Public Owner May “Pay Twice” for Bidding Improprieties

Kegler Brown Construction Newsletter

In a case with potentially far reaching ramifications within the state of Ohio and beyond, a City in Summit County has been determined to be liable for a disappointed bidder's lost profits. The City awarded a contract to a bidder that was ultimately determined by a jury to have been someone other than the "lowest and best bidder," and the jury awarded bid preparation costs as damages. The Court of Appeals reversed the trial court's decision, limiting the contractor's recovery to bid preparation costs, and ruled that the contractor be entitled to lost profits on the contract that should have been awarded to the disappointed bidder.

Traditionally, Ohio courts have either enjoined the award to one other than the lowest responsive and responsible (or lowest and best) bidder, leaving the owner the ability to rebid and avoid any direct economic loss. In the alternative, in cases where the bidding irregularity is proven later, courts have awarded some nominal damages such as the cost of preparation of a bid. However, this may very well be the first case in Ohio that has ruled that an award of lost profits is proper, meaning, public authorities who award contracts to someone who should have not been awarded the contract may be faced with "paying twice" for the work in the form of lost profit damages.

In the case of Cementech v. Fairlawn, 2005 Ohio 1709, the Summit County Court of Appeals stated "we find that injunctive relief does not preclude monetary damages because such a preclusion would leave companies like Cementech with no real relief and allow government entities to go unpunished for ignoring Ohio and municipal laws." The Court went on to state:

"This Court recognizes that we are setting a precedent, but we find that our decision is necessary to protect the integrity of the bidding process and to ensure that government entities take responsibility for their actions and follow proper procedures and laws, thus properly representing their constituents."

In view of this case, contractors will be encouraged to initiate litigation and recover lost profits when they believe they have wrongfully denied a contract, and public owners will approach tough bidding decisions with greater trepidation than before, knowing that the wrong decision may cost them dearly.

This case is currently being appealed by the City to the Supreme Court of Ohio. If the Supreme Court of Ohio decides to exercise its jurisdiction and hear the case, this may not be the final word on this important issue.