98-005623BID Rattler Construction Contractors, Inc. vs. Department Of Corrections Status: Closed Recommended Order on Thursday, March 4, 1999.

Summary: Failure by challenger to file required items in Request for Proposal rendered its proposal non-responsive; all bids non-responsive.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RATTLER CONSTRUCTION )

CONTRACTORS, INC., )

)

Petitioner, )

)

vs. ) Case No. 98-5623BID

)

DEPARMENT OF CORRECTIONS, )

)

Respondent, )

)

and )

)

A. D. MORGAN CORPORATION, )

)

Intervenor. )

______________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on January 21 and February 2, 1999, in Tallahassee, Florida,

before Donald R. Alexander, the assigned Administrative Law Judge

of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: H. Richar d Bisbee, Esquire

Theresa M. Bender, Esquire

Post Office Box 11068

Tallahassee, Florida 32302-3068

For Respondent: Scott E. Clodfelter, Esquire

Department of Corrections

Obed Dorceus, Esquire

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

For Intervenor: Mark K. Logan, Esquire

403 East Park Avenue

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue is whether the Department of Corrections' decision

to select Intervenor as construction manager on Project No. VO-

04-CM was clearly erroneous, contrary to competition, arbitrary,

or capricious, as alleged by Petitioner.

PRELIMINARY STATEMENT

This matter began on November 20, 1998, when Respondent,

Department of Corrections, advised Petitioner, Rattler

Construction Contractors, Inc., that it had selected Intervenor,

A. D. Morgan Corporation, as the construction manager on Project

No. VO-04-CM. That project involved the expansion and renovation

of the Florida Correctional Institution in Lowell, Florida. On

December 2, 1998, Petitioner filed a notice of its intention to

protest the award. A Formal Written Protest was then filed by

Petitioner on December 14, 1998.

The matter was referred by Respondent to the Division of

Administrative Hearings on December 24, 1998, with a request that

an Administrative Law Judge be assigned to conduct a formal

hearing.

By Notice of Hearing dated December 29, 1998, a final

hearing was scheduled on January 14, 1999, in Tallahassee,

Florida. At Petitioner's request, the matter was continued to

January 21, 1999, at the same location. A continued hearing was

held on February 2, 1999. On January 13, 1999, Intervenor,

A. D. Morgan Corporation, was granted leave to intervene. On

January 21, 1999, Petitioner's unopposed Motion for Leave to File

Amended Formal Written Protest was granted.

At final hearing, Petitioner presented the testimony of

James R. Ervin, an agency architect; Raymond L. Bryant, Sr.,

certification manager of the Minority Business Advocacy and

Assistance Office; Edward H. Terry, Jr., an agency architect;

Steven Watson, an agency architect supervisor; Frederick Carroll,

III, a certified public accountant and accepted as an expert in

accounting matters and financial statement preparation; Robert E.

Selman, an agency architect supervisor; Robert E. Staney, deputy

assistant secretary for administration; and Calvin J. Barber,

Petitioner's president. Also, it offered Petitioner’s

Exhibits 1-18. All exhibits were received in evidence.

Intervenor presented the testimony of Deette Preacher, a

certified public accountant and accepted as an expert in public

accounting; John Kalaf, Intervenor's vice-president of

operations; and Rebecca Smith, Intervenor's president and owner.

Also, it offered Intervenor's Exhibits 1-6. All exhibits were

received in evidence. Finally, the undersigned granted

Petitioner's Motion for Official Recognition of Chapter 38A-20,

Florida Administrative Code, and certain "Standards for

Accounting and Review Services," "Statements of Auditing," and

"Generally Accepted Auditing Standards" issued by the American

Institute of Certified Public Accountants. The accounting items,

however, were never filed by Petitioner, as requested by the

undersigned at hearing, and thus they have not been considered.

The transcript of hearing (three volumes) was filed on

February 9, 1999. Proposed findings of fact and conclusions of

law were filed by Petitioner on February 19, 1999, and by

Respondent and Intervenor on February 22, 1999. Those filings

have been considered by the undersigned in the preparation of

this Recommended Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of

fact are determined:

A. Background

1. In September 1998, Respondent, Department of Corrections

(Department), issued a Request for Qualifications and Evaluations

Procedures (RFQ) to select a construction manager for Project

No. VO-04-CM, which involved an $18 million expansion and

renovation of the Florida Correctional Institution in Lowell,

Florida. The RFQ was directed to qualified minority construction

firms as a "minority set aside." The successful firm would serve

as a general contractor for the job, guarantee the price, and

assume responsibility for any cost overruns on the project.

2. All firms were to submit their qualifications with the

Department by 4:00 p.m., October 20, 1998. After a pre-proposal

meeting held on October 6, 1998, but prior to October 15, 1998,

Addendum No. 1 to the RFQ was issued and clarified that all

proposals must be filed by October 15, rather than October 20,

that each firm have a bonding capacity of $6,000,000.00 for each

of the three phases of the project, and that each firm must

submit its bonding and insurance costs.

3. The RFQ required that each firm file a letter of

interest detailing the firm's qualifications to meet the

selection criteria; an experience questionnaire and contractor's

financial statement; resumes of proposed staff and staff

organizations; examples of project reporting manuals, schedules,

past experience, and examples of similar projects completed by

the firm; references from past clients; and a reproduction of the

firm's current state contractor's license, corporation charter,

and Minority Business Enterprise (MBE) certification.

4. Under the selection process established by the

Department pursuant to Rule 60D-5.0082, Florida Administrative

Code, a five-member selection committee, including four from the

Division of Design and Construction, would "review all properly

submitted proposals, and determine the three (3) firms with the

highest score using the selection criteria established for the

project." These criteria included experience, financial,

schedule and cost control, office staff, site staff, information

system, and location. The highest ranked firm would then be

selected to negotiate a contract for the services.

5. On October 15, 1998, applications were filed by five

construction firms: Petitioner, Rattler Construction Contractors,

Inc. (Rattler or Petitioner); Intervenor, A. D. Morgan

Corporation (Intervenor); Linda Newman Construction Company, Inc.

(Newman); Ajax Construction Company, Inc. (Ajax); and Freeman and

Freeman Construction Company (Freeman). After an evaluation was

conducted by the selection team, the applicants were assigned the

following scores: Intervenor (85.6), Newman (75.2), Petitioner

(66.2), and Freeman (20.8). Ajax was disqualified as being non-

responsive on the ground it was not certified as a MBE. At a

later point in the process, Freeman was disqualified for the same

reason. Accordingly, as the highest ranked applicant, Intervenor

was determined to be the most qualified firm, and the Department

issued a letter on November 20, 1998, advising all contractors of

its decision.

6. Claiming that its submission was the only "compliant and

responsive bid received" by the Department, Petitioner filed its

protest on December 2, 1998. In its Formal Written Protest filed

on December 14, 1998, as later amended on January 19, 1999, and

then narrowed by the parties' prehearing statement, Petitioner

contended that Intervenor had failed to comply with two material

requirements: that it file audited financial statements and a

current MBE certification. It further alleged that the second

ranked applicant, Newman, had also failed to submit audited

financial statements. Finally, it claimed that one of the

members on the selection team was biased against Rattler.

Because of the foregoing irregularities, Petitioner asserts that

the Department's actions were "clearly erroneous, arbitrary,

capricious, and illegal" in proposing to select Intervenor as its

construction manager. As relief, Petitioner asks that Intervenor

and Newman be disqualified as non-responsive, and because Rattler

filed the "only complete and responsive bid," that the Department

select Petitioner as its construction manager. Each of the

alleged irregularities will be discussed below.

B. Did the Department Err in Awarding Intervenor the Contract ?

a. Audited Financial Statements

8. The RFQ, as amended, required that each minority

contractor file, no later than October 15, 1998, an application

and a "Contractor's Financial Statement as referenced in Chapter

60D-05 [sic], Florida Administrative Code." More specific

instructions as to this latter requirement were found on page 5

of 21 of the Request for Qualification and Experience

Questionnaire, which accompanied the RFQ. That document

contained general and specific instructions. There, each

applicant was directed to file a Financial Statement, which was

described as follows:

B. Financial Statement. This statement will

be an audited report with comments, and not

older than one (1) year. If the most current

report has not yet been audited, the previous

audited report with comment shall accompany

the most recent financial statement.

The RFQ described the foregoing requirement as one of the

"REQUIRED SUBMITTALS."

9. In response to this provision, an employee of Intervenor

retyped its audited financial statements to conform with the

format contained in the RFQ. In doing so, rather than copying

the entire set of statements, she inadvertently copied only three

pages, including a cover sheet. The first page was entitled "The

A.D. Morgan Corporation Financial Statements, December 31, 1997

and 1996," and it reflected that the statements were prepared by

Valiente, Hernandez & Co., P.A. (Valiente), a certified public

accounting (CPA) firm. Testimony at hearing established that

Valiente had in fact prepared audited financial statements for

Intervenor for those two years.

10. Attached to the cover sheet were Balance Sheets for the

years ending December 31, 1996 and December 31, 1997. Absent,

however, were the opinion letter by the CPA firm, notes to

financial statements, income statement, and statement of cash

flow. All of these items normally accompany audited financial

statements.

11. Even though Intervenor had audited financial statements

prepared by a CPA firm, and the three pages submitted with its

proposal were drawn from those statements, it is undisputed that

the incomplete statements submitted by Intervenor were not

"audited financial statements" as that term is commonly

understood by accounting professionals.

12. In the case of Newman, it submitted financial

statements that had been reviewed, but not audited, by a CPA

firm. In a review, there is no testing; no observation of

inventory; no requirement for independent verification of cash

balances or investment balances; no requirement for an attorney's

letter; and no requirement that the accountants review the

corporate minutes and other matters. In short, reviewed

financial statements are not audited financial statements as that

term is defined by accounting professionals.

13. The Department did not view this requirement as being a

material requirement, and thus it determined that Intervenor's

and Newman's failure to file audited financial statements was a

minor irregularity. This is because the Department measures the

financial capability of a firm by looking collectively at its

financial statements, bonding capacity, insurance costs, bonding

costs, account receivables, and assets and liabilities. In other

words, the Department wants sufficient information to verify that

a contractor has the financial ability to undertake and complete

the job.

14. In making the above verification, the Department viewed

a contractor's ability to secure a bond as one of the most

important indicators of financial stability since bonding

companies typically make a thorough analysis of a firm's

financial capability before issuing a bond on a particular

project. This was consistent with the instructions in paragraph

B on page 6 of 21 of the RFQ, which stated that, in addition to

the financial statement, the "financial capability" of a firm

"should also include the bonding capacity of the firm." In the

case of Intervenor, it was able to secure a bond capacity in

excess of $20 million for single projects and in excess of $40

million for aggregate projects.

15. When viewing all of the financial indicators submitted

by Intervenor, the selection team was satisfied that Intervenor

clearly had the necessary resources, working capital, and

financial stability to perform the project.

16. The Department has not strictly enforced the

requirement that audited financial statements be filed with a

proposal, and there is no record evidence that a vendor has ever

been disqualified on this ground. Even so, the filing of audited

financial statements is a "required submittal" by the RFQ's own

terms, and the failure to do so renders Intervenor's and Newman's

submissions as non-responsive.

b. MBE Certification

17. Intervenor has been a certified MBE since 1991. In its

proposal, Intervenor submitted a copy of its MBE certification

for the year ending September 24, 1998. To independently verify

this representation, a member of the selection committee then

contacted the Minority Business Advocacy and Assistance Office

(MBAAO) of the Department of Labor and Employment Security, which

issues certifications, to confirm that Intervenor was certified

on a current basis. In response to that inquiry, the member

received a list of all current MBE certified contractors.

Intervenor was on that list.

18. Petitioner points out, however, that the certification

submitted with Intervenor's proposal expired on September 24,

1998, or before the application was filed, and thus the

Department waived a material requirement. Relevant to this

contention are the following facts.

19. On September 11, 1998, or before its current

certification had expired, Intervenor filed an affidavit for

recertification with the MBAAO. Because of "computer glitches"

and six office moves "in a very short time period," the MBAAO was

unable to process all recertification applications before the

date on which some certifications expired. However, it

considered all businesses as being certified until a decision was

made on all pending recertification applications. In

Intervenor's case, the MBAAO granted its application for

recertification on November 6, 1998, and issued Intervenor a new

certification for the one-year period from September 24, 1998, to

September 24, 1999.

20. Given the foregoing circumstances, it is found that

Intervenor had a current MBE certification when it filed its

application, and the Department did not waive a material

requirement in accepting Intervenor's certification which

reflected an expiration date of September 24, 1998.

c. Bias by a Selection Team Member

21. James R. Ervin, a Department architect, was a member of

the selection team. Ervin had served as project administrator on

an earlier Department project in Wakulla County on which George

Register, III, and his father, George Register, Jr., were

involved.

22. Because of two complaints filed against him by the

younger Register, Ervin was taken off the Wakulla County project

while the Department's Inspector-General conducted an

investigation.

23. George Register, III, is listed on Petitioner's

application as one of its consulting engineers. Ervin discovered

this mid-way through the evaluation process, and he initially

considered recusing himself from the team. After mulling over

the matter, he decided that he could fairly evaluate Petitioner's

proposal.

24. Contrary to Petitioner's assertion, there is no

credible evidence that Ervin was biased against Petitioner during

the evaluation process, or that he gave higher scores to

Intervenor and Newman because of Register's complaints. Indeed,

his scores were comparable to those of the other four evaluators.

Even if Ervin's scores were discarded, the scores of the other

four evaluators would still result in the same order of ranking.

Therefore, the evidence does not support a finding that Ervin's

participation on the selection committee was improper, as alleged

in the Amended Formal Written Protest.

25. The remaining allegation that certain members of the

selection committee exhibited favoritism towards Intervenor and

Newman, and bias against Petitioner, is without merit and has

been rejected.

C. Defects in Petitioner's Proposal

26. Addendum No. 1 to the RFQ added Items 62 and 63, which

required that each contractor provide its bonding and insurance

costs. This "important information" was added to Addendum No. 1

at the specific request of the Department of Management Services

(DMS), from whom many of the RFQ's provisions were drawn. As

noted earlier, these items are two of the six items that the

Department considers in determining the overall financial

capability of a firm. In the Department's view, they are no less

significant than the other items, including the financial

statements.

27. Intervenor's proposal included these costs.

Petitioner, however, did not provide such costs in its proposal.

In fact, Petitioner's representative was not aware of this

requirement until after his proposal had been filed.

28. Like the audited financial statements, the Department

considered the failure to file this information to be a minor

irregularity, and it waived Rattler's and Newman's omission.

Because the Department considers these items to be as equally

important as audited financial statements, and because they were

so significant that the DMS specifically requested that they be

placed in the RFQ, the items are found to be material, and a

failure to file such information renders Petitioner's and

Newman's proposals as non-responsive.

CONCLUSIONS OF LAW

29. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties hereto

pursuant to Section 120.57(3), Florida Statutes (Supp. 1998).

30. In this proceeding, the burden is on the party

protesting the award of the contract to establish a ground for

invalidating the award. State Contracting and Engineering Corp.

v. Dep't of Trans. , 709 So. 2d 607, 609 (Fla. 1st DCA 1998).

31. Section 120.57(3), Florida Statutes (Supp. 1998),

controls this proceeding. Paragraph (3)(f) provides in relevant

part as follows:

(f) In a competitive-procurement protest, no

submissions made after the bid or proposal

opening shall be considered. Unless otherwise

provided by statute, the burden of proof shall

rest upon the party protesting the proposed

agency action. In a competitive-procurement

protest, other than a rejection of all bids,

the administrative law judge shall conduct a

de novo proceeding to determine whether the

agency’s proposed action is contrary to the

agency’s governing statutes, the agency’s

rules or policies, or the . . . proposal

specifications. The standard of proof for

such proceedings shall be whether the proposed

agency action was clearly erroneous, contrary

to competition, arbitrary, or capricious.

32. Because this case involves a request for qualifications

under Section 287.055, Florida Statutes (Supp. 1998), thereby

bringing Section 120.57(3), Florida Statutes, into play, the

undersigned is first obliged to determine, in a de novo setting,

whether the Department's action is "contrary to the agency's

governing statutes, the agency's rules or policies, or the . . .

proposal specifications." Within that factual framework, it must

then be determined if the Department's action is ”clearly

erroneous, contrary to competition, arbitrary, or capricious."

Therefore, the allegation by Petitioner that the Department's

action was "improper" or "illegal" need not be considered since

these grounds are relevant only when the agency has rejected all

bids/proposals.

33. The more credible evidence established that a RFQ

specification imposed a requirement that Intervenor and Newman

file audited financial statements, that such a requirement was

material in nature, and that it could not be waived. Similarly,

another RFQ specification imposed the requirement that Petitioner

file its bonding and insurance costs, which information was

material, and could not be waived. By waiving these

requirements, which was contrary to the proposal's

specificiations, the Department's proposed action was clearly

erroneous, and it was arbitrary.

34. In reaching these conclusions, the undersigned has

considered the contention by the Department and Intervenor that

the filing of financial statements was not a material

requirement, especially under the unique circumstances presented

here. As a practical matter, the lack of complete statements may

not have hindered the Department in determining the financial

capability of Intervenor. This is because Intervenor was an

experienced contractor who had previously worked on a number of

Department projects, and even with incomplete financial

statements, its financial ability to undertake and complete the

project was not in doubt. Intervenor's only fault was failing to

copy and submit all of the pertinent pages. But the requirement

is characterized in the RFQ as a "required submittal," a term the

undersigned interprets to mean that the filing is mandatory. To

hold otherwise would give the Department the discretion to accept

partial or unaudited statements in some cases, but to reject

others as being non-responsive. This type of discretion leaves

bidders in doubt, will likely engender future disputes such as

this one when the requirement is once again waived, and gives

those bidders who need not file audited statements an advantage

not enjoyed by others. Cf . Consultect, Inc. d/b/a Gen. American

Consultech, Inc. v. State, Dep't of Admin. , DOAH Case No.

91-5950BID (Dep't of Admin., Nov. 25, 1992) (vendor's failure to

file audited financial statements found to be a material variance

from RFP).

35. The undersigned has also considered, and rejected,

Petitioner's contention that the waiving of bonding and insurance

costs was a minor irregularity. Because of their importance,

these items were placed in the RFQ at the specific request of the

DMS. They are two of six items that the Department considers in

evaluating the financial capability of a firm, and it considers

them to be no less significant than the others. A firm not

filing those costs enjoys an advantage over other bidders. In

sum, the evidence supports a conclusion that they are a material

requirement, and they should not be waived.

36. Because the three highest ranked firms are all non-

responsive, the Department's proposed award of the contract to

Intervenor should be withdrawn, and the Department should again

solicit requests for qualifications from interested minority

firms for Project No. VO-04-CM.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of

law, it is

RECOMMENDED that the Department of Corrections enter a final

order withdrawing its proposed action, rejecting all proposals as

being non-responsive, and advising that it will solicit new

proposals for Project No. VO-04-CM.

DONE AND ENTERED this 4th day of March, 1999, in

Tallahassee, Leon County, Florida.

___________________________________

DONALD R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 A palachee 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 4th day of March, 1999.

COPIES FURNISHED:

Michael W. Moore, Secretary

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

H. Richard Bisbee, Esquire

Theresa M. Bender, Esquire

Post Office Box 11068

Tallahassee, Florida 32302-3068

Scott E. Clodfelter, Esquire

Obed Dorceus, Esquire

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

Mark K. Logan, Esquire

403 East Park Avenue

Tallahassee, Florida 32301

Louis A. Vargas, General Counsel

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this

Recommended Order within fifteen days. Any exceptions to this

Recommended Order should be filed with the Department of

Corrections.