same extent as contracting officials authorized to resolve protests under HRS § 103D-701. By its express terms, a protesting bidder is entitled to recover its bid preparation costs pursuant to HRS § 103D-701(g) if: (1) the protest is sustained; (2) the protestor should have been awarded the contract; and (3) the protestor is not awarded the contract. It is implicit in the provision that it applies only in those cases where the contract has been awarded before the resolution of the protest. Were this not the case, a determination that a protestor should have been awarded the contract under the solicitation but is not would be premature and nonsensical because, in the typical protest, pursuant to HRS §§ 103D-701(f) and 103D-709(e), the award of the contract does not occur until after the protest is finally resolved by a hearings officer. In this case, only two of the three express requirements of HRS § 103D-701(g) were satisfied: CARL's protest was sustained, and CARL was not awarded the contract. There was no determination, however, of whether CARL should have been awarded the contract[.] CARL proposed three separate and distinct bases upon which it contends that it should have been awarded the contract: (1) Ameritech's proposal contained material deviations from the RFP and, therefore, was not responsive to the RFP, leaving CARL as the only responsive offeror; (2) Ameritech should have been precluded from submitting an offer pursuant to HRS § 103D-405(d) and HAR § 3-122-13(e), again leaving CARL as the sole remaining and responsive offeror; and (3) after taking into account the price and the evaluation factors contained in the RFP, CARL's proposal was the most advantageous to the State, and, therefore, CARL should have been awarded the contract. The Hearings Officer, however, did not address CARL's first two contentions in his FOF, COL, and Order; with respect to the thirdthat CARL's proposal, when properly evaluated, was the most advantageous to the State  the Hearings Officer concluded that the entire evaluation process was so irretrievably flawed that it could not be used to determine who should have been awarded the contract. Therefore, the Hearings Officer did not, and could not, determine whether CARL should have been awarded the contract under the solicitation, but, rather, ordered the Library to reevaluate the proposals on remand. Obviously, neither the Hearings Officer nor this court has the technical qualifications to conduct an independent evaluation of the proposals and to determine, based on their relative merits in comparison with the requirements of the RFP, which proposal was most advantageous to the State. However, as discussed in section II. A., supra, the Hearings Officer was without statutory authority to remand to the Library for a reevaluation. The only way it could be determined, at this point, whether CARL should have been awarded the contract would be for this court to remand to the Library for reevaluation for the sole purpose of determining CARL's entitlement to bid preparation costs. On the facts of this case, such a remand would, we believe, be a futile exercise. The Library, in response to CARL's protest, denied that the evaluation in any way failed to comply with the procurement code. It vigorously defended that position before the Hearings Officer, and, on appeal, continues to maintain that Ameritech was properly awarded the contract. More significantly, the matter was remanded to the Library for reevaluation, albeit improperly, almost a year ago; there is no indication, however, that the Library has complied with the Hearings Officer's order to properly evaluate the proposals. [24] Finally, the Library has already demonstrated bad faith in its handling of CARL's protest. Requiring a determination that the protestor should have been awarded the contract, where the evaluation was so fundamentally flawed that the results are invalid and the required determination cannot be made, unfairly punishes the successful protestor. In Paul Sardella Construction Company, Inc. v. Braintree Housing Authority, 3 Mass. App.Ct. 326, 329 N.E.2d 762 (1975), aff'd, 371 Mass. 235, 356 N.E.2d 249 (1976), the Massachusetts Appeals Court explained that: The honest and open procedure for competition among the various bidders that is one of the fundamental objectives of the competitive bidding statute must necessarily entail fair consideration of all the submitted bids in accordance with the applicable sections of the statute. We hold that where such consideration has not been given by public contracting authorities, in violation of statutory provisions, the proper measure of recovery is the reasonable cost of preparing the bid. . . . . The award of reasonable bid preparation costs for the failure to give fair consideration to a bidder in accordance with the statutory procedure will best effectuate the legislative objectives underlying the statute by insuring the widest competition among responsible bidders. Notwithstanding possible short-term benefit to an awarding authority in a particular case through violation of the statute, over the longer term harm to the public interest would ensue if awarding authorities are not to be held accountable for their violations. The number of bidders, and thus the range of choice available to an awarding authority, may well be reduced if it were to be assumed by prospective bidders that such an authority would not abide by the applicable statutes in making its awards. Id., 329 N.E.2d at 766-67. We agree and, accordingly, hold that, where the evaluation is so fundamentally flawed that the determination of who should have been awarded the contract was not, and cannot be, made, [25] and the contract has already been awarded in bad faith and in violation of HRS § 103D-701(f), a successful protestor who was not awarded the contract is entitled to recover its bid preparation costs pursuant to HRS 103D-701(g). In this case, the Hearings Officer concluded that the evaluation process and the concomitant award of the contract to [Ameritech], did not comply with HRS § 103D-303(g)[,] COL 34, because CARL's proposal did not receive a complete evaluation in comparison with [Ameritech.] Because the entire evaluation process was irretrievably flawed, it could not be determined whether CARL should have been awarded the contract. CARL prevailed in its protest and was not awarded the contract; the contract was awarded to Ameritech in bad-faith violation of HRS § 103D-701(f). Therefore, we hold that CARL is entitled to recover its bid preparation costs, which the Hearings Officer found to be approximately $30,000.00. FOF 169.
CARL contends that it is also entitled to an award of its attorneys' fees and costs incurred both in the protest hearing and in this judicial review, given HS[P]LS's and Kane's misconduct and attempt to deny CARL its rights to a fair and equitable bidding process and a full and fair hearing. Neither the Library nor Ameritech disputes CARL's entitlement to attorneys' fees in their briefs. Because nothing in the procurement code precludes an award of attorney's fees to a successful protestor, and, under the circumstances of this case, requiring CARL to bear the fees incurred in its protest would undermine the purposes of the Code, we agree with CARL. The only mention of attorney's fees in the relevant sections of the Code is found in HRS § 103D-701(g), which provides in part that the protesting bidder or offeror shall be entitled to the reasonable costs incurred in connection with the solicitation, including bid preparation costs other than attorney's fees. The placement of the provision in section 701, which defines the authority of the head of the purchasing agency or chief procurement officer to resolve protested solicitations, as well as the plain languagecosts in connection with the solicitation, including bid preparation costs other than attorney's feesdemonstrate that the provision has no applicability to this court's authority to award attorney's fees incurred in the protest. The provision, by its clear and unambiguous terms, refers to attorney's fees incurred in the solicitation, not the protest, [26] and is a restriction on the authority of the head of the purchasing agency and the chief procurement officer. Nowhere in the Code is the award of attorney's fees incurred in a protest expressly prohibited. Arguably, however, such an award is implicitly prohibited by HRS § 103D-704, which provides: The procedures and remedies provided 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, a suspension or debarment proceeding, or in connection with a contract controversy, to resolve their claims and differences. The contested case proceedings set out in chapter 91 shall not apply to protested solicitations and awards, debarments or suspensions, or the resolution of contract controversies. We have often stated that: In construing statutes, a court's primary objective is to ascertain and give effect to the intention of the legislature as gleaned primarily from the language contained in the statute itself.... Accordingly, [i]t is well settled that this court is bound by the plain, clear and unambiguous language of a statute unless the literal construction would produce an absurd and unjust result, and would be clearly inconsistent with the purposes and policies of the statutes.... The foregoing does not preclude an examination of sources other than the language of the statute itself even when the language appears clear upon perfunctory review.... Were this not the case, a court may be unable to adequately discern the underlying policy which the legislature seeks to promulgate and, thus, would be unable to determine if a literal construction would produce an absurd or unjust result, inconsistent with the policies of the statute. Survivors of Medeiros v. Maui Land & Pineapple Co., 66 Haw. 290, 297, 660 P.2d 1316, 1321 (1983) (citations omitted); see also Konno, 85 Hawai`i at 71, 937 P.2d at 407; Shipley v. Ala Moana Hotel, 83 Hawai`i 361, 365, 926 P.2d 1284, 1288 (1996); Bragg v. State Farm Mut. Auto. Ins. Co., 81 Hawai`i 302, 306, 916 P.2d 1203, 1207 (1996); Sato v. Tawata, 79 Hawai`i 14, 17, 897 P.2d 941, 944 (1995). We believe that a literal construction of HRS § 103D-704, on the facts of this case, produces an unjust result, inconsistent with the policies of the procurement code. The procurement code was enacted in an attempt to address real problems making daily headlines. The Code prescribes strict procedures for the procurement of goods and services by State agencies, for the purposes of: (1) providing fair and equitable treatment of all persons dealing with the government procurement system; (2) fostering broadbased competition among vendors while ensuring accountability, fiscal responsibility, and efficiency; and (3) increasing public confidence in the integrity of the system. There are only two mechanisms for enforcing the provisions of the code. Intentional violation of its provisions by any person is a misdemeanor, and in addition to the applicable criminal penalty, the violator is subject to removal from office and liable to the State for its costs incurred. HRS § 103D-106. Enforcement under this provision, like any criminal statute, is at the discretion of the prosecutor. The other enforcement mechanism is through protests by aggrieved participants in the process. The remedies available when a protest is sustained are limited; generally the solicitation must be canceled or revised to comply with the Code. In either case, though, the successful protestor has the remedy of an opportunity to participate in a fair procurement process and be awarded the contract if its bid or offer is the most advantageous to the State. Where, however, the contract has been awarded before the protest is decided, there is no remedy for the protestor who has proven that the process was in violation of the Code. After the award of the contract, the contract can only be ratified or terminated, with the relevant factors favoring ratification in direct relation to the progress made towards completion of the contract. Although ratification or termination of a contract found to have been awarded in violation of the Code may vindicate the public's interest in the integrity of the procurement process, neither remedy affords the protestor the opportunity to be awarded the contract based on the merits of its proposal. Thus, it is not the exclusive remedy provision of the Code that deprives a protestor of meaningful relief; in this case, CARL's lack of a remedy stems from Kane's unilateral, bad-faith, decision to award the contract to Ameritech in violation of HRS § 103D-701(f). The Code itself thus contains an inherent incentive for an agency to award the contract immediately upon receipt of a protest: it can avoid the delay and expense that would be incurred in the cancellation and resolicitation should the protestor prevail. In addition, there is a built-in disincentive for an aggrieved participant to pursue a protest past the agency stage once the contract has been awarded: regardless of whether it is successful in proving a violation of the code, and no matter how egregious the violation, the only potential relief available to the protestor is recovery of its bid preparation costs. Requiring such a protestor to bear its own attorney's fees strengthens the financial disincentive to pursue a protest once the contract has been awarded, and essentially nullifies the most effective enforcement mechanism in the Code. In the long term, this can only decrease competition among vendors. Moreover, if the procedural provisions of the Code are unenforceable except at the discretion of the prosecutor, the Code cannot [i]ncrease public confidence in the integrity of the system or, as it demonstrably failed to do in the instant case, [p]rovide for fair and equitable treatment of all persons dealing with the government procurement system. Although the Code does not expressly authorize the award of attorney's fees under the circumstances of the instant case, interpreting HRS § 103D-704 to preclude such an award renders the Code incapable of furthering the purposes and policies that required its enactment. We do not believe that the legislature intended this result. The remedy provisions of the procurement code were intended to encourage the settlement of disputes through administrative processes to save time and expense for both parties while preserving all rights and maintaining fairness.  Sen. Stand. Comm. Rep. No. S8-93, in 1993 Senate Journal, at 39 (emphasis added). Fairness is not maintained, however, by shifting the economic burden of enforcing the Code to a protestor, who, because of bad-faith actions of the contracting official, has been deprived of any means of being made whole following fruitless participation in an unlawfully conducted procurement process. Although the Code specifically addresses the appropriate remedy when the vendor awarded the contract acts fraudulently or in bad faith, HRS § 103D-707(2), it does not appear that the legislature contemplated a purchasing agency's bad-faith violation of the procedural requirements designed to promote fairness and public confidence in the integrity of the procurement code. We have held that, [a]mong courts' inherent powers are the powers to create a remedy for a wrong even in the absence of specific statutory remedies, and to prevent unfair results. Richardson v. Sport Shinko (Waikiki Corporation), 76 Hawai`i 494, 507, 880 P.2d 169, 182 (1994) (citations omitted). This inherent power is codified in HRS § 602-5(7), which acknowledges this court's jurisdiction and power [t]o make and award such judgments, decrees, orders and mandates, issue such executions and other processes, and do such other acts and take such other steps as may be necessary to carry into full effect the powers which are or shall be given to it by law or for the promotion of justice in matters pending before it.  (Emphasis added.) Accordingly, because the legislature has failed to provide any statutory remedy for bad faith conduct on the part of the purchasing agency, and because requiring the protestor to bear the financial burden of enforcing the Code under these circumstances undermines the purposes of the Code, we hold that a protestor is entitled to recover its attorney's fees incurred in prosecuting its protest if: (1) the protestor has proven that the solicitation was in violation of the Code; (2) the contract was awarded in violation of HRS § 103D-701(f); and (3) the award of the contract was in bad faith. See, e.g., Bolander & Sons v. City of Minneapolis, 438 N.W.2d 735, 738-39 (Minn.Ct.App.1989) (holding that where the contract is currently being performed, the successful protestor is entitled to its costs in preparing its unsuccessful bid and its expenses, including attorney's fees), aff'd, 451 N.W.2d 204 (Minn. 1990).