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An Update on the "Disappointed Bidder" Doctrine

August 13, 2012

Historically, Michigan courts have held that a disappointed bidder does not have standing to bring a claim based on an award of a contract to another bidder. Detroit v Wayne Circuit Judges , 128 Mich 438, 439, 87 NW 376 (1901) (reasoning that a bidder does not have standing); Talbot Paving Co v Detroit , 109 Mich 657, 660, 662, 67 NW 979 (1896) (holding that a bidder whose bid was rejected does not have a right of action to recover profits because the charter stating that award of the contract should be to the lowest bidder was passed for the protection of the taxpayer, not for the benefit of the bidder); see also Lasky v City of Bad Axe , 352 Mich 272, 276, 89 NW2d 520 (1958).  Thus, in the past, the "disappointed bidder rule" prevented claims by a bidder who was passed over for award of a government project.

Despite the "disappointed bidder rule" prohibiting suit against an owner for lack of standing, the Michigan Court of Appeals has allowed claims by a disappointed bidder against an engineer for tortious interference with a business expectation. Joba Constr. Co. v Burns & Roe, Inc. , 121 Mich. App. 615 (Mich. Ct. App. 1982).  In Joba, the court reasoned that as the lowest bidder, plaintiff had a valid business expectancy that was interfered with by the consulting firm when the firm advised the owner not to award the contract to the lowest bidder because it was "unqualified."

In addition to Joba allowing a claim against an architect by a disappointed bidder, a 2010 Supreme Court of Michigan case may provide standing to a contractor to bring a claim against the owner.  The case of Lansing Sch. Educ. Ass'n v Lansing Bd. Of Educ. , 487 Mich. 349 (Mich. 2010) broadened the landscape on standing by providing that "[a] litigant may have standing . . . if the litigant has a special injury or right, or substantial interest, that will be detrimentally affected in a manner different from the citizenry at large . . . ." Lansing Sch. Educ. Ass'n v Lansing Bd. Of Educ. , 487 Mich. 349, 372 (Mich. 2010).  Although the Lansing case did not involve a "disappointed bidder", this case may open the door for contractors to assert claims of wrongful award of contracts.  When a contractor submits its bid for the work in response to an owner's bid invitation, the lowest bidding contractor may reasonably expect to be awarded the project, in accordance with bid documents which state that the lowest responsible bidder will receive the work.  Arguably, where an owner decides in bad faith or through fraud to award the contract to anyone other than the lowest responsible bidder, the contractor has a special injury or right that is affected different from the citizenry at large, and under Lansing , may have standing to bring its claim.

Despite the trend created by Joba and Lansing , the recent case of Cedroni Associates, Inc. v Tomblinson, Harburn  Associates, Architects & Planners, Inc. , No. 142339 (Mich. July 27, 2012) seems to add another layer to the inquiry whether a contractor deserves a day in court to challenge the bidding process.  Although Cedroni involved a claim by a disappointed bidder against an architect for tortious interference, the Supreme Court offered important insight on the issue, in holding that the bidder did not have any reasonable business expectancy to assert this claim.  Aware it was the lowest bidder, the plaintiff contractor was bypassed on the award and the project was awarded to the second lowest bidder due to an alleged improper recommendation by the architect.  The trial court held that the plaintiff did not have a valid business expectancy, since under the bid documents the award was to be made to the "lowest responsible bidder", and the owner-district expressly retained discretion in determining whether the bidder was "responsible".  On appeal, the Court of Appeals reversed on this issue, holding that there was a genuine issue of material fact as to whether the plaintiff could have had a reasonable business expectation.  In the Supreme Court of Michigan, the majority (pointing to Detroit v Wayne Circuit Judge) reasoned that the plaintiff had no valid business expectancy since it would historically have no standing to bring suit to challenge the award to another bidder.   Additionally,  the majority reasoned that since the bidding documents expressly reserved the owner-district's right to accept or reject any or all bids, the owner-district had broad discretion in awarding the contract and the bidder could not have had a realistic business expectation.

In light of the majority opinion in Cedroni , an owner's discretion may act as a barrier to arguing "a special injury or right" under the broadened standing holding in Lansing .  Before Cedroni , an argument could be made that since the bid documents expressed that the lowest responsible contractor would be awarded the job, the lowest bidding contractor would have a special right or injury different from the citizenry at large.  Thus, despite the longstanding "disappointed bidder rule", the contractor may have had standing to bring a claim against an owner.  After Cedroni , if an owner reserves its discretion in determining whether the bidder is "responsible", the court may find that the lower bidder could not have a reasonable expectation of being awarded the project, and therefore lacks the "special injury" requirement.  Of note, the dissent in Cedroni recognized that, since the plaintiff bidder had more than a mere hope of securing the project due to its awareness of its position as the low bidder, there was a genuine issue of material fact as to whether the contractor had a valid business expectation.

No Michigan case has opined on the expected result, if these three unrelated holdings are analyzed together. Lansing is not a "disappointed bidder" case; Lansing simply provides a broadened rule for standing in Michigan courts. Joba is a "disappointed bidder" case, which provides that a valid claim may exist against a non-owner (design professional) to challenge the bidding process. Cedroni also involves a "disappointed bidder" against a non-owner (design professional).  In determining the validity of the bidder's claim, the court in Cedroni seemed to restrict any opening created by Lansing and Joba, by focusing on whether the bidder had a "reasonable expectation" of being awarded the contract in the first place. While it appears that Lansing and Joba may extend standing to the "disappointed bidder" for claims challenging the bidding process, the limits set by Cedroni with regard to claims against design professionals may limit standing in claims against owners.  Thus, if the owner reserves discretion in awarding the contract, and the bidder cannot establish some reasonable business expectation, the bidder may be deemed to have no special right or injury to support standing in a claim against the owner.   In the alternative, a court reviewing the recent opinion may determine that while Lansing may dissolve the old "disappointed bidder rule" and the bidder may now have standing to bring a claim against the owner, the limits under Cedroni may cause the bidder's cause of action to ultimately fail for lack of reasonable business expectation.  In either case, it continues to be very difficult to bring a "disappointed bidder" claim in Michigan.

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