Contract’s Reference to Kentucky Model Procurement Code Not Necessarily Binding
A Kentucky municipal entity operating water, sewer and gas services in two counties contracted with the Kentucky Infrastructure Authority (“KIA”) to help fund a new water tower with money appropriated from the Kentucky state budget. The agreement required the city to perform any necessary acts consistent with the Kentucky Model Procurement Code (“KMPC”).
Bids were advertised for a stand pipe water tank. The ad gave the owner the right to reject any bid “should it be in the best interest of the owner.” The bid indicated the contract be awarded to the low responsive, responsible, best and qualified bidder. Two bids were received: one for $194,000 for a welded, steel, paint-lined tank; one for $228,491 for a glass-lined tank. The city’s consulting engineer recommended that while both bidders were competent, the glass-lined tank required less long-term maintenance. The city awarded the contract to the higher bidder.
The low bidder filed suit, claiming the KMPC applied and was violated because KMPC negates a government entity’s bid decision when clearly erroneous, arbitrary and capricious.
But the city never adopted the KMPC. Under Kentucky law, the KMPC is only applicable to cities that formally adopt that Code. Absent application of the KMPC, a city’s bid decision is upheld unless fraud, collusion or dishonesty is established.
Both the trial court and appeals court held the contract did not require compliance with the KMPC. The reference to the KMPC in the contract was a parenthetical reference stating only that the city should act consistent with the KMPC. Alternatively, even if the KMPC applied, the low bidder was not an intended third party beneficiary of the contract. The low bidder could not enforce its application. The court further substantiated its decision based on notice in the advertisement that the low bid could be rejected.
The low bidder failed to establish fraud, dishonesty or collusion. Instead, the owner substantiated that the long-term maintenance of the glass-lined tank was substantially less than paint lined tanks. The two bids were not for identical products and the owner’s selection of the higher bidder was valid.
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C. Michael Shull, III focuses his practice on construction law and litigation. Michael's client representations range from casinos and ENR Top 400 contractors to design firms and subcontractors.