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Pepco Energy Services, Inc v. Department of General Services

IN THE COMMONWEALTH COURT OF PENNSYLVANIA


June 29, 2012

PEPCO ENERGY SERVICES, INC., PETITIONER
v.
DEPARTMENT OF GENERAL SERVICES, RESPONDENT

The opinion of the court was delivered by: P. Kevin Brobson, Judge

Argued: June 4, 2012

BEFORE: HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge

OPINION BY JUDGE BROBSON

Pepco Energy Services, Inc. (Petitioner) petitions for review of a final determination of the Department of General Services (Department), dated November 1, 2011, denying Petitioner‟s bid protest under the Commonwealth Procurement Code (Code), 62 Pa. C.S. §§ 101-2303, on the basis that the bid protest is without merit. We now affirm the Department‟s decision denying the bid protest.

The bid protest at issue relates to a Request for Proposal for a Design Build Contractor (RFP) for a Combined Heating, Cooling, and Power Plant (CHCP) project to serve the proposed State Correctional Facility (SCI-Phoenix), to be located in Montgomery County, Pennsylvania, on the existing property of SCI-Graterford.*fn1 (Reproduced Record (R.R.) at 15a-16a.) The Department issued the RFP pursuant to Section 513 of the Code, 62 Pa. C.S. § 513, relating to competitive sealed proposals.*fn2

The RFP provides that, pursuant to Section 322 of the Code, 62 Pa. C.S. § 322, the Department seeks "an energy services company to design, finance, construct, own, operate, and maintain a state-of-the-art" CHCP "to provide electricity, steam, hot water and chilled water" to the new SCI-Phoenix. (R.R. at 16a.) According to the RFP, "[i]t is anticipated that the solicitation process will culminate in the selection of a firm that will design, build, own and operate a CHCP facility developed in accordance with the specifications set forth in the . . . Design Criteria Document." (Id.) The CHCP is to supply its entire output to SCI-Phoenix pursuant to the terms of a Design Build Contract, Ground Lease Agreement, and Energy Services Agreement, drafts of which are attached to the RFP. (Id. at 16a-17a.) The RFP provides that "[t]he language of the Design Build Contract is not negotiable." (R.R. at 30a.)

Petitioner submitted a proposal (Proposal) in response to the RFP, in which Petitioner stated:

Note that we have based our proposal on the understanding that, prior to selection, the successful proposer will be afforded the opportunity to negotiate terms of the Energy Services Agreement (ESA) and Ground Lease together with the Surety Agreement (Parent Guaranty). Terms for negotiations include, without limitation, the collateralization-requirements of the Surety Agreement, provisions authorizing judgment by confession, consequential-damages exclusions, and automatic-default (i.e., no-cure) provisions in the ESA and Ground Lease. (R.R. at 157a.)

By letter dated October 18, 2011, the Department requested that Petitioner clarify its statement that the Proposal is based on an understanding of an opportunity to negotiate. The Department advised Petitioner that "the Energy Services Agreement, the Ground Lease, the Design-Build Construction Contract, and the Surety Agreement documents are not negotiable." (R.R. at 162a.) The Department further explained to Petitioner that requests for information "were answered in Bulletins stating that these documents were non-negotiable." (Id.) Notwithstanding the Department‟s position, Petitioner responded that it was requesting discussions "over terms and conditions to assure that the overall project procurement can be financed and constructed as intended by the RFP." (R.R. at 163a.) On October 19, 2011, the Department advised Petitioner that it had included in its Proposal "conditional language," thereby constituting an "alternative proposal," and that Petitioner‟s Proposal was being rejected as "non-responsive." (R.R. at 4a.)

Petitioner then filed a bid protest pursuant to Section 1711.1 of the Code, 62 Pa. C.S. § 1711.1, asserting that contract negotiations are contemplated as part of the request for proposal process, and, therefore, the Department erred in determining that its Proposal was non-responsive. (R.R. at 2a-3a). The Department denied the bid protest, and Petitioner filed the subject petition for review with this Court.

On appeal,*fn3 Petitioner argues that the Department committed an error of law when it rejected the Proposal as non-responsive. Petitioner asserts that its attempt to negotiate key terms and conditions was entirely valid under Section 513(g) of the Code.

Section 513 of the Code, which governs a state agency‟s issuance of a request for proposal, provides:

(a) Conditions for use.--When the contracting officer determines in writing that the use of competitive sealed bidding is either not practicable or advantageous to the Commonwealth, a contract may be entered into by competitive sealed proposals.

(b) Request for proposals.--Proposals shall be solicited through a request for proposals.

(c) Public notice.--Public notice of the request for proposals shall be given in the same manner as provided in section 512(c) (relating to competitive sealed bidding).

(d) Receipt of proposals.--Offerors shall submit their proposal to ensure that their proposals are received prior to the time and date established for receipt of the proposals. Proposals shall be submitted in the format required by the request for proposals. Proposals shall be opened so as to avoid disclosure of their contents to competing offerors.

(e) Evaluation.--The relative importance of the evaluation factors shall be fixed prior to opening the proposals. A Commonwealth agency is required to invite its comptroller to participate in the evaluation as a nonvoting member of any evaluation committee.

(f) Discussion with responsible offerors and revision of proposals.--As provided in the request for proposals, discussions and negotiations may be conducted with responsible offerors for the purpose of clarification and of obtaining best and final offers. Responsible offers shall be accorded fair and equal treatment with respect to any opportunity for discussion and revision of proposals. In conducting discussions, there shall be no disclosure of any information derived from proposals submitted by competing offerors.

(g) Selection for negotiation.--The responsible offeror whose proposal is determined in writing to be the most advantageous to the purchasing agency, taking into consideration price and all evaluation factors, shall be selected for contract negotiation. (Emphasis added.)

Section 513 of the Code does not provide "rigid, detailed procedure or strict requirements for the [request for proposal] process, but preserves a great deal of agency discretion, including discretion to determine agency needs in preparation of [request for proposal] requirements." Stanton-Negley Drug Company v. Dep't of Pub. Welfare, 943 A.2d 377, 387 (Pa. Cmwlth.), appeal denied, 598 Pa. 784, 959 A.2d 321 (2008). Moreover, in Stanton-Negley, we opined that "[a]n agency is not required to issue an RFP with terms and conditions that all entities in a particular field can meet," and that an entity challenging a request for proposal on the basis of its criteria bears the burden to establish that the issuing agency abused its discretion. Id.

Based upon the language of Section 513(g), that the responsible offeror with the most advantageous proposal "shall be selected for contract negotiation," Petitioner contends that once an agency determines which proposer submitted the most advantageous proposal, the agency must enter into contract negotiations with that proposer, meaning that all of the terms of the contract may then be negotiated by the parties.*fn4 In support of that contention, Petitioner argues that (1) Section 513(g) of the Code includes the word "shall," which is mandatory and not discretionary; (2) the term "contract negotiations," as used in Section 513(g), contemplates an opportunity for bilateral discussion of terms and the possibility of mutually agreed upon adjustments where appropriate; and (3) the language of Section 513(g) does not limit what parts of the contract may be considered for negotiation, and, therefore, all terms should be considered available for negotiation. Petitioner contends that the Department‟s approach operates to exclude a proposal even before it has been evaluated to determine how advantageous it may be. Petitioner further argues that the Department‟s approach is simply bad policy, because it forecloses the opportunity for the Department to receive input from the market on mistaken assumptions and other potential flaws in the contract documents, thereby unnecessarily inviting higher pricing from proposers.

The Department counters that Petitioner asks this Court to interpret Section 513(g) of the Code in far broader a manner than it has ever been interpreted and in a manner that ignores the express requirements of the RFP and the Department‟s subsequent bulletins. The Department further responds that had it permitted Petitioner to submit the Proposal, Petitioner would have had an unfair advantage over other proposers, thereby violating long-standing case law requiring all bidders and proposers of public contracts to be treated equally and fairly using a common standard. According to the Department, Petitioner‟s alternate proposal language would have allowed it to negotiate the terms of the various agreements, whereas other prospective proposers would have submitted their respective proposals based upon an understanding that the agreements were non-negotiable. The Department contends, therefore, that it properly rejected Petitioner‟s Proposal as non-responsive.

First, we note that although Petitioner places great significance on that portion of the language of Section 513(g) of the Code that provides that an offeror "shall be selected for contract negotiation," Petitioner fails to give significance to the preceding language in Section 513(g). Section 513(g) of the Code first requires that the offeror be a "responsible offeror." (Emphasis added). The Code specifically defines "responsible offeror" as "[a]n offeror that has submitted a responsive proposal and that possesses the capability to fully perform the contract requirements in all respects and the integrity and reliability to assure good faith performance." Section 103 of the Code, 62 Pa. C.S. § 103 (emphasis added). The Code further defines "responsive proposal" as "[a] proposal which conforms in all material respects to the requirements and criteria in the request for proposals." Id. (emphasis added). By definition, therefore, if a proposal on its face does not meet the requirements and criteria of a request for proposal, then it is not considered a responsive proposal and the offeror cannot be considered a responsible offeror. Thus, read in concert with Section 103 of the Code, Section 513(g) of the Code establishes a framework whereby the issuing agency must first determine if the offeror is a responsible offeror, meaning that its proposal meets the requirements and criteria of the request for proposal. Then, the responsible offeror with the most advantageous proposal is "selected for contract negotiation." This interpretation is further supported by the language of Section 513(g), which provides that the "responsible offeror whose proposal is determined . . . to be the most advantageous . . . , taking into consideration . . . all evaluation factors, shall be selected for contract negotiation." We reject, therefore, Petitioner‟s contention that under Section 513(g), following the submission of a proposal, every term of a contract becomes negotiable, including provisions that the issuing agency already identified as non-negotiable in its request for proposal.

Our analysis, however, does not end here, as a request for proposal may provide for contract negotiations. In Language Line Services, Inc. v. Department of General Services, 991 A.2d 383 (Pa. Cmwlth.), appeal denied, 608 Pa. 671, 13 A.3d 481 (2010), we noted that Section 513 of the Code allows an issuing agency "the opportunity to enter into discussions and negotiations with responsible offerors "[a]s provided in the request for proposals.‟" Language Line Servs., 991 A.2d at 390 (emphasis added). It also provides that "[r]esponsible offerors shall be accorded fair and equal treatment." Section 513(f) of the Code. In Language Line Services, when considering whether the issuing agency had violated the Code and fundamental principles governing public contracting when it requested best and final offers (BAFOs) from only certain bidders, this Court looked to the Code and the language of the request for proposal at issue. The language in the request for proposal in that case "specifically stated and put offerors on notice that [the issuing agency] was reserving the right to limit BAFO discussions to responsible offerors whose proposals were considered "reasonably susceptible of being selected for award.‟" Id. Because the language of the request for proposal placed prospective bidders on notice of how the issuing agency intended to proceed and because the issuing agency, in fact, proceeded in the manner outlined in its request for proposal, we concluded that the issuing agency had not violated the Code.

Based upon the language of Section 513(g) of the Code and our decision in Stanton-Negley, it is apparent that Section 513, in itself, does not entitle an offeror to engage in contract negotiations before the issuing agency makes a determination regarding whether the offeror is a responsible offeror (i.e., whether the offeror submitted a responsive or non-responsive proposal) or before the issuing agency makes a determination as to which proposal is most advantageous. An agency, however, through its request for proposal, may provide offerors with an opportunity to negotiate or provide revised proposals throughout the request for proposal process. See Stanton-Negley. With that framework as our guide, we must consider what provisions, if any, were contained in the RFP regarding contract negotiations, and whether those provisions entitled Petitioner to be given the opportunity to engage in contract negotiations.

We agree with the Department that, pursuant to the provisions of the RFP, Petitioner had no right to negotiate the terms of the Design Build Contract and the documents appended to it. Section 1-6 of the RFP clearly provides that "[p]roposed [c]ontracts are attached to this RFP as Appendix I," and that "the language of the Design Build Contract is not negotiable." (R.R. at 30a; emphasis added.) Section 1-7 of the RFP provides that the Department "reserves the right to reject any and all proposals received as a result of this request." (Id.) Section 1-7 similarly reserves the Department‟s "right to negotiate with the successful Proposer." (Id.) Neither Section 1-7 nor any other section of the RFP give the offeror any right to negotiate terms of the RFP. Moreover, Section 1-16 of the RFP makes clear that "[t]he terms of the contract will be as indicated in the attached Contract Document in Appendix I." (R.R. at 38a.) Section 1-28 of the RPF further emphasizes the non-negotiability of the Design Build Contract, by providing that if there are any inconsistencies between the RFP requirements and the General Conditions of the Design Build Contract, the latter shall control. (R.R. at 39.)

The RFP also provides a mechanism for questions to be answered during a Pre-Proposal Conference (Section 1-9 of the RFP) and, thereafter, through written requests for information submitted to the Department (Section 1-10 of the RFP). (R.R. at 31a.) Section 1-9 provides that "[q]uestions and answers from the Pre-Proposal Conference issued as a bulletin become part of this RFP." (Id. (emphasis in original).) Section 1-10 provides that any bulletins issued in response to a request for information "will become part of the RFP." (Id.) As noted above, during the RFP process, the Department issued bulletins clarifying that the Design Build Contract, Ground Lease Agreement, and Energy Services Agreement are not negotiable. (C.R. at 793a.)

Furthermore, the RFP makes clear that "proposals will be evaluated and scored as submitted with no best and final oral presentations or cost adjustments," (Section 1-20 of the RFP), and that after the "most advantageous" proposal is determined "in accordance with the evaluation factors, procedures, and criteria set forth in this RFP," the Department "will issue, at its own discretion, a Letter of Intent, Notice of Selection, or Award of Contract to the successful proposer" (Section 1-23 of the RFP). (R.R. at 37a.) Thus, Section 1-23 of the RFP makes clear that the Department did not intend to utilize the BAFO provision of Section 513(f) of the Code. Section 1-18 of the RFP, nonetheless, provides that an offeror may be required to make a written clarification of its proposal under Section 513(f) to ensure that the proposal is responsive to the solicitation requirements.*fn5 (R.R. at 36a.) Significantly, the RFP explicitly provides that the Department "has identified the basic approach to meeting its requirements, and will not accept alternate proposals or uninvited proposals." (R.R. at 36a; Section 1-17 of the RFP.)

Based upon the numerous provisions of the RFP summarized above, we must conclude that the provisions of the RFP did not entitle Petitioner to engage in contract negotiations before the Department made a determination regarding whether Petitioner was a responsible offeror who submitted a responsive proposal or before the Department made a determination as to which proposal was most advantageous.

Accordingly, we affirm the final determination of the Department.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Pepco Energy Services, Inc., : Petitioner : v. Department of General Services, : Respondent :

No. 2136 C.D. 2011 :

ORDER AND NOW, this 29th day of June, 2012, the final determination of the Respondent Department of General Services, denying the bid protest of Petitioner Pepco Energy Services, Inc., is hereby AFFIRMED.

P. KEVIN BROBSON, Judge


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