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The
trial and appellate courts concluded that MTA’s application
of an unwritten policy for DBE credit was an abuse of discretion
and awarded bid preparation and protest expenses, unabsorbed
overhead, lost profits and pre-judgment interest based on
a theory of promissory estoppel.
While
the Supreme Court agreed that when a public entity solicits
bids, it makes an implied promise that if the contract is
awarded at all, it must be awarded to the lowest responsible
bidder in accordance with the competitive bidding rules
that govern the awarding entity, it disagreed with the damages
the lower court awarded. The Supreme Court noted that in
certain jurisdictions, such as Nevada, a disappointed bidder
has no cause of action for damages because bidding laws
are created for the benefit of the public, not the enrichment
of individual contractors.
The
majority of jurisdictions, however, allow recovery of bid
preparation costs and, in some cases, bid protest costs,
but not lost profits. While allowing recovery of bid preparation
costs encourages proper challenges by interested parties
and deters public misconduct, the Supreme Court reasoned
that recovery of lost profits would injure the public twice,
once in paying the unjustifiably higher price to the chosen
bidder and again when lost profits are awarded to the disappointed
bidder who does not perform.
Moreover,
the lowest bid may be an unprofitable one and award of lost
profits could put the low bidder in a better position than
if it had performed the work. The Supreme Court determined
that it is reasonable for a low bidder to incur bid preparation
costs in reliance upon the public entity’s compliance with
its legal obligations and to recover those bid preparation
costs if the public entity improperly carries out its duties.
In contrast,
the Supreme Court held that it is unreasonable for a low
bidder to rely on the award of the contract or receipt of
profit because the public entity has the right to reject
all bids.
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