Opinion
No. 266.
Argued September 5, 1973. —
Decided October 2, 1973.
APPEAL from an order of the circuit court for Dane county: NORRIS E. MALONEY, Circuit Judge. Affirmed.
For the appellant there was a brief by Bernstein, Weasel Lewis and Elliot M. Bernstein, all of Milwaukee, and oral argument by John H. Wessel.
For the respondents there was a brief by Robert W. Warren, attorney general, and Betty R. Brown, assistant attorney general, attorneys for respondents Joe E. Nusbaum, state secretary of administration, John E. Short, state director of the bureau of purchases and services, and R.L. Farnsworth, University of Wisconsin purchasing administrator; and Isaksen, Werner, Lathrop Heaney, of Madison, attorneys for respondent ITT Canteen Corporation; and oral argument by Ms. Brown for respondents Joe E. Nusbaum, John E. Short and R.L. Farnsworth, and Donald L. Heaney for respondent ITT Canteen Corporation.
Facts.
This is an appeal from a trial court order sustaining a demurrer to appellant's amended complaint without leave to plead over. The action was brought by Automatic Merchandising Corporation, a Wisconsin corporation, against Joe E. Nusbaum, state secretary of administration; John E. Short, director, state bureau of purchases and services; R.L. Farnsworth, purchasing administrator for the University of Wisconsin; and ITT Canteen Corporation, a Delaware corporation, successful bidder on the contract at issue.
On May 6, 1971, respondents advertised for bids on a contract for food vending at the Milwaukee campus of the University of Wisconsin. This advertisement was subsequently withdrawn because it contained certain ambiguities. On June 9, 1971, a second advertisement was made, with bids to be opened on June 28, 1971. The second advertisement, at issue here, provided for alternative bids for installation of entirely new equipment and for installation of new and used or rebuilt equipment. Part V.E. of the advertisement provided:
"E. The equipment will be new or 50% of equipment may be used and reconditioned with the balance to be new at the time of initial installation under the agreement, and should be of most recent design, or proven efficiency, and be of the same color when three or more machines are placed together at one location, unless otherwise approved by the lessee. The used and reconditioned option is provided for in this contract to permit commission quotation based on used equipment. This equipment may not have been in prior use longer than three full years from the effective date of this contract. After initial installation all subsequent equipment must be new per conditions mentioned above.
"All terms of this contract are binding and will also apply to used equipment. The bidder will furnish a listing of used equipment proposed for this contract to be included with the bid quotation submission. This listing shall include make, model, purchase date, condition, and location. This equipment will be inspected for acceptance by the lessee before final installation approval is given.
"Bidders quoting commissions on a used equipment basis must also indicate commissions on a new equipment basis, in order that a fair and accurate award may be made on this contract.
"The university reserves the right to accept or reject bids submitted on either new or reconditioned basis if determined by the lessee to be in the best interests of the University of Wisconsin."
In addition, commissions to be paid by the vendor were requested to be expressed as a percent of net sales on all individual products or as a composite percent for all vending on net sales.
On June 28, 1971, bids were opened. Respondent ITT Canteen Corporation bid 30 percent composite on both new and used equipment options, and also submitted a bid on individual item percentages. Appellant Automatic Merchandising Corporation bid 31.8 percent composite on the partially used equipment basis, and 24.3 percent composite on the new equipment basis. On July 23, 1971, appellant was informed that the contract had been awarded to respondent ITT Canteen Corporation because respondent state officials believed ITT's individual product percentage using new equipment yielded a weighted total commission of 30.94 percent. Appellant Automatic Merchandising Corporation was advised that it was considered a responsible bidder.
On August 9, 1971, appellant started an action against respondents alleging abuse of discretion and ultra vires acts beyond the scope of sec. 16.75 (1), Stats. The action sought to compel awarding the vending contract to appellant and sought to enjoin the state official respondents from entering into or executing the contract with ITT. On August 9, 1971, an order to show cause was issued on behalf of appellant. On August 23, 1971, appellant's application for a preliminary injunction was denied. On August 30, 1971, respondents demurred to the complaint, and the court allowed the appellant to file an amended complaint. On March 24, 1972, respondents demurred to the amended complaint. On July 8, 1972, the trial court granted respondents' demurrer and dismissed the complaint for failure to state a cause of action, without leave to plead over, the court observing that it had already allowed appellant an opportunity to amend its pleading, and that the amended complaint had added no new facts. From the order granting the demurrer and dismissing the amended complaint, appellant appeals to this court.
This action and appeal involve what is termed alternative bidding — where the advertisement for bids permits or requires the submission of bids on alternative kinds or qualities of work or materials. The bid-letter reserves the right to select one or the other of the work or materials specified, and need not select the cheaper of the two. The option is reserved to select between the alternatives presented.
See: 10 McQuillin, Municipal Corporations (3d ed.), 380, sec. 29.55.
Was this an alternative bid?
The trial court held that the bid here involved was an alternative bid, and we concur that it was. The bid request called for bids on two types of equipment — new equipment and new with reconditioned equipment included — to be judged on a common standard. Part V.E. of the bid request (set forth in the statement of facts above) made clear that there were two separate and separable bases on which the bids would be evaluated. Bidders were required to submit proposals using all-new and new-plus-used equipment. In paragraph four of Part V.E., the university specifically reserved the right "to accept or reject bids submitted on either new or reconditioned basis if determined by the lessee to be in the best interests of the University of Wisconsin." Such reservation cannot create an authority where none is granted by statute, but it indicates clearly that what was here intended and attempted was a request for alternative bids. May the state solicit alternative bids? The trial court held that alternative bidding was permitted by sec. 16.75, Stats. the statute under which the state and state university advertised for bids, and we agree that it is. Many years ago, this court interpreted city charter provisions as banning advertising for alternative bids on a street paving job. Immediately thereafter the legislature passed a law specifically authorizing municipalities to advertise for alternative bids. Subsequently, this court held the road open for municipalities to advertise for alternative bids with the choice of bid on the basis of low bid in the selected category. This sequence of events dealing with municipal powers is only marginally relevant here to the extent that the law enacted permitting municipalities to engage in alternative bidding declares or indicates a favorable public policy to this type of bidding. The question remains whether sec. 16.75 permits the state of Wisconsin to do what sec. 62.15 (8) clearly authorizes a municipality to do. The controlling statute is sec. 16.75 and it provides:" 16.75 Buy on low bid, exceptions. (1) All materials, supplies, equipment and contractual services except as otherwise provided in subs. (3) and (7), when the estimated cost exceeds $3,000, shall be purchased from the lowest responsible bidder. All orders awarded or contracts made by the department shall be awarded to the lowest responsible bidder, taking into consideration the location of the institution or agency, the quantities of the articles to be supplied, their conformity with the specifications, the purposes for which they are required and the date of delivery, but preference shall always be given to materials, supplies and provisions of Wisconsin producers, distributors, suppliers and retailers. Bids shall be received only in accordance with such standard specifications as are adopted by the department as provided in this subsection. Any or all bids may be rejected. Each bid, with the name of the bidder, shall be entered on a record, and each record with the successful bid indicated shall, after the award or letting of the contract, be opened to public inspection. Due notice inviting proposals shall be published as a class 2 notice, under ch. 985, and the bids shall not be opened until at least 7 days from the last day of publication. The official advertisement shall give a clear description of the article to be purchased, the amount of the bond or check to be submitted as surety with the bid and the date of public opening."
In holding seeking alternative bids not to be beyond the statutory authority, the trial court placed considerable reliance upon the second sentence of the quoted section — not originally a part thereof, but added thereto by ch. 592, Laws of 1955. The trial court particularly stressed the provision which allows the department to consider "the purposes for which they [the services contracted for] are required." This entire second sentence, including its reference to "the purposes" for which required, can only be read as having been added to the statute to provide the opportunity to take the various factors enumerated into consideration in determining who is the lowest responsible bidder. The exercise of discretion as to which type of vending machine would best serve the interests of the university can accurately be described as an exercise of discretion as to the purposes for which the service is required or which the type of machine is to serve. Sentence four of the statute, providing that any and all bids may be rejected, grants a wide discretion, including, we hold, the right to accept the lowest responsible bid in a particular category, and to reject the bids in an alternative category. The general rule of law is that alternative bidding on public contracts is entirely proper unless the applicable statutes otherwise provide, and awards to the lowest responsible bidder in a selected category under alternative bidding is generally held to be a proper award to the "lowest responsible bidder." Where alternative bidding is found not to be prohibited by the applicable statute, the award of the contract to the lowest bidder in the selected category has been upheld even though a bid in a rejected category might be lower. We concur in the trial court's holding that sec. 16.75, Stats., allows the state department of administration the discretion to advertise and weigh alternative bids. What constitutes an abuse of discretion?
It is to be noted that ch. 106, sec. 5, Laws of 1967, replaced the word "qualities" in the statute as enacted with the word "quantities." Respondent argues that this represented a legislative withdrawal of any discretionary authority as to the "quality" of products or services. The analysis submitted with draft of bill that accompanied the change states the intent to be ". . . to consolidate into sequence matter pertaining to the purchasing, printing, and property management functions of the Department of Administration . . ." and, as to the specific change made, stated, "To correct a typographical error. Quality, i.e., specifications, is covered in the subsequent phrase." Whatever the intent, we hold this to be the only effect or result of the change made.
See: Menzl v. Milwaukee (1966), 32 Wis.2d 266, 276, 145 N.W.2d 198.
See: 10 McQuillin, Municipal Corporations (3d ed.), pp. 379, 380, sec. 29.55. Sea also: 64 Am. Jur. 2d, Public Works and Contracts, pp. 904, 905, sec. 52; Annot. (1935), Alternation of plans or materials as necessary or proper factor in proposal for or acceptance of bids for public works, 96 A.L.R. 712.
Id.
See: L.G. DeFelice Son, Inc. v. Argraves (1955), 19 Conn. Sup. 491, 118 A.2d 626, 627; Properties Co. v. Burke (1949), Ohio St. 28, 86 N.E.2d 768; Devir v. Mayor of Malden (1931), 277 Mass. 502, 178 N.E. 617; Wester v. Belote (1931), 103 Fla. 976, 138 So. 721; Trapp v. City of Newport (1903), 115 Ky. 840, 74 S.W. 1109, 1110.
In the case before us, plaintiff did challenge both the statutory authority and the exercise of discretion in selecting new rather than new and used equipment. Paragraph 27 of the amended complaint describes the selection of the new equipment category as ". . . whimsical, capricious, arbitrary, unreasonable, discriminatory and unlawful, constituting a wrongful abuse of the discretion vested in said defendants by the statutes. . . ." Paragraph 28 continues by alleging that defendants ". . . acted beyond their jurisdictional powers and outside of the authority granted to them. . . ." It appears that plaintiff sees the choice between categories as an abuse of discretion primarily because it was ultra vires or beyond the discretions permitted by the statute. The words used are conclusions of law, rather than a setting out of essential facts for a claim of abuse of discretion. Where no more is referred to than a choice between entirely new vending machines and a combination of new and used vending equipment, the allegations fall short of alleging a flagrant abuse of discretion amounting to fraud.
Mere legal conclusions are insufficient to state a cause of action. Barrett v. Pepoon. (1963), 19 Wis.2d 360, 361, 362, 120 N.W.2d 149.
In holding that an abuse of discretion amounting to fraud was not alleged, the trial court commented that it is not unreasonable to assume that "the appearance of the machines and their reliable operation will affect that amount," and that "whether the machines are new or reconditioned will affect their appearance and reliability." Appellant attacks these statements as assuming material facts not contained in the complaint. This takes the trial court's comments beyond what he was required to say or, in point of fact, did say. Most purchasers of new automobiles would agree with the assumption that a new product has certain advantages over a used or reconditioned one. The trial court was not concerned with whether or not reconditioned vending machines are as attractive and reliable as new ones. It was only concerned with finding it not a flagrant abuse of discretion to select either category of bids over the other. The situation would be no different if the state department had elected to award the contract to the lowest responsible bidder in the new-plus-used equipment category. If the department, acting in good faith, determined that the new-plus-used equipment was in the best interests of the university, that decision would stand, as does its selection of the lowest bid in the new equipment category. This is the exact choice between alternative types or categories of products or services that alternative bidding is intended to reserve. Here the right to choose between the new equipment only and new-plus-used equipment bids was specifically reserved, and the exercise of lawful discretion in choosing between the two categories would be set aside only upon a showing of a flagrant abuse of discretion amounting to fraud. Such abuse of discretion amounting to fraud was not here alleged.
By the Court. — Order affirmed.