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Alpha Painting & Construction Co Inc. v. Delaware River Port Authority of Commonwealth of Pennsylvania

United States Court of Appeals, Third Circuit

April 6, 2017


          Argued February 9, 2017

         On Appeal from the United States District Court for the District of New Jersey (District Court No.: 1-16-cv-05141) District Judge: Honorable Noel L. Hillman

          John M. Elliott, Esq. [ARGUED] Bruce W. Kauffman, Esq. Thomas J. Elliott, Esq. Stewart J. Greenleaf, Jr., Esq. Elliot Greenleaf, P.C. Counsel for Appellant Delaware River Port Authority of the Commonwealth of Pennsylvania & the State of New Jersey

          Jennifer A. Hradil, Esq. [ARGUED] Kaitlyn E. Stone, Esq Peter J. Torcicollo, Esq. Kevin W. Weber, Esq. Gibbons P.C. Counsel for Appellee Alpha Painting & Construction Company, Inc.

          Before: MCKEE, RENDELL, and FUENTES, Circuit Judges


          RENDELL, Circuit Judge:

         This case arises from a bitter bidding dispute for a contract to strip and repaint the Commodore Barry Bridge. The Delaware River Port Authority ("DRPA") rejected the lowest bidder, Alpha Painting & Construction Company, Inc. ("Alpha"), because it determined that Alpha was not a "responsible" contractor. Instead, DRPA awarded the contract to Corcon, Inc. ("Corcon"). After its bid protest was denied, Alpha filed this lawsuit in District Court on an expedited basis seeking an injunction against DRPA. The District Court promptly held a four-day trial and concluded that DRPA acted arbitrarily and capriciously. It then entered an order directing DRPA to award the contract to Alpha. DRPA appeals.

         For the reasons that follow, we will affirm the District Court's ruling that DRPA acted arbitrarily and capriciously. However, because we conclude that the District Court abused its discretion by directing that the contract be awarded to Alpha, we will vacate that portion of the order and remand to the District Court for the entry of a more limited injunction.

         I. Background

         A. Factual Background

         DRPA is a bi-state corporate instrumentality that owns, operates, and maintains four bridges that span the Delaware River between New Jersey and Pennsylvania, including the Commodore Barry Bridge, a mile-long structure that supports five lanes of traffic. DRPA is governed by a Board of Commissioners and operated on a day-to-day basis by its staff of engineers, contracting administrators, legal counsel, and administrative support professionals. Recently, DRPA's staff determined that the Commodore Barry Bridge's lead-based paint coating is deteriorating. DRPA decided to repaint the entire bridge, a substantial capital construction project that requires hiring a contractor capable of using highly specialized abrasive blast cleaning equipment to strip and contain the lead paint (hereinafter the "Bridge Project"). This equipment is necessary to protect workers, the public, and the environment from hazardous lead contaminants.

         DRPA divided the Bridge Project into three phases. Phase 1, now near completion, involved stripping and repainting the New Jersey approach spans. Corcon is performing that work. Phase 2, which DRPA is now soliciting, will involve repainting the Pennsylvania approach spans. Phase 3, which has not yet begun, will involve repainting the center span portion. The Phase 2 contract is the subject of the instant dispute (identified herein as "Contract No. CB-31-2016" or the Phase 2 contract).

         In early May, 2016, DRPA began soliciting bids for the Phase 2 contract. On June 16, 2016, the due date for submissions, DRPA received seven bids, including Alpha's and Corcon's. That same afternoon, DRPA assembled the bidders for Phase 2 in its conference room to open the bids publicly. Among those present were Adam Jacurak, DRPA's senior engineer in charge of the Phase 2 project, Amy Ash, DRPA's Director of Contract Administration, as well as the bidders. Ash opened the bid packages and declared Alpha the "apparent low bidder" because it bid the lowest price, $17, 886, 000. Corcon bid $17, 896, 200 (the second lowest price, $10, 200 more than Alpha).

         Both Alpha and Corcon have significant experience painting bridges. Alpha, a Maryland-based industrial painting contractor, has painted numerous bridges across the country and is prequalified to bid for such work in 40 states. Alpha has previously worked for DRPA, painting the Pennsylvania approach span of another one of its bridges between 2007 and 2009. Alpha also worked on a non-DRPA project at Philadelphia's 30th Street Station in 2014 as part of a joint venture with another contractor. Alpha has not performed any other work in Pennslyvania or New Jersey over the last five years.

         Corcon, a national bridge painting contractor, has also worked for DRPA. Currently, it is painting Phase 1 of the Bridge Project and there is evidence that it has recently painted other DRPA bridges as well. Moreover, DRPA is collaborating with Corcon on an extracurricular film project concerning Corcon's work on the Commodore Barry and other DRPA bridges.[1]

         After DRPA determined that Alpha and Corcon were the lowest and second lowest bidders, respectively, it undertook a review of the bids. Over the next two months, after a process largely characterized by inaction and delay, DRPA ultimately rejected Alpha's bid and selected Corcon's. Two determinations form the heart of Alpha's challenge. First, DRPA declared that Alpha was "not [a] responsible" contractor under its guidelines because Alpha failed to remit certain accident experience forms (called OSHA 300 forms) and insurance data (in the form of Experience Modification Factors, or EMFs) in its bid package. A.1037. As discussed infra, DRPA uses this data to assess a bidder's job-site "safety culture." A.1756. Second, DRPA declared that Corcon was in fact the lowest bidder because of a "miscalculation" that DRPA perceived in Corcon's bid. A.3821. DRPA's conduct leading to these determinations (all of which occurred sometime between June 16 and August 9, 2016) was the subject of Alpha's challenge before the District Court.

         We too will focus on this time period. At trial, DRPA presented documentary evidence including its guidelines, emails to and from certain employees, and emails between DRPA and certain bidders, as well as the testimony of four of its employees. We think it most helpful to proceed by first briefly reviewing applicable portions of DRPA's bidding guidelines. Next, we will discuss how DRPA analyzes OSHA 300 forms and EMFs. Finally, we will recount the specific aspects of DRPA's two determinations that are challenged by Alpha.

         1. DRPA's Bidding Guidelines

         DRPA's bidding guidelines are internal regulations adopted by DRPA that govern its procurement of services for work on its bridges.[2] When DRPA seeks construction and maintenance services, in particular, it uses the Competitive Sealed Bid procurement method. Under that method, DRPA must issue an Invitation for Bids ("IFB") detailing the project, collect and publically open sealed bids at a set time and place, and declare an apparent low bidder. Then, after a subsequent investigation, the guidelines require that DRPA award the contract to the "lowest responsible and responsive [b]idder" unless all bids are rejected or the lowest bidder is allowed to withdraw its bid. A.110 (emphasis added).

         The guidelines thus set up a process whereby DRPA must perform two distinct review inquiries. First, DRPA must determine, within ten days of submission, whether a bid is responsive. See A.495 ("Responsiveness of a bid is determined within ten (10) business days from the bid itself . . . ."). A responsive bid is one that "conforms in all material respects to the requirements and criteria in the invitation for bids." A.489. DRPA may, however, "waive technical defects or immaterial items" that would otherwise make a bid nonresponsive so long as the waiver does not undermine the competitive character of the bidding process. A.495.

         Second, DRPA must separately determine whether the lowest bidder is responsible. A "responsible bidder . . . possess[es] the capability to fully perform the contract requirements in all respects and the integrity and reliability to assure good faith performance." A.524 (internal quotation marks omitted). Unlike responsiveness, this requirement "goes to the capacity of the bidder . . . rather than its willingness to perform on [DRPA's] terms." Id. "[C]apacity to perform involves not only its ability to meet quality, quantity and time requirements, but its business integrity to assure honest, good faith performance." Id. DRPA "may not presume that all bidders . . . are responsible, " but instead has an "affirmative duty" to make this determination with respect to the lowest bidder and to document its reasons for doing so in the contract file. Id.

         If DRPA determines that the lowest bidder is responsible, DRPA must accept that bidder. DRPA may reject a bidder as "not responsible" and select a higher bidder, but only if its "investigation discloses a substantial reason" for doing so. Id. (emphasis added). The guidelines are clear that "[DRPA] should not base a determination of nonresponsibility on a single bad item or report unless the behavior or financial condition . . . is of a sufficiently serious nature as to call into question the ability or integrity of the bidder . . . to perform the contract." A.526 (emphasis added).

         The guidelines go on, in a lengthy chapter dedicated entirely to the responsibility inquiry, to describe the rigorous, wide-ranging investigation that DRPA should undertake to fulfill this duty. The guidelines state that DRPA "is not limited in its investigation to reviewing information provided by the bidder[] with its bid[]" and "should take any steps it determines are necessary to ensure that a bidder . . . is responsible." A.526. Such steps include "request[ing] a bidder . . . to supply financial, educational, and experience information as well as references" or "requesting further clarification from the bidder[] as appropriate" during its review. A.526. DRPA may also perform news and internet searches or public record database searches, and may review corporate filings, published consumer ratings, and certifications, just to mention a few.

         2. DRPA's Review of OSHA 300 Forms and EMF Factors

         According to DRPA, an important part of its responsibility investigation involves determining whether the bidder has a history of performing safely on the job. To facilitate this review, the IFB (§ A.10.3) states that all bidders "will supply with its [b]id, accident experience in the form of the standard OSHA 300 Report and its Experience Modification Factors [("EMFs")] for all work completed in the State of New Jersey and the Commonwealth of Pennsylvania, covering the preceding three (3) reporting years." A.84. DRPA then uses these EMFs and OSHA 300 forms to assess the "safety culture" of the bidder. A.1756.

         OSHA 300 forms are completed by the contractor annually and provide a summary of the total number of company employees, total hours worked by those employees, the number of injuries reported, and a brief description of each injury.

         EMFs are a creature of the insurance industry. They are numerical multipliers generated yearly by state-designated ratings bureaus, and they are assigned to every company that performs work within a particular state. The EMF calculation that produces this multiplier takes into account the frequency and severity of workers' compensation claims filed against the company in that state. It does not account for workplace injuries to non-employees or injuries that do not result in a workers' compensation claim. Insurance firms then use a company's EMF to adjust the amount of workers' compensation insurance premium it has to pay for that year. For example, a company assigned a 1.00 EMF pays the standard market rate for insurance. A company assigned an EMF of less than 1.00 will get a "credit" on its premium and will pay less than the standard market rate for its insurance, while a company assigned an EMF greater than 1.00 will pay more.

         Some states assign new contractors (or contractors who have never performed work in that state) an EMF of 1.00. But other states, like Pennsylvania, report that a new contractor "does not qualify" for an EMF (because it does not meet Pennsylvania's payroll threshold to qualify). From an insurance premium perspective, however, a company that "does not qualify" is indistinguishable from a firm assigned a 1.00 EMF because both would pay the standard market rate of insurance.[3]

         How DRPA actually goes about employing this information to assess "safety culture" was the subject of much discussion at trial. As best we can tell, once DRPA receives bids for a given project, the senior engineer separates the bid into its constituent parts and sends the OSHA 300 forms and EMFs to DRPA's Department of Risk Management and Safety. Marianne Staszewski, the Department's director (and the Department's only employee), then "[performs] a risk management review" of the OSHA 300s and EMFs, A.1709, which essentially amounts to determining whether the bidder has a positive "safety culture, " A.1756.

         DRPA's review, however, seems more perfunctory than analytic. In order to determine the "safety culture" of the bidder, Staszewski averages the three EMFs supplied with the bid.[4] A.1756. If the average is 1.25 or greater, she concludes, in her words, that the "contractor has had significant frequency or severity of losses within the last three years . . . which translates into not working safely on the job." A.1747. If the EMF average is less than 1.25, she approves the bidder because she is satisfied that it is "not suffering frequency and severity of losses." Id. During this process, Staszewski also considers the quantitative aspects of a bidder's OSHA 300s- the number of employees, hours worked, injuries reported- to contextualize its EMF score, although it was not clear from her testimony how this impacts her final analysis.[5] She does not consider the portion of the OSHA 300 form that describes the reported injuries.[6]

         We now turn to the two disputed portions of DRPA's review in this case.

         3. DRPA's Evaluation of Alpha's and Corcon's OSHA 300 and EMFs

         With respect to Alpha's bid: on June 16, 2016, the day of the bid opening, DRPA's staff undertook a quick responsiveness review to determine compliance with § A.10.3. Jacurak and Ash testified that they flipped through Alpha's bid and noticed that it did not include OSHA 300 forms. DRPA, however, did not declare Alpha's bid "not responsive" to the IFB. Instead, Jacurak and Ash notified DRPA's general counsel to get guidance. Very little emerged about these discussions at trial, but apparently, counsel instructed the staff to circulate both Alpha's and Corcon's bids, rather than just Alpha's, to DRPA's various departments for a responsibility determination.

         Three weeks later, on July 7, 2016, Jacurak emailed Staszewski with Alpha's EMF letter attached.[7] Alpha had submitted a letter from its insurance broker which stated that "[Alpha] did not qualify for experience [EMF] rating[s] in 2016, 2015, 2014 and 2013" in either Pennsylvania or New Jersey. A.1021. It is undisputed that Alpha had not performed work in Pennsylvania or New Jersey as an individual entity in the last five years, although it had done work in Pennsylvania as part of a joint venture in 2013 and 2014 (which resulted in the joint venture being assigned an EMF of .933 and .837, respectively).[8] Staszewski determined that she could not effectively review Alpha's safety record under her EMF policy because "[Alpha] did no work in the State of Pennsylvania, . . . did no work in the State of New Jersey, [and thus] ha[d] no work experience" over these three years, A.1760, from which she could "conclusively" determine its safety culture, A.1786.

         After roughly three more weeks of silence, on July 28, 2016, Ash prepared and sent Alpha a letter rejecting its bid (the "July 28 Rejection Letter"). The letter first cited the requirement that the bidder supply OSHA 300 forms and EMFs. Then it stated that Alpha's "failure to provide the OSHA Form 300 and its inability to provide experience modification factors back through 2013 prevent[ed DRPA] from substantially evaluating Alpha's safety record." A.1037. As a result, DRPA declared that it found "Alpha 'not responsible' for the subject Project, and therefore, [that] Alpha's bid [was] rejected." Id.

         At trial, the parties vigorously disputed whether Alpha actually submitted its OSHA 300 forms, an inquiry which consumed much of the District Court's time. Tom Kousis, Alpha's project manager in charge of its Phase 2 bid, testified at length that he remembered submitting the forms. He pointed to a box on the bid form that he checked contemporaneously to his binding the bid package together. Jacurak and Ash maintained that none were submitted. Because no copies of Alpha's paper bid were made and all submissions were ...

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