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Fall 2006-09 Lowest contract bid rejected for being too low

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Number 65
Fall 2006
Puerto Rico Supreme Court

Lowest contract bid rejected for being too low

Government contracts need not necessarily be awarded to the lowest bidder. In fact, in Empresas Toledo, Inc. v. Junta de Revisión y Apelación de Subastas, 2006 T.S.P.R. 138, the Supreme Court blessed the decision of the Public Buildings Authority to reject a bid because it was too low, and, thus, not viable.

Although Empresas Toledo was the lowest bidder, at $467,718, the Authority awarded a demolition contract to Gatec, Inc., who bid $749,900. The reason given was that Toledo's bid was much under the estimates that had been presented by the project's designer and the Authority itself. This cast doubts as to the feasibility of the Toledo bid, which the Authority deemed to be improbable.

Too good to be true!

The Authority's Board of Appeals agreed, concluding that the huge difference in pricing demonstrated that Toledo's bid was indeed unreal, as the work could not conceivably be performed properly for such a small sum.

Courts

The Circuit Court of Appeals disagreed, pointing out that a bid cannot be discarded simply because it is too low; that consideration of additional factors was necessary. It referred to Empresas Toledo's vast experience in demolishing structures, its financial capacity, equipment availability, adequate materials, and trained and competent employees.

On appeal, the Supreme Court sided with the Authority. There is no legal requirement that government contracts be awarded to the lowest bidder, it said. The Authority is fully empowered to reject a lower bid-absent evidence of fraud or unreasonableness-if it believes that the bid does not adequately protect its interests. No such evidence of fraud or favoritism was offered by Toledo, added the Supreme Court.


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