McKnight Construction Co. v. Department of Defense

United States Court of Appeals,

Eleventh Circuit.

No. 95-8811.

McKNIGHT CONSTRUCTION CO., INC., Plaintiff-Appellee,

v.

DEPARTMENT OF DEFENSE, William J. Perry, Secretary; Department
of the Army, Togo D. West, Jr., Secretary, Robert C. Hoffman,
Contracting Office, Savannah District of the United States Army
Corps of Engineers, Defendants-Appellants,

Conner Bros. Construction Co., Inc., Intervenor-Defendant-
Appellant.

June 17, 1996.

Appeals from the United States District Court for the Southern
District of Georgia. (No. CV194-188), Dudley H. Bowen, Jr., Judge.

Before KRAVITCH and CARNES, Circuit Judges, and HILL, Senior
Circuit Judge.

KRAVITCH, Circuit Judge:

The Army Corps of Engineers ("Army") and Conner Brothers

Construction Co., Inc., appeal the district court's grant of

summary judgment in favor of McKnight Construction Co. Although

McKnight was the low bidder on an Army construction project,

McKnight's bid was rejected because it did not conform to the

Army's guidelines. After the Army and the Comptroller General

refused to accept McKnight's bid corrections, McKnight appealed to

the district court, which reversed the Army's decision. We now

reverse the decision of the district court.

I.

The Army, acting through its Corps of Engineers, solicited

bids for construction of barracks at Fort Benning, Georgia. At bid

opening, the Army had received bids from four companies. The low
 bidder was McKnight; Conner Brothers was the next lowest bidder.

The following day, Conner Brothers notified the Army of apparent

errors in McKnight's bid and asked the Army to reject it as

"nonresponsive." The day after Conner Brothers' protest, the Army

began a review to determine whether McKnight's bid was responsive.

A bid is nonresponsive when it is mathematically and

materially unbalanced; such a bid must be rejected. See G.C.

Ferguson 4-T Constr., 92-1 CPD ¶ 381, 1992 WL 143301 (CG1992);

Sanford Cooling, 91-1 CPD ¶ 376, 1991 WL 86957 (CG1991). A bid is

mathematically unbalanced when each line item in the bid does not

reflect the actual costs to the bidder. See 48 C.F.R. §§ 14.404-

2(g), 15.814. The Army determined that Lines 1 and 2 of McKnight's

bid were mathematically unbalanced because the amount listed in

each line was significantly higher than that listed by other

companies and the government's own estimate. For both line items

1 and 2, McKnight bid $4,203,500; the next highest bid estimate

for the work corresponding to those lines was the government's

estimate of $395,557 for line item 1 and $55,780 for line item 2.

A chart with all the bids is reproduced as Table I.

TABLE I

___________________________________________________________________________
McKnight Conner Dawson Wright Government
Construction Brothers Company Associates,
Const. Co. Inc.
__________________________________________________________________________________________
1 4,203,500.00 196,376.00 200,000.00 305,900.00 395,557.00
__________________________________________________________________________________________
2 4,203,500.00 37,396.00 20,000.00 23,050.00 55,780.00
__________________________________________________________________________________________
3 100,000.00 52,094.00 50,000.00 121,350.00 75,692.00
__________________________________________________________________________________________
4 250,000.00 4,303,584.00 3,334,000.00 4,230,759.00 4,114,668.00
__________________________________________________________________________________________
5 250,000.00 4,303,584.00 3,334,000.00 4,230,759.00 4,052,434.00
__________________________________________________________________________________________
6 2,000,000.00 2,370,116.00 3,000,000.00 2,198,253.00 2,778,708.00
__________________________________________________________________________________________
7 2,000,000.00 1,019,578.00 1,000,000.00 1,029,829.00 952,725.00
__________________________________________________________________________________________
8 1,100,000.00 831,202.00 1,000,000.00 990,000.00 1,091,467.00
__________________________________________________________________________________________9
2,000,000.00 3,149,922.00 4,000,000.00 3,658,750.00 3,648,995.00
__________________________________________________________________________________________
10 600,000.00 434,148.00 1,000,000.00 226,050 274,808.00
__________________________________________________________________________________________
Base 16,707,000.00 16,698,000.00 16,938,000.00 17,014,700.00 17,440,834.00
Bid
__________________________________________________________________________________________
Additive 143,000.00 271,000.00 275,000.00 283,722.00 674,656.00
# 1
__________________________________________________________________________________________
Total 16,850,000.00 16,969,000.00 17,213,000.00 17,298,422.00 18,115,490.00
Base
Bid Plus

Additive

# 1
___________________________________________________________________________

—————

Where a mathematically unbalanced bid is so grossly unbalanced that it

will result in an advance payment, the bid is materially unbalanced and must

be rejected. 48 C.F.R. § 15.814(b)(2); see Boston Graving Dock Corp., 91-2

CPD ¶ 178, 1991 WL 162533 (CG1991). Because the estimates in lines 1 and 2

front-loaded the bid with disproportionately high payments, the Army found

that the bid was materially unbalanced. Approximately 50% of the bid's total

value of $16,850,000 was captured in the first two lines of McKnight's bid;

the next highest figure for the combined cost of each of the first two line

items was the government's estimate of approximately $450,000, which

constituted less than 2.7% of the overall bid price.

Although there is no suggestion that McKnight's error was deliberate, a

bidder could potentially manipulate the bidding process by intentionally

front-loading a bid, and in the event that the "error" went unnoticed,

collect extremely large advance payments. Advance payments are disfavored

because a bidder that receives early payments gains an unfair advantage over

other bidders through the potential use of interest-free money. In addition,
because later work is undervalued, there is a reduced incentive to complete

the work.

On the same day that the Army began its review of McKnight's bid,

McKnight notified the Army that its bid contained mistakes and sought

permission to file a corrected bid. Two days later, McKnight formally

requested permission to file a corrected bid and submitted an affidavit from

its president, William McKnight. Later, McKnight sent the Army "post-bid

opening" worksheets, which were created to "reconstruct ... [the] thought

process in allocating the total bid price to the individual line items in the

bid schedule." The only pre-bid documentation provided was the bid papers,

and "there is no dispute that these did not identify bid items, buildings,

subcontractor pricing, or other aspects of the project by which McKnight's

intended allocation of bid line items could be ascertained." McKnight

Construction Co. v. Perry, 888 F.Supp. 1186, 1187 (S.D.Ga.1995).

In his affidavit, William McKnight stated that although the company's

overall bid was correct, in filling out the bid sheet he had made a

transpositional error, mistakenly switching the bid prices for line items 1

and 2 with those intended for line items 4 and 5. The total bid would have

been unchanged.

After reviewing McKnight's request for bid correction, the Army found

that although McKnight had made mistakes in computing its bid, it had not

provided clear and convincing evidence of its intended bid with respect to

each line item, as required by Federal Acquisition Regulations. See 48

C.F.R. § 14.406-3(a). Thus, the Army refused to permit McKnight to file a

corrected bid. In reaching its conclusion, the Army noted McKnight's

inability to furnish independent corroboration for its intended bid. Because

the original bid was rejected as nonresponsive, the next lowest bidder,
Conner Brothers, was awarded the contract.

McKnight filed a bid protest with the General Accounting Office that was

rejected by decision of the Comptroller General. The Comptroller General

determined that although the evidence supported McKnight's contention that it

had made a mistake in its bid, there was not clear and convincing evidence of

McKnight's intended bid price. The Comptroller General found that the

similarity of McKnight's bid on lines 1 and 2 to the government's estimates

and the other bids for line items 4 and 5 supported McKnight's contention
1
that line items 1 and 2 should have been placed on lines 4 and 5. More

importantly, however, the Comptroller General rejected as "implausible on its

face" McKnight's contention that the $250,000 listed on both lines 4 and 5

was the amount intended to be placed on lines 1 and 2. This conclusion was

based on the gross disparity that would have resulted on line 2, where the

next highest bid estimate would have been the government's estimate of

$55,780. Holding that there was a reasonable basis for the Army's refusal to

accept the corrected bid, the Comptroller General rejected the uncorrected

bid on reasoning similar to that of the Army.

Following the Comptroller General's ruling, McKnight brought this

action, challenging the Army's refusal to permit it to correct its bid and

the consequent award of the contract to Conner Brothers. Conner Brothers

intervened as a defendant. McKnight argues that the Army's actions violated

1
Although the Comptroller General never found that this
constituted clear and convincing evidence, the Army seems to have
conceded that items 1 and 2 were intended to be placed on lines 4
and 5. The Government's attorney stated:

As the Court indicated, it is obvious that 1
and 2 are wrong and that those numbers belong
in items 4 and 5, but it is not obvious that
the opposite is true. That is, that a
transposition occurred and that items 4 and 5
belonged in 1 and 2.
the Administrative Procedures Act.

The district court initially granted a preliminary injunction barring

the Army from implementing the contract award and later granted McKnight's

motion for summary judgment. The Army and Conner Brothers appeal that

decision.

II.

When reviewing a district court's decision to grant summary judgment,

we apply the same legal standards as those applied by the district court.

The main question before us, therefore, is whether the Army acted

arbitrarily, capriciously, or otherwise not in accordance with law when it

determined that McKnight failed to present clear and convincing evidence of

what it intended to bid. See Choctaw Manufacturing Co. v. United States, 761

F.2d 609, 616 (11th Cir.1985) (citing 5 U.S.C. § 706(2)(A)); see also

Latecoere Int'l, Inc. v. United States Dept. of the Navy, 19 F.3d 1342, 1356

(11th Cir.1994). In addition, if we hold that the Army did not act in

accordance with law in refusing to allow McKnight to correct its bid, we must

then determine whether the Army lacked a rational basis for finding that the

uncorrected bid was not responsive.

A.

Under Federal Acquisition Regulations, a bid is subject to correction

only if the bidder presents clear and convincing evidence that the submitted

bid was mistaken and clear and convincing evidence of the actual intended

bid. 48 C.F.R. § 14.406-3(a). The Army argues that, based on the evidence

presented by McKnight, it reasonably concluded that McKnight had not

presented clear and convincing proof of its intended bid. In considering

William McKnight's affidavit, the Army claims that it "afforded appropriate

weight and probative value ... to the extent the post-bid created affidavit
was consistent with documentation created contemporaneously with or prior to

the bid."

The district court found that this statement, along with others,

indicated that the Army had adopted a per se rule against statements that

were uncorroborated by bid workpapers. 888 F.Supp. at 1190. Such a rule,

the district court held, contravened the procurement regulations and was also

arbitrary.

The relevant portion of the Federal Acquisition Regulations provides

that

[i]f the bidder alleges a mistake, the contracting officer shall advise
the bidder to make a written request to withdraw or modify the bid. The
request must be supported by statements (sworn statements, if possible)
and shall include all pertinent evidence such as the bidder's file copy
of the bid, the original work sheets and other data used in preparing
the bid, subcontractor's quotations, if any, published price lists, and
any other evidence that establishes the existence of the error, the
manner in which it occurred, and the bid actually intended.

48 C.F.R. § 14.406-3(g)(2). Nothing in the regulation suggests that the Army

must accept uncorroborated statements; the regulation simply indicates that

a statement must support a request to withdraw or modify a bid.

Further, a rule stating that an uncorroborated statement is

insufficient to satisfy the clear and convincing standard of proof is not

arbitrary. The Comptroller General consistently has taken the position that

the failure to provide worksheets or other contemporaneously produced

documentation2 will result in the denial of a request for bid correction. 3

2
In finding that the Army required bid work papers, the
district court overstated the requirement; rather, the Army
requires only some form of evidence produced prior to, or
contemporaneous with, the bid.
3
It is for this reason that McKnight's reliance on Satellite
Services, Inc., 86-2 CPD ¶ 521, 1986 WL 64270 (CG1986), is
misplaced. In that case, the Comptroller General deferred to the
Air Force's decision to allow a bidder to modify a bid by
reallocating prices from one line to another. In contrast to the
See RJS Constructors, 94-2 CPD ¶ 130, 1994 WL 576114 (CG1994); Weather Data

Services, Inc., 91-1 CPD ¶ 185, 1991 WL 73029 (CG1991); Apache Enterprises,

Inc., 94-1 CPD ¶ 270, 1994 WL 148261 (CG1994); Fortec Constructors, 81-2 CPD

¶ 264, 1981 WL 23319 (CG1981). Such a rule makes sense:

To permit bidders to cure the nonresponsiveness of their bids merely on
the basis of general, unsubstantiated allegations of inadvertent error
would open the competitive bidding system to the possibility of
manipulation. For example, a bidder could submit a flagrantly
nonresponsive bid and then, depending on the outcome of the bidding
results, seek to cure the nonresponsiveness as the bidder's interest so
dictated.

Bill Strong Enters., Inc., 86-2 CPD ¶ 173, 1986 WL 63835 at *2 (CG1986).

Given the Army's strong interest in protecting the integrity of the

bidding process, a policy requiring more than a contractor's post-bid

statement is not irrational. Unfortunately, some honest contractors may lose

contracts because of minor errors on their part; this does not, however,

render the Army's rule arbitrary. Because the Army has provided a coherent

and reasonable explanation for its refusal to permit McKnight to correct its

bid, its decision is sustained. See Choctaw Manufacturing Co., 761 F.2d at

616.

B.

McKnight argues that even if we affirm the Army's refusal to permit

McKnight to correct its bid, we should affirm the district court on the

ground that the original bid was not materially unbalanced. As discussed

above, a mathematically unbalanced bid is materially unbalanced when it will

result in advance payments to the contractor.

The Army asserts that under procurement regulations specifically

incorporated in the invitation for bids, the value of the work would be

situation here, however, the bidder presented the Air Force with
work papers that supported its position.
defined by the terms of the bid that the Army accepted. See 48 C.F.R. §

52.232-5; ACC Constr. Co., 93-1 CPD ¶ 142, 1993 WL 49266 (CG1993).

Accordingly, the Army concluded that if the original bid were used, McKnight

was "highly likely" to receive advance payment because "[t]he bid items with

the exceptionally high prices must be done early on in the project whereas

the work which will be performed at the latter stages of the project is

priced ridiculously low."

McKnight disagrees with this determination, contending that its bid, as

originally submitted, would not have entailed advance payments because "all

progress payments would be made from the actual work in place."4 McKnight

provides no authority or evidence in support of this claim; rather, it

merely asserts that the Army was wrong. We cannot, therefore, say that the

Army's rejection of McKnight's bid as nonresponsive was either arbitrary,

capricious, or an abuse of discretion.

The judgment of the district court is REVERSED, and we REMAND this case

with instructions to the district court to enter judgment for appellants.

4
McKnight also argues that it would be precluded from
receiving advance payments because of representations made in the
course of its appeal of the original rejection of its bid. These
representations are irrelevant here; the question is whether the
bid was responsive when made.