June 19, 2009 – Failure of a disappointed bidder to seek an injunction against the awarding of the contract to another company left it with no remedy against the state, the Wisconsin Supreme Court held on June 17.

In PRN Associates and PGN Associates (Prism) v. State of Wisconsin Department of Administration, 2009 WI 53, the court said the state procurement rules do not allow an aggrieved bidder to seek damages because that would violate public policy. The only remedy a court can give is to award the contract in dispute. But if the state agency has already given it to another who then performed it, the litigation is moot.

Frustrated bidder

In October 2002, the University of Wisconsin System and UW-Milwaukee issued a request for proposals (RFP) from private contractors to renovate the Kenilworth building on the UW-Milwaukee campus.

An evaluation committee selected Prism’s bid and the UW System signed off on the choice. But a request for approval from the state building commission was withdrawn when it became apparent the request would not be granted.

The UW System invited Prism to participate in a second round of bidding ordered by the state building commission, which Prism did. At the same time, Prism protested the decision to withdraw consideration of the first RFP under Wis. Admin. Code Adm § 10.15. Prism lost its protest and its appeal to the Department of Administration (DOA).

On Feb. 3, 2005, the DOA informed Prism that another developer, WEAS, had the contract. Prism protested the decision to award the contract to a rival and then appealed the denial of that protest to the DOA. The appeal was denied on June 6, 2005.

In the meantime, the State and the successful bidder signed a contract on March 15, 2005. Prism did not seek an injunction. Rather, it pursued a petition for judicial review in Ozaukee County Circuit Court and a complaint for declaratory judgment in Dane County.

The Ozaukee Circuit Court dismissed Prism’s claims, finding they were moot because Prism never sought an injunction to keep the project from going forward. The Dane County Circuit Court also dismissed Prism’s declaratory action based on the state’s sovereign immunity.

Work on the Kenilworth project concluded in August 2006.

Mootness

“An issue is moot when its resolution will have no practical effect on the underlying controversy,” the court stated. “Thus, the question we must answer is: even if Prism’s protest was improperly denied, is there any relief that it can receive now, almost three years after the project has been completed?”

Prism sought either money damages for “the value of its winning proposal” or award of the contract, the court noted.

“[A] money damages remedy would be contrary to the explicit purposes of Adm Ch. 10,” the court said, explaining that the purpose of the state’s rules for procurement of contractual services is to ensure the state receives the best work at the most reasonable price and prevent fraud or other misconduct in the administration of public business.

Accordingly, the rules “are intended for the benefit and protection of the public and not of the individual bidder,” the court wrote.

The court remarked that an individual bidder has standing to contest an agency’s decision to award the contract to another developer because it is expected the bidder will “zealously protect” the public interest as well as its own.

“A damages remedy … thwarts the purpose underlying the procurement statutes because it would require the taxpayers to pay twice for just one completed project,” the court concluded.

Turning to the other remedy sought, the court found it unavailing. “[T]he fact that the contract has actually been awarded to another is sufficient to induce the courts to decline interfere to further complicate the matter, even though they might otherwise have done so,” the court wrote, citing State ex rel. Hron Bros. Co. v. City of Port Washington, 265 Wis. 507 (1953).

Completion of the project only reinforced that conclusion, the court observed. “We cannot unravel a contract when it has already been fully performed,” it said.

Necessity of seeking an injunction

Reviewing the record, the court commented that Prism had been informed that the DOA would proceed with a different bidder, but Prism failed to seek an injunction. The court rejected Prism’s contention that a stay should have been automatically imposed under Adm. Ch. 10, relieving it of the necessity of seeking an injunction.

“It is expected that an aggrieved bidder will ‘zealously protect’ the public interest and the public purse by taking legal action to ensure that a contract is not awarded to the wrong bidder,” the court said. “If Prism believed that it was entitled to the contract, Prism was required to seek a temporary injunction to prevent the award of the contract to WEAS.”

The court brushed off Prism’s concern that sovereign immunity would have barred a suit to enjoin the state from awarding a contract to another bidder. Although there is no statute giving legislative consent to such a suit, the court said there is a “general exception to the rule of state immunity” for injunctions that restrain state officers and agencies from acting beyond their constitutional or jurisdictional authority.

Declaratory judgment

Considering the dismissal of Prism’s declaratory judgment suit on sovereign immunity grounds, the court noted that it has previously allowed an action for declaratory relief against the state when it is intended to secure prospective, not remedial, relief.

But Prism’s suit did not fall within this exception, the court said.

“The declarations Prism seeks all relate to the DOA’s past actions, such as failing to award the contract to Prism, rescinding the first RFP, and issuing a second RFP,” the court noted. “None relates to the State’s future conduct. In effect, Prism seeks a declaration that its rights were violated during the procurement procedure so it can pursue a damages remedy against the State.”

A statutory exception to sovereign immunity

Prism attempted to bring its complaint under Wis. Stat. § 775.01 which waives sovereign immunity and authorizes suit against the state for contract actions that would render the state a debtor.

But the court said that Prism had failed to submit a claim to the Legislature and have it denied before filing suit, as required by § 775.01. Prism would also need to – but did not – file a bond with the clerk of courts as a precondition to bringing suit under the statute, the court added.

Further, the court said that § 775.01 authorizes recovery of an amount due for goods or services sold or delivered to the state.  It also permits a plaintiff to seek money held by the state that rightfully belongs to the plaintiff. The statute does not permit Prism’s claims for lost profits and expenses incurred by breach of contract.