The State of Pennsylvania recently released the updated bidding thresholds for contracts/purchases for 2017 which include:
- Contracts/purchases under $10,700 do not require quotes or a formal bid process (with a few exceptions);
- Contracts/purchases between $10,700 and $19,699 require the municipality to obtain three (3) telephone or written quotes; and
- Contracts/purchases of $19,700 and greater require a formal bidding process (bid instructions, advertisement, etc.).
An important requirement in the statutory bidding process is the submission of bid security in an amount of at least ten percent (10 %) of the value of the bid. This is usually satisfied through the submission of a bid bond issued by a surety.
In 2016 Siana Law successfully litigated whether two apparent low bidders satisfied this requirement when they submitted bid bonds that utilized standard insurance industry language although the bid specifications required that the bid security allow for the full liquidation of the security (e.g., the full penal sum that appeared on the face of the bond). The insurance industry’s standard language limits the liquidation of the bid bond to only the difference between the lowest bidder and the second lowest bidder, and not the liquidation of the bond in the full amount.
The Borough concluded that the bid bonds submitted by the apparent lowest and second lowest bidders constituted material defects. Consequently, the Borough awarded the contract to the third lowest bidder. Taxpayers, acting on behalf of the two disappointed bidders, filed suit in court seeking emergency injunctive relief to prevent the award of the contract to the third lowest bidder. The Court agreed with the Borough, holding that the language in the bid bond reflected a material defect. Accordingly, municipalities are permitted to seek full liquidation of a bid bond, a penalty that exceeds the standardized language utilized by surety companies when they issue bid bonds.
How can municipalities provide protection against irresponsible bidders?
Municipalities should consider a bid requirement that requires liquidation of the bid bond in the event of a material defect, rather than simply relying on insurance industry language. A municipalities’ reliance upon industry standards may be insufficient to protect a municipality in the event of a default by an irresponsible bidder. Municipalities should however, be clear in their bid instructions so that bidders are placed on notice of the deviation from industry standards.
For further questions on this topic, contact Eric M. Brown, Esquire.
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