SJC Upholds Town’s Right To Exercise Discretion Under Pre-Qualifications Statute: Fordyce v. Town of Hanover, 457 Mass. 248 (2010)
In a recent decision, the Massachusetts Supreme Judicial Court held that a contactor’s misrepresentations during the public bidding pre-qualification process did not constitute fraud for purposes of the competitive bidding statute. Ten taxpayers filed a lawsuit seeking to enjoin the Town of Hanover from making payments to a general contractor for the construction of Hanover High School. The Superior Court granted a preliminary injunction and ordered the Town to halt construction of the $46,000,000 school due to flaws in the bidding process. After a single justice of the Appeals Court vacated the injunction, the taxpayers appealed to the SJC.
Pursuant to M.G.L. c. 149, § 44A(2)(D), contracts for the construction of public buildings estimated to cost more than $100,000 shall be awarded to the “lowest responsible and eligible general bidder” through a competitive bidding process. First, a prospective contractor must show expertise and financial viability by obtaining a certificate of eligibility from the Commissioner of the Division of Capital Asset Management and Maintenance. Second, the contractor must be pre-qualified to bid on the project by a four member committee with authority to award the contract. The committee identifies potential contractors based on responses to a written request for qualifications.
In June 2009, Callahan, Inc., submitted a statement of qualification to the Town. Callahan was one of nine contractors pre-qualified by the committee to submit formal bids for the school construction project. In response to the lowest bid submitted by Callahan, several bid protests were filed with the Attorney General regarding misrepresentations made by Callahan concerning prior construction experience. Although the Attorney General requested a delay in construction pending an investigation, the Town entered into a contract with Callahan and proceeded with the project in October 2009.
Two weeks after construction commenced, the Attorney General concluded that Callahan had committed “fraud” through misrepresentation of material facts in its statement of qualifications with the intention to mislead the pre-qualifying committee. Specifically, Callahan had falsely claimed to be the successor corporation to J. T. Callahan & Sons (“JTC”). Although several Callahan managers were former employees of JTC, the entities were incorporated independently and shared no corporate officers. Callahan made the false statement in order to claim experience in the construction of 75 schools. Callahan also claimed to have performed work on a school construction project in 2005 when, in fact, JTC had been the general contractor on the job and had failed to complete the project because of financial difficulties. Further, Callahan failed to disclose legal proceedings against JTC and other alleged improprieties (as mandated by the request for qualifications). Based on her investigation, the Attorney General concluded that Callahan should not have been awarded the contract by the Town. After the Town made no effort to rescind the contract despite the Attorney General’s decision, the plaintiffs sought temporary and permanent injunctive relief to halt construction on the grounds that Callahan should not have been considered a “responsible and eligible” bidder within the meaning of the competitive bidding statute.
On appeal, the SJC concluded that, without detrimental reliance on behalf of the pre-qualification committee, Callahan’s misrepresentations did not constitute “fraud” for purposes of the competitive bidding statute. Pursuant to M.G.L. c. 149, § 44D½(h), all decisions of the committee “shall be final and shall not be subject to appeal except on grounds of arbitrariness, capriciousness, fraud or collusion.” Under common law, fraud is a false representation of a material fact intended to induce another to act in detrimental reliance of such misrepresentation. Here, there was no allegation of corruption involving the pre-qualification committee, and the committee did not act in reliance upon any misrepresentations made by Callahan. Accordingly, the preliminary injunction could not survive since the plaintiffs were not likely to prove fraud at trial.
The local pre-qualification committee, the SJC noted, exercised sound discretion in making decisions during this process. This discretion, the Court reasoned, is not curtailed under circumstances in which a pre-qualification committee learns that a general contractor has made misrepresentations in a filing. A pre-qualification committee may still choose to pre-qualify that contractor under the circumstances, provided that it has not been deceived in any way during the process. Had the SJC held otherwise, the ramifications could have been significant for cities and towns as well as contractors across the Commonwealth. The Fordyce decision protects the integrity and recognizes the nuances of the pre-qualification process, while acknowledging the due diligence undertaken by pre-qualification committee members.
Published in Developments in Municipal Law Fall 2010 Newsletter.