Minnesota Court of Appeals Applies Common Law Procurement Principles to Best Value Contracting

Introduction

In April 2014, the Minnesota Court of Appeals issued a published decision clarifying certain aspects of state procurement law. In Rochester City Lines, et al., v. City of Rochester, et al., No. A13-1477, the Court held that common law principles of procurement law apply in the best value procurement context as well as in the lowest responsible bidder context. However, the Court carved out an exception for situations where adherence to those principles would undermine the discretion inherent in best value contracting. Although the Court’s decision offers important guidance on the potential scope of common law procurement laws, it opens up significant questions regarding the scope of a contracting entity’s discretion under the best value procurement model. Contracting entities and government contractors alike should be mindful that significant open questions remain regarding the common law rules that govern best value contracting, and should take extra care when issuing and responding to requests for proposals.

Background and Analysis

Rochester City Lines involved an action by Rochester City Lines ("RCL") challenging the rejection of its bid to provide transit services for the City of Rochester (the "City"). RCL had operated a transit service for the City for several decades, and for most of that time had received subsidies from the City and the Federal Transit Administration ("FTA"). In 2010, the FTA directed the City to competitively bid the contract for transit services. The City issued a request for proposals for subsidized transit services. The City received four responsive proposals and determined that a proposal submitted by another company's First Transit, including a proposal from RCL, represented the best value for the City.

RCL brought an action seeking an injunction to prevent the City from granting the contract to First Transit. The District Court granted summary judgment in favor of the City and First Transit, and dismissed RCL’s action. RCL appealed to the Minnesota Court of Appeals raising constitutional takings and common law public procurement challenges to the dismissal of its action.¹

In addressing RCL’s bid protest appeal, the Court first addressed the question of whether the common law competitive bidding principles applied to a best value process. The Court noted that much of Minnesota’s competitive bidding case law comes from the lowest responsible bidder context, in which the only function of the public authority responsible is to determine who is the lowest responsible bidder. Unlike the lowest responsible bidder context, however, the best value process “allows public agencies to consider factors other than cost when awarding contracts.”

The Court then listed the circumstances under which a contracting entity violates the general principles of competitive bidding. First, a contracting entity may not allow a bidder to modify its bid after bids are closed. Second, a contracting entity may not adopt a procedure allowing it to change the contract after six months of letting the contract. Third, the terms of a bid specification must be sufficiently definite and precise to afford a basis for bids. Fourth, a contracting entity must reject a bid if there is a substantial variance between the bid and the bid request.

The Court determined that these principles apply to a best value process where “the application of those principles does not undermine the discretion inherent to the best-value process.” “However, where those principles clearly conflict with that discretion, our analysis must be tempered by a necessary deference to that discretionary grant.” In accordance with its newly articulated rule, the Court examined the claims asserted by RCL, and concluded that the RCL had failed to show that the bid process and award violated the principles of competitive bidding.

Conclusion

Rochester City Lines breaks new ground in its articulation of a non-exclusive list of 'general principles of competitive bidding' and its holding that these principles will generally apply to best value procurement. However, the Court’s holding that these principles will not apply where they undermine the discretion inherent to the best value process raises further questions. Until courts more fully articulate the reach of this exception, bidders and contracting authorities alike should be mindful of common law rules surrounding lowest competitive bidding when requesting and preparing proposals.