Court: APPEALS COURT OF MASSACHUSETTS
Citation: 18 Mass. App. Ct. 621
Parties: DEPARTMENT OF LABOR AND INDUSTRIES & another1 vs. BOSTON WATER AND SEWER COMMISSION &
another.2
County: Suffolk
Hearing Date: June 6, 1984
Decision Date: October 4, 1984
Judges: GRANT, KASS, & SMITH, JJ.
In an action by the Department of Labor and Industries and the second lowest
bidder on a public construction project challenging the Boston Water and Sewer
Commission's action in awarding the contract to a company which had submitted
the low bid containing a unit price of one penny per square foot on a certain
item in the contract, the judge erred in entering a final judgment declaring
that the penny bidding of the low bidder was unlawful solely on the basis that
the Department had adopted a "policy" against penny bidding.
[624-625] The Boston Water and Sewer Commission properly awarded a contract for
the construction of sewer lines to a company which submitted the low bid
containing a unit price of one penny per square foot on a certain item in the
contract where, although the Department of Labor and Industries
ordered the commission to reject the low bid on the basis that the department
had adopted a policy against penny bidding, the department's finding that the
bid was not "unbalanced," "front-end-loaded" or otherwise
artificially inflated indicated no violation of the public bidding statutes.
[625-627]
CIVIL ACTION filed in the Superior Court Department on July 22, 1983.
The case was heard by John Paul Sullivan, J.
Sally A. Corwin for Boston Water and
Sewer Commission.
Steven J. Comen for R.J. Longo Construction Co., Inc.
John D. O'Reilly, III, for Schiavone Construction Company.
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1 Schiavone Construction Company.
2 R.J. Longo Construction Co., Inc.
Page 622
Peter Waltonen for Department of Labor and Industries.
SMITH, J. Pursuant to G. L. c. 30, Section 39M, as amended by St. 1977, c.
970, Section 1, the Boston Water and Sewer Commission (commission) in May,
1983, invited bids for the construction of two miles of underground sewer
lines. The bid documents provided that the commission reserved the right to
reject any bid if deemed to be in its best interest and any bid which might be
"unbalanced."3 R.J. Longo
Construction Co., Inc. (Longo), was the lowest bidder at $18,236,938, and
Schiavone Construction Company (Schiavone) was the second lowest bidder at
$20,216,612. An examination of Longo's bid showed that it contained a unit
price of one penny per square foot for temporary sheeting. Schiavone lodged a
protest, claiming that Longo's bid should be rejected as unbalanced and because
it contained an unrealistic price for temporary sheeting.4
The Department of Labor and Industries (DOLI) held an "informal"
hearing on the protest. It found that the bid was not unbalanced, as there was
no evidence that Longo had inflated any other unit price to recoup monies lost
from the penny unit price. It concluded, however, that the penny bid did not
accurately reflect the total cost of the item and, as such, was unrealistic,
unresponsive and violative of DOLI policy. It instructed the commission to
reject Longo's bid. The commission ignored the instruction and voted to
recommend that the contract be awarded to Longo.
As a result of the action of the commission, DOLI and Schiavone filed a
complaint for declaratory relief in the Superior Court seeking an injunction
against the awarding of the contract to Longo. The complaint also sought a
declaration that Longo's bid was invalid and that DOLI's decision was correct.
A judge granted a preliminary injunction, as requested. He concluded, however,
that the record before him was insufficient to determine
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3 An "unbalanced" bid contains
an abnormally low price for one item and an abnormally high price for another
item in order to recoup losses from the abnormally low price.
4 Schiavone had bid a price of $1,515,000
for temporary sheeting as contrasted to Longo's $5,500. At least five other
contractors had also inserted a one penny per square foot price on the item.
Page 623
whether the award to Longo violated applicable statutes and
"remanded" the matter to DOLI for further findings. Pursuant to the
judge's order DOLI conducted another hearing. It again found that Longo's bid
was not unbalanced and also concluded that the bid was not
front-end-loaded.5 It adhered to its
original position and explained that the basis for its instruction to the
commission to reject Longo's bid was one of policy. It stated that it had found
that "because of the potential bid manipulation and the possible resulting
harm to the awarding authority and the general public that unrealistic bids
must be rejected as unresponsive to the bid requirements." The matter came
back before the judge. The judge stated that "DOLI has taken the position
that [Longo's] penny bidding of certain items of the contract is unlawful even
where the bid is not facially unbalanced. This position is taken as a result of
DOLI's interpretation of the law and on a long standing publicly known policy
against any form of penny bidding. The [c]ourt adopts the legal position of
DOLI." The judge, stating that the role of the court was "very
limited," issued a permanent injunction restraining the commission from
awarding the contract to Longo6 and
entered a final judgment declaring that the penny bidding of Longo was unlawful
and ordering the commission either to accept the bid of the next lowest
responsible bidder or reject all bids.7
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5 A "front-end-loaded" bid
contains abnormally high prices for items that the owner pays for first, so the
bidder gets paid more in the beginning than the actual value of the work that
has been done.
6 Longo and the commission petitioned a
single justice of this court for relief from the permanent injunction ordered
by the judge. The single justice dissolved the injunction. Pending the appeals
of Longo and the commission, a single justice of the Supreme Judicial Court
denied Schiavone's petition to invoke the court's power under G. L. c. 211,
Section 3.
7 It is apparent from his comments and
his action in remanding the matter to DOLI for further findings that the judge
was under the mistaken belief that the proceedings conducted by DOLI on the
protest of Schiavone were adjudicatory in nature and covered by G. L. c. 30A.
Under the provisions of G. L. c. 149, Section 44H (see note 9, infra), the
Commissioner of DOLI or his designee is given the power to investigate the
facts to determine if there has been a violation of Sections 44A through 44H,
inclusive, of G. L. c. 149 or of Section 39M of G. L. c. 30 and to institute
proceedings in the Superior Court to enjoin the award of a contract if a
violation is found. The definition of "adjudicatory proceedings" in
G. L. c. 30A, Section 1(1)(a), inserted by St. 1954, c. 681, Section 1, states
in part that adjudicatory proceedings for the purposes of G. L. c. 30A
"[do] not include . . . (a) proceedings solely to determine whether the
agency shall institute or recommend institution of proceedings in a
court." Thus, the proceedings before DOLI are not covered by G. L. c. 30A.
It follows, therefore, that once DOLI institutes a proceeding in the Superior
Court to restrain either the award or the performance of a contract, its
determination to institute the action or any record complied by it carries no
weight. The proceeding in the Superior Court is de novo, and DOLI must prove
its case at a hearing at which its interpretation of statutory provisions is
legally irrelevant.
Here, DOLI offered no admissible evidence in court that Longo had violated any
statute. The judge should have dismissed the action for lack of prosecution. We
refrain from ordering such action because it makes no difference in the
ultimate result and because we believe it is of some importance that our views
as to the legality of penny bidding be expressed, in order to prevent other
actions on the point.
Page 624
There appears to be no case in Massachusetts that has determined that penny
bidding, by itself, violates the public bidding statute. We have discovered no
statute that explicitly forbids penny bidding in the public bidding sector.
DOLI specifically found that Longo's bid was not "unbalanced"
"front-end-loaded" or otherwise artificially inflated.8 There was, thus, no direct violation of any of
the public bidding statutes. See G. L. c. 149, Section 44H.9 The judge ruled against Longo and the commission because
DOLI had adopted a "policy" against penny bidding. Both defendants
contend that DOLI's policy, a blanket prohibition against penny bidding,
partakes of a rule or regulation which has the force and effect of law. DOLI,
they correctly
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8 In fact, if Longo had used Schiavone's
price for temporary sheeting ($1,515,000) instead of its own figure ($5,500),
its total bid would still have been approximately $475,000 lower than that of
Schiavone.
9 General Laws c. 149, Section 44H, as
appearing in St. 1980, c. 579, Section 55, provides in pertinent part:
"[T]he commissioner of labor and industries or his/her designee shall
enforce sections forty-four A through forty-four H, inclusive of this chapter
and section thirty-nine M of chapter thirty. S/he shall have all the necessary
powers to require compliance therewith including the power to institute and
prosecute proceedings in the superior court to restrain the award of contracts
and the performance of contracts in all cases where, after investigation of the
facts, s/he has made a finding that such award or performance has resulted in a
violation, directly or indirectly, of the provisions of said sections
forty-four A through forty-four H, inclusive, or of said section thirty-nine M
. . . ."
Page 625
argue, does not have the statutory authority to promulgate such a rule or
regulation and the subsequent action of the judge in adopting the position of
DOLI was error.
Indeed, there is no evidence in the record that DOLI has ever purported to
adopt any rule or regulation forbidding penny bidding. Further, an examination
of the pertinent statutes does not show that the Legislature has conferred on
DOLI the authority to make a rule of the type it here seeks to enforce under
the label of "policy." Borden, Inc. v. Commissioner of Pub. Health,
388 Mass. 707, 721 (1983) ("an agency's power to make regulations [must
be] delegated by the Legislature"). Under the provisions of G. L. c. 149,
Section 44H, as we observed in n.7, the Commissioner of DOLI is given the power
to investigate the facts to determine if there has been a violation of Sections
44A through 44H of G. L. c. 149 or of Section 39M of G. L. c. 30, and to
institute proceedings in the Superior Court to enjoin the award of a contract
if a violation is found. This power does not concern rule making but rather is
investigatory in scope. See Sun Oil Co. v. Director of the Div. on the
Necessaries of Life, 340 Mass. 235, 239-240 (1960). Under G. L. c. 23, Section
3, as amended through St. 1981, c. 351, Section 233, the Commissioner may
prepare "rules and regulations for the conduct of [DOLI] and all other
rules and regulations which [DOLI] is by law authorized to make" but this
power does not authorize the promulgation of any rule or regulation of the type
that DOLI seeks to enforce here.
10
On appeal, DOLI and Schiavone argue another ground in support of the judge's
decision. They claim that the judge has
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10 We recognize that administrative
policy and interpretations may be announced in a manner less formal than the
publication of regulations. Board of Educ. v. School Comm. of Amesbury, 16
Mass. App. Ct. 508, 515 (1983). There is no indication in the record that any
policy of DOLI had been "circulated or available to the parties likely to
be concerned by memorandum, bulletin, letter, or other form of
communication." Id. at 516. The judge, in one of his memoranda, identified
the policy of DOLI against penny bidding as "publicly known." There
is nothing in the record before us that shows the source of that conclusion.
The fact that at least five of the bidders bid a penny on the item (note 4,
supra) suggests that the "policy" of DOLI was not "publicly
known."
Page 626
the power to prohibit penny bidding, as matter of law, because it is
unrealistic and thus violates the "equal footing" principle set out
in Interstate Eng'g Corp. v. Fitchburg, 367 Mass. 751, 757-758 (1975).11 The judge, however, clearly stated in a
memorandum that accompanied his decision that the sole basis for his ruling was
the adoption of a policy by DOLI against penny bidding. Nowhere does the record
contain any suggestion that the judge based his decision on the ground now
argued by DOLI and Schiavone.
In any event, it appears that DOLI and Schiavone have confused the "equal
footing" principle with certain advantages which may be possessed by any
bidder. Every bidder on a construction contract, public or private, has varying
degrees of experience, ingenuity and resources. Some have more experienced and
capable estimators, supervisors, and workers. Some already own equipment and
materials that the job requires which other bidders must purchase or
rent.12 The public bidding statute
encourage the use of these advantages because the statute "emphasizes the
part which efficient, low-cost operation should play in winning public
contracts." Id. at 758. The use of these advantages has no bearing on the
"equal footing" principle. So long as bidders have the opportunity to
bid in the same way, on the same information, and to bear the same risk of
rejection, fairness and equality are preserved. E. A. Berman Co. v.
Marlborough, 11 Mass. App. Ct. 1009, 1010 (1981). Here, Longo's bid was found
by DOLI not to be "unbalanced", "front-end-loaded" or
otherwise artificially inflated. The fact that Longo bid a nominal amount for
an item
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11 In Interstate Eng'g Corp. v.
Fitchburg, supra, the court, in discussing the fundamental objectives
underlying G. L. c. 149, Sections 44A-44L, stated that "the statute
establishes an honest and open procedure for competition for public contracts
and, in so doing, places all general contractors and subbidders on an equal
footing in the competition to gain the contract." Id. at 758. Also see
James J. Welch & Co. v. Deputy Commr. of Capital Planning & Operations,
387 Mass. 662, 666 (1982).
12 Longo submitted an affidavit to DOLI
which was not disputed. In the affidavit, it stated that it had recently
performed a similar job and already had on hand large quantities of the
sheeting, materials, and equipment needed for the job.
Page 627
does not, by itself, invalidate its bid. Under G. L. c. 30, Section 39M, the
commission had the power to determine which bidder was the lowest responsible
and eligible bidder. Its award of the contract to Longo must stand.
The judgment is reversed, and a new judgment is to issue declaring that the
commission has the power to award the contract to Longo.
So ordered.
Page 628
END OF DECISION