nuts and bolts of state procurement contract appeals, protests and objections

8/6/2019 NUTS AND BOLTS OF STATE PROCUREMENT CONTRACT APPEALS, PROTESTS AND OBJECTIONS

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NUTS AND BOLTS OF STATE PROCUREMENTCONTRACT APPEALS, PROTESTS AND

OBJECTIONS

by Andy Marker*

I. INTRODU CTION .................................................................................. 339II. STATE PURCHASING: A PRIMER ........................................................ 340

A. State Purchasing nd General Services Act (Chapter 2151 ofthe Texas Government Code) ................................................... 340

B. Procurement Methods .............................................................. 341C. "Best Value" Standard ............................................................ 342

III. DELEGATIONS AND ExcLusIONS FROM THE COMPTROLLER'SPURCHASING AUTHORITY ................................................................. 344

A. Texas Department of Transportation: Bids an d Contracts orHighway Projects an d Logo Signs ........................................... 344

B. University of Texas M D . Anderson Cancer Center ................ 345C. The Texas Lottery Commission ................................................ 346

TV. PROTEST PROCEDURES ...................................................................... 349V . C A SES ..................................................................... 5 1

A. Texas Logos, L.P. v. Texas Department of Transportationet al .......................................................................................... 3 5 1

B. Texas Lottery Commission v. Scientific Games International,In c ............................................................................................ 3 55

V . PRACTICE TIPS ................................................................................... 358V II. C ONCLUSION ..................................................................................... 359APPENDIX A. RULES ON PROTESTS

Summary of the Protest Process an d Guidelines According to theTexas Administrative Code ............................................................... 360

I. INTRODUCTION

This paper is intended as a practical how-to guide for navigating thesometimes choppy waters of state contracts, specifically how, when, why, and,

* Andy Marker is Chief of the General CounselSection for the Texas Lottery Commission. Prior to

joining the Lottery Commission, Mr. Marker served as regional counsel for a national telecommunicationsservices provider and as an assistant city attorneyfor the City of Houston, where he received the Edward A.Cazares Award presented by the CityAttorney for excellence and professionalism in the practice of municipallaw. Mr. Marker received his law degree from South Texas College of Law in Houston and earned abachelor's degree in journalism at The University of Texas at Austin. Mr. Marker spokeon this topic at theState Bar of Texas Twentieth-Annual Advanced Administrative Law Course in Austin, Texas, in September2008.

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on occasion, why not, to protest the issuance of a solicitation for goods orservices or to appeal the award of a state contract.

II. STATE PURCHASING: A PRIMER

Before examining the statutes and rules for contract protests, appeals, orobjections, it is important to understand how state purchasing works.

A. State Purchasing and General Services Act (Chapter 2151 of the TexasGovernment Code)

General rules and procedures for state purchasing are found in chapter2155 of the Texas Government Code. Effective September 1, 2007, as part ofthe reorganization of the Texas Building and Procurement Commission(TBPC), powers and duties for state purchasing were transferred from TBPC tothe Texas Comptroller of Public Accounts (comptroller).' The comptroller isnow responsible for acquiring "by purchase, lease, rental, or another manner allgoods and services fo r a state agency, including a purchase thatdoes not requirea competitive bid or a spot purchase." 2 Except as otherwise provided in chapter2155 (Purchasing: General Rules and Procedures), "a purchase of or contractfor goods or services shall, whenever possible, be accomplished throughcompetitive bidding.",

3

The Texas Supreme Court addressed the purpose and intentbehindcompetitive bidding requirements in Texas Highway Commission v. Texas

Association of Steel Importers:

"Competitive bidding" requires due advertisement, giving opportunity to bid,and contemplates a bidding on the same undertaking upon each of the samematerial items covered by the contract; upon the same thing. It requires thatall bidders be placed upon the same plane of equality and that they each bidupon the same terms and conditions involved in all the items and parts of thecontract, and that the proposal specify as to all bids the same orsubstantially similar specifications. Its purpose is to stimulate competition,prevent favoritism and secure the best work and materials at the lowestpracticable price, for the best interests and benefit of the taxpayers andproperty owners. There can be no competitive bidding in a legal sense wherethe terms of the letting of the contract prevent orrestrict competition, favor acontractor or materialman, or increase the cost of the work or of thematerials or other items going into the project.

4

1. TEx. GoV'T CODE ANN. 2151.004 (Vemon 008).2. Id. 2155.061(a).3. Id. 155.063.4. Tex. Highway Comm'n v. Tex. Ass'n of Steel Importers, 372 S.W.2d 525, 527 (Tex. 1963)

(quoting Sterrett v. Bell, 240 S.W.2d 516, 520 (Tex. Civ. App.-Dallas 1951, no writ)).

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B. Procurement Methods

Below are descriptions of different procurement methods from the

comptroller's State of Texas Contract Management Guide:

[The invitation for bids (IFB)] uses the competitive sealed bid method. Thismethod is used when the requirements are clearly defined, negotiations arenot necessary and price is the major determining factor for selection. Bestvalue considerations can also be used with the IFB method ....

Requests for information [(RFI)] are used primarily as a planning tool. TheRFI is an optional method that may be used to gather information in order toprepare a complete and accurate solicitation document when an agency does

not have the necessary information to prepare a complete and accuratesolicitation document. RFIs are used to identify industry standards, bestpractices, potential performance measures, and cost or price structures or togenerally ascertain the level of interest of prospective respondents. Apreliminary solicitation document which provides an initial description ofthe program objectives and specifications usually accompanies an RFI forreview by potential respondents. Agencies may use the information derivedfrom the responses to finalize their solicitation document. Agencies are notrequired to incorporate any or all of the comments or suggestions madeby thecontractor, bu t the hope is that the contractor will provide useful informationin the RFI development process.

5

A request for offer (RFO) is "used for IT Commodity Purchases exemptfrom the DIR IT Commodity Program. The process is generally the same asthe RFP process. [RFO] purchases include the purchase of automatedinformation systems and are covered under Texas Administrative Code, title 34,section 20.391 .

A request for proposal (RFP) is

used when competitive sealed bidding is not practicable or advantageous.Generally this is when factors other than price are to be considered or whenobjective criteria cannot be defined. One of the key differences between anIFB and an RFP is that negotiations are allowed in an RFP. Discussions areallowed with the respondents and best and fimal offers are solicited. Unlessotherwise exempted, agencies must submit their RFPs to [Comptroller ofPublic Accounts (CPA)] for review prior to solicitation.

7

A request for qualifications (RFQ) is "generally used for professionalservices where the respondents are evaluated based solely on their

5. STATE OF TEXAS CONTRACT MANAGEMENT GUIDE VERSION 1.6, 18-19 available at http://www.window.state.tx.us/procurement/pub/contractguide/CMGV ersion_1_6.pdf.

6. Id. t 19.7. Id.

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qualifications. Price is not considered until after selection is made by theagency based on qualifications. '' 8

The followingpurchasing methods are exempt from competitive bidding:

Emergencies occur as the result of unforeseeable circumstances and mayrequire an immediate response to avert an actual or potential publicthreat. Ifa situation arises in which compliance with normal procurement practice isimpracticable or contrary to the public interest an emergency purchase maybe warranted to prevent a hazard to life, health, safety, welfare, property or toavoid undue additional cost to the state. Agencies may have specific rules orpolicies pertaining to emergency purchases ....

Proprietary purchases are required to comply with Texas Government

Code section 2155.083....

dditionally, a product or service is proprietaryif it has a distinctive feature or characteristicthat is not shared or providedbycompeting companies or similar products or services. When thespecification requirement limits consideration to one manufacturer, oneproduct, or one service provider, a written justification must be provided andis subject to review by CPA. Proprietary purchases should be placed onCPA's Electronic State Business Daily; this provides transparency to theprocess and gives the entire vendor community the ability to view thespecifications and provide de facto agreement to its proprietary nature by notresponding. See the State of Texas Procurement Manual for moreinformation on Proprietary Purchases ....

Potential contractors apply with an agency to contract through an openenrollment process, [resulting in open enrollment contracts]. Vendoreligibility is usually based on previously determined criteria established bystate or federal statute or agency rules. The enrollment process is open tonew applicants throughoutthe contract term.9

C. "Best Value" Standard

For purchases that state agencies makeunder chapter 2155, state agenciesmust use a best value standardand purchase goods and services "that providethe best value for the state."' Best value replaced "lowestbid" in general statepurchasing statutes in 1997 when the legislature added section 2155.074.1

"[T]he purchase price and whether the goods or services meetspecifications are the most importantconsiderations" in determining bestvalue;however, state agencies may consider other relevant factors, including

8. Id.9. Id. at 20-21; see also STATE OF TEXAS PROCUREMENT MANUAL 70-71 (1998), available at

http://www.cpa.state.tx.us/procurement/pub/manual/2-2l .pdf.10. TEX. GOV'T CODE ANN. 2155.074 (Vernon 2008).11 . See Tex. S.B. 1752, 75th Leg., R.S. (1997) (deleting "lowest and best" and inserting "offering the

best value").

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(1) installation costs;(2) life cycle costs;(3) the quality and reliabilityof the goods and services;

(4) the delivery terms;(5) indicatorsof probablevendor performanceunderthe contract suchas pastvendor performance,the vendor's financialresourcesand abilityto perform,the vendor's experience or demonstratedcapability and responsibility,andthe vendor'sabilityto providereliablemaintenanceagreementsand support;(6) the cost of any employeetraining associated with a purchase;(7) the effect of a purchase on agencyproductivity;(8) the vendor'santicipatedeconomic impactto the state or a subdivisionofthe state, includingpotential tax revenueand employment;and(9) other factors relevant to determiningthe best value for the state in thecontext of a particularpurchase.12

For competitive procurements valued at more than $100,000, stateagencies must receive the comptroller'sapproval before considering factorsother than price and meeting specifications,13 and, for all competitivelybidpurchases(regardlessof value), the request forbids/proposalsmustspecifythebest value factors.

14

Agencies must post notices of procurementsexceeding $25,000 on theElectronic State Business Daily (ESBD) website, which the comptrollermaintains,15 including procurementsexemptfrom the comptroller'spurchasingauthority,purchases made under delegated purchasing authority,constructionprojects, and procurementsof professionalor consulting services.16

"Competitive bidding, whether formal or informal, is required for apurchase by a state agency if he purchase: (1) exceeds $5,000; and (2) is madeunder a written contract., 17 A state agency "must attempt to obtain at leastthree competitivebids from [vendors] listedon the"CentralizedMasterBiddersList (CMBL)that the comptrollermaintains. 8 The CMBLcontainsthe namesand addresses of prospective bidders and can be accessed through thecomptroller'swebsite.'

9

12. 2155.074(b).13. Id.14. Id. 2155.075; see, e.g., 2156.125(a) ("The commission or other state agency shall make a written

award of a contract to the offeror whose proposal offers the best value for the state, considering price, pastvendor performance, vendor experience or demonstrated capability, and the evaluation factors in the requestfor proposals.").

15. See ELECTRONICSTATE BusINEss DAILY, http://esbd.cpa.state.tx.us (last visited May 11, 2009).16. 2155.083.17. Id. 2155.132(e).

18. Id. 2155.132(h)(1).19. See CENTRALIZEDMASTERBIDDERSLIST, http. www.window.state.tx.us/procurement/cmbVcmbl

hub.html (last visitedMay 11, 2009).

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HI. DELEGATIONSAND EXCLUSIONSFROM THE COMPTROLLER'SPURCHASINGAUTHORITY

The comptroller may delegate purchasing authority to a state agency.2For example,the comptrollerhas delegatedprocurementauthorityto the Healthand Human Services Commission, except for purchases of commoncommoditiesor services.21 Health and humanservices agencies "shallacquiregoods or services by any procurement method approvedby the Health andHuman Services Commission that provides the best value to the agency"considering all relevant factors. 2 2

The comptrolleralso has delegated authorityto make certain purchasestothe Texas Commission on Environmental Quality (TCEQ),23 EmployeesRetirement System,24 General Land Office,2 5 and Railroad Commission.26

Further, thecomptroller hasdelegated purchasing authority tostate agenciesfor purchases less than $15,000, and by rule, maydelegate authority forpurchasesexceeding $15,000.27 However, it is importantto note that forcausethe comptrollermay revoke purchasing authoritydelegated to an agency.28

A. Texas Department of Transportation: Bids and Contracts or HighwayProjects and Logo Signs

Highway improvementprojects must becompetitivelybid.29 The Texas

Departmentof Transportation(TxDOT)will tabulateall highwayimprovementproject bids thatit receives and does not reject, and the agency will awardthecontract to the lowest bidder.30 However, it is importantto note comprehensivedevelopment agreements3' also require competitivebidding, but the agency

20. 2155.131.21. Id. 2155.144. In fiscal year 2007, the Health and Human Services Commissionranked third

among state agencies in contract spending, reportingmore than $542.1 million in total expenditures. SeeTEXAS COMPTROLLER,FISCAL YEAR 2007 ANNUAL HUB REPORT: TOP 50 AGENCIES BY TOTALEXPENDTURES 1 (2007), available at http://www .window.state.tx.us/procurement//hub/hubreport/fy7/lgexp.pdf.

22. 2155.144(c).23. Id. 2155.145.24. Id. 155.146.25. Id. 155.147.26. Id. 2155.150.27. Id. 2155.132.28. Id.29. TEX. TRANSp.CODEANN. 223.001(a) (Vernon 2008). In fiscalyear 2007, the TexasDepartment

of Transportation (TxDOT)led all state agenciesin contract spending,reporting more than $6.4billion in totalexpenditures. See TEXASCOMPTROLLER,FISCALYEAR 2007 ANNUALHU B REPORT, supra note 21, at 1.

30. 223.0041.31. Under section 223.201(a) through (b) of the Texas Transportation Code, a comprehensive

developmentagreement is "an agreement that, at a minimum, provides for the design and construction,rehabilitation,expansion,or improvement"of a toll project,the Trans-Texas Corridor,a statehighwayprojectthat includes tolled and non-tolled lanes, or in which a private entity has an interest in the project. Id. 223.201(a)-(b).

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(8) any other relevant factor that a private business entity would consider inselecting a vendor.

39

This section controls "over any other law relating to the purchasing ofgoods and services except a law relating to contracting with historicallyunderutilized businesses, ' 4 and therefore, purchases by M.D. Anderson CancerCenter are exempt from general state purchasing requirements.

Also note that the comptroller's procurement rules do no t apply to a"general academic teaching institution" as section 61.003 of the TexasEducation Code defines it. 4' General academic teaching institutions includeThe University of Texas at Austin,Texas A&M University,Prairie View A&MUniversity, Texas Tech University, and the University of Houston, along withother institutions listed in chapter 61 "and any other college, university, orinstitution so classified as provided in this chapter or created and so classified,expressly or impliedly, by law.

'A2

C. The Texas Lottery Commission

"When the [Texas] Lottery Commission was created, the Legislatureexempted them from certain procurement practices in order to expedite thestart-up processes and to begin generating funds for the state. '4 3 The StateLottery Act exempts contracts for "the acquisition or provision of facilities,

supplies, equipment, materials,or services related to the operation of the

lottery" from general state purchasing requirements under subtitle D, title 10 ofthe Texas Government Code, including laws and rules under chapters 2054(Information Resources) and 2254 (Professional and Consulting Services) ofthe Texas Government Code.44

Texas Government Code section 466.101 contains the Texas LotteryCommission's procurement procedures:

(a) The executive directormay establish procedures for the purchase or leaseof facilities, goods, and services and make any purchases, leases, or contractsthat are necessary for carrying out the purposes of this chapter. Theprocedures must, as determined feasible and appropriate by the executivedirector, promote competition to the maximum extent possible.

39. TEx. EDUC. CODE ANN. 73.115 (b)(l)-(8) (Vernon 2008).

40. Id. 73.115(c).

41. See 34 TEX. ADMIN. CODE 20.217 (2008) (Comptroller of Public Accounts, Exceptions and

Exclusions).42. TEx. EDUC. CODE ANN. 61.003(3) (Vernon 2008).

43. See House Committee on State Affairs Bill nalysis, Tex. H.B. 1179, 80th Leg., R.S. (2007).

44 . TEX. GOV'T CODE ANN. 466.105 (Vernon 2008).

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(b) In all procurement decisions, the executive director shall take intoaccountthe particularlysensitivenature of the lotteryand shallact to promoteand ensure integrity, security, honesty, and fairness in the operation and

administration of the lottery and the objective of producingrevenues for thestate treasury.

(c) The procurementprocedures adopted by the executive directormust, asdetermined feasible and appropriate by the executive director, afford anyparty who is aggrieved by the terms of a solicitation or the award of acontract an opportunity to protest the executive director's action to thecommission. The protest procedures must provide for an expedientresolution of he protest in order to avoid substantiallydelayinga solicitationor contract award that is necessaryfor the timely implementationof a lotterygame. A protest must be in writing and be filed with the commission notlater than 72 hours after receipt of notice of the executive director's action.

(d) A party who is aggrieved by the commission's resolution of a protestunder Subsection(c) mayfile an action in the districtcourtof Travis County.The court shall give preference to hearings and trials of actions under thissection. If the party filing the actionseeks to enjoin the implementationof asolicitationor contract, the party shall post a bond that is payable to the stateif the party does no t prevail in the appeal, and is in an amountsufficient tocompensate the state for the revenuethat would be lost due to the delay inlottery operations.

(e) The commissionshall require any person seeking to contract for goodsor services relating to the implementation and administration of thischapter to submit to competitive bidding procedures in accordance withrules adoptedby the commission. The proceduresmust be for the purposeofensuring fairness and integrity.

45

Texas Lottery Commission rules require the agency to conduct a formalcompetitive solicitation and attempt to obtain at least three competitive bids orproposals for all purchases over $25,000.46 In evaluating bids and proposals,

the agency, at minimum, must consider:

(i) the proposer'sprice to provide the goods or services;(ii) the probable quality of the offered goods or services;(iii) the agency's evaluation of the likelihoodof the proposal to produce thedesired outcome for the agency, considering,among other criteria:

(I) the quality of the proposer's past performancein contracting withthe agency, with other state entities,or with private sector entities;(II) the qualifications of the proposer's personnel;

45. Id.46. 16 TEX. ADMIN. CODE 401.101(bX3) (2008) (Tex. Lottery Comm'n, Lottery Procurement

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(III) the experience of the proposer in providing the requested goodsorservices;

(IV) the financial status of the proposer; and

(iv) whether the proposer performed the good faith effort required by theHUB subcontracting plan, when the agency has determined thatsubcontracting is probable.

47

"For all formal competitive solicitations, the agency will award a contractto the most qualified bidder or proposer as determined during the evaluation ofthe proposals."

8

During the 80th regular session of the Texas Legislature, the House andSenate approved House Bill 1179 to repeal certain sections of the State LotteryAct (chapter 466 of the Texas Government Code) and make the Texas Lottery

Commission subject to general law governing purchasing and contracts bystate agencies. 49 However, Governor Rick Perry vetoed House Bill 1179,concluding:

Since its creation, the Lottery Commission has been allowed toindependently negotiate purchases rather than going through the TBPCprocurement process. Although it has proceeded independently, the Lotteryhas followed the same practices as the TBPC, resulting in effectiveevaluation and selection of contractors and contracts that include therequired statutory provisions.

I support the philosophy behind House Bill No. 1179 of promotingcompetition in the marketplace and protecting the state's interests withrespect to procurement practices.However, I am vetoing H ouseBill No. 1179because the Lottery negotiated many of its contracts based on its currentprocurement process. Eliminating the purchasing flexibility in the TexasLottery Commission's procurement process could jeopardize its futuresuccess.

The Lottery should retain its flexibility in purchasing because theagency is contracting for and operating a unique business that deals withalimited vendor community qualified tooperate the games. These purchasesare different from consumable goods, such as office supplies, that otheragencies purchase and which TBPC rules are designed to cover.50

47. Id. 401.101(f)(1)(E).48 . Id. 401.101(e)(3).49. See 80(R), H.B. 1179, Engrossed Version, Bill nalysis (dated May 9, 2007).50. OFFICE OF THE GovERNOR RICK PERRY, MESSAGE - JUNE 15,2007 RELATING TO HB No . 1179,

http://governor.state.tx.us/news/veto/messagehbl 179/ (last visited May 11, 2009).

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IV. PROTEST PROCEDURES

Consistent with rules the comptroller promulgated, state agencies must

adopt protest procedures, including standards for maintaining purchasingdocuments to be used in the event of a protest.5' The attached appendixoutlines the protest procedure requirements for various state agencies.52 Theappendix includes citations to rules, protest deadlines, submission requirements(i.e., who the protest must be submitted to and what must be included), andinformation about appeals. 3

Most agencies require the receipt of bid protests "no later than ten workingdays after the aggrieved persons knows, or should have known, of theoccurrence of the action which is protested," and do not allow late protestsabsent a showing of good cause fordelay or unless the agency determines theprotest raises significant issues about the agency's procurement practices orprocedures. 4 Protests generally must be filed with a division director or theagency's contracts manager.

55

Protests must be in writing and sworn; some agencies (including theTCEQ, Texas Facilities Commission, Texas Department of Public Safety, theRailroad Commission, the Department of State Health Services, and theDepartment of Family and Protective Services) alsorequire the no tarizationofprotests.

5 6

Protests must include (1) the provision or rule alleged to have beenviolated, (2) a specific description of the alleged violation, (3) a precisestatement of the relevant facts, (4) the issue or issues to be resolved,(5) argument and authorities in support of the protest, and (6) a statement thatthe protest was mailed to all interested parties.57

51. TEX. GoV'T CODE ANN. 2155.076 (Vernon 2008).52 . See infra Appendix A.53. See infra Appendix A.54. See,e.g., I TEX. ADMIN. CODE 69.2(a) (2008) (Office of the Attorney Gen., Filing of Protest); 34

TEx. ADMIN. CODE 1.72(a) (2008) (Comptroller of Public Accounts, Protestsof Agency Purchases).55. See, e.g., 34 TEx. ADMIN. CODE 1.72(b) ("Any actual or prospective bidder, offeror,or contractor

who considers himself to have been aggrieved in connection with the agency's solicitation, evaluation,oraward of a contractmay formally protest to the Director of Administrative Services."); 19 TEX. ADMIN.CODE 30.2002 (2008) (Tex. Educ. Agency, Procedures for Protests, Dispute Resolution,and Appeals RelatingtoPurchasing and Contract Issues) (requiring the submission of bid protests to the Texas Education Agencydivision responsible for purchasing and contracts).

56. See, e.g., 30 TEX. ADMIN. CODE 11.2 (2008) (Tex. Comm'n on Envtl. Quality, Protest Proceduresfor Vendors); 1 TEX. ADMIN. CODE 111.32 (2008) (Tex. Facilities Comm'n, Protests/DisputeResolution/Hearing); 37 TEX. ADMIN. CODE 1.231 (2008) (Tex. Dep't Pub. Safety, Procedures for VendorProtests of Procurements); 16 TEX. ADMIN. CODE 20.1 (2008) (R.R.Comm'n of Tex., Procedures for Filingand Resolving Protests of a Contract Solicitation or Award);25 TEx. ADMIN. CODE 417.60 (2008) (Dep't ofState Health Servs., Protest and Appeal Procedures); 40 TEx. ADMIN. CODE 732.229 (2008) (Dep't ofFamily and Protective Servs., Is There a Procurement Protestor Appeal Procedure Available?).

57. See, e.g., 43 TEx. ADMIN. CODE 9.3(c)(2) (2008) (Tex. Dep't of Transp., Protest of Dep't

Purchases Under the State Purchasing and Gen. Servs. Act); 1 TEX. ADMIN. CODE 201.2(b) (Dep't ofInfo.Servs., Procedures for Complaints, Vendor Protests and the Negotiation and Mediationof Certain ContractDisputes and Bid Submission, Opening and Tabulation Procedures).

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If a bidder files a protest, an agency cannot proceed with the solicitationor contract award unless the agency-typically, the executive director or his orher designee-makes a written determination that the award of the contract

without delay is necessary to protect substantial interests of the state and theagency.

5 8

If mutual agreement does not resolve the protest, the agency official whoreceived the protest (typically, a division director or the agency's contractsmanager) will issue a written determination, including the reasons for thedetermination, to all interested parties.59 If a violation of rules or statutes hasoccurred and the contract has not been awarded, the determination may includecorrective or remedial action.60 If the agency official determines a violation hasoccurred and a contract was awarded, the corrective action may includevoiding the contract.6'

An aggrieved bidder may appeal a written determination.62 Most agenciesrequire appeals be filed within ten working days after the written determinationis issued and limit appeals to review of he determination.63 At TxDOT, appealsare submitted to the executive director and reviewed by the general counsel,who prepares a written opinion and recommendation.64 The TxDOT executivedirector may issue a final written determination on the appeal or refer thematter to the Texas Transportation Commission for consideration at a regularlyscheduled open meeting.65 The commission may request that the interestedparties (including the department) make oral presentations and submit written

documents.66

The commission chair may decide the amount of time allowedfor presentation; the commission's determination on the appeal is adopted byorder and reflected in the meeting minutes.67 The decision of the commissionor the TxDOT executive director is final.68

The Texas Lottery Commission's protest procedures are different. Thedeadline for filing a protest is set by statute-not administrative rule-andshorter (seventy-two hours versus ten working days), and unlike protestprocedures applicable to other agencies, the legislature expressly authorizes

58. See, e.g., 43 TEX. ADMIN. CODE 9.3(d); 37 TEx. ADMIN. CODE 1.231(c)(2008) (Tex. Dep't ofPub. Safety, Protest/Dispute Resolution/Hearings).

59. See, e.g., 43 TEX. ADMIN. CODE 9.3(f).60 . Id. 9.3(f)(2).61. See, e.g., 25 TEX. ADMIN. CODE 417.60(0 (2008) (Dep't of State Health Servs., Protest and

Appeal Procedures); 43 TEX. ADMIN. CODE 9.3(f) (stating that written determination ma y include "(A)declaring the purchase void; (B) reversing the award; and (C) re-advertising the purchase using revisedspecifications").

62. See, e.g., 43 TEx. ADMIN. CODE 9.3(g).63. See, e.g., 31 TEX. ADMIN. CODE 51.350(0 (2008) (Tex. Parks and Wildlife Dep't, Vendor Protest

Procedures).64. 43 TEX. ADMIN. CODE 9.3(g).65. Id.

66. Id.67. Id.68. Id.

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aggrieved biddersto seek judicial relief by filing an action in the Travis CountyDistrict Court.

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V. CASES

A. Texas Logos, L.P. v. Texas Department of Transportation et al.

In 2007, the Third Court of Appeals rejected a vendor's attempt tooverturn a contract award made by TxDOT for the state's logo sign program,concluding sovereign immunity barred the vendor's claims for declaratoryrelief. 7

TxDOT issued a request for proposals in December 2005 seekingproposals from vendors to operate the logo sign program after the currentcontract expired.71 Texas Logos was the incumbent vendor and held the logosign contract since the TxDOT program began in the early 1990s. 72 TxDOTawarded the new contract to another vendor, and Texas Logos unsuccessfullyattempted to overturn the award by first seeking relief under TxDOT'sadministrative protest rules then later requesting a contested case proceedingunder the Administrative Procedures Act (APA), which the agency denied.73

Texas Logos sued TxDOT and its executive director alleging the agency"'exceeded its statutory authority' by violating or waiving the requirements ofvarious statutes and rules governing its procurement of the logo sign

contract.,74

Texas Logos sought relief under the Uniform DeclaratoryJudgments Act (UDJA),75 arguing (1) TxDOT violated procurement statutesand, as a result, the contract was void, and (2) TxDOT was statutorily requiredto adjudicate Texas Logos's protest through a contested-case proceeding.76 Inaddition, Texas Logos claimed TxDOT's protest rules violated the APA.77

Section 2001.038 of the APA provides declaratory relief to challenge thevalidity or applicability of an agency rule:

69. TEX. GOV'T CODE ANN. 466.101(c)(d) (Vernon 2008); see also 16 TEX. ADMIN. CODE 01.102(b) (2008) (Tex. Lottery Comm'n, Protests of he Terms of a Formal Competitive Solicitation)("Aprotest of the terms of any formal competitive solicitation must be filed, in writing, with the commission'sgeneral counsel within 72 hours after issuance of the formal competitive solicitation."); 401.103(b) (Protestsof Contract Award) ("A protest of any contract award must be filed, in writing, with the commission'sgeneral counsel within 72 hours after receipt of notice of contract award.").

70. Texas Logos, L.P. v. Tex. Dep't ofTransp. et al., 241 S.W.3d 105 (Tex. App.-Austin 2007, nopet.).

71. Id. at 109.72. Id. at 108-09.73. Id.74. Id.75 . TEX. CIV. PRAc. & REM. CODE ANN. 37.001-.011 (Vernon 2008).76. Texas Logos, 241 S.W.3d at 108-09.

77. Id.

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(a) The validity or applicability of a rule, including an emergency ruleadopted under Section 2001.034, may be determined in an action fordeclaratory judgment if it is alleged that the rule or its threatened

application interferes with or impairs, or threatens to interfere with or impair,a legal right or privilege of the plaintiff.(b) The action may be brought only in a Travis County district court.(c) The state agency must be made a party to the action.(d) A court may render a declaratory judgment without regard to whetherthe plaintiff requested the state agency to rule on the validity or applicabilityof the rule in question.(e) An action brought under this section may not be used to delay or stay ahearing in which a suspension, revocation, or cancellation of a license by astate agency is at issue before the agency after notice of the hearing hasbeen given.(f) A Travis County district court in which an action is brought under thissection, on its ow n motion or the motion of any party, may request transferof he action to the Court of Appeals for the Third Court of Appeals District ifthe district court finds that the public interest requires a prompt, authoritativedetermination of the validity or applicability of the rule in question and thecase would ordinarily be appealed. After filing of the district court's requestwith the court of appeals, transfer of the action may be grantedby the court ofappeals if it agrees with the findings of the district court concerning theapplication of the statutory standards to the action. On entry of an order bythe court of appeals granting transfer, the action is transferred to the court of

appeals for decision, and the validity or applicability of he rule in question issubject to judicial review by the court of appeals. Th e administrative recordand the district court record shall be filed by the district clerk with the clerkof the court of appeals. The court of appeals may direct the district court toconduct any necessary evidentiary hearings in connection with the action.

7 8

TxDOT filed a plea to the jurisdiction based on sovereign immunity.79

The district court granted the plea and dismissed Texas Logos's claims.80

Texas Logos pointed to numerous alleged errors in the winning bidder'sproposal and alleged TxDOT "violated or exceeded its statutory authority by

ignoring" the bid deficiencies and failing to consider certain required bestvalue factors under the State Purchasing and General Services Act andTxDOT's statutes and rules. 81 Further, Texas Logos argued that "by requiringprotests to be filed within ten days after a contract award-a deadline

78. TEx. Gov'T CODE ANN. 2001.038 (Vernon 2008). See, e.g., Gen. Servs. Comm'n v. Little-TexInsulation Co., Inc., 39 S.W.3d 591, 59 9 (Tex. 2001) ("Texas law recognizes no right to judicial review ofan administrative order unless (1) a statute provides the right,(2) the order adversely affects a vested propertyright, or (3) the order otherwise violates some constitutional right.").

79. Texas Logos, 241 S.W.3d at 109.80. Id.81. Id .a t1l l -12.

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corresponding toTxDOT's response deadline for any Public Information Actrequest-the TxDOT rules effectively preclude discovery."

82

In reviewing Texas Logos's assertion that the district court had subject-

matter jurisdiction under the UDJA for both the contract challenge and protestdenial order, the Third Court of Appeals stated that "a UDJA action will liewithin the subject-matter jurisdiction of the district courts when there is (1) ajusticiable controversy as to the rights and status of parties actually before thecourt for adjudication;and (2) that will be actually resolved by the declarationsought., 83 Further, the court wrote that "a justiciable controversy regardingwhether a state agency or officer has acted beyond statutory authorityprovidesa jurisdictional basis for a UDJA action seeking construction of that statutoryauthority. This type of UDJA action, furthermore, doesnot implicate sovereignimmunity."84 The court noted Texas Logos's declaratory claims did no timplicate sovereign immunity, and the "UDJA does no t authorize (by sovereignimmunity waiver or otherwise) a claim that seeks to control state action. 85

TxDOT argued the district court lacked subject-matter jurisdictionbecause the legislature did not provide for judicial review of TxDOT'sactions.86 The court cited Texas Department of Protective and RegulatoryServices v. Mega Child Care, Inc., noting the parties acknowledgedthere wasno explicit judicial right to review under the Purchasing Act or Transportation

87Code, nor did Texas Logos have a vested property right in the contract.However, the court rejected TxDOT's assertion:

TxDOT's argument is misplaced. AUDJA claim is sui generis and, all otherthings being equal, the districtcourt's subject-matterjurisdiction over it existsindependently of any administrative remedies .... Likewise, the mere factthat Texas Logos lacked vested property rights in the contract award thatcould give rise to an inherent right ofjudicial review would not deprive it ofstanding to prosecute a proper UDJA claim challengingTxDOT's statutoryauthority in regard to the contract procurement. 8 8

Turning to TxDOT's assertion that sovereign immunity barred TexasLogos's claims, the court noted that "[i]t is well-established that a claim-including one under the UDJA-'seeking to establish a contract's validity, toenforce performance under a contract, or to impose contractual liabilities are

82. Id. at 113.

83. Id. at 114 (citations omitted).84. Id. (citations omitted).85. Id. at 115, n.12 (citations omitted).86. Id. at 116.87. Id. (citing Tex. Dep't of Protective & Regulatory Servs.v. Mega Child Care, Inc., 145 S.W.3d 170,

172 (Tex. 2004)) ("'In Texas, a person may obtainjudicial review of an administrative action onlyifa statute

provides a right to judicial review, or the action adversely affectsa vested property right or otherwiseviolatesa constitutional right."').

88. Id. at 116-17.

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suits against the State."'89 The court added that "[s]uits to nullify a contractmade for the benefit of the state would likewise implicate sovereignimmunityprinciples as currently articulated by the Texas Supreme Court."9 The court

said a suit to overturn the logo sign contract would interfere with TxDOT'spolicy and budget decisions and implicates sovereignimmunity.91 Further, thecourt said chapter 2155 of the Texas Government Code provides remedies toaggrieved bidders short of voiding a contract: "This statutory schemecontemplates that while contracts executed in violation of the Act'srequirements might be subject to invalidation by the agency or other statutoryremedies, they would not be rendered a legal nullity on that basis. 92 BecauseTexas Logos alleged onlypast statutory violations, "the 'only plausible remedy'.. . is the invalidation of the contract," and,therefore, the court held sovereignimmunity barred Texas Logos's claims: "Such a remedy [voiding a contract],we have seen, implicates sovereign immunity and bars Texas Logos's UDJAclaims challenging the logo sign contract and procurement."

93

Similarly, the court rejected Texas Logos's claims for declaratoryreliefunder the APA. "[T]his Court has long held that, absent express statutoryauthority, the APA does no t independently providea right to a contested casehearing., 94 The court noted that section 2001.038 of the Texas GovernmentCode "creates a cause of action for declaratory judgment regarding '[t]hevalidity or applicability of a rule... if it is alleged that the rule or its threatenedapplication interferes with or impairs, or threatens to interfere with or impair,a

legal right or privilege of the plaintiff."'95

The court held that becausesovereign immunity barred Texas Logos's UDJA claims to invalidate thecontract and protest order, there was no justiciable controversy and overruledTexas Logos's second issue:

The relief provided under section 2001.038 does not extend to invalidatingeither TxDOT's protest order or its ultimate contract award, but only therules by which the protest was conducted. At this juncture, Texas Logos'section 2001.038 challenge to the validity of those rules would amount to amere abstract, advisory opinion.

96

However, in a companion case, the Third Court held Texas Logos couldpursue common-law tort theories and the district court had jurisdiction to hearthe claims.

9 7

89 . Id. at 119 (citation omitted).90. Id. at 120.91. Id.

92 . Id. t 121.93. Id. at 122-23 (citations omitted).94. Id. at 123.95. Id.

96. Id. at 123-24.97. Tex. Logos, L.P. v. Brinkmeyer, 254 S.W.3d 644, 654-55 (Tex. App.-Austin 2008) ("Even if

there is some overlap between the issues raised by Texas Logos's tort damages claims and those TxDOT

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B. Texas Lottery Commissionv. ScientificGames International, Inc.

In 2003, the Third Courtof Appeals ruled the TexasLottery Commission

lacked express statutoryauthority to consider a potential vendor's economicimpact on the state when awarding a contract.

98

Scientific Games International,Inc. (SGI)and Pollard BanknoteLimited(Pollard) sued the commission to prevent the agency from considering aproposer's economic impact on the state when evaluating proposals.99 Thelawsuit followed an announcementby the agency's executive director in anopen commission meeting in February 2002 that consistent with the 2001amendmentto section 2155.074 of the Texas GovernmentCode (referringtobest value standard for purchase of goods or services), she "would nowconsider the 'potential vendor's economic impact on the state' in awardingcontracts worth over $100,000,beginning with the[commission's]upcomingprocurementfor instant-ticketgames."'l

SGI and Pollard sought a declaratoryjudgment claiming the commissionlacked theauthority to supportthe new policy.101 The districtcourtagreed andgranted SGI's and Pollard's joint motion for summary judgment. 1 2 Thecommissionappealed on the grounds that(1) SGI and Pollard lacked standingand (2) the agency possessed "thestatutory authority to consider potentialeconomic impact on the state in making its procurementdecisions."'

0 3

The court noted there were only a handful of companies worldwide

qualified to bid on the commission's instant-ticketcontracts (including SGI,Pollard and Oberthur Gaming Technologies (OGT)), and only one of thosecompanies-OGT-had a manufacturingfacility in Texas.' 4 The court foundSGI andPollard had shown an actual or imminent threatof injury peculiar totheir circumstancesand not suffered by the public generally and therefore hadstanding:0 5

The publicat large is not qualified to bid on lottery contracts;manufactureof instant-ticket games is a major part of SGI and Pollard's business;inclusionof an economic-impactfactorwould benefitOGT at the expense of

decided whenawarding the logo sign contract,we cannotconclude that the legislature intendedto divest thedistrict courtof its subject-matterjurisdictionover those claims.").

98. Tex. LotteryComm'n v. ScientificGames Int'l, Inc., 99 S.W.3d376 (Tex. App.-Austin 2003,pet.denied).

99. Id. at 379.100. Id. at 379-80. Section2155.074(b)(8)of the Texas GovernmentCode authorizesa state agency, in

determiningthe best value for the state, toconsider "thevendor's anticipatedeconomic impact tothe stateorasubdivision of the state, including potential tax revenueand employment." TEX. GOV'T CODE ANN. 2155.074(b)(8)(Vernon 2008).

101. Scientific Games, 99 S.W.3d at 378.102. Id. at 380.103. Id.104. Id.105. Id.

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SGI and Pollard. These facts are more than sufficient to show an actual orimminent threat of injury peculiar to the appellees' circumstances and notsuffered by the public generally. SGI and Pollard unquestionably have

standing.

The court then turned to the commission's claim that it possessed statutoryauthority to consider economic impact to the state in its procurementdecisions. 107 The court discussed the source of and limits on an agency'spowers:

An administrative agency has only those powers conferred upon it by clearand unmistakable language. When the legislature expressly confers a poweron an agency, it also impliedly intends that the agency have whatever powersare reasonably necessary to fulfill its express functions

or duties. An agencymay not, however, exercise what is effectively a new power on the theory thatsuch exercise is expedient for the agency's purposes.l18

The court rejected the commission's argument "that consideration ofeconomic impact both promotes competition and fulfills the legislativeobjective of producing revenues for the state treasury" under section 466.101 (b)of the Texas Government Code.' 0 9 Section 466.101(b) provides that "[i]n allprocurement decisions, the executive director shall take into account theparticularly sensitive nature of the lottery and shall act to promote and ensureintegrity, security, honesty,

and fairness in the operation and administration ofthe lottery an d the objective ofproducing revenues or the state treasury."" 0

The commission's contention that consideration of economic impactwould promote "competition because 'all vendors who bid will be required toseek the best way to increase the number of employees in Texas, resulting in animpact on Texas's economy"' did not persuade the court.' The court held thatthe commission had unreasonably interpreted the phrase "promote competition"in section 466.101(b):

Under the Commission's reading of the statute, the language requiring the

Executive Director to "promote competition to the maximum extentpossible" does not substantively restrict the criteria the Commission mayconsider in its procurement procedures. The Commission instead impliesthat "promot[ing] competition" means only that each potential bid must beevaluated under the same criteria. Such a broad reading of the word

106. Id.107. Id.108. Id. at 381.109. Id.110. TEx. Gov'T CODE ANN. 466.101(b) (Vernon 2008) (emphasis added).111. Scientific Games, 99 S.W.3d at 382.

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"competition" is misplaced in the context of a statute addressingprocurement policies.

The court stated that competitive-bidding statutes are intended "tomaximize competition for government contracts in order to obtain the best workor product at the lowest practicable price,"' 1 3 adding that "[a]n agency subjectto a competitive-bidding statute is therefore limited in its procurementdecisions to considerations relating to quality or price in the absence of explicitstatutory authority to consider additional factors."'1 14 The court concluded thatsection 466.101 (a) "does not explicitly grant the Commission the authority toconsider factors other than quality or price" and rejected the commission'sclaim that consideration of economic impact actually promotes competition.' 15

The court said that " [s]ection 466.101 (b) simply requires the Commissionto consider its bottom line when awarding contracts. That is, it requires theExecutive Director to consider the objective of producing revenues for the statetreasuryfrom the lottery itself." 1 6 The court held that section 466.101(b) "doesnot authorize the Commission to jeopardize lottery revenues to favor othereconomic benefits such as increased employment in the state or increasedcollection of franchise taxes."

' "1 7

The court referred to the preference for Texas businesses in section466.106(a) to "confirm ou r conclusion that the legislature did not intend toauthorize the Commission to consider the general economic impact on the statein making its procurement decisions.' 1 8 "When the legislature has spoken sodirectly, an agency may not act in a way that effectively nullifies thelegislature's pronouncement, even though the matter may fall within thegeneral regulatory field of that agency." ' 19 The court determined considerationof a bidder's potential economic impact on the state "will in fact create an in-state preference unrelated to cost or quality."'

120

Similarly, the court foundunpersuasive the commission's argument "thatby giving credit only to a bidder who creates new jobs in Texas (its allegedmeasure of economic impact, which is not part of the record before this court),it would not be favoring an in-state bidder.' 2 1 The court noted: "The

Commission asserts a distinction without a difference .... Simply put, by

112. Id. at 381-82 (citations omitted).113. Id.114. Id. (citations omitted).115. Id.

116. Id.

117. Id.118. Id. at 383. Section 466.106(a) provides the following: "In all contracts for lottery equipment,

supplies, services, and advertising, the commission and each lottery operator shall give preference toequipment or supplies produced in this state or services oradvertising offeredby bidders from this state, thecost to the state and quality being equal." TEx. GOV'TCODE ANN. 466.106(a) (Vernon 2008).

119. Scientific Games, 99 S.W.3d at 383.120. Id.121. Id.

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considering economic impact in the bidding process, the Commission wouldnot be promoting competition to the maximum extent possible, as section466.101(a) requires."'

122

The court affirmed the summary judgment in favor of SGI and Pollard.123

The commission appealed the Third Court's ruling to the Texas Supreme Court,which denied its petition for review.

VI. PRACTICE TIPS

In preparing the solicitation document and determining the factors toevaluate bids and proposals, agencies are limited to consideration of evaluationcriteria centered on price and meeting specifications consistent withdetermining best value. For agencies not subject to general purchasing rulesunder chapter 2155, only the evaluation factors found in the agency's enablinglegislation may be used.1

2 4

Failure topost a procurement notice on the ESBD for the minimum periodthat section 2155.083 of the Texas Government Code requires (21 days fornotice only and 14 days if notice includes the entire bid or solicitation package)renders a contract or procurement award void.12

5

Start early. Do not wait until you receive a protest to review your agency'sprotest procedures. Review your administrative rules (1) while preparing thebid specifications, (2) after the solicitation document is issued, (3) again after

bids are submitted, and (4) throughout the bid evaluation review process andafter contract award.

Conduct training on a regular basis both forpurchasing staffand technicalexperts who may advise or evaluate bids and proposals. Remember conductpre-issuance can be just as harmful as conduct during the bid evaluationprocess. For example, favoritism to or spoken or unspoken bias against aparticular vendor in preparing bid specifications can unfairly color a formalcompetitive solicitation before it begins. 26 Similarly, collusion among bidderscan thwart competition and is contrary to the spirit and intent of he competitivebidding process.

Be specific. Avoid ambiguities in drafting bid specifications anddetermining evaluation criteria. Similarly, when preparing a bid protest,allegespecific violations of applicable statutes and rules instead of general claimsabout unfairness or difference in quality.

122. Id.123. Id.

124. See id. (granting summary judgment in favor of vendors who claimed Texas Lottery Commissiondid not have express statutory authorityto consider potentialproposer's economic impact to the state whenevaluating proposals).

125. TEX. GOv'T CODE ANN. 2155.0836) (Vernon 2008).126. See, e.g., id. 2155.004(a) ("A state agency may not accept a id or award a contract that includes

proposed financial participation bya person who received compensation from the agency to participate inpreparing the specifications or request for proposals on which the bid or contract is based.").

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Follow the rules. Although many agencies' protest rules are similar, thereare differences, too. Know who to submit protests to and by what date, andmake sure the protest includes all required elements. An agency will likely

reject even the most well reasoned protest if not timely filed or incomplete (e.g.,failure to have the protest sworn and notarized or provide copies of the protestto all interested parties can result in rejection of the protest withoutconsideration of the merits of the claim).

VII. CONCLUSION

Promoting bidding opportunities and maximizing value to the state are notmutually exclusive goals. During all stages of the procurement process(drafting the bid specifications,preparing the solicitation document, conductingpre-proposal conferences, vendor presentations, evaluating bids, awardingcontracts, and reviewing protests), remember the "plane of equality" mustremain level otherwise no meaningful competition can exist. Know the rules ofthe game, and do not lose sight of the spirit and intent of the competitivebidding statutes and rules.

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