Opinion
No. 217-2013-CV-119
09-06-2016
XTL-NH, Inc. v. New Hampshire State Liquor Commission
ORDER
The Plaintiff, XTL-NH, Inc. ("XTL"), brought an action against the Defendant, the New Hampshire State Liquor Commission (the "Commission" or "NHSLC"), arising out of XTL's unsuccessful bid for a liquor warehousing contract, which the Commission awarded to Exel, Inc. ("Exel"). In July 2014, this Court held that XTL could maintain a claim for damages against the Commission on a promissory estoppel theory. Cross-motions for summary judgment were denied on January 4, 2016 and a bench trial was held on XTL's promissory estoppel claim in May and June of 2016. Based on the evidence presented at trial, the Court finds that the Commission did not breach its obligation to provide a competitive bidding process that complied with New Hampshire law. Accordingly, the Court finds for the Commission on XTL's claims.
Index to Subject Headings
I. Factual Background.........................................................................................2
A. The Commission's Request for Proposals.......................................................2
B. The Proposals..................................................................................................8
II. Controlling Law...............................................................................................9
A. XTL's Promissory Estoppel Claim...................................................................9
B. Competitive Bidding......................................................................................10
C. Request for Proposals and Invitations to Bid................................................12
III. XTL's Claim that the RFP Process is Inconsistent with Competitive Bidding...........................................................................................................15
IV. XTL's Claim that the Process followed was Inconsistent with the RFP........18
A. XTL's Claim that the Material Requirements of the RFP Cannot be Waived...........................................................................................................19
B. The Consumer Price Index ("CPI") Provision...............................................21
C. Warehouse Location......................................................................................23
D. Clarifications During the Best and Final Offer Stage...................................24
E. XTL's Claim that the RFP was Scored on Unknown Criteria.......................29
F. The Contract Award Date..............................................................................32
G. Auction Techniques.......................................................................................34
H. Governor and Council Approval of the Contract...........................................36
V. Summary.......................................................................................................37
I. Factual Background
A. The Commission's Request for Proposals
The Commission is essentially a liquor retailer. It produces a substantial amount of revenue for the State. It has traditionally contracted with private vendors for liquor warehousing services. In 1997, it entered into a five-year contract with two five-year renewal terms with Law Warehouses, Inc. ("Law Warehouses"). Once the contract and the renewal expired, the Commission entered into an 18-month renewal term with Law Warehouses. In 2012, it was necessary to obtain a new contract.
The Commission decided to seek a 20-year contract because it recognized, after speaking with vendors, that it would be difficult for vendors to commit capital or obtain financing for construction of modern warehousing facilities unless a vendor had a contract of sufficient duration to justify the capital expenditure. The Commission had never entered into a 20-year contract term. Indeed, contracts of that length are unusual in the State system. Trial testimony established that the only contract the State had ever executed of that length was for a ski area.
On March 28, 2012, the Commission issued a Request for Proposal ("RFP") to solicit proposals from vendors for a long-term warehousing contract. The proposals were to contain in detail the submitting vendor's plan "for a comprehensive and efficient warehousing system" capable of meeting all of the Commission's needs. (RFP § 1.1.) The RFP stated, "Vendors are encouraged to propose any arrangement of Warehouse services that will best meet the NHSLC needs as described [in the RFP]." (RFP § 2.1.) The RFP further encouraged proposals with "innovative ideas" where "the Vendor believes s/he is able to improve an operation or reduce a cost." (RFP § 1.7.3.) The flexibility accorded potential vendors is illustrated by RFP section 1.7.2, which provides:
1.7.2 Mandatory requirements
Except where clearly excluded, all portions of this RFP shall be considered to be Mandatory. The NHSLC shall solely resolve any matter requiring interpretation. At its sole discretion, the NHSLC may waive Mandatory requirements and accept alternatives deemed to be in the best interests of the NHSLC. (Emphasis added)
The RFP established a question and answer process through which potential bidders could submit questions related to the RFP process that the Commission would publicly answer on its website. The Commission's responses reiterated the RFP's desire for innovative proposals that would serve the Commission's best interests. For example, on May 1, 2012, the Commission clarified its answers to previous questions as follows:
The proposal must contain a written response to all portions of the RFP and appendices. The response shall at least be "understood," which means that the Vendor agrees and takes no exception to that portion of the RFP. Even where the RFP "requires" that a particular task be accomplished, the Vendor may take a clearly described exception and, if possible, suggest an alternative. The NHSLC may waive mandatory requirements and accept alternatives deemed to be in the best interest of the NHSLC.(May 1, 2012 RFP Clarifications and Amendments.)
The May 1, 2012 Answer to Vendor Question 118 posted on the website stated that the "RFP contains a large number of basic, functional requirements that must be met in some fashion. There is, however, an opportunity for the Vendor to propose a solution that reaches the same result but takes a different path." (NHSLC 000198.) Critically, the RFP provided a vendor the opportunity to take "exception" to a requirement of the RFP and propose an alternative. When a vendor did so, however, it took a risk; if the Commission did not accept the exception, the bid was likely to be rejected. Nonetheless, all of the vendors, except for XTL, utilized the exception process.
Craig Bulkley ("Bulkley"), the Commission's Director of Administrative Services and Chief Operating Officer, testified credibly that the Commission took such a broad view of what proposals would be acceptable because the Commission did not consider itself to have expertise in warehousing but expected that those responding to the RFP would be experts and therefore would have suggestions or alternatives that would make business sense. The Commission wanted to encourage innovative ideas that had not come to its attention; however, the RFP specifically stated, "Innovative ideas will be considered, but may not necessarily be deemed superior." (RFP § 3.0.7.)
Bulkley testified credibly that the RFP was not a low bid RFP. The Commission was concerned that if the transaction failed there would be significant impact not only to the operation but to revenue that the Commission was, by law, required to maximize. Because the Commission felt that the proposals vendors submitted were going to be difficult to analyze, since the RFP called for a 20-year contract, the RFP included a provision that any proposal must remain valid for 210 days from the issuance of the RFP, which was longer than the 180-day timeframe typically used by the Commission. The timeframe was never amended.
The RFP provided for an opportunity for vendors to ask questions. About 170 questions were propounded and answered by the Commission; when a question was asked, all vendors were informed of the question and the response by posting them on a website. XTL, as well as Exel, submitted inquiries as did virtually all other vendors.
After the question and answer process and subsequent submission of proposals, the RFP required the Commission to "conduct a comprehensive, fair and impartial review and evaluation of all qualifying Proposals." (RFP § 4.1.) It stated that the evaluation process "shall include, but not be limited to, a fair and impartial ranking of all qualified Proposals. . . ." (Id.) The RFP created the Evaluation Committee ("EC") to conduct the proposal review process and make an initial determination as to which proposal would best meet the Commission's needs. (RFP § 4.2.) The EC consisted of Bulkley; George Tsiopras, the Commission's Chief Financial Officer ("CFO"), who had prior experience with the New Hampshire Office of Legislative Budget Assistant; and John Bunnell who had been with the Commission for 18 years. Additionally, the Commission chose Peter Hastings, the Acting Commissioner of the State's Department of Information Technology, who had experience with both IT and warehousing.
While the RFP stated that "the NCSLC is under no obligation to select a successful Vendor or to award a contract upon receipt of Proposals," it required any contract award be to the "responsive and responsible Vendor or Vendors who submit the Proposal(s) that best meets the needs of the NHSLC and subsequently is successful in negotiating a contract with the NHSLC." (RFP § 4.1.) Finally, the RFP specified that the Commissioners "have discretion to draw their own fair and impartial conclusions in selecting the Proposal(s) that best meets the needs of the NHSLC." (RFP § 4.6.)
As part of the review process, the RFP delineated certain bid specifications and evaluation criteria. The RFP required the EC to first conduct a preliminary review of the proposals to determine whether they met the mandatory RFP requirements. Any proposals not satisfying those requirements were to be disqualified. After the preliminary review, the review process consisted of two phases: Phase I—Initial Analysis, Review and Ranking; and Phase II—Vendor Presentation and Final Analysis, Review and Ranking. (RFP § 4.3.)
Phase I specifically called for the EC to score and rank proposals based on the following criteria: (1) General; (2) Vendor Experience and Qualifications/Transition; (3) Vendor Financial Stability and Capacity; (4) Vendor Technical, Service, and Project Management Proposal/IT Competence; (5) Vendor Overall Solution; (6) Vendor Pricing and Innovation; and (7) Vendor References. (RFP § 4.4.) Three of those criteria— General, Vendor Financial Stability and Capacity, and Vendor References—were to be evaluated on a qualified/disqualified basis, while the remaining four criteria were to be assigned point values. (Id.)
The RFP described with additional detail the factors the Commission would consider when awarding points for each point-based criterion. (Id.) For example, the "Vendor Experience & Qualifications/Transition" criterion description stated:
The Vendor understands and is committed to implement business relationships and protocols. . . . The Vendor has adequate warehousing and transportation knowledge and experience consistent with the nature and magnitude of the NHSLC's warehousing operation. . . . [T]he NHSLC will consider . . . [q]ualifications of candidates for key Vendor staff roles. . . . The Vendor has correctly estimated the magnitude of effort and
resources necessary to provide a Warehouse, has demonstrated the ability and willingness to resolve unforeseen problems that may arise, and has shown skill in anticipating and averting potential disruptions.(Id.) Similarly, the description of the "Vendor Overall Solution" criterion indicates:
The EC will evaluate the ability of the Vendor to properly . . . manage[] and track incoming and outgoing shipments of Product in the timeliest, efficient and cost effective manner. . . . The Vendor must demonstrate suitable financial strength, stability and capacity to undertake a sophisticated and capital intensive Warehouse operation with a high degree of performance and in a timely manner.(Id.) Additionally, the "Vendor Technical, Service, and Project Management Proposal" criterion required the EC to evaluate whether the vendor can satisfy all of the IT requirements in Appendix K of the RFP and the vendor's "ability to understand, implement, and support all MIS/computer/business protocols in a timely and skilled manner. . . ." (Id.)
During Phase II, the RFP provided that the EC could "require a Vendor to participate in oral and/or written presentations on any aspect of its Proposal" or "demonstrate any Product(s) and/or service(s) proposed." (RFP § 4.5.) The purpose of this phase was "to clarify and expound upon information provided in the written Proposals." (Id.) The EC could consider any additional information gained from this phase when assigning point values to each of the point-based criterion. (Id.) The RFP also permitted the EC to "solicit Best and Final Offers ('BAFOs') from Vendors who have submitted qualified Proposals and which have been determined to be reasonably possible of selection for a contract award." (RFP § 4.7.)
After completing both phases, the EC was to submit its final scoring and recommendation to the Commissioners, who had "discretion to draw their own fair and impartial conclusion in selecting the Proposal(s) that best meets the needs of the NHSLC." (RFP § 4.6.) The RFP provided that the Commission would then select the desired vendor and engage in contract negotiations, which, if successful, would result in the contract award. (RFP § 4.6.1.)
B. The Proposals
Five vendors, including XTL, the incumbent Law Warehouses, and Exel, submitted proposals on June 7, 2012. In its proposal, XTL indicated that each of the criterions was "understood in its entirety." As directed by the RFP, the EC performed a preliminary review of the proposals and advanced all of the proposals to Phase I of the proposal review process, which began shortly thereafter. The EC initially ranked the proposals at the conclusion of Phase I on July 19, 2012. This initial ranking placed XTL's proposal first and Exel's proposal third.
The EC then proceeded to Phase II, during which the vendors made proposal presentations. After the presentations, the EC eliminated one vendor and solicited BAFOs from the four remaining vendors, including XTL and Exel. XTL submitted its BAFO on August 3, 2012. Although the Commission initially stated it would make its recommendation in August 2012, the award date was eventually extended to November. On November 2, 2012, the EC recommended Exel receive the contract. On November 8, 2012, the Commissioners authorized the EC to engage in contract negotiations with Exel, and the Commission ultimately awarded Exel the contract on November 20, 2012.
There was no evidence that any of the individuals on the EC had any improper interest in the contract award or any motive to slant the evaluation to Exel or away from XTL. Indeed, at the close of the evidence XTL conceded that there was no evidence of corruption in the traditional sense that somebody benefited from the award of the contract. Instead, the evidence establishes, and the Court finds, that each member of the EC approached his task with integrity, diligence, and with an overriding view of doing the best possible job for the State of New Hampshire and the EC's recommendation was based upon the individual members' belief that Exel was the most qualified bidder. There is no evidence that the Commissioners, who made the decision to award the contract to Exel and not XTL based on the EC's recommendation, acted in any way other than with a view of obtaining the best vendor for the State of New Hampshire
II. Controlling Law
A. XTL's Promissory Estoppel Claim
In July 2014, this Court held that XTL could maintain an action for promissory estoppel against the State of New Hampshire in accordance with RSA 491:8, which grants jurisdiction "to enter judgment against the State of New Hampshire founded upon any express or implied contract with the state." Chase Home for Children v. N.H. Div. For Children, Youth & Families, 162 N.H. 720, 731 (2011) (citation omitted). The Court relied upon Marbucco Corp. v. City of Manchester, in which the New Hampshire Supreme Court, citing Restatement (Second) of Contracts § 90 (1979), explicitly recognized that a bidder's reasonable reliance on a public entity's promise to award the contract to the lowest responsible bidder may entitle a bidder to damages under a theory of promissory estoppel. 137 N.H. 629, 632-33 (1993). Promissory estoppel "serves to impute contractual stature based upon an underlying promise, and to provide a remedy to the party who detrimentally relies on the promise." Great Lakes Aircraft Co. v. City of Claremont, 135 N.H. 270, 290 (1992) (citing 2A Corbin on Contracts § 196A, at 55-56 (Supp. 1991)). The New Hampshire Supreme Court has noted that comment d to section 90 of the Restatement (Second) of Contracts states, "A promise binding under this section is a contract. . . ." Jackson v. Morse, 152 N.H. 48, 52 (2005). It follows that because RSA 491:8 permits contract actions against the State, XTL's promissory estoppel action is not barred by sovereign immunity and the Court has subject matter jurisdiction over XTL's promissory estoppel claims.
Since a promissory estoppel claim is a contract claim, the Commission's argument that it is shielded by discretionary immunity, which is applicable in tort cases, is unavailing. See Ford v. N.H. Dep't of Transp., 163 N.H. 284, 294 (2012).
B. Competitive Bidding
XTL's claim is that the Commission breached its promise to engage in a competitive bidding process that complied with New Hampshire law that it reasonably relied on that promise, and that it is therefore entitled to damages as a result of the breach of that promise. New Hampshire law regarding procurement is set forth in RSA 21-I. However, RSA 21-I:18, I(b) (2012) provides, in relevant part, as follows:
The liquor commission is completely exempted from the provisions of this chapter, provided that the liquor commission uses competitive bidding when acquiring consumable supplies, materials, goods, and services that are necessary for, incidental to, or related to the operation of the liquor commission.
The current statute was amended to include a reference to RSA 21-I:11, II(a) and a deletion of the word "completely" since the time the RFP was issued in 2012, but these changes are not relevant to this case.
RSA 21-I:22-a provides that as part of a competitive bidding process, a request for purchase greater than $35,000 "shall contain within the body of the document the objective criteria by which each submission will be reviewed, if there are particular requirements that will receive more weight in the review of this submission, and the standards upon which an award will be based." The Commission's award and decision must not "be made on criteria that are unknown to the parties submitting bids or proposals," but the Commission is not barred from "making judgments on the capability of vendors to complete the work requested if this option is clearly stated in the body of the document and if used as the reason for the award, is so stated." RSA 21-I:22-b.
To determine, then, whether or not XTL has a valid promissory estoppel claim against the Commission, the Court must determine if it complied with the principles of "competitive bidding." Competitive bidding is nowhere defined in the statutes, and the Court must look to general principles of law to determine the standard to be applied.
The Commission points out that it is not clear that the statutes require it to use public, rather than private, competitive bidding. The Commission, citing Laws 2009, 144:120-27, notes that the Legislature passed the Liquor Modernization Act in 2009, which allows it to operate like a private business. However, the Court need not reach this issue as the case can be decided in the Commission's favor applying the principles of public competitive bidding law.
The purpose of competitive bidding is "to invite competition, guard against favoritism, improvidence, extravagance, fraud and corruption, and . . . secure the best work or supplies at the lowest price practicable." Marbucco Corp., 137 N.H. at 632 (quoting Gerard Constr. Co. v. City of Manchester, 120 N.H. 391, 396 (1980)). A central principle of competitive bidding is that all bidders "have identical information upon which to submit a proposal." Gerard Constr. Co., 120 N.H. at 397 (quotation omitted).
"[C]ompetitive bidding statutes are intended for the benefit of property holders and taxpayers, not that of the bidders," and they "are therefore applied 'fairly and reasonably with sole reference to the public interest.'" Irwin Marine, Inc. v. Blizzard, Inc., 126 N.H. 271, 274 (1985) (quoting 10 E. McQuillin, Municipal Corporations § 29.29, at 302 (3d ed. rev. 1981)). However, the New Hampshire Supreme Court has also observed, "a more than incidental benefit of mandatory competitive bidding is a safeguarding of the interests of those who bid on public works." Gerard Constr. Co., 120 N.H. at 396.
C. Request for Proposals and Invitations to Bid
Competitive bidding often involves a process by which the government specifies a good or service and then seeks a vendor to supply the goods or services at the lowest cost. In such a case, the State's proposal is called an Invitation for Bid ("IFB"). The process the State used in this case is an RFP. An RFP is not an IFB that seeks only to procure the specified service at the lowest cost. Rather, an RFP seeks proposals by which the government could obtain the best value, which is consistent with the public's interest in securing the best work at the lowest cost practicable. This distinction is critical:
Implicit in the definition of an RFP is the underlying rationale that, in some types of competitive procurement, the agency may desire an ultimate goal but cannot specifically tell the offerors how to perform toward achieving that goal; thus, a ready distinction arises between an RFP and IFB. Typically, an IFB is rigid and identifies the solution to the problem. By definition, the invitation specifically defines the scope of the work required by soliciting bids responsive to the detailed plans and specifications set forth. . . . On the contrary, an RFP is flexible, identifies the problem, and requests a solution. Consideration of a response to an IFB is controlled by cost, that is, the lowest and best bid, whereas consideration of an offer to an RFP is controlled by technical excellence as well as cost.Sys. Dev. Corp. v. Dep't of Health & Rehab. Servs., 423 So.2d 433, 434 (Fla. Dist. Ct. App. 1982).
Courts have noted that an RFP process is different from an IFB process in that the RFP process "can only in the most general sense be deemed to be competitive bidding." Danis Clarkco Landfill Co. v. Clark County Solid Waste Mgmt. Dist., 653 N.E.2d 646, 655 (Ohio 1995). When an RFP is issued, the bidding process is not merely a submission of a quote to construct a system to particular specifications, but an invitation to bidders to propose solutions to an agency's needs within limitations set by the agencies. Westinghouse Elec. Corp. v. Jacksonville Transp. Auth., 491 So.2d 1238, 1242 (Fla. Dist. Ct. App. 1986). Nonetheless, RFPs are widely used in the United States, and have been used by the Commission and other state and municipal agencies for many years:
A request for proposals (RFP) is used when the public authority is incapable of completely defining the scope of work required, when the service may be provided in several different ways, when the qualifications and quality of service are considered the primary factors instead of price, or when responses contain varying levels of service which may require subsequent negotiation and specificity. (Emphasis added)10 E. McQuillin, Municipal Corporations § 29:33 (3d ed. 2012).
The RFP process allows the government to harness the expertise of the private sector to find an optimum solution to a business problem. As the West Virginia Supreme Court explained:
Where the State is involved in an enormously complex problem, the full extent of which the contracting authority recognizes as being undefined, the State may do exactly what was done in this case, namely set out a Request For Proposals which does not have definite specifications. This is an eminently rational, cheap, and efficient method of evaluating alternative approaches to a given problem and for selecting both objectively and subjectively the best overall solution. It should be obvious to any bidder that objective and subjective evaluation processes will be used together to determine the lowest responsible bidder and proposals must be submitted bearing that risk in mind.State ex rel. E. D. S. Fed. Corp. v. Ginsberg, 259 S.E.2d 618, 626 (W. Va. 1979).
Use of an RFP to obtain warehousing services is particularly appropriate in this case. The Commission is tasked with operating a profit-making business that provides a substantial amount of revenue to the State. It must compete with for-profit liquor stores in neighboring states. Yet its operations are constrained by regulatory requirements not imposed on private sector employers. The Commission has used the RFP process for many years, and the Legislature was presumably aware of that fact when it statutorily required the Commission to engage in competitive bidding. It follows that use of a non-low bid RFP is consistent with the statutory requirement that the Commission utilize competitive bidding. It is equally apparent that the Commission did so in this case.
For example, the auction technique of negotiation with vendors, common in the public sector, is generally considered to be forbidden to the government.
The Commission's intent to select the best value, as opposed to the lowest cost, is evident throughout the RFP. For example, the RFP stated, "Vendors are encouraged to propose any arrangement of Warehouse services that will best meet the NHSLC needs as described [in the RFP]." (RFP § 2.1.) Indeed, the RFP encouraged proposals with "innovative ideas" where "the Vendor believes s/he is able to improve an operation or reduce a cost." (RFP § 1.7.3.) Additionally, during the question and answer process, the Commission on several occasions stated variations of the following idea:
The proposal must contain a written response to all portions of the RFP and appendices. The response shall at least be "understood," which means that the Vendor agrees and takes no exception to that portion of the RFP. Even where the RFP "requires" that a particular task be accomplished, the Vendor may take a clearly described exception and, if possible, suggest an alternative. The NHSLC may waive mandatory requirements and accept alternatives deemed to be in the best interest of the NHSLC.(May 1, 2012 RFP Clarification and Amendments.)
The RFP identified the Commission's needs and specific information sought in each proposal, but was flexible as to how the vendors could propose solutions to those needs. It encouraged innovative solutions, which indicates it anticipated the proposals would vary, perhaps dramatically. Considering the possibility of widely varying proposals with the complex warehousing service sought, any inability to judge a vendor's capability to complete the service as proposed would make it nearly impossible for the Commission to determine which proposal best meets the Commission's needs at the lowest cost. Some subjective judgment becomes necessary to reach a decision under such factual circumstances.
Indeed, the RFP's language expressly indicated the EC would evaluate the point-based criteria according to the EC's judgment of the vendor's abilities. The factors detailed in the criteria descriptions relate, either expressly or implicitly, to the vendor's ability to complete the requested work. (RFP § 4.4.) For example, the description of the "Vendor Overall Solution" criterion indicates:
The EC will evaluate the ability of the Vendor to properly . . . manage[] and track incoming and outgoing shipments of Product in the timeliest, efficient and cost effective manner. . . . The Vendor must demonstrate suitable financial strength, stability and capacity to undertake a sophisticated and capital intensive Warehouse operation with a high degree of performance and in a timely manner.(Id. (emphasis added)) Similarly, the "Vendor Technical, Service, and Project Management Proposal" criterion required the EC to evaluate the vendor's "ability to understand, implement and support all MIS/computer/business protocols in a timely and skilled manner." (Id. (emphasis added))
III. XTL's Claim that the RFP Process is Inconsistent with Competitive Bidding
XTL's principal claim can be boiled down to a single argument: that use of an RFP by the Commission is unlawful and that it must proceed by a sealed bid IFB process. This theme runs throughout its papers: "The record corroborates that the NHSLC ran an RFP-negotiation process, not a competitive bidding process." (Pl's. Post-trial Mem. 1, 19.) It makes the same argument in an alternative way by claiming that any criteria whatsoever—such as, for example the EC's view that it would not look favorably on a warehouse site situated next to a sewage treatment plant that was odiferous during summer, as XTL's was, needed to be disclosed in the RFP.
XTL takes the position that an RFP process that "is flexible, identifies the problem, and requests a solution," Sys. Dev. Corp., 423 So.2d at 434, is violative of the New Hampshire competitive bidding statute, RSA 21-I:22-a. In substance, without ever explicitly saying so, its argument is that use of an RFP is inconsistent with the New Hampshire statute requiring competitive bidding:
The RFP here does not identify its material requirements. Instead, it advises prospective bidders that "[e]xcept where clearly excluded, all portions of this RFP shall be considered Mandatory" and permits the NHSLC to waive mandatory requirements in its discretion to permit exceptions or alternatives. [citation omitted]. Thus, the term "mandatory requirements" appears to embrace both material and non-material requirements of the RFP and therefore violates competitive bidding law to the extent it impermissibly allows waivers of, or exceptions to, the RFP's material requirements.(Pl.'s Post-trial Mem. 1, 6.)
XTL provides no citation to a case or statute to support this proposition. In reality, XTL is doing nothing more than recycling the argument that it made, and the Court rejected, in 2013 when XTL sought a preliminary injunction. Then, XTL made the same argument that it makes now: flexibility in the bidding process violates the concept of competitive bidding. (Pl.'s Mem. Supp. Prelim. Inj. 1, 5.) XTL relied upon Datatrol, Inc. v. State Purchasing Agent, 400 N.E.2d 1218 (1980), in which the Massachusetts Supreme Judicial Court held that Mass. Gen. Laws chapter 7 section 22 prohibited what is called "problem oriented bid specifications."
As discussed in the Court's preliminary injunction order dated May 7, 2013, the Datatrol opinion relied upon a line of Massachusetts cases that held where each bidder is invited to bid on its own specifications, there can be no real competition. 400 N.E.2d at 1228. This Court was not and is not persuaded that Datatrol and its progeny are applicable in this case. In the first place, this line of cases is based upon Mass. Gen. Laws chapter 7 section 22, which is a specific and detailed statute that requires "[s]tandardization of specifications for purchasing supplies, equipment and other property," as well as "[s]tandardization of quality, grades and brands." MASS. GEN. LAWS ch. 7, § 22(8)-(9). XTL has cited no other jurisdiction that flatly prohibits "problem oriented bidding," and it is not apparent that the Massachusetts prohibition rests on the view that the practice is inconsistent with competitive bidding, but rather it appears to be based on the peculiarities of Massachusetts law.
Second, the overwhelming majority of courts in other jurisdictions have approved allowing bidders to propose or suggest innovations. See 10 E. McQuillin, Municipal Corporations § 29:33 (3d ed. 2012); see also, Sys. Dev. Corp., 423 So.2d at 434 (discussing the court's experience observing "companies making competitive proposals in the field of systems procurement . . . suggest[ing] technologically innovative approaches"); Tidewater Mgmt. Servs., Inc. v. United States, 573 F.2d 65, 77 (Ct. Cl. 1978) ("The Government was free to accept a proposal incorporating innovative techniques with resulting economy and advantage to the United States.").
The Commission admitted that it was "quite liberal" with waivers and did not want to disqualify vendors unless it had to; for that reason, even though XTL did not provide the Commission with a fully executed purchase and sales agreement for its proposed site until October 31, 2012, despite the fact that the Commission requested the document in early August, XTL lost no points for its delay. In fact, due to delay in the award, XTL advised the Commission that it would not be able to begin operation in a new facility as required by the RFP on October 1, 2013, and proposed a temporary warehouse solution. The EC did not disqualify XTL.
The EC assessed and considered the unique facets of each vendor's proposal and discussed those topics with the relevant vendor. For example, XTL proposed a unique method of revenue sharing based on storing wine and spirits for out-of-state shipment. The Commission had concerns regarding whether these projections were accurate and discussed the issue during its presentation and ultimately accepted the revenue-sharing proposal, which positively impacted XTL's financial bid by $100,000. The RFP process set out by the terms of the RFP does not violate New Hampshire law.
IV. XTL's Claim that the Process followed was Inconsistent with the RFP
Applying these principles, it becomes apparent that XTL has no basis for its claim that use of an RFP was a violation of the law of competitive bidding, and is limited to a claim that the Commission did not comply with the terms of the RFP as written, to which it did not take exception, and which it stated it understood. Under these circumstances, the Court must determine the standard for what constitutes "competitive bidding" under New Hampshire law.
In holding that the unsuccessful bidder of a municipal contract can maintain a promissory estoppel claim, the New Hampshire Supreme Court cited Restatement (Second) Contracts § 90. Marbucco Corp., 137 N.H. at 632-33. As the Court noted earlier in this Order, "promissory estoppel serves to impute contractual stature based on an underlying promise and provide a remedy to the party who detrimentally relies on the promise." Great Lakes Aircraft Co., 135 N.H. at 290 (citing 2A Corbin on Contracts § 196A, at 55-56 (Supp. 1991)). The principles of "competitive bidding" within the meaning of an RFP therefore are obviously akin to the duties imposed by law on the parties to a contract.
The New Hampshire Supreme Court defined the duty of good faith and fair dealing in the seminal decision of Centronics Corp. v. Genicom Corp., 132 N.H. 133 (1989). Relevant to this case, Justice Souter, held that:
[U]nder an agreement that appears by word or silence to invest one party with a degree of discretion in performance sufficient to deprive another party of a substantial proportion of the agreement's value, the parties' intent to be bound by an enforceable contract raises an implied obligation of good faith to observe reasonable limits in exercising that discretion, consistent with the parties' purpose or purposes in contracting.Centronics Corp., 132 N.H. at 143.
Where, as here, the contract XTL stated it understood and accepted vested the Commission with discretion to waive mandatory requirements, the Court must consider whether the Commission's exercise of discretion exceeded the bounds of reasonableness. "The answer to this question depends on identifying the common purpose or purposes of the contract, against which the reasonableness of the complaining party's expectations may be measured, and in furtherance of which community standards of honesty, decency and reasonableness can be applied." Id. at 144. The Court believes this standard informs the determination of whether or not the Commission complied with the statutory requirement of competitive bidding in the case of this RFP. The Court therefore addresses each one of XTL's arguments as presented in its post-trial memorandum and tests them against the contractual duty of good faith and fair dealing set forth by Centronics.
A. XTL's Claim that the Material Requirements of the RFP Cannot Be Waived
As demonstrated above, New Hampshire law permits the Commission to promulgate an RFP to perform a specific service—in this case, efficiently warehousing liquor for a 20-year period— and retain the discretion to waive any and all requirements of it, subject to a vendor's exceptions. Moreover, XTL's acceptance of the terms of the RFP eliminates XTL's first argument: that "The Material Requirements Of The RFP Cannot Be Waived; Proposals That Do Not Meet Those Material Requirements Must Be Disqualified." (Pl.'s Post-trial Mem. 1, 4.) XTL offers no definition of "material," and conflates the definition with "mandatory."
While avoiding mention of Datatrol, which the Court has already rejected, XTL cites a number of cases for the unremarkable proposition that "the winning bidder's proposal must comply with all material specifications." See, e.g., Barrick v. State, 94 A.3d 895, 902 (N.J. 2014). XTL cites Irwin Marine, Inc., 126 N.H. at 276 for the proposition that a "public bidding procedure that places a bidder at a disadvantage violates the public interest in according prospective bidders an equal opportunity to bid and weakens public confidence in government." The facts of Irwin Marine, Inc., however, render it inapposite.
In Irwin Marine, Inc., the City of Laconia put real property to bid, and received a bid from Irwin Marine in the amount of $7,000. 126 N.H. at 273. The City rejected the bid, and opened a second round of bids through an advertisement in a local newspaper. Id. Irwin received no personal notice that its prior bid had been rejected or that the city had solicited new bids. Id. The City then accepted Blizzard's offer to purchase the property for $25,000. Id. The Court noted that although the City was not required to do so by statute or ordinance, it chose a public bidding procedure as the method to sell the property and that Irwin never received fair notice. Id. The Court held that Irwin was therefore "put at a disadvantage in relation to other potential bidders when the City sent out a second invitation for bids, because it expected the first bidding procedure to conclude with notice to bidders as to whether any bid had been accepted, and therefore was justifiably not alerted to the new advertisement for bids." Id. at 276.
Here, XTL had notice and agreed to the terms of an RFP that specifically allowed the Commission to waive mandatory terms, encouraged vendors to propose innovative solutions, and allowed vendors to take exception to provisions of the RFP they did not wish to follow. XTL took advantage of that flexibility, and was the only vendor to propose a completely automated warehouse. Unlike the plaintiff in Irwin Marine, Inc., it cannot claim lack of notice, nor unfairness. Its claim must logically be limited to a claim that the Commission did not comply with the terms of the RFP that XTL agreed to. But the fact that the RFP reserved the Commission's right to waive mandatory requirements does not mean that the Commission could, or did, waive obviously material requirements, such as the requirement that the warehouse term must be for 20 years. XTL has identified no material requirements essential to the service that would be provided to the Commission that were waived. The Court therefore rejects XTL's claim that the RFP provision allowing waiver of mandatory terms violated the law of competitive bidding.
B. The Consumer Price Index ("CPI") Provision
XTL complains that the winning bidder, Exel, "successfully lobbied for [citation omitted] and received [citation omitted] special dispensation from the CPI cap on future rate increases and was permitted to maintain a non-compliant proposal of the 20-year financial risk resulting from a fixed, future rate increase cap." (Pl.'s Post-trial Mem., 1, 8.) There is no credible evidence whatsoever to support this claim.
The original version of the RFP required future rate increases to be governed by the CPI or a modified version of the CPI in order to control costs. (RFP § 1.10.4.) However, the RFP made clear that a vendor could take exception to any provision of the RFP, including section 1.10.4, and provide an alternative. (RFP § 1.7.1-1.7.3.) XTL was the only bidder that did not take exception to the CPI term. Every other vendor took exception to the use of the CPI as a mechanism to adjust price over the 20-year term of the contract. Moreover, prior to the proposal submission deadline, the Commission amended RFP section 1.10.4 to invite vendors to propose a modification to the CPI requirement. (NHSLC 000176.) Dr. Louis Cerone ("Dr. Cerone"), President of XTL, received an email from Bulkley on July 31, 2012 soliciting a BAFO that specifically requested that rates will not change the first 30 months of the contract and "if possible, please submit an alternative rate structure that provides for rates over the entire twenty-year contract." On August 10, 2012, in an email captioned "Best & Final Offer Follow-Up," Bulkley specifically advised XTL that during the next phase, contract negotiation, the Commission was prepared to negotiate section 1.10.4, the CPI term.
XTL is a small family business headquartered in Philadelphia, which performs work for the Pennsylvania liquor commission. Dr. Louis Cerone has a PhD in clinical psychology, but at some point abandoned the field to work in the family business. His father, Mr. Louis Cerone ("Cerone") is still active in the business.
Dr. Cerone admitted at trial that "if there were any modifications that XTL wanted to make to the CPI it was invited to do so on May 1, 2012" but that it "made a business decision to accept 1.10.4 [the CPI provision] without suggesting any modifications." While XTL argued the State might have benefited if a vendor had accepted a CPI metric, Tsiopras, the Commission's CFO, credibly testified that he became concerned since four or five vendors had taken exception to the metric, using it would create a potential going concern risk. In fact, Tsiopris testified at trial that XTL's failure to take exception to the CPI requirement "gave him pause"; he was concerned that XTL "had not considered this carefully enough." This was a critical concern to the Commission; if it pushed vendors for too favorable a deal, the viability of the vendor might be affected. The Commission knew that it was particularly vulnerable, as it would need to narrowly replace a provider, but would lose the profits generated during the interruption of the first provider's service. Under these circumstances, XTL has not shown that the Commission treated XTL in violation of the law of competitive bidding by exercising its discretion to waive the CPI provision.
Indeed, XTL had, unlike all the other vendors, proposed an automated warehouse solution. It is common sense that such a solution may well result in more predictable costs going forward, as the cost would be for capital improvements rather than more variable labor costs. In any event, XTL has provided no basis for the Court to conclude it was prejudiced by the fact that it, unlike all the other vendors, chose not to take exception to the CPI provision.
C. Warehouse Location
XTL complains that Exel's proposal failed to identify a "single warehouse complex" as the RFP required. The RFP defined a complex as "any building or group of buildings located on one or more sites." (RFP § 3.0.1.) XTL complains that Exel identified several possible warehouse complexes and did not settle on a specific site until after proposals had been submitted on June 7, 2012.
However, the RFP did not require a single location be identified by June 7, 2012. Moreover, nothing precluded XTL from proposing alternative locations. In fact, XTL did modify its proposal on November 5, 2012, long after BAFOs had been submitted, to propose an alternate location: a temporary warehouse not contemplated in its June 7, 2012 proposal given its failure to maintain its proposed solution through the required 210-day time frame. This was entirely the result of XTL being unable to comply with the RFP as written because it was relying on ordering automated warehouse equipment from Europe and would "lose its place in line" if the award of the RFP was not made by October 2012—even though the RFP specifically provided that a vendor's bid must remain open for 210 days, well after October 2012. XTL notified the Commission that it would not be able to open a warehouse as required on October 31, 2013 because the automated warehouse products that it needed to purchase from Europe would not be ready by that time. The Commission did not disqualify XTL as a result of its modification, but allowed it to propose a temporary warehouse. XTL's claim that it was somehow prejudiced by not knowing that it could propose multiple warehouse complexes or change its proposed complex is therefore demonstrably false.
Moreover, Exel provided an executed purchase and sales agreement for the New Hampshire property on which it proposed to locate its facility on August 8, 2012. XTL failed to provide a signed purchase and sales agreement until August 31, 2012. XTL's argument that the Commission acted improperly by not disqualifying Exel for not having its final site selected on June 7 ignores both the text of the RFP and the flexibility the Commission afforded XTL when it came to confirming its own site. Its exercise of discretion was certainly within reasonable limits, considering the purpose of the RFP and the reasonable expectations of XTL. See Centronics Corp., 132 N.H. at 143—44.
D. Clarifications During the Best and Final Offer Stage
The Commission responded to queries from all vendors by putting questions and answers submitted by vendors on a website. Over 170 queries were responded to and posted. Nonetheless, XTL complains that it was not made aware of clarifications in changes that occurred after proposals had been submitted during the BAFO stage.
This allegation is contradicted by the evidence. During the BAFO stage, the EC engaged in comprehensive discussions with all remaining vendors about their proposals and pricing. All vendors, including XTL, were allowed to make changes to previously submitted BAFOs. For example, XTL was allowed to make a substantive change to its BAFO nearly four weeks after the response was due by reducing its rates. It changed its proposal on November 5, 2012 to include a temporary warehouse.
Much of XTL's post-trial memorandum is a pastiche of principles drawn from IFB cases and the 2000 version of the American Bar Association Model Procurement Code, interwoven with complaints that all of the discussions between Exel and the Commission were not disclosed to XTL. Virtually all of the cases XTL cites for the proposition that all discussions with XTL must be shared with all bidders relate to cases involving IFBs, not RFPs; and the 2000 ABA Model Procurement Code, upon which it relied in trial, was not cited by XTL in any pleading until the trial. In fact, one of its two experts, Fred Ankabrandt, did not even state in his expert report that he relied on the 2000 ABA Model Procurement Code. XTL simply ignores the common sense principle that where a bidding process is "not merely a submission of a quote for constructing a system to particular specifications, but is an invitation to bidders to propose a solution to the agency's needs within limitations set by the agency . . . it encourages interaction and development between the agency and the bidders." Westinghouse Elec. Corp., 491 So.2d at 1242.
There was a dispute at trial about how many jurisdictions have actually enacted the model code; the Code itself states that 16 jurisdictions have enacted it, but there is some suggestion that it has only been enacted in full by 5 jurisdictions. In any event, the Legislature has not provided that it is applicable to the Commission's operations.
In its Order dated May 12, 2015, the Court permitted two lawyers retained as experts by XTL to testify to general principles of government contract law, but refused to allow them to testify as to their opinion on whether, on the facts of this case, the Commission complied with New Hampshire competitive bidding law, since a witness, expert or otherwise, may not testify to pure conclusions of law. See Saltzman v. Saltzman, 124 N.H. 515, 524 (1984).
In fact, the only reference to any procurement code in his report is one sentence that says "in 1970" the American Bar Association developed a model procurement code for State and local governments to model their procurement procedures. As he admitted at trial, this was an error; the first version of the code was developed in 1979, not 1970. In light of Ankabrandt's failure to disclose reliance on it, the Court excluded any testimony about it from him. Ankabrandt testified that he relied primarily on the 1979 Code in his work; ironically, the 2000 Code recites as part of the reason for the new edition of the Code that "the nature of the procurement process has changed significantly since 1979. . . ." (Code, v.) After careful review of his testimony, the Court finds that any expertise Ankabrandt has relates solely to Pennsylvania public procurement law and is of limited value in this case.
Federal procurement law is, of course, not applicable to this case and is in some ways sui generis. Yet the basic principles of fairness in government procurement set forth in federal rules and regulations are consistent with the obligations imposed by New Hampshire law's obligation of good faith and fair dealing and are therefore helpful. Illustrative is 48 CFR 15.306, which establishes regulations for discussions between potential vendors and the government. Under these regulations, government personnel involved in acquisitions may discuss proposals with vendors, and negotiate with vendors for increased performance beyond any mandatory minimums. 48 CFR 15.306(d)(4). Once proposals are determined to be in the competitive range, the government's negotiation techniques may involve "persuasion, alteration of assumptions and positions, give-and-take, and may apply price, schedule, technical requirements, type of contract, or other terms of a proposed contract." 48 CFR 15.306(d). "Discussions are tailored to each offeror's proposal, and must be conducted by the contracting officer. . . " 48 CFR 15.306(d)(1). "The primary objective of discussions is to maximize the Government's ability to obtain the best value, based on the requirement and the evaluation factors set forth in the solicitation." 48 CFR 15.306(d)(2). In negotiating with vendors, government personnel may not engage in conduct that:
(1) Favors one offeror over another;48 CRF 15.306(e)(1)-(3).
(2) Reveals an offeror's technical solution, including unique technology, innovative and unique uses of commercial items, or any information that would compromise an offeror's intellectual property to another offeror;
(3) Reveals an offerors price without that offeror's permission. However, the contracting officer may inform an offeror that its price is considered by the Government to be too high, or too low, and reveal the results of the analysis supporting that conclusion. . . .
Applying these principles, federal courts have recognized that while discussions may not be held in a way that favors one vendor over another, they may be "tailored to each offeror's proposal." DMS All-Star Joint Venture v. United States, 90 Fed.Cl. 653, 672 (Fed. Cl. 2010) (quotation omitted); WorldTravelService v. United States, 49 Fed.Cl. 431, 440 (Fed. Cl. 2001) (quotation omitted). "Unequal discussions are characterized by impermissible and prejudicial conduct favoring one offeror over another. For example, a procuring agency may not withhold a crucial and advantageous piece of information from one offeror while providing it to another." DMS All-Star Joint Venture, 90 Fed.Cl. at 672 (internal citations omitted); see also Metcalfe Constr. Co. v. United States, 53 Fed. Cl. 617, 634-35 (Fed. Cl. 2002) (holding that "bidders were treated unequally where one bidder was advised, in no uncertain terms, not to exceed the budget ceilings, and a second bidder under identical circumstances was not"). Nonetheless, federal agencies "are not required to conduct identical discussions with each offeror." DMS All- Star Ventures, 90 Fed. Cl. at 672 (quoting Femme Comp, Inc. v. United States, 83 Fed. Cl. 704, 735 (Fed. Cl. 2008)).
When these commonsense principles are applied to the transaction in question, it is obvious that XTL was provided a full and fair opportunity to make its case to the Commission. XTL complains that the EC considered Exel's asset backing proposal, but the fact remains that the Commission rejected the proposal. XTL's trial memorandum references all the communications between Exel and the EC and alleges that it was somehow harmed because it did not receive notice of certain clarifications Exel requested. The short answer to XTL's claim is that to the extent XTL thought the clarifications were important with respect to its own bid, it could have negotiated for them. The EC was entitled to rely on XTL to make a proposal that it believes would benefit it and respond to its requests for changes. The absurdity of XTL's argument is illustrated by the fact that, following its logic, the EC violated the principles of competitive bidding by failing to advise all of the other vendors that the Commission would consider a temporary warehouse solution if they were unable to meet the RFP's start date because of the offeror's inability to obtain necessary equipment to construct an automated warehouse. Such a discussion would plainly violate principles of fair conduct by revealing an offeror's tactical solution. See 48 CFR 15.306(d)(4).
The RFP plainly reserved discretion to the Commission to discuss alternatives with a vendor. There is no evidence that the Commission violated the implied duty of good faith and fair dealing and therefore violated the competitive bidding law by exercising its discretion arbitrarily or unreasonably.
E. XTL's Claim that the RFP was Scored on Unknown Criteria
XTL argues the criteria used by the Commission were too narrow to afford the bidders notice and fair understanding of the criteria. It does not dispute that the criteria that would be applied by the Commission were set out in the RFP; rather, it complains that Hastings's scoring of proposals using sub-factors in several categories that were not disclosed in the RFP, including a risk factor that included the sub-factors' construction risks, equipment procurement risks, and integration risks, was somehow improper. It cites no authority for its proposition and the Court believes that no such authority exists.
The RFP stated that the EC would score and rank proposals based on the following criteria: (1) General; (2) Vendor Experience and Qualifications/Transition; (3) Vendor Financial Stability and Capacity; (4) Vendor Technical, Service, and Project Management Proposal/IT Competence; (5) Vendor Overall Solution; (6) Vendor Pricing and Innovation; and (7) Vendor References. (RFP § 4.4.) Three of those criteria—General, Vendor Financial Stability and Capacity, and Vendor References—were to be evaluated on a qualified/disqualified basis, while the remaining four criteria were to be assigned point values. (Id.)
While RSA 21-I:22-a requires the RFP to contain "the objective criteria by which each submission will be reviewed," RSA 21-I:22-b does not preclude the Commission "from making judgments on the capabilities of vendors to complete the work requested if this option is clearly stated in the body of the document," so long as the awarding decision is not "made on criteria that are unknown to the parties submitting bids." The language of these statutes clearly permits the possibility of using both objective criteria and subjective judgment when making the award decision. The parties do not dispute that the RFP clearly indicated that the Commission had the authority to exercise discretion in determining the winning vendor. The RFP stated that the Commissioners "have discretion to draw their own fair and impartial conclusions in selecting the Proposal(s) that best meets the needs of the NHSLC." (RFP § 4.6)
Courts have specifically recognized that agencies have the ability to refine scoring within broad categories disclosed to bidders. For example, in Families United of Washington Cty. v. Comm'r, Me. Dep't of Health and Human Servs., the Maine Superior Court approved of a similar procedure in which the awarding government entity assigned more detailed point standards corresponding to the RFP language but not expressly included in the RFP. No. AP-11-38, 2012 WL 1521496 (Me. Super. Mar. 27, 2012). In that case, the RFP stated that proposals would be evaluated on a 100-point scale with specific point allotments under three broad criterions. Id. The RFP provided descriptions of each category, but did not articulate any subcategories. Id. Despite this, the evaluating team assigned weighted sub-categories within the broader categories. Id. A disappointed bidder claimed the "use of sub-categories not contained in the RFP constituted flawed and unlawful procedure" because the RFP did not provide sufficient notice as to how the proposals would be judged with respect to each category. Id. The court rejected this claim, reasoning that nothing in the rules "prevent[s] a review team from internally articulating, for the sake of clarity and consistency, the elements that make up each requirement" when those sub-categories "correspond[] to the general scoring categories and did not alter the overall criteria and weights contained in the RFP." Id. The court further observed that the sub-category approach was fair because it "ensured consistent and methodical evaluation of each applicant." Id.
Similarly, in In re Transactive Corp. v. N.Y. State Dep't of Soc. Servs., the court concluded that the use of more particularized evaluation factors was permissible because "the 109 items were simply more specific factors subsumed within the five general criteria and were a reworking and reformatting of the specification matrix that was included in the RFP distributed to the bidders." 236 A.D.2d 48, 53 (N.Y. App. Div. 1997).
In the instant case, the selection criteria were sufficiently narrow to provide bidders notice of the factors to be evaluated, and the sub-categories set forth in the EC memorandum and EC member Hastings' spreadsheet were permissible. The sub-categories of each of the general selection criterion corresponded with the language used in the RFP such that the sub-categories did not alter the general selection criteria. Indeed, the sub-categories are a method to create a more fair and consistent application of subjective criteria.
For example, the "Vendor Experience & Qualifications/Transition" criterion description stated, in part, as follows:
The Vendor understands and is committed to implement business relationships and protocols . . . . The Vendor has adequate warehousing and transportation knowledge and experience consistent with the nature and magnitude of the NHSLC's warehousing operation. . . . [T]he NHSLC will consider . . . [q]ualifications of candidates for key Vendor staff roles. . . . The Vendor has correctly estimated the magnitude of effort and resources necessary to provide a Warehouse, has demonstrated the ability and willingness to resolve unforeseen problems that may arise, and has shown skill in anticipating and averting potential disruptions.(RFP § 4.4.) The EC broke down the 20-point total award for this criterion into four subparts: (a) understanding of and commitment to implementing business relationships and protocols, three points; (b) adequate warehousing and transportation knowledge and experience, six points; (c) qualifications of key staff, four points; and (d) correct estimate of effort and resources necessary, seven points. Similarly, the "Vendor Technical, Service, and Project Management Proposal" criterion required the EC to evaluate whether the vendor can satisfy all of the IT requirements in Appendix K of the RFP as well as the vendor's "ability to understand, implement and support all MIS/computer/business protocols in a timely and skilled manner. . . ." EC member Hastings's spreadsheet delineated sub-categories within this category—such as level of automation, proven experience, level of IT support, and understanding of business requirements—squarely reflecting the RFP's description and the Appendix K requirements. The sub-categories at issue are nearly verbatim recitations of the RFP's description of the general category and bidders therefore had adequate notice of evaluated factors.
XTL complains that the Commissioners applied subjective factors, in that they were concerned that the site XTL chose was next to a sewage treatment plant, which emitted an unpleasant smell in July when the EC visited it. XTL complains that the RFP "did not specify that the bidder should avoid locating near certain businesses or facilities (such as a brewery or wastewater treatment facility). . . ." (Pl.'s Post-trial Mem. 1, 16.) Such a level of specificity is simply not reasonable and is not required by law. See generally Fletcher Thompson Inc. v. Town of Trumbull, No. CV084023448S, 2008 WL 1948111, at *5 (Conn. Super. Apr. 21, 2008) (rejecting a claim that an RFP was invalid because it did not provide criteria "concerning properly functioning oversized water tanks").
F. The Contract Award Date
XTL argues it was injured because the EC originally suggested a contract award date of August 1, 2012 but the Commission eventually extended the date to November 14, 2012. However, the RFP required bids be read valid until January 3, 2013. Bulkley testified credibly that the award date was extended from August 2012 to November 14, 2012 because the EC members' ability to focus on the RFP process was limited by their need to prepare for a biennium budget process and their other responsibilities. Similarly, George Tsiopris testified credibly that in addition to his responsibilities as CFO of the Commission during the time the EC was considering the various proposals, the Commission was involved in a House of Representatives inquiry resulting in a number of Right-to-Know requests and appearances before the House to provide it with explanations and clarification. He credibly testified that he believed the EC might have been "a little bit overaggressive" with regard to when it thought the contract could be issued. Similarly, Hastings was not even an employee of the Commission; he was then acting as interim Commissioner of the Department of Information Technology, and responsible for some 375 reporting employees and for IT support of the State agencies, Boards, and Commissions as well as testifying in front of House and Senate committees on different bills and finance as well as supporting the Governor and Council. His work on the EC did not relieve him from any of those tasks.
XTL complains that extending the contract award date was improper because it was disadvantaged: "for example, XTL-NH informed the NHSLC that the delayed selection to November 14, 2012 would result in increased costs to its highly automated proposal of $2.3 to 2.8 million and would cause it to lose its production slot with its equipment suppliers." (Pl.'s Post-trial Mem. 1, 17.) It complains that the Commission "penalized XTL-NH by deducting 3 points from its IT score because the type of highly automated, innovative proposal it submitted could no longer be implemented within the new construction timeline the NHSLC had created." (Id. at 18.) Evidence was produced that the delay also resulted in additional expense to the successful bidder, Exel. But most importantly, XTL simply ignores the fact that under the 210-day proposal, the award could have been made later than November 14, 2012.
The fact that XTL's bid became less attractive because of the delay was the result of its own business decisions. It apparently decided not to place a deposit to insure its place in line to purchase automated equipment and take the risk that the award would not be made at the end of the 210-day time period specified in the RFP. XTL's considered business decision to prepare a proposal that did not comply with all the contingencies of the RFP does not result in a violation of the law regarding competitive bidding when, as a result of that business decision, the contract was not awarded to it. XTL has cited no authority, and the Court believes none exists, for the proposition that a change in award date within the parameters of an original RFP made for legitimate reasons that disadvantages bidders violates the law of competitive bidding.
G. Auction Techniques
XTL argues auction techniques, which are defined as sharing one bidder's price with another to achieve a lower price, are forbidden. There is, however, no evidence in this case that at any point XTL's price was shared with another vendor to allow that vendor a competitive advantage.
Of course auction techniques in businesses unconstrained by government regulations are not only permissible, but, quite common.
The Court believes the principles of good faith and fair dealing in public procurement are illustrated by Federal procurement law. 48 CFR 15.306(e)(3) provides that government personnel involved in acquisition may not reveal an offeror's price without that offeror's permission. It goes on to state that a contracting officer "may inform an offeror that its price is considered by the government to be too high, or too low, and reveal the results of the analysis supporting that conclusion." 48 CFR 15.306(e)(3). Bulkley testified that the process was an ongoing one that began on July 31 and ended on November 7. There were emails back-and-forth between the vendors to ask them to either "sharpen their pencil" or remove exceptions during the course of that time frame. XTL cannot dispute that it was asked to, and did, lower its price after submitting its BAFO. Bulkley testified credibly that he understood that all vendors knew the EC was trying to get the lowest price for the State and wanted them to go as long as they could bid.
The evidence establishes that the EC engaged in comprehensive discussions with all vendors about their proposals in their pricing. It communicated with vendors to ensure accurate data and that the EC was clear on all exceptions and terms. The EC allowed XTL to make numerous substantive changes to its BAFO after it was submitted; on August 13, 2012, XTL reduced its grand total by $500,000. On September 7, 2012, XTL revised its BAFO and rescinded the reduction in rates for the two warehouse proposal. XTL radically changed its proposal on November 5, 2012 to include a temporary warehouse, which would require a second transition to XTL's final Merrimack warehouse in January 2013.
XTL complains that the RFP as written prohibited unsolicited telephone contact with the Commission and that Exel engaged in unsolicited telephone contact. Bulkley testified credibly that the RFP was modified at some point to allow such contact and that all vendors were aware of the change. This testimony is bolstered by the fact that Cerone admitted that XTL made unsolicited telephone calls to the Commission itself. In any event, XTL has presented no evidence that it did not have a clear line of communication or that lack of communication affected its ability to proceed.
H. Governor and Council Approval of the Contract
XTL further argues the Governor and Council needed to approve the final Exel contract, but because they did not, the contract is unenforceable. No evidence was presented at trial on this issue and no briefing has been had on this claim since XTL's request for a preliminary injunction in 2013. In support of its proposition, XTL, in its request for findings of fact and rulings of law, cites to Part II, Article 56 of the New Hampshire Constitution, which states:
No moneys shall be issued out of the treasury of this state, and disposed of, (except such sums as may be appropriated for the redemption of bills of credit, or treasurer's notes, or for the payment of interest arising thereon) but by warrant under the hand of the governor for the time being, by and with the advice and consent of the council, for the necessary support and defense of this state, and for the necessary protection and preservation of the inhabitants thereof, agreeably to the acts and resolves of the general court.
Additionally, RSA 4:14 states, "Whenever any money is due from the state to any person, by force of a general law, special act or resolution, the governor is empowered, and it shall be his duty, with advice of the council, to draw his warrant upon the treasury therefor in favor of such person." State expenditures are likewise discussed in RSA 4:15, which provides, in relevant part, as follows:
The expenditure of any moneys appropriated or otherwise provided to carry on the work of any department of the state government shall be subject to the approval of the governor, with the advice of the council, under such general regulations as the governor and council may prescribe with reference to all or any of such departments, for the purpose of securing the prudent and economical expenditures of the moneys appropriated.
However, the Exel contract is not an expenditure subject to Governor and Council review. While the General Court has "budgeting authority and control" over the Commission, the Commission is self-funded. RSA 176:16, I—II. Additionally, under RSA 177:1, the Commission "may lease, purchase, and equip, in the name of the state, such stores, state-owned warehouses, supplies [], and other materials, goods, and services as are necessary for, incidental to, or related to the operation of the liquor commission retail and wholesale operations." Moreover, RSA 177:1 does not require the Governor or Council to approve NHSLC contracts.
V. Summary
XTL's claim that the RFP was facially void has no basis. RFPs are generally used throughout the United States in order to obtain the best value for a potential buyer in all sectors of the economy, in both public and private arenas.
Its second claim, that the EC did not conduct a fair process in carrying out the administration of the RFP, is essentially a claim that the Commission violated the implied duty of good faith and fair dealing by unreasonably and arbitrarily exercising its discretion in carrying out the terms of the RFP, and is similarly without merit. Exel was not provided special treatment by the EC, was not favored, and did not receive any unfair benefit from the State. The decision of the EC to move the award date to November 2012, well within the date required for offers to be kept open by the RFP because of the schedule of EC members, did not violate XTL's rights. XTL grasps at straws to concoct a claim that the EC is somehow responsible for the business decision not to ensure that it could obtain the automated equipment needed before submitting its bid: "because nothing in the RFP informed bidders that they would be penalized if their equipment had to be shipped from overseas, Mr. Hastings could not have legally deducted points from XTL-NH's score for this arbitrary reason." (Pl.'s Post-trial Mem. 1, 27.) XTL gambled that the Commission would make the award much earlier than the latest date permitted by the RFP, and therefore did not commit capital to order equipment necessary for an automated warehouse. It lost its gamble. Similarly, XTL made a business decision not to except to a CPI provision, which gave the Commission's CFO "pause"; it now claims this made its bid less attractive than Exel's and that this somehow violates the Commission's obligation of good faith and fair dealing.
In fact, even if the EC had failed to comply with the RFP, it is not clear that XTL would have any basis to make a claim. By the terms of the RFP, XTL was required to note any disagreement or exception to any provision of the RFP in its written proposal. (RFP §1.7.1.) XTL did not take exception to this provision even though it knew it could not comply with the terms of the RFP because it knew that it could not meet the October 31, 2013 start date unless the award occurred before the expiration of the 210-day timeframe. Moreover, it significantly misstated its experience in violation of the requirements of the RFP. The RFP required that any "misstatement, omission or misrepresentation by a Vendor shall constitute fraudulent concealment from the Issuing Office of the true facts relating to the Proposal submission." (RFP § 1.5.1(b).) The centerpiece of XTL's proposal was an automated warehouse. It created an impression among the EC members that it had a great deal of experience with an automated warehouse; in fact, its experience was extremely limited. Only one employee, who had become an XTL employee just a month before the RFP was issued, had any experience whatsoever with an automated warehouse. Cerone admitted at trial that XTL had never run an automated warehouse, which was contrary to the impression conveyed to the EC members, as reflected in the EC memoranda. Even if the Commission had not complied with its representation that it conducted an RFP process consistent with New Hampshire law of competitive bidding, XTL could not establish that it acted to its detriment in reasonable reliance upon that representation. See Great Lakes Aircraft Co., 135 N.H. at 290.
XTL's claim is nothing more than the grousing of a disappointed bidder. The Court finds that the RFP the Commission issued was lawful and in compliance with New Hampshire competitive bidding law. The Court further finds that the Commission and the members of the EC complied with the terms of the RFP and that XTL has not succeeded in its promissory estoppel claim. Accordingly, the Court finds for the Commission. 9/6/16
DATE
XTL has requested findings of fact and rulings of law. Insofar as its requests for findings and rulings are consistent with this Order, they are GRANTED; otherwise, they are DENIED or determined to be unnecessary for resolution in light of the Court's decision. See Birch Broad., Inc. v. Capitol Broad. Corp., 161 N.H. 192, 201 (2010) (A "trial judge need not respond expressly to every specific request filed by a party.") (quotation omitted).
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/