Arkansas Highway & Transportation Department v. Adams

David Newbern, Justice. This is an illegal exaction suit brought by the appellee, Miles S. Adams, a taxpayer, against the appellants, the Arkansas Highway and Transportation Department and the Arkansas State Highway Commission and its members, individually. The appellants will be referred to collectively as AHTD. Adams claimed AHTD had arbitrarily and capriciously refused to accept the lowest bid on a highway construction project. AHTD contended its actions were not arbitrary and capricious because the bid in question, which was submitted by The Rust Company, Inc., (Rust) was incomplete and not responsive to the bid request. It had not listed either the unit price or the extended price for some items in the bid specifications. The chancellor enjoined AHTD from awarding the contract to any bidder other than Rust. AHTD argues the chancellor erred in concluding it was arbitrary and capricious for AHTD to reject Rust’s bid and that such a decision violates the separation of powers doctrine. We. agree with AHTD’s contention that its action was not arbitrary and capricious and that, under these circumstances, there was an unwarranted judicial intervention. Therefore, we reverse and dismiss the case on appeal. Adams has cross-appealed from the chancellor’s refusal to order that the contract be awarded to Rust. We affirm on cross-appeal. Rust submitted a bid of $7,854,992.31 on construction of the Fayetteville-Greenland By-pass to be built in Washington County. The next lowest bid was submitted by The Sherwood Construction Co. in the amount of $7,967,244.56. Page 16 of the form bid document contained specifications for seventeen 16-foot steel or aluminum gates and three 12-foot steel or aluminum gates. The form had blanks for inclusion of the unit price for each gate and “extension” blanks for the two classes of gates. According to testimony, “extension” means the bid for the total number of units to be supplied. Rust’s bid was blank with respect to both unit price and extension on those two subsections. After the bids had been opened and it was determined that Rust’s bid was the lowest, it was discovered that no bid had been made by Rust on the gates. Mr. Teague of AHTD called Mr. Rust and told him his company’s bid would not be accepted because of the omission. Mr. Rust offered to supply the gates for nothing, as if the bid had been for “0.” The offer was rejected. Rust is an Illinois corporation. Adams is an Arkansas citizen employed by Rust. At the trial, Mr. Rust freely admitted that the reason the bid items in question in his company’s bid were left blank was inadvertence. It is clear that Rust did not intend to bid “0.” Mr. Teague testified that, while it was important to AHTD to save the taxpayers $112,252.25, he was not sure that was more important than protecting the integrity of AHTD’s bid process. Arbitrary and capricious The parties agree that the standard to be applied is whether the action of AHTD was arbitrary and capricious. It is clear that, although Teague testified that to his knowledge no bid containing neither a unit nor extension price had ever been accepted by AHTD, AHTD could do so within its discretion according to AHTD regulations. Section 102.08 of “Standard Specifications for Highway Construction,” published by AHTD, provides in part: Irregular Proposals. Proposals will be considered irregular and may be rejected for the following reasons: (d) If the proposal does not contain a unit price for each pay item listed except in the case of authorized alternate pay items. (Emphasis added.) AHTD had awarded contracts to other low bidders where there were infractions of the specifications, such as filling out the bid in pencil rather than ink or including an extension price but not a unit price. Teague’s testimony explained that in those cases the bidder’s intention was clear, and the unit and ultimate price could be determined from the bid, whereas in this case it could be determined only by post-bidding negotiations which AHTD had always avoided in order to protect the integrity of the bidding process. At first blush it would seem clear that rejection of a bid due to violation of a specification with respect to which the bidder was on published notice cannot be considered arbitrary or capricious. Assuming AHTD’s own regulations are rational, the act of following them constitutes a “rational basis” for the decision of AHTD in this case. The “rational basis” test has been the touchstone of our decisions determining whether an administrative agency’s action is arbitrary and capricious. Partlow v. Arkansas State Police Comm’n, 271 Ark. 351, 609 S.W.2d 23 (1980); Woodyard v. Arkansas Diversified Ins. Co., 268 Ark. 94, 594 S.W.2d 13 (1980). Adams argues, however, that when it comes to spending the state’s money, the judiciary must have the final responsibility to determine the issue. While we may agree, that does not change the standard to be applied, i.e., the “arbitrary and capricious” test which Adams agrees is to be applied in this case. Adams cites cases from other jurisdictions in support of his contention that when the error in a bid is minor the court will require its acceptance. He first cites J.L. Manta, Inc. v. Braun, 393 N.W.2d 490 (Minn. 1986). There the Minnesota Supreme Court felt compelled to approve rejection of a bid which contained an “alteration” of the figure $4,088.00 to $4,082.00. Under the controlling Minnesota statute, the state agency had no discretion but was required to reject a bid containing an alteration. The court, in obiter dictum, stated that if it had been within the agency’s discretion to accept the bid, refusal to do so would have been “arbitrary.” Unlike this case, the intention of the bidder to bid a certain price for the item in question could be determined from the bid submitted, assuming it was the bidder who wrote the “2” over the “8.” It was not a bid with a mistake or an omission. Also cited is Chris Berg, Inc. v. State, 680 P.2d 93 (Alaska 1984), which involved a lowest bid in which the bidder had written the price of a particular item on the line just below the line on which it should have been written. The nature of the mistake was clear, and the Alaska Supreme Court held that rejection of it by the Alaska Department of Transportation was an abuse of discretion because the price “the bid actually intended” to state was reasonably ascertainable. That is not the case here. According to Mr. Rust’s testimony, the unit and extension prices for the gates were simply left off by mistake. He testified his company had received prices from suppliers of from $2,000 to $5,000 for the gates. Obviously his bid would not have been “0” but would have been something in excess of $2,000, at least. Unlike the bid in the Chris Berg, Inc. case, it was not possible to tell from Rust’s bid what its intention was with respect to the gates. The third case on which Adams relies is Chick’s Construction Co. v. Wachusett Reg. High School Dist. School Comm., 175 N.E.2d 502 (Mass. 1961). There, the commission awarded the contract to the lowest bidder despite the omission of a unit price for an item. The next lowest bidder asked the court to declare the bid invalid and the acceptance of it improper. The court refused to do so, adopting the reasoning suggested by Adams in this case, that is, that the bid could be ascertained from the total price, and that Rust should be considered to have bid “0” for the contract to supply the gates. The issue in the case was not whether the school district had acted arbitrarily by refusing a bid, but was whether it should have been forced to reject the bid. While the case may suggest there would be a rational basis for accepting such a bid, it presents no authority for the proposition that an agency’s rejection of such a bid necessarily lacks a rational basis. In view of (1) AHTD’s published specification that it “may” reject a bid which contains no unit price on a specified item, (2) the fact that it was impossible to ascertain the intended price for the gates from the bid submitted, and (3) AHTD’s policy of not accepting any bid from which the unit price for a specified item cannot be ascertained, we must agree there was a rational basis for the rejection of Rust’s bid. While the item in question here may have been minor in comparison with the overall bid price, AHTD’s unwillingness to accept a bid with such an uncertainty and its refusal to consider post-bid negotiations with respect to the bid price in order to protect the integrity of the bidding process are, in our view, not irrational. While the decision may have been a “bad” one from the standpoint of saving the taxpayers money in this particular instance, it may have been a “good” one in that the policy behind it may save the taxpayers manyfold that which has been lost here because the certainty of the bidding process will be protected and litigation and delay thus avoided in the future. The question to be decided here, however, is not whether the decision was “bad” or “good,” but whether it was arbitrary and capricious. We hold it was not. As our holding that the decision of AHTD was not arbitrary and capricious disposes of the appeal, we need not decide the other issues raised. Our holding on that point also disposes of the cross-appeal. Reversed and dismissed on appeal; affirmed on cross-appeal. Hickman and Purtle, JJ., dissent.