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SEE RAP 10.4(h).
Court of Appeals Division II
State of Washington
Opinion Information Sheet

Docket Number:
Title of Case:
File Date:

32320-6-II
Public Communications Services, Inc., Appellant
v. Dept. of Corrections, et al., Respondents
06/10/2005

SOURCE OF APPEAL
---------------Appeal from Superior Court of Thurston County
Docket No:
04-2-01884-3
Judgment or order under review
Date filed:
09/24/2004
Judge signing: Hon. Christine a Pomeroy

JUDGES
-----Authored by Marywave Van Deren
Concurring: Elaine Houghton
J Dean Morgan

COUNSEL OF RECORD
----------------Counsel for Appellant(s)
Barbara J. Kastama
Corr Cronin Michelson Baumgardner & Pree
1001 4th Ave Ste 3900
Seattle, WA 98154-1051
Guy Paul Michelson
Corr Cronin Michelson Baumgardner & Pree
1001 4th Ave Ste 3900
Seattle, WA 98154-1051
Counsel for Respondent(s)
Peter William Berney
Attorney Generals Ofc/CJ Division
PO Box 40116
Olympia, WA 98504-0116
Suzanne J. Shaw

Ofc of The Aty Gen
905 Plum St Bldg 3
PO Box 40108
Olympia, WA 98504-0108

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION

II

PACIFIC COMMUNICATIONS
SERVICES, INC., a California
corporation,

No.

32320-6-II

Appellant,
v.
DEPARTMENT OF CORRECTIONS,
STATE OF WASHINGTON; DEPARTMENT
OF INFORMATION SERVICES, STATE
OF WASHINGTON,

UNPUBLISHED OPINION

Respondents.
VAN DEREN, J.
The Department of Corrections (DOC) issued a
request
for proposals (RFP) on a public works contract for telephone services
for
DOC inmates. DOC selected a proposal by Public Communications
Services,
Inc. (PCS) but informed PCS and all other bidders that the final
award was
subject to execution of a mutually agreeable contract. Before a
contract
was signed, DOC rescinded the RFP when it concluded that it lacked
the
delegated authority to issue the RFP. After DOC refused to
reconsider its
decision, PCS filed suit to enjoin reissuance of the RFP and to
compel DOC
to award it the contract. The superior court denied PCS's request
for
injunctive relief and it appeals. Because the RFP notified all
bidders
that DOC could rescind the RFP before a contract was executed, and
because
there is no evidence that DOC's decision to rescind was the result of
fraud
or manifest error, we affirm.
FACTS
In March 2004, DOC issued RFP 6184 to solicit bids for the
implementation and operation of a new inmate telecommunications
system at
each of DOC's correctional and work-release facilities. The current
inmate
telecommunications system had been operated by American Telephone and

Telegraph Co. (AT&T) since 1991. The RFP's goal was a system that
charged
prisoners the lowest possible rates and ensured that DOC received
commissions sufficient to fund its institutional welfare betterment
account. The RFP also contained the following reservation of rights:
{DOC} reserves the right at its sole discretion to reject any
proposal for
any reason whatsoever prior to the execution of a contract with no
penalty
to {DOC} or the state. This RFP does not obligate {DOC} or the state
of
Washington to award a contract as a result of this RFP.
1 Clerk's Papers (CP) at 50. In addition, the RFP identified the
coordinator and administrator at DOC who were to be the sole point of
contact for the RFP. The RFP specified that communications regarding
RFP
6184 directed to parties other than the identified contact persons
'may
result in the disqualification of the vendor.' 1 CP at 39.
DOC notified PCS by letter dated June 4, 2004, that it had been
selected as 'the apparent successful vendor.' 1 CP at 64. The
letter
specified that the '{f}inal award is contingent {on} your firm {sic}
signing a mutually agreeable contract for services.' 1 CP at 64.
Contract
negotiations between PCS and DOC began almost immediately thereafter.
On June 8 and 10, 2004, DOC informed PCS that several
unsuccessful
bidders had submitted requests to view PCS's winning proposal. DOC
stated:
They are allowed to request disclosure and we are required to allow
them to
view your proposal. Is there anything in your proposal that PCS
would
consider proprietary or that PCS has reason to not want disclosed to
the
requesting parties? RCW 42.17.330 is the statute that addresses your
rights in this matter. I have attached a copy for your information.
Please read the statute to be fully familiar with your rights. If
you plan
to enjoin disclosure, you must contact me within 7 business days.
2 CP at 207. PCS informed DOC that it did not object to disclosure
of its
proposal because '{f}rankly that style of business is just not our
style.'
2 CP at 205.
On June 10, 2004, DOC received a letter from AT&T protesting the
selection of PCS's proposal. AT&T maintained that DOC had used a
flawed
methodology to assess all bids and that its bid best met the RFP
requirements. On June 27, 2004, AT&T forwarded a copy of its protest
to
the Department of Information Services (DIS) and included a cover
letter
summarizing its position. The cover letter did not request any

specific
action from DIS but did state, '{i}f you can be of help to us we
would be
most grateful.' 1 CP at 73.
On July 27, 2004, DOC informed PCS by letter that it was
canceling the
RFP. DOC stated that after it selected PCS's proposal, DIS had
informed it
that the subject matter of the RFP 'fell under the exclusive
authority' of
DIS. 1 CP at 77. It was DOC and DIS's position that the RFP had to
be
cancelled because DOC did not have the delegated authority to issue
it.
The letter informed PCS that a new RFP would be issued shortly
thereafter.
After DOC refused to reconsider its decision,1 PCS sued in
superior
court against DOC and DIS (collectively 'the Departments'). PCS
sought to
permanently enjoin the Departments
from reissuing the RFP and to compel award of the contract to PCS.
The
superior court denied PCS's requests for relief. The court concluded
that
PCS had no legal rights under RFP 6184 because the RFP specified that
it
could be rescinded by DOC before contract formation. The court also
concluded that PCS could not show harm from the reissuance of the RFP
because any harm that resulted was due to PCS's acquiescence in the
public
release of its proposal. This appeal followed.2
ANALYSIS
I. RFP'S Reservation of Rights
RFP 6184 stated in bold and conspicuous type that (1) the RFP
did not
obligate DOC or the State to award a contract, and (2) DOC had the
right to
reject any proposal for any reason whatsoever before executing a
contract.
According to PCS, this reservation of rights is ineffective. PCS
maintains
that absent a 'material irregularity' in the RFP bidding process, the
RFP
could not be rescinded once PCS was chosen as the 'apparent
successful
vendor.' The Departments maintain that while the reservation of
rights did
not grant DOC unbridled discretion to rescind the RFP after PCS was
selected, its decision to rescind can be reviewed only for fraud or
manifest error. We agree with the Departments.
The goals of RFP 6184 to obtain an inexpensive
telecommunications
system for prisoners and sufficient commissions to DOC accorded with
the
primary goal of public bidding: '{T}o benefit the taxpayers by
procuring

the best work or material at the lowest price practicable.'
Equitable
Shipyards, Inc. v. State, 93 Wn.2d 465, 473, 611 P.2d 396 (1980); see
also
Dick Enters., Inc. v. King County, 83 Wn. App. 566, 569, 922 P.2d 184
(1996) ('Competitive bidding statutes exist to protect the public
purse
from the high costs of official fraud or collusion.'). This
objective
generally takes precedence over another aim of public bidding, which
is to
ensure a fair forum for those interested in undertaking public
projects.
Peerless Food Prods. v. State, 119 Wn.2d 584, 591, 596-97, 835 P.2d
1012
(1992) (bidder wrongfully denied contract not entitled to damages;
disappointed bidder's only remedy is to seek injunctive relief); Dick
Enters., 83 Wn. App. at 569.
But while lowering the price of governmental works generally
takes
priority over ensuring the fairness of public bidding, these two
interests
may intersect. '{A} fair forum for bidders is an important concern
as it
encourages larger numbers of competitors to bid and lowers costs to
the
public.' Dick Enters., 83 Wn. App. at 571. In accordance with this
principle, a municipality cannot accept a bid that, while otherwise
in the
public's best interests, resulted from a material irregularity in the
bidding process. Land Constr. Co. v. Snohomish County, 40 Wn. App.
480,
482, 698 P.2d 1120 (1985). A material irregularity is one which
gives a
bidder a substantial advantage or benefit not enjoyed by other
bidders.
Compare Gostovich v. City of West Richland, 75 Wn.2d 583, 587-88, 452
P.2d
737 (1969) (no material irregularity where the lowest bid was
postmarked
before the bid deadline but was received two days late), with Cornell
Pump
Co. v. City of Bellingham, 123 Wn. App. 226, 232, 235, 98 P.3d 84
(2004)
(improper to allow the lowest bidder to amend its proposal after the
deadline to correct a nonconforming material term; otherwise, the
lowest
bidder could choose not to remedy the nonconforming terms if it
discovered
that its bid was too low).
In contrast to the material-irregularity standard, our Supreme
Court
has applied a 'fraud or manifest error' standard when an agency,
before
forming a contract, seeks to reject the lowest bid submitted and
reissue
the bid request. In Bellingham American Publishing Co. v. Bellingham

Publishing Co., 145 Wash. 25, 258 P. 836 (1927), a city sought bids
for the
lowest advertising rate but reserved the right to reject any and all
bids.
Bellingham American had the lowest rate in two successive rounds but,
each
time, the city chose to reject all bids and call for new ones. The
record
reflected that the city did not want Bellingham American to get the
contract. After Bellingham American lost the third round and,
therefore,
the contract, it sued alleging that it was entitled to the contract
after
both the first and second rounds. The Supreme Court disagreed:
It is, indeed, asserted that the defendant rejected the
plaintiffs'
bid 'without cause, arbitrarily and capriciously, through favoritism
and
bias.' But, if the defendant has the absolute right to reject any
and all
bids, no cause of action would arise to plaintiffs because of the
motive
which led to the rejection of their bid. The right to reject the
bids was
unconditional. Defendant was entitled to exercise that right for any
cause
it might deem satisfactory, or even without any assignable cause.
Whatever
its rules or practice as to the acceptance of bids may have been,
plaintiffs' rights cannot be justly held to be greater than those
conferred
by the published advertisement on which their bid was made. That
advertisement was not an offer of a contract, but an offer to receive
proposals for a contract.
Bellingham Am. Pub., 145 Wash. at 29 (quoting Anderson v. Bd., Etc.,
of
Pub. Sch., 122 Mo. 61, 27 S.W. 610, 612 (Mo. 1894)). The court
prefaced
its holding by maintaining that an injunction could be sought if,
'through
fraud or manifest error not within the discretion confided to them,'
the
government proceeds to make a contract that will 'illegally cast upon
taxpayers a substantially larger burden of expense than is
necessary.'
Bellingham Am. Pub., 145 Wash. at 29 (quoting Times Pub. Co. v. City
of
Everett, 9 Wash. 518, 522, 37 P. 695 (1894)).
The court reaffirmed the principles of Bellingham American
Publishing
in Mottner v. Town of Mercer Island, 75 Wn.2d 575, 579-80, 452 P.2d
750
(1969). And in Peerless Food Products, the court again reaffirmed
its
holding that a reservation of rights, like that contained in RFP
6184,

would be honored:
It is the acceptance, and not the tender, of a bid for public
work
which constitutes the contract, and it follows, therefore, that the
mere
submission of the lowest bid in answer to an advertisement for bids
for
public work cannot be the foundation of an action for damages based
upon
the refusal or failure of public authorities to accept such bid, and
this
is true although a statute requires the contract to be let to the
lowest
bidder, where the advertisement reserves the right to reject any and
all
bids.
119 Wn.2d at 592-93 (quoting 64 Am. Jur. 2d Public Works and
Contracts sec.
86 (1972)).
It is apparent from the foregoing that PCS is incorrect in its
assertion that, absent a material irregularity in the RFP bidding
process,
RFP 6184 could not be cancelled and reissued after PCS was notified
that it
was the 'apparent successful vendor.' The material-irregularity
standard
applies to determine whether an agency can consider a nonconforming
bid;
this standard has never applied to override elementary contract
principles.3
PCS's designation as the 'apparent successful vendor' did not form a
contract since RFP 6184 specified that DOC was not obligated to award
a
contract as a result of the RFP and that DOC could reject PCS's
proposal
'prior to the execution of a contract.' See Peerless Food Prods.,
119
Wn.2d at 592-93. PCS was reminded of these terms when,
contemporaneous
with it being designated the 'apparent successful vendor,' it was
told
'{f}inal award' of the contract was contingent on PCS 'signing a
mutually
agreeable contract for services.' 1 CP at 64. PCS was bound by
these
material terms of the invitation to submit a bid. Mottner, 75 Wn.2d
at
578; Bellingham Am. Pub., 145 Wash. at 29.
To enjoin DOC from canceling RFP 6184, PCS thus had to prove
that the
decision to cancel resulted from official fraud or manifest error.
Bellingham Am. Pub., 145 Wash. at 29; see also Waremart, Inc. v.
Progressive Campaigns, Inc., 139 Wn.2d 623, 627, 989 P.2d 524 (1999)
(prerequisites for injunctive relief). The superior court implicitly
found
that DOC's action was not the result of official fraud or manifest

error
when it concluded that DOC acted lawfully in rescinding the RFP.
While the
decision whether to grant injunctive relief is generally reviewed for
an
abuse of discretion, a court's finding that there was no fraud or
manifest
error is factual and we therefore review it only for substantial
evidence
in the record. Nelson v. Nat'l Fund Raising Consultants, Inc., 64
Wn. App.
184, 188-89, 823 P.2d 1165, aff'd in part and rev'd in part, 120
Wn.2d 382
(1992).
Here, there is no evidence in the record which would support a
finding
that DOC's decision to rescind RFP 6184 resulted from fraud or
manifest
error. The only impropriety PCS cites is AT&T's decision to forward
a copy
of its DOC appeal to DIS with a request for help. PCS refers to this
contact as a 'back-door' or 'back-channel' appeal. Br. of Appellant
at 4,
21, 36. But the subject matter of AT&T's appeal was unrelated to
DOC's
stated reason for rescinding the RFP. It appears that AT&T's contact
merely alerted DIS to the existence of an RFP that DIS believed
encroached
on its exclusive authority. The record does not reflect that DOC's
decision to cancel the RFP resulted from collusion, AT&T's influence,
or
the Departments' desire to harm PCS or award the contract to AT&T.
Absent fraud or manifest error, DOC was entitled under the terms
of
RFP 6184 to rescind that RFP for any cause it might deem
satisfactory.
Bellingham Am. Pub., 145 Wash. at 29.4 It is therefore irrelevant
whether
the Departments correctly concluded that DOC had to rescind RFP 6184
because DOC lacked the authority to issue it. Moreover, we note that
PCS
has not asserted that the Departments' legal conclusion was reached
through
bad faith or without legitimate concern. Governmental action later
determined to be ultra vires can have extremely unfortunate and
costly
consequences for all parties involved. See, e.g., Chem. Bank v.
Wash. Pub.
Power Supply Sys., 99 Wn.2d 772, 666 P.2d 329 (1983).
Nonetheless, PCS asserts that an exception should be made here
because
if the RFP is rescinded and reissued, PCS will be harmed as its
competitors
now know the 'gold standard.' Br. of Appellant at 16. But PCS could
have
objected to disclosure of its proposal to the other bidders and
choose not

to object because that was PCS's 'style.' DOC recommended that PCS
review
RCW 42.17.330, which specifies that injunctive relief is proper if
disclosure 'would clearly not be in the public interest and would
substantially and irreparably damage any person, or would
substantially and
irreparably damage vital governmental functions.' PCS was also
informed
that under RCW 42.17.310, it could seek redaction of proprietary
portions
of its bid. PCS does not now argue that seeking to enjoin disclosure
would
have likely been unsuccessful.
PCS also argues that unless an exception is made in this case,
the
outcome will encourage public agencies to 'bid chisel,' i.e., the
agency
could engage in an endless cycle of RFPs, each of which were
rescinded and
reissued to see if the disclosed winning bid could be beaten. But we
are
not presented with facts to suggest that 'bid chiseling' occurred
here.5
Moreover, this argument presumes that a bidder would be unable to
prevent
disclosure of its bid.
Finally, PCS suggests that reissuing the RFP is an unduly harsh
remedy
that can be avoided by DIS simply by conforming RFP 6184 to its own
RFPissuing procedures. We have serious concerns about whether any such
action, intended only to 'save' the contract for PCS, would itself
result
in a material irregularity. Gostovich, 75 Wn.2d at 587. And more
importantly, any action taken after RFP 6184 was issued could do
nothing to
revive or breathe life into RFP 6184 if it was, as the Departments
believe,
issued ultra vires. See Leonard v. City of Seattle, 81 Wn.2d 479,
494, 503
P.2d 741 (1972).
II. Estoppel
PCS alternatively argues that DOC should be estopped from
asserting
that it does not have the authority to contract for a
telecommunications
system because it had administered such a contract with AT&T since
1991.
But PCS has waived this estoppel claim as it was not raised below.
RAP
2.5(a).
Moreover, PCS's estoppel claim would fail on the merits. An
equitable
estoppel claim is generally disfavored when asserted against the
government. Campbell v. Dep't of Soc. & Health Servs., 150 Wn.2d
881, 902,
83 P.3d 999 (2004). It requires, among other things, that the

government
act in a manner inconsistent with previous actions. Campbell, 150
Wn.2d at
902. But here, DOC's change in position was not due to some
inexplicable
inconsistency, but was based on its conclusion, whether correct or
not,
that the legislature's 2003 amendment to RCW 43.105.020 stripped DOC
of the
authority to contract for telecommunications services; that amendment
redefined the scope of DIS's exclusive authority to include
contracting
power over State 'telecommunications installation and maintenance.'
Laws
of 2003, ch. 18, sec. 2. DOC cannot be estopped from seeking to
conform
its acts to the power the legislature vested in it. See Dep't of
Ecology
v. Campbell & Gwinn, L.L.C., 146 Wn.2d 1, 20 n.10, 43 P.3d 4 (2002)
('Equitable estoppel does not apply when the acts of a governmental
body
are ultra vires and void.').
Because we determine the merits of this matter based on the
language
of the RFP, we do not determine which agency has authority to issue
the
RFP. We affirm the superior court's
decision denying PCS's request for permanent injunctive relief and
dissolve
the temporary injunction that was issued pending this decision.
A majority of the panel having determined that this opinion will
not
be printed in the Washington Appellate Reports, but will be filed for
public record pursuant to RCW 2.06.040, it is so ordered.
VAN DEREN, J.
We concur:
MORGAN, A.C.J.
HOUGHTON, J.
1 In the denial of PCS's motion to reconsider, DOC stated:
{DIS} informed {DOC} that the acquisition of telecommunication
services was
under the authority to purchase services granted the Information
Services
Board (the 'ISB'), the governing body of DIS. Under the terms of the
RFP,
the DOC reserved the right to reject any or all proposals at its sole
discretion prior to execution of a contract or to cancel or reissue
the RFP
at any time prior to award of the contract. As you are aware, final
award
was contingent upon contract execution and no contract has been
signed. It
is in the DOC's sole discretion to cancel the RFP and the DOC has
exercised

that right.
1 CP at 117 (footnotes omitted).
2 The superior court granted PCS's request for temporary injunctive
relief
precluding reissuance of the RFP while PCS sought review before this
court.
After concluding that this matter was appealable as a matter of
right, a
commissioner of this court 'extended' the superior court's injunction
pending this court's decision.
3 Indeed, the material-irregularity standard is consistent with
general
contract principles. While a bid solicitation is not an offer that
can be
'accepted' by submitting the lowest bid, Peerless Food Products, 119
Wn.2d
at 592, the requirement that a materially nonconforming bid cannot be
accepted is akin to the effect of a nonconforming acceptance of an
offer:
'{A} purported acceptance which changes the terms of the offer in any
material respect operates only as a counteroffer, and does not
consummate
the contract.' Sea-Van Invs. Assocs. v. Hamilton, 125 Wn.2d 120,
126, 881
P.2d 1035 (1994).
4 Although neither party argues that RCW 43.19.1911 applies to this
case,
we briefly explain why that statute is inapplicable here. RCW
43.19.1911
provides that in order to cancel an RFP after the bids have been
opened,
there must be a 'compelling reason.' Under RCW 43.19.1911, a
'compelling
reason' is defined as:
(a) Unavailable, inadequate, ambiguous specifications, terms,
conditions, or requirements were cited in the solicitation;
(b) Specifications, terms, conditions, or requirements have been
revised;
(c) The supplies or services being contracted for are no longer
required;
(d) The solicitation did not provide for consideration of all
factors
of cost to the agency;
(e) Bids received indicate that the needs of the agency can be
satisfied by a less expensive article differing from that for which
the
bids were invited;
(f) All otherwise acceptable bids received are at unreasonable
prices
or only one bid is received and the agency cannot determine the
reasonableness of the bid price;
(g) No responsive bid has been received from a responsible
bidder; or
(h) The bid process was not fair or equitable.
RCW 43.19.1911(4). But our Supreme Court has concluded that RCW
43.19.1911's 'mantle of protection was not intended to benefit the
unsuccessful contractor seeking a public work contract, but rather

the tax
paying public from arbitrary, capricious, fraudulent conduct on the
part of
public officials who would favor, without legitimate cause, someone
other
than the low bidder.' Peerless Food Prods., 119 Wn.2d at 596
(emphasis
omitted) (quoting Mottner, 75 Wn.2d at 578); see also A-Line Equip.
Co. v.
Lower Columbia Coll., 49 Wn. App. 217, 222-23, 741 P.2d 1057 (1987)
(statute requiring 'good cause' to rescind public solicitation
intended to
apply only in taxpayer suit). In seeking injunctive relief, PCS has
not
brought a taxpayer's suit. See Dick Enters., 83 Wn. App. at 572-73
(taxpayer's suit requires complaint to allege taxpayer's cause of
action,
that plaintiff pays taxes funding the project and plaintiff asked
state
attorney general to take action before bringing suit).
5 We also note that even if evidence of 'bid chiseling' was present,
the
appropriate action would likely be, not injunctive relief, but a
taxpayer's
suit alleging that the agency's actions did not conform with RCW
43.19.1911. See n.4.

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