07-005636BID Floridian Construction And Development Company, Inc. vs. Department Of Environmental Protection Status: Closed Recommended Order on Friday, March 21, 2008.

Summary: Respondent correctly disqualified a low bid with bond from surety with an "A-" rating when specifications required an "A" rating.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDIAN CONSTRUCTION & )

DEVELOPMENT COMPANY, INC., )

)

Petitioner, )

)

vs. ) Case No. 07-5636BID

)

STATE OF FLORIDA )

DEPARTMENT OF ENVIRONMENTAL )

PROTECTION, )

)

Respondent, ) ) ) ) ) ) ) )

and

GAC CONTRACTORS, INC.,

Intervenor.

RECOMMENDED ORDER

Administrative Law Judge (ALJ) Daniel Manry conducted the

final hearing of this case for the Division of Administrative

Hearings (DOAH) on February 12 and 13, 2008, in Tallahassee,

Florida.

APPEARANCES

For Petitioner: John P. Townsend, Esquire

Becker & Poliakoff, P.A.

348 Miracle Strip Parkway, Southwest

Suite 7

Ft. Walton Beach, Florida 32548

For Respondent: Suzanne B. Brantley, Esquire

Kelly Samek, Esquire

Reagan K. Russell, Esquire

Department of Environmental Protection

The Douglas Building, Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

For Intervenor: Albert C. Penson, Esquire

Penson & Davis, P.A.

2810 Remington Green Circle

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

The issue is whether the proposed disqualification of

Petitioner’s bid is contrary to the agency's governing statutes,

rules, or policies or contrary to the bid solicitation

specifications within the meaning of Subsection 120.57(3)(f),

Florida Statutes (2007). 1

PRELIMINARY STATEMENT

Respondent disqualified Petitioner's bid and issued a notice

of intent to award the contract to another bidder. Petitioner

protested the disqualification, and Respondent referred the

protest to DOAH to conduct an administrative hearing.

At the hearing, Petitioner, Respondent, and Intervenor

submitted six joint exhibits for admission into evidence.

Petitioner presented the testimony of two witnesses and

submitted three exhibits for admission into evidence.

Respondent presented the testimony of four witnesses and

submitted eight exhibits for admission into evidence. The

identity of the witnesses and exhibits, and the rulings

regarding each, are reported in the three-volume Transcript of

the hearing filed with DOAH on February 27, 2008.

Petitioner timely filed its Proposed Recommended Order

(PRO) on March 7, 2008. Respondent and Intervenor timely filed

their respective PROs on March 10, 2008.

FINDINGS OF FACT

1. Petitioner is a closely held Florida corporation

licensed in the state as a general contractor. Mr. Milton

2. Respondent is a state agency. Respondent regularly

solicits bids for construction services to build and maintain

its facilities.

3. On August 3, 2007, Respondent issued an invitation to

bid identified in the record as Bid No. 03-07/08 (the ITB). The

ITB solicited bids to construct a new headquarters for the

Apalachicola National Estuarine Research Reserve, commonly

referred to in the record as ANERR.

4. Four companies responded to the ITB. Petitioner

submitted the lowest bid. Intervenor submitted the next lowest

bid. Intervenor is a Florida corporation licensed in the state

as a general contractor.

5. The ITB required bidders to submit a bid bond in an

amount equal to five percent of the amount of the bid, plus

alternates. A bid bond is not a performance bond. A bid bond

is customarily provided for gratis or a nominal charge, and

variations in bid bonds do not result in a competitive advantage

among bidders. A bid bond merely insures the successful bidder

will enter into the contract and provide whatever payment and

performance bonds (performance bond) the ITB requires.

6. The Instructions to Bidders for the ITB required all

bonds to be issued by a surety company that “shall have at least

the following minimum rating in the latest issue of Best’s Key

bond rating requirement was a bid solicitation specification

required for a bond to be acceptable to Respondent.

7. Petitioner submitted a bid bond issued by a surety

identified in the record as International Fidelity Insurance

Company (IFIC). IFIC has Best's rating of "A-."

8. Respondent proposes to reject Petitioner's bid for

failure to satisfy the bond rating requirement and to award the

bid to Intervenor as the second lowest bidder. The bond rating

for the surety company that issued the bid bond for Intervenor

is not in evidence. For reasons stated in the Conclusions of

Law, Petitioner has the burden of proof.

9. The parties provided the trier of fact with a wealth of

evidence during the final hearing. However, judicial decisions

discussed in the Conclusions of Law confine the purpose of this

proceeding to a review of the proposed disqualification of

Petitioner's bid at the time Respondent exercised that agency

discretion. This proceeding is not conducted to formulate final

agency action that determines which bidder should receive the

contract or whether all of the bids should be rejected.

10. The review of proposed agency action is limited to a

determination of whether the proposed action violates a statute,

rule, or specification. If a violation occurred, the review

must then determine whether the violation occurred because

Respondent exercised agency discretion that was clearly

erroneous, contrary to competition, or an abuse of discretion.

11. A preponderance of evidence does not show that the

proposed agency action violates a statute, rule, or

specification. That finding ends the statutorily authorized

inquiry. In the interest of completeness and judicial economy,

however, the trier of fact also finds that the exercise of

agency discretion that led to the proposed agency action is not

clearly erroneous, contrary to competition, or an abuse of

discretion.

12. It is undisputed that the proposed agency action does

not violate a statute or rule. Petitioner implicitly argues

that the proposed agency action violates the bond rating

requirement in the bid specifications because an "A-" rating is

equivalent to an "A" rating.

13. The Best's ratings of surety companies are not

equivalent. Before discussing the differences, however, it is

important to note that Respondent did not base its proposed

rejection of Petitioner's bid on an independent evaluation of

the data used to distinguish the two ratings.

14. The failure to conduct an independent evaluation of

the differences in Best's ratings criteria was neither clearly

erroneous, contrary to competition, nor an abuse of discretion.

The differences in Best's ratings criteria are complex and

proprietary. Respondent lacks sufficient staff and expertise to

evaluate the data underlying the Best's ratings or the quality

of surety companies.

15. Respondent relied on its own experience, custom and

practice in the surety industry, and advice of counsel.

Respondent also took into account the unusual size and

complexity of the ANERR project, time constraints, and the added

risk aversion to any delay in starting the project.

16. The proposed rejection of Petitioner's bid is

consistent with Respondent's past practice. Respondent has

consistently required compliance with bond rating requirements

for bid bonds in previous projects. In the course of bidding

500 to 600 projects over approximately an eight-year period,

only one of the apparent low bidders offered Respondent a bid

bond from an "A-" rated surety when an "A" was required by the

bid specifications. Respondent disqualified that bid, which was

for a project of approximately four million dollars; the only

previous project that approaches the $5-$6 million cost of the

ANERR project. All other low bidders complied with the

specification as written.

17. Respondent reasonably inferred that the surety company

for the bid bond would be the same for the performance bond.

Respondent's experience with industry practice in the 500 to 600

previous projects suggests the surety company that writes the

bid bond will also write the performance bond. It is also

customary for a surety company to provide the bid bond for

gratis or for a nominal charge because the surety company

collects its premium upon writing the subsequent payment and

performance bonds.

18. Respondent's experience also shows that contractors

must qualify for their surety bonds, and not all contractors

succeed in qualifying for surety bonds. Moreover, not all

contractors can succeed in procuring surety bonds from an

A-rated company.

19. The temporal exigencies between the award of the bid

and the provision of a performance bond also supported

Respondent's inference that the surety company for the bid bond

would be the surety company for the performance bond. The

General Conditions of the contract required Petitioner to submit

evidence of its ability to provide the requisite performance

bond within two working days of being notified of a successful

bid. Petitioner had ten days to actually furnish the bond.

20. Establishing a surety is not perfunctory but entails a

prequalification process. Petitioner had to supply its bonding

agent with information including project history, credit

references, reviewed financial statements, personal financials,

and details on its assets.

21. Any delay in the ANERR project, in contrast to its

previous projects, for reasons of contractor default or

otherwise, would expose Respondent to greater risk and greater

expense. Respondent reasonably experienced a heightened risk

aversion for the ANERR project than the risk aversion Respondent

experienced during previous projects.

22. The $5 or $6 million price tag for the ANERR project

is about 400 percent greater than all but one previous project

in Respondent's experience. Unusual aspects of the project,

including its design elements and its environmentally sensitive

location, could be irreparably harmed in the event of default or

delay. The nature of the project's funding, part of which is a

federal construction grant that expires on a date certain and

part of which involved taxes paid by Floridians, contributes to

the unique qualities of the project that support Respondent's

greater risk aversion in connection with the ANERR project.

23. At the time Respondent had to make a decision to

reject or accept Petitioner's bid, Respondent believed in good

faith a distinction existed between Best's "A" and "A-" ratings.

The Best's ratings publication is a summary based on data, much

of which is proprietary. It would be pointless for Respondent

to "cross examine" a summary before rejecting Petitioner's bid

if significant portions of the data underlying the summary are

proprietary and unavailable to the cross-examiner.

24. If Respondent were to have sufficient staff and

expertise to independently evaluate the data underlying the

Best's ratings, if some of the data were not proprietary, and if

such an evaluation were the basis for the proposed rejection of

Petitioner's bid, the outcome would not alter the proposed

rejection of Petitioner's bid. The Best's ratings are based, in

relevant part, on Best's Capital Adequacy Ratio, commonly

referred to in the record as BCAR. The BCAR score estimates the

ability of a surety company to pay claims.

25. The minimum BCAR score for an "A" rating is 145,

meaning the value of a surety company's assets exceed its

estimated claims by a minimum of 45 percent. The minimum BCAR

score for a surety with an "A-" rating is 130, meaning the value

of its assets exceed its estimated claims by 35 percent.

26. Although a 15-percent differential may appear small,

Best's states the differentials by reference to a range of

scores. The actual differential between individual sureties

with an "A" rating and an "A-" rating may be as little as one

percent or as great as 29 percent.

27. An independent evaluation by Respondent would have

revealed a margin of error as large as 29 percent in the

standard used to evaluate a surety company's ability to pay

claims. If the proposed rejection of Petitioner's bid were

based on an independent evaluation of the data underlying the

Best's rating summaries, it would have been reasonable for

Respondent to reject Petitioner's bid. It would have been

reasonable for Respondent to reject a 29-percent margin of error

for a surety company in a project that is 400 percent larger

than the typical project and for which Respondent reasonably has

a greater risk aversion due to the temporal limit on the

availability of funds, the complexity of the project, and its

environmental sensitivity.

28. Much of the data underlying Best’s published ratings

is proprietary information. However, the available evidence

shows that Best's adjusts BCAR values based on qualitative

factors such as: business plan, management quality, liquidity

of assets, liabilities, and other operational aspects of the

surety company. A qualitative analysis shows that ratings of

29. Petitioner submitted evidence that Best's "bands"

surety companies with ratings of "A" and "A-" together in the

Best's rating guide. However, the relevant specification in the

ITB did not express the bond rating requirement in terms of a

band or category. Rather, Respondent requested an "A" or better

rating according to Best’s Key Rating Guide.

30. An independent evaluation by Respondent would have

provided a reasonable basis for an inference that the surety

company for the bid bond and performance bond would be the same

company. Petitioner has used IFIC for more than one year.

During that time, IFIC has issued all of Petitioner’s bid bonds.

IFIC issued Petitioner two payment and performance bonds.

Petitioner was unable to identify any other surety company that

had issued its payment and performance bonds within the time

period during which Petitioner has used IFIC.

31. Petitioner did not ask its insurance broker to obtain

a bid bond from a company other than IFIC. When Petitioner sent

a bid bond order form to its broker, Petitioner provided

information to the broker about the project and the amount of

the bid and Respondent’s surety requirements. The Bid Bond

Order Form does not indicate the minimum bond rating requirement

specified in the ITB. Mr. Fulmer had a conversation with his

broker about Respondent’s bid security requirements, but it is

unclear whether the relevant specifications were faxed to the

broker or whether Mr. Fulmer saw the Bid Bond Order Form before

it was provided to the broker.

32. In response to the Bid Bond Order Form, the broker

generated a bid bond and sent the bond to Petitioner for

signature. At the time Petitioner received the bid bond,

Petitioner did not consult Best’s Key Rating Guide to confirm

that its surety met the minimum bond rating requirement in the

ITB.

33. It is unnecessary to determine whether the bond rating

requirement was a material or immaterial requirement. If it

were material, Respondent had no discretion to waive it. If it

were non-material, within the meaning of Florida Administrative

Code Rule 60D-5.002(9)(Rule), evidence discussed in previous

Findings in this Order shows that the exercise of agency

discretion underlying the refusal to waive the bond rating

requirement was reasonable and was not clearly erroneous,

contrary to competition, arbitrary, or capricious.

34. Petitioner's bid protest is not, in substance, a

challenge to the bid solicitation specification identified in

this Order as the bond rating requirement. If the substance of

the bid protest were deemed to be a challenge to a bid

specification requirement, the challenge is untimely.

35. On October 30, 2007, Respondent opened the bids,

identified Petitioner as the apparent low bidder, consulted

Best's for information on the "A-" rating, consulted with

counsel, and disqualified Petitioner's bid. Petitioner filed a

Notice of Intent to Protest on November 8, 2007, and a Petition

to Protest on November 13, 2007. A deemed challenge to the

specification for the minimum bond rating requirement was

untimely within the meaning of Subsection 120.57(3)(b).

CONCLUSIONS OF LAW

36. DOAH has jurisdiction over the parties and subject

matter of this proceeding. §§ 120.569 and 120.57(3). DOAH

provided the parties with adequate notice of the administrative

hearing.

37. This is a de novo proceeding conducted pursuant to

Subsection 120.57(3)(a 120.57(3) proceeding). However, a

120.57(3) proceeding is not synonymous with the de novo

proceeding required in Subsection 120.57(1) (a 120.57(1)

proceeding).

38. The distinction between the two types of de novo

proceedings is articulated in Syslogic Technology Services, Inc.

v. South Florida Water Management District , Case No. 01-4385BID

(DOAH January 18, 2002). The undersigned cannot improve upon

that discussion, but considers the distinction important and

quotes from Syslogic .

The First District Court of Appeal has

construed the term "de novo proceeding," as

used in Section 120.57(3)(f), Florida

Statutes, to "describe a form of intra-

agency review. (citation omitted) The judge

may receive evidence, as with any formal

hearing under section 120.57(1), but the

object of the proceeding is to evaluate the

action taken by the agency. State

Contracting and Engineering Corp. v.

Department of Transportation , 709 So. 2d

607, 609 (Fla. 1st DCA 1998). In this, the

court followed its earlier Intercontinental

Properties, Inc. v. State Department of

Health and Rehab. Serv. , 606 So. 2d 380, 386

(Fla. 1st DCA 1992), a decision which

predates the present version of the bid

protest statute, wherein the court had

reasoned:

Although the hearing before the hearing

officer was a de novo proceeding, that

simply means that there was an evidentiary

hearing during which each party had a full

and fair opportunity to develop an

evidentiary record for administrative review

purposes. It does not mean, as the hearing

officer apparently thought, that the hearing

officer sits as a substitute for the

Department and makes a determination whether

to award the bid de novo . Instead, the

hearing officer sits in a review capacity,

and must determine whether the bid review

criteria set . . . have been satisfied.

Thus, the "de novo proceeding" contemplated

in Section 120.57(3), Florida Statutes,

might be envisaged, oxymoronically, as an

"appellate trial," a hybrid proceeding in

which evidence is received, factual disputes

are settled, legal conclusions made--and

prior agency action is reviewed for

correctness.

Syslogic , Case No. 01-4385BID at 18-19, paras. 43-44.

39. The appellate part of a Subsection 120.57(3)

proceeding is a retrospective view of agency action that

previously occurred when Respondent disqualified Petitioner's

bid. The retrospective review is primarily a look back at the

evidence Respondent relied on, at the time, to exercise agency

discretion. For illustrative purposes only, a 120.57(3)

proceeding may be understood as a probable cause determination;

a determination of whether Respondent had probable cause at the

time it exercised agency discretion to disqualify Petitioner's

bid.

40. A 120.57(1) proceeding looks forward to formulate

final agency action that Respondent should take. If this were a

120.57(1) proceeding, the ALJ would sit in the place of the

agency head and determine whether to award the bid de novo by

looking forward to the evidence available through the date of

the administrative hearing even if some of that evidence were

unavailable to Respondent at the time Respondent exercised

agency discretion to disqualify Petitioner's bid.

41. In a 120.57(3) proceeding, the trier of fact looks

back to review the evidence available to Respondent when

Respondent exercised agency discretion to disqualify the bid.

The purpose is to determine whether the exercise of agency

discretion was clearly erroneous, contrary to competition,

arbitrary, or capricious based on the evidence considered by

Respondent at the time. The trier of fact considers evidence

Respondent did not consider (other evidence), which may or may

not have been available to Respondent, not for the purpose of

formulating future agency action, but for the limited purpose of

determining whether the failure to consider the other evidence

was clearly erroneous, contrary to competition, arbitrary, or

capricious.

42. Petitioner has the burden of proving a valid ground

for invalidating the proposed agency action. State Contracting

and Engineering Corporation v. Department of Transportation , 709

So. 2d 607, 609 (Fla. 1st DCA 1998). Petitioner must show that

by a preponderance of the evidence that the proposed agency

action was contrary to the agency’s governing statutes, the

agency’s rules or policies, or the solicitation specifications.

Id. ; see also § 120.57(3)(f). That alone, however, is not

sufficient for Petitioner to prevail. A preponderance of

evidence must convince the reviewing ALJ that the agency's

violation of a statute, rule, or specification was clearly

erroneous, contrary to competition, arbitrary, or capricious.

Id.

43. Petitioner did not satisfy its burden of proof. For

reasons already stated in the Findings of Fact and not repeated

here, the exercise of agency discretion to disqualify

Petitioner's bid did not violate a statute, rule, or bid

specification. Assuming arguendo a violation did occur, the

violation was not clearly erroneous, contrary to competition,

arbitrary, or capricious. U.S. v. U.S. Gypsum Co. , 333 U.S.

364, 395 (1948); Dravo Basic Materials Co. Inc. v. Dept. of

Transportation , 602 So. 2d 632, 635 n.3 (Fla. 2d DCA 1992);

Agrico Chemical Co. v. Dept. of Envtl. Regulation , 365 So. 2d

759, 763 (Fla. 1st DCA 1978); Harry Pepper & Assoc., Inc. v.

City of Cape Coral , 352 So. 2d 1190, 1192 (Fla. 2d DCA 1977).

44. A good part of the ample evidence in this proceeding

focused on the issue of whether the bond rating requirement was

a non-material requirement within the meaning of Rule 60D-5.002.

Respondent has no discretion to waive a material requirement in

a bid specification. As a general rule, bids must strictly

adhere to the requirements of the ITB. First Communications,

Inc. v. Dept. of Corrections , Case No. 07-0630BID (DOAH April 5,

2007), para. 36, adopted in toto in Florida Department of

Corrections Final Order filed April 26, 2007. It would offend

the very idea of competitive bidding to afford agencies the

discretion to waive material deviations in bids. Robinson

Electrical Co. v. Dade County , 417 So. 2d 1032, 1034 (Fla. 3d

DCA 1982).

45. Respondent has broad discretion to waive a non-

material deviation from bid requirements. Liberty County v.

Baxter's Asphalt and Concrete Inc. , 421 So. 2d 505, 507 (Fla.

1982). Two criteria determine whether an act of noncompliance

is substantial enough to amount to a non-waivable deviation.

The ALJ must first consider whether the effect of a waiver would

deprive Respondent of its assurance that the contract will be

entered into or performed and guaranteed according to its

specified requirements. The ALJ must also determine whether the

bid requirement is of such a nature that its waiver would

adversely affect competitive bidding by placing a bidder in a

position of advantage over other bidders or by otherwise

undermining the necessary common standard of competition.

Robinson , 417 So. 2d at 1034.

46. The waiver of a deviation that might disqualify an

otherwise winning bid gives the beneficiary of the waiver an

advantage or benefit over the other bidders. Robinson , 417

So. 2d at 1034; Phil’s Expert Tree Service, Inc. v. Broward

County School Board , Case 06-4499BID (DOAH March 19, 2007), at

para. 59, adopted in toto in Broward County School Board Final

Order filed May 8, 2007. However, noncompliance with a

specification designed to winnow the field, especially one that

prescribes particular characteristics that the successful bidder

must possess, should rarely, if ever, be waived as immaterial.

This is because such a provision acts as a barrier to access

into the competition, potentially discouraging some would-be

participants, namely those who lack a required characteristic,

from submitting a bid. City of Opa-Locka vustees of the

Plumbing Industry Promotion Fund , 193 So. 2d 29, 32 (Fla. 3rd

DCA 1966); Phil’s Expert Tree Service at para. 60, citing

Syslogic , Case No. 01-4385BID at 98.

47. While other explanations for a bidder’s failure to

comply with a specification may exist, prudence requires an

agency to assume the worst, not hope for the best. Such caution

is not only prudent, but also a matter of fairness to the other

competitors who complied with the specification. Syslogic , at

n. 22.

48. Savings to the taxpayer is not a sufficient ground to

disturb an agency’s decision not to waive a non-material bid

requirement. While taxpayers may benefit from the lowest price,

the public has a greater interest in ensuring the integrity of

the bidding process by enforcing strict standards that

discourage unfettered discretion or favoritism in the public

bidding process. Phoenix Mowing and Landscaping, Inc. v. Dept.

of Transportation , Case No. 01-0371BID (DOAH April 25, 2001),

para. 46, adopted in toto in Florida Department of

Transportation Final Order filed May 21, 2001, citing De Sapio

Construction, Inc. v. Township of Clinton , 647 A.2d 878, 881

(N.J. Super. Ct. Law Div. 1994).

49. Agencies have wide discretion in soliciting and

accepting bids. When an agency makes its decision based on an

honest exercise of its discretion, the decision should not be

overturned even if it may appear erroneous and even if

reasonable persons may disagree. Overstreet Paving Co. v. Dept.

of Transportation , 608 So. 2d 851, 852-853 (Fla. 2d DCA 1992)

(citing Dept. of Transportation v. Groves-Watkins Constructors ,

530 So. 2d 912, 913 (Fla. 1988) and Liberty County , 421 So. 2d

at 507).

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is hereby

RECOMMENDED that Respondent issue a final order dismissing

the protest.

DONE AND ENTERED this 21st day of March, 2008, in

Tallahassee, Leon County, Florida.

S

DANIEL MANRY

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 21st day of March, 2008.

ENDNOTE

1/ References to subsections, sections, and chapters are to

Florida Statutes, (2007) unless otherwise stated.

COPIES FURNISHED :

Michael W. Sole, Secretary

Department of Environmental Protection

The Douglas Building

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

Tom Beason, General Counsel

Department of Environmental Protection

The Douglas Building, Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

Suzanne B. Brantley, Esquire

Kelly Samek, Esquire

Reagan K. Russell, Esquire

Department of Environmental Protection

The Douglas Building, Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

John P. Townsend, Esquire

Becker & Poliakoff, P.A.

348 Miracle Strip Parkway, Southwest

Suite 7

Fort Walton Beach, Florida 32548

Albert C. Penson, Esquire

Penson & Davis, P.A.

2810 Remington Green Circle

Tallahassee, Florida 32308

Jacalyn N. Kolk, Esquire

Jacalyn N. Kolk, P.A.

4116 Highway 231, North

Panama City, Florida 32412

Lea Crandall, Agency Clerk

Department of Environmental Protection

The Douglas Building, Mail Station 35

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

10 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.