Labor: Ohio Supreme Court Allows Bid Costs as Damages for Wrongfully Rejected Bidders on Public Projects
By Nick A. Nykulak
On July 21, the Supreme Court of Ohio issued a decision finding that bidders on public improvement projects can recover their bid costs as damages if they prove that they were wrongfully denied a public construction contract in violation of state competitive bidding laws. However, before bid costs are available as damages, bidders must first promptly seek injunctive relief from a court. In other words, bidders must first petition a court to stop the award of the public construction contract or stop the construction itself. If injunctive relief is then denied by a court, bid cost damages are available to the complaining bidder if that bidder later proves that it was wrongfully denied the contract or that the contract was awarded to another bidder in violation of competitive bidding laws. Bid cost damages can include all labor, materials and other expenses incurred by the bidder in submitting its bid to obtain the public contract.
Injunctive relief is very difficult to obtain for bidders in public construction cases due to policy concerns regarding the adverse affects imposed on the taxpaying public in general, such as increased construction costs caused by the delays in construction that result from the time it takes to complete injunctive relief proceedings. Often times, injunctive relief requests are denied on this public policy basis.
Several years ago, the Supreme Court of Ohio held that wrongfully rejected bidders on public projects could not recover lost profits as damages when contracts were awarded to other bidders in contravention of competitive bidding laws. The Supreme Court held that punishing government entities by allowing bidders to recover lost profits in effect punishes the very people competitive bidding laws were intended to protect – Ohio taxpayers. In allowing bid costs as damages, the Court has struck a fine balance between providing a remedy to construction contractors against public officials acting in dereliction of public bidding laws, while still protecting the interests of Ohio taxpayers.
The Supreme Court correctly recognized that without a meaningful remedy, bidders who believe public contracts will not be awarded fairly simply will not bid, reducing the overall size of the bidding pool, thereby increasing construction costs to Ohio taxpayers. Simply put, without some sort of penalty, there is little deterrent for a public entity to comply with competitive bidding laws.
More so, by allowing bid costs as damages, the Supreme Court has also guaranteed that bidders who are wrongfully denied public contracts get “their day in court.” Many times, public officials escape liability and exposure from wrongful acts by arguing in public construction cases that the case was “mooted” by the start of construction or by an award of the contract to another bidder. Typically, a case is “moot” and will be dismissed when a court can award “no effectual relief whatsoever” to the plaintiff. By allowing bid costs as damages, the Supreme Court has guaranteed that the merits of these construction cases will be heard, exposing any and all wrongful acts committed by public officials.
If you have any questions or concerns about this article, or if you need additional information regarding competitive bidding laws or the requirements for awarding public construction contracts, please feel free to contact Nick Nykulak or Alan Ross.