Engineering firm’s exposure to liability to low bidder that did not receive the award of contract. John Rocchio Corp. v. Pare Engineering. Supreme Court of Rhode Island (2019), by Hugh Anderson

Summary: The Warwick Sewer Authority (WSA) retained Pare Engineering Corporation to design a sewer infrastructure expansion project and assist WSA in soliciting bids from construction contractors. Ultimately five contractors bid on the work. John Rocchio Corporation was the low bidder, at $2.32 million. The next low was $2.47 million.

In a memorandum to WSA after the bids had been received, Pare noted that Rocchio and one other bidder had failed to submit required EPA forms. Pare stated that “it appears that [Rocchio] should be disqualified, at the discretion of WSA” for failing to include the EPA forms with the bid. Pare also commented that based on references, interviews, and Pare’s knowledge, Pare was not aware of any other reason to not award the contract to either Rocchio or the next low bidder.

After the bids had been submitted, representatives of Rocchio met with WSA to ask that the failure to submit the EPA forms be disregarded, and gave WSA the completed forms.

Rocchio had previously worked for WSA, and the authority’s executive director recalled that the previous projects had been marked by conflicts over change orders and additional costs—in her judgment, this adverse past experience should be a factor in rejecting Rocchio’s bid. However, when the WSA board met to decide the award of contract, the motion to award to the second low bidder was based solely on the low bidder’s failure to submit the required forms. The record indicated that the motion to award to the second low bidder was followed by a comment that if WSA was going to set requirements for bidders to follow, WSA should enforce the failure to comply.

After the award to the second low, the disappointed low bidder filed a lawsuit against Pare for interference with a prospective contractual relationship, negligence, and breach of a contractual duty to Rocchio as a third-party beneficiary of the Owner-Engineer professional service agreement. A hearing justice ruled that there was inadequate evidence of causation between Pare’s actions and the decision to not award to Rocchio, and dismissed the complaint on that basis. Rocchio appealed.

Decision: The Supreme Court of Rhode Island affirmed the hearing justice’s ruling. However, rather than basing its decision on lack of causation, the court focused on Pare’s lack of any duty to Rocchio. The court stated that under Rhode Island law, once a contractor and engineer are both under contract to an owner, they become “collaborators” on the specific project, and have interrelationships that may give rise to duties between engineer and contractor. However, during a bidding process, the engineer and the various bidders are wholly independent of one another. The court stated that it would be an absurd result for engineers to owe a duty to all possible contractors that might possibly submit a bid.

As to the third-party beneficiary argument, the Rhode Island Supreme Court explained that the owner-engineer agreement did not suggest any intent to benefit a third party, did not identify any third party to be benefited, and did not entail services that evinced a clear intent, either before or during the bidding process, to benefit anyone other than WSA.

In discussing the elements of a successful intentional interference claim, the court stated that although the interference must be intentional, it does not need to be based on “actual malice”—rather, mere “legal malice,” defined as an intent to do harm without justification, will be sufficient. However, the record before the court did not contain any evidence of legal malice—Pare was acting in good faith with respect to Rocchio and the other bidders. Therefore, the intentional interference claim could not be sustained.

Comment: The EJCDC professional services and construction contract documents expressly protect the Engineer when making decisions and recommendations to the Owner. The EJCDC professional services agreements also disavow any third-party beneficiaries.
The recommendation by Pare to WSA was carefully stated and limited to the undisputed failure of the low bidder to submit the required form. The owner’s executive director, not Pare, raised potentially more contentious issues about the low bidder’s past performance. The owner wisely “walked back” those issues in its formal determination of award, focusing on the forms and not basing the decision on grievances over past projects.

There is an extensive body of law concerning bid errors, lapses, and procedures, and the fundamental concept of whether a bid is responsive to the owner’s solicitation. Some lapses may be disregarded without harm to the integrity of the bidding process; others are more serious and if ignored can give an unfair advantage to one bidder over another. Careful drafting of the instructions to bidders is important, and as the owner in this case recognized, enforcing the rules that have been established is usually the best practice, even when it means paying a higher contract price.

The “collaboration” doctrine that the court mentioned is not a mainstream theory. EJCDC promotes the more conventional view that the framework and content of thecontracts should determine the duties of the project participants. The fact that both the Engineer and the Contractor have contracts with the same entity—the Owner—and are working on the same project should not of itself establish duties between Engineer and Contractor.