Wrongfully Rejected Bidders in Ohio can Recover Bid-preparation Costs

July 23, 2010

On Wednesday July 21, 2010, the Ohio Supreme Court unanimously ruled that wrongfully rejected bidders on public projects may, in certain circumstances, recover their reasonable bid preparation costs from public owners.  When such a bidder promptly sought and was denied injunctive relief, bid preparation costs are recoverable when it is later found that its bid was improperly rejected.  Meccon, Inc., et al. v. Univ. of Akron 2010-Ohio-3297, 

In Meccon, the University of Akron invited bids for the construction of its football stadium.  Meccon submitted the second low bid for the HVAC.  The University of Akron awarded the HVAC contract along with other phases of the project to S.A. Comunale.  S.A. Comunale, who submitted a combined bid, was the lowest of the combination bids and the low bidder for each of the stand-alone contracts, including HVAC.  Then, S.A. Comunale withdrew its combined bid and stand alone plumbing bid, was awarded the stand-alone contracts for fire-protection and HVAC, and then re-bid the plumbing contract and was awarded that contract. 

Meccon filed suit in the Ohio Court of Claims alleging that the university's award to S.A. Comunale for the three stand-alone contracts violated the state's competitive bidding law and the university's own Instructions to Bidders.  Meccon sought a temporary restraining order, a declaratory judgment, preliminary and permanent injunctive relief and damages for its bid-preparation costs.  The Court of Claims granted a motion to dismiss ruling that Meccon was not entitled to recover monetary damages as a disappointed bidder and, therefore, its only claim was for injunctive relief.  The Court of Claims does not have jurisdiction over claims seeking solely injunctive relief.  On that same basis, the Court of Claims denied Meccon's motion for temporary restraining order. 

The Tenth District Court of Appeals reversed the Court of Claims concluding that a disappointed bidder can recover bid-preparation costs, and thus the Court of Claims has subject-matter jurisdiction to hear all of Meccon's claims.  The university appealed and the Ohio Supreme Court accepted the appeal to review the 10th District's ruling.

The Ohio Supreme Court rejected the university's assertion that the Court's previous decision in Cementech Inc. v. Fairlawn precludes disappointed bidders on a public improvement project from recovering money damages.  The Court noted the Cementech decision held only that a rejected bidder is not entitled to recover its lost profits where a public entity violates the bidding laws.  This previous decision did not address the issue of whether reasonable bid preparation costs were recoverable.  The Court refused to extend Cementech to bar recovery of such costs. 

The Court recognized the standard relief for a disappointed bidder is an injunction.  The Court noted a disappointed bidder is left without any remedy, however, where it seeks and is denied an injunction and it is later determined in litigation that the public entity acted wrongfully.  This lack of remedy is particularly true since Ohio law prohibits a disappointed bidder from working on a project once work begins.  Thus, the Court held "that when a rejected bidder establishes that a public authority violated state competitive-bidding laws in awarding a public-improvement contract, that bidder may recover reasonable bid-preparation costs as damages if that bidder promptly sought, but was denied, injunctive relief and it is later determined that the bidder was wrongfully rejected and injunctive relief is not longer available." The Court noted that the possibility of awarding such damages served many goals:  (a) it acts a deterrent to public entities that fail to follow public bidding requirements, (b) it will enhance the integrity of the bidding process and, (c) as a result it will increase competitive nature of the process by encouraging more bidders to participate in the process.

Contractors must be aware that timely seeking injunctive relief is a critical component to the Court's decision.  If injunctive relief is timely granted in favor of the wrongfully rejected bidder then any monetary damages (i.e. bid preparation costs) are avoided.  If, however, injunctive relief is erroneously denied, then "the bidder should be able to recover the reasonable cost it incurred in the preparation of its bid."   

Since neither the Court of Claims nor the 10th District Court of Appeals, however, addressed whether Meccon's claim for injunctive relief was timely, and that determination affects whether Meccon met the requirements to recover its bid-preparations costs, the matter was remanded to the Court of Claims to address the timeliness issue.

Should you have any questions about this decision, please contact Stephen Withee (swithee@fbtlaw.com) or Bonnie Wolf (bwolf@fbtlaw.com) or any of the lawyers in Frost Brown Todd's Construction Practice Group.

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