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An MBE firm’s suit against an engineering firm for recommending rejection of its low bid on a public road project was dismissed on summary judgment which was affirmed on appeal.  The causes of action included racial discrimination, tortious interference with business expectancy, and malpractice.  The engineer was under contract to the county road commission  and it recommended rejecting the low responsible, responsible prime contract bid from a minority business enterprise (MBE) for a repair project on  an intake bed, and also recommended rejecting the second low prime contract that included the same MBE firm as a subcontractor.

The reason for the adverse recommendation was that work by the MBE firm had performed work as an MBE subcontractor on the original intake bed project several years before and there had been delays blamed on its personnel problems and there had been defects in the final project that the prime contractor refused to correct under warranty and that the County, therefore, was having to correct by the current repair project.  Both the original contractor and the MBE subcontractor bid on the current repair project as prime contractors.  The MBE was included as a subcontractor  in the bids of three of the other prime contractors bids.

No explanation is given concerning the outcome of litigation between the county and contractors  over the defects in the work on the original project.   Nor is there any discussion of whether the prime contractor and MBE sub were given a hearing and listed on some type of a debarment list for failure to perform, or were otherwise listed as non-responsible bidders unqualified to bid on future projects.  It would appear not—since both firms bid on the repair project that was allegedly necessitated by the defective work they performed on the original project.  I mention this because it is so perplexing in view of what transpired in rejecting their bids on the repair project.

In the case of MCM Marine, Inc. v Ottawa County Road Commission and Prein & Newhof, Inc., 2010 WL 1461557 (Mich. App. 2010), the court explains that the civil engineering firm of Prein & Newhof  was hired by the county to be the project engineer on both the original bed project and the repair project that is the subject of the current case.  MCM Marine is described as an MBE contractor with 25 years of experience.  Problems with the original project included over-excavation that caused sand to enter a water treatment plant due to failure of an intake bed.  As stated above, there was litigation over this matter.  It must not have been resolved with a judgment in favor of the county to require the contractors to re-perform the work at no cost.  Otherwise, why would there be the current procurement for the repair work—with the original contractor and subcontractor bidding to do the repair work?

After the bids were received by the county, the county acknowledged that the MBE firm bid was responsive and that the bidder was responsible.  One might have expected that this would require under normal procurement law principles the award of the contract to the low responsive, responsible bid.  Instead, the director of public utilities for the road commission issued a report recommending rejection of the MBE firm bid for the following reasons:

“MCM Marine, Inc. (“MCM”) submitted the next lowest bid. For a number of reasons, staff does not recommend that the bid of MCM be accepted. First, MCM proposes to use [Great Lakes Dock & Material] as its subcontractor, which is unacceptable. Further, MCM was a subcontractor of [Great Lakes Dock & Material] on the original construction of the South Intake. That prior experience was not good, as there were delays on the part of MCM to have [sic] equipment and laborers on the project and in performing the work. Moreover, the work plan submitted by MCM having its dredge working between barges raises a concern that the work may be very sensitive to weather conditions. Therefore, Staff does not believe that acceptance of this bid would be in the best interests of the OCRC or the Water System.”

The court summarized the county’s actions and rationale as follows:

“Zarzecki  [Public Utilities Director] recommended rejection of Great Lakes Dock & Material’s bid based on the fact that it was the primary contractor responsible for the original project, which failed.  Zarzecki also recommended rejection of Luedtke’s bid, noting that Luedtke proposed to use MCM Marine as a subcontractor, which, for the reasons stated above, Zarzecki found unacceptable. Ultimately, Zarzecki recommended acceptance of King Company as the lowest acceptable bidder…. King Company, which was the only bidder that did not have any minority participation, had performed maintenance work on the original intake bed for several years.”

According to the court, the county “directed Prein & Newhof, the engineering firm, to find reasons to support rejection of MCM Marine’s bid.  Pursuant to that request, the engineer requested that the MBE “submit a statement of its qualifications, references, financial status, contracts in progress, and similar information.” The information was received but no one at the county contacted any of the references or otherwise followed up on the information.  The engineer contacted the MBE firm and inquired about its plans for completing the project.  No concerns were ever voiced regarding the proposed plan.

The engineer then contacted King Company (4th low bidder) and asked it if it would agree to work as a subcontractor for the 3rd low bidder—replacing the MBE.  King Company declined to do so.  And, the 3rd low bidder advised the engineer that it was quite satisfied using the MBE as intended because it had no concerns with the firm’s qualifications and “that it was comfortable with MCM Marine, and that it would address any alleged concerns that [engineer] had relative to MCM Marine.”   The county proceeded to award the contact to King Company – the highest bidder—at almost double the amount of the low bid that included the MBE firm as a subcontractor.

Apparently the MBE thought there was something wrong with this picture and decided to sue the county and the engineer on the legal theories summarized above.

On the question of whether the MBE had a cause of action against the engineer based on “tortious interference with business expectation,” the court said the MBE would have to allege “the intentional doing of a per se wrongful act or the doing of a lawful act with malice and unjustified in law for the purpose of invading the contractual rights or business relationship of another.”   Although the court acknowledged that there was evidence the engineer “assisted in intentionally avoiding awarding the contract to MCM Marine …. And the facts indicated that the Ottawa Road Commission instructed [engineer] to assist in developing reasons on which to reject MCM Marine,” [it] has not alleged any other illegal or malicious act.”  The court further stated:

“To the contrary, the record evidences that [engineer] had legitimate reasons to make the recommendations it did.  MCM Marine’s participation in the project was not acceptable because of the problems with the original construction.  Therefore, the evidence suggests [engineer] was merely performing its contractual duty to recommend the best bidder…. And, considering MCM Marine’s involvement in the original, failed project, and its personnel issues, it was not the best bidder.”

The engineer was, therefore, found to not have intentionally interfered with any alleged business expectancy.  The court next considered the malpractice claim and held that the MBE “is simply a disappointed bidder on a construction project, and Michigan law makes clear that disappointed bidders have no protected interest in being awarded a government contract.”    In addition, the court stated: “It is well settled that competitive bidding is designed for the benefit of taxpayers, and not for the benefit or enrichment of the bidders.  Therefore, [engineer], acting on behalf of the public …, owed no duty to MCM Marine.”

The final count of the homeowners complaint alleged that the engineer should be liable under 42 USC 1981 that protects the right to “make and enforce contracts.”  To prove a violation under that statute, the court says, “a plaintiff must show that the defendant purposefully discriminated based on race.”  In this case, “Because MCM Marine does not provide any direct evidence that [engineer] intentionally discriminated against it based on race, we consider circumstantial evidence.”  The court went on to conclude that the circumstantial evidence did not support a claim for intentional interference.

Comment: I don’t profess to know the public procurement laws of the state of Michigan, but generally speaking, under the law of most states it would be more effective to file a bid protest, challenging the decision of the county to award to someone other than the low responsive, responsible bidder rather than to sue the engineering firm.  It is curious that the court’s decision does not explain what happened in the litigation over what it calls the original “failed project.”   One might think that if the County prevailed in that litigation, the MBE and the prime contractor for whom it worked on that project would have been required, without additional fee, to correct the defective work.

If the work of the MBE on the original work was so defective that the county deemed that firm to be a firm that lacked responsibility to receive further work from the county, was there any process to put the firm on a list of unacceptable bidders (like a debarred list) after first providing some due process procedures to consider the merits of the MBE’s arguments?  In this case, there was no formal determination made that the bidder was non-responsible.  In fact, the court quoted the county as finding that the MBE’s bid was responsible and that as a firm it was “responsible.”  The decision sets forth some good legal principles as far as litigation against design professionals that are making procurement recommendations to their clients, but it would have been nice to learn the basis of ipso factor rejection of the MBE as non-responsible.