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Monday, June 15, 2015

Procurement controversies series -- Puerto Rico school buses

School bus company owners indicted for bid-rigging and fraud in Puerto Rico by attorneys Jennifer A. Dixon and Deirdre A. McEvoy
A federal grand jury in San Juan, Puerto Rico indicted five individuals for bid rigging and fraud conspiracies in connection with an auction for public school bus transportation contracts. The Justice Department filed a seven-count felony indictment in U.S. District Court of the District of Puerto Rico against the five school bus transportation company owners. The first count alleges that the bus owners conspired to rig bids and allocate the market for public school bus transportation services in Caguas municipality, a violation of Sherman Act § 1. Each defendant faces a maximum sentence of ten years in prison and a $1 million fine on this charge.

According to the Justice Department, the conspiracy occurred from around August 2013 until May 2015, and related to a 2013 auction to award four-year contracts for public school bus transportation. According to a statement by Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division, “The defendants are charged with depriving taxpayers, the Municipality of Caguas and the Puerto Rico Department of Education of the benefits of a competitive bidding process for school bus contracts.”

This indictment is part of an “ongoing effort to investigate and prosecute financial crimes” in the District of Puerto Rico. In particular, this is the first case resulting from an ongoing federal antitrust investigation into price fixing, bid rigging, and other anticompetitive conduct in Puerto Rico’s school bus transportation services industry.
Plus ça change ...:

According to the Spanish historian Carlos Madrid, in his book Beyond Distances (Saipan, Northern Mariana Islands Council for Humanities, 2006), there was an uncommon distress in the Marianas Islands in 1876, brought about by a combination of factors, chiefly Spain’s forcible introduction into the Islands of hundreds of political and other criminal deportees from Spain, but also typhoon and drought. The situation on Saipan had become particularly dire. 

As he tells the story
“Chamorros and Carolinians together with the deportees were facing a famine without precedent that could bring the island to catastrophe. Martín [the Saipan Spanish authority] wrote Governor Brabo [the Guam-based Governor of the Marianas] with an urgent request for provisions, since in a few days they would literally have nothing to eat. In Guam this request would have been received with great concern as resources in Agaña were also extremely limited. But the situation in Saipan was nevertheless so pressing that Governor Brabo authorized, on his account, the purchase of all the necessary rice, which was to be sent in the launch San José as soon as possible.

The obligatory legal procedures, which mandated that government requisitions had to be contracted through free and open auction, still had to be fulfilled. The gobernadorcillo of Agaña, following the custom, ordered the prominent display of the notice announcing the public auction in the busiest areas of the capital. At the same time the pregonero, or town crier, spread the news in the streets for three consecutive days. In order to save time, knowing that in the whole of the Marianas only George Johnston could provide the necessary quantities of meat from his leasehold in Tinian, the request for the purchases of barrels of cured pork was directly made to his representative Vicente Calvo. The barrels were to be sent to Saipan in the amount of a pound daily per deportee.

The conditions of the auction of palay or unthreshed rice were basically to be able to provide dry rice, free of dust and preferably from the last harvest. The minium quantity for each bid being ten cavanes, it had to be delivered to the Tribunal in Agaña within forty-eight hours. In return, it was guaranteed that the payment would take place on the day after delivery, which was an incentive to all who knew that the colonial administration was a late and often bad customer.

The auction was held in the government offices on the ground floor of the Palace, at ten o’clock in the morning of Monday, July 26, 1876. To speed up the process, bids were submitted not in writing but vocally. All the bidders must have agreed on a price among themselves before the auction, as everyone offered the same bid of two pesos per cavan. “The mention of these individuals is very significant since they undoubtedly represented a social class of means.

What was the social background of these people? How the principalía of the villages and the capital had the right to use the title “Don” was earlier discussed, but in actual fact many individuals not belong[ing] to the principalía were also referred to as “Don” or “Doña” probably because [of] their social or economic ascendancy."

Friday, June 12, 2015

How Draconian are those procurement time limits, really?

This is a question the answer to which has evolved dramatically in the last 25 years. 

The question is whether the time limit in question is determined to be “jurisdictional”. If it is, then the time limit cannot be waived or extended for any reason, and any decision made in violation of the time limit is void, an issue that can be raised at any time. The result of a decision that a time limit is jurisdictional, thus mandatory, can be drastic, as the US Supreme Court is acutely aware. “Jurisdictional rules may also result in the waste of judicial resources and may unfairly prejudice litigants.” (Henderson ex rel. Henderson v. Shinseki, 131 S. Ct. 1197 (2011).)

If a time limit is not jurisdictional, then rules of equity can apply to defer or extend or excuse missing a time limit. These rules of equity are not, however, an open barn door to endless litigation (as sometimes breathlessly claimed, notwithstanding the actual experience in the courts for the last 25 years). “Federal courts have typically extended equitable relief only sparingly.” (Irwin v. Department of Veterans Affairs, 498 US 89 (1990).) Garden variety negligence or failure to diligently pursue your own cause will not get you equity.

The two most common forms of equity seen in procedural time limit cases are equitable tolling and equitable estoppel. "While equitable tolling extends to circumstances outside both parties' control, the related doctrines of equitable estoppel and fraudulent concealment may bar a defendant from enforcing a statute of limitation when its own deception prevented a reasonably diligent plaintiff from bringing a timely claim." (Justice Sotomayor concurring, Sebelius v. Auburn Regional Medical Center, 133 S. Ct. 817 (2013).)

The Irwin decision, above, after recognizing inconsistency in its and other prior cases, and the tendency to decide the matter on an ad hoc basis, announced a “general rule”:
"Time requirements in lawsuits between private litigants are customarily subject to "equitable tolling". Once Congress has made [] a waiver [of sovereign immunity from suit], we think that making the rule of equitable tolling applicable to suits against the Government, in the same way that it is applicable to private suits, amounts to little, if any, broadening of the congressional waiver. We therefore hold that the same rebuttable presumption of equitable tolling applicable to suits against private defendants should also apply to suits against the United States."
The decision also alluded to acceptance of the extenuating notions of equitable estoppel or fraudulent concealment, as described by Justice Sotomayor, above, saying it is available “where the complainant has been induced or tricked by his adversary's misconduct into allowing the filing deadline to pass”.

In Henderson, above, the US Supreme Court analyzed the situation.
For purposes of efficiency and fairness, our legal system is replete with rules requiring that certain matters be raised at particular times. We have urged that a rule should not be referred to as jurisdictional unless it governs a court's adjudicatory capacity, that is, its subject-matter or personal jurisdiction. Other rules, even if important and mandatory, we have said, should not be given the jurisdictional brand.

Among the types of rules that should not be described as jurisdictional are what we have called "claim-processing rules." These are rules that seek to promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times. Filing deadlines are quintessential claim-processing rules.
At the federal level, the rules applicable to procurement appeals to the General Accountability Office (GAO) recognize tolling and estoppel by regulation: 4 CFR 21.2(c): “[GAO], for good cause shown, or where it determines that a protest raises issues significant to the procurement system, may consider an untimely protest.”

In aiding the analysis of a statutory regulation, such as a time limit, to determine if it is jurisdictional or a claim-processing rule, the US Supreme Court has provided a formula:
To ward off profligate use of the term ‘jurisdiction,’ we have adopted a ‘readily administrable bright line’ for determining whether to classify a statutory limitation as jurisdictional. We inquire whether Congress has ‘clearly state[d]’ that the rule is jurisdictional; absent such a clear statement, we have cautioned, ‘courts should treat the restriction as nonjurisdictional in character.’ This is not to say that Congress must incant magic words in order to speak clearly. We consider ‘context, including this Court's interpretations of similar provisions in many years past,’ as probative of whether Congress intended a particular provision to rank as jurisdictional. (Sebelius, above.)

The US Supreme Court’s inquiry “whether Congress has clearly stated the rule is jurisdictional” has probably reached its most extreme result in the recent case, United States v. Wong __ US __ (2015). The language of the Federal Tort Claim Act provides that claim against the United States "shall be forever barred" unless the claimant meets two deadlines. First, a claim must be presented to the appropriate federal agency for administrative review "within two years after (the] claim accrues." Second, if the agency denies the claim, the claimant may file suit in federal court "within six months" of the agency's denial.

The majority in Wong held, against a strident dissent, that "shall be forever barred" was not a clear expression of Congress that the time limit is intended to be jurisdictional; thus, it “conclude[d] that courts may toll both of the FTCA's limitations periods”. The Court held
“Given those harsh consequences [flowing from a finding the time limit is jurisdictional], the Government must clear a high bar to establish that a statute of limitations is jurisdictional . ... [T]raditional tools of statutory construction must plainly show that Congress imbued a procedural bar with jurisdictional consequences. ... And in applying that clear statement rule, we have made plain that most time bars are nonjurisdictional. ... Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.”
The majority found that "forever barred'' was typical of the statutory language used in the time in which the FTCA was written, and was not universally applied to "forever bar" a time limit even as thus described. [The “forever barred” language] “is mundane statute-of-limitations language, saying only what every time bar, by definition, must: that after a certain time a claim is barred.” 

Thus, a time bar does not imply jurisdiction; it simply prescribes "rules requiring that certain matters be raised at particular times".  In elaboration, the Court noted,
"The language is mandatory—"shall" be barred—but (as just noted) that is true of most such statutes, and we have consistently found it of no consequence. Too, the language might be viewed as emphatic—"forever" barred—but (again) we have often held that not to matter. What matters instead is that §2401(b) "does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts."

"This Court has often explained that Congress's separation of a filing deadline from a jurisdictional grant indicates that the time bar is not jurisdictional. So too here. Whereas §2401(b) houses the FTCA's time limitations, a different section of Title 28 confers power on federal district courts to hear FTCA claims. Nothing conditions the jurisdictional grant on the limitations periods, or otherwise links those separate provisions. Treating §2401(b)'s time bars as jurisdictional would thus disregard the structural divide built into the statute."
There are die-hards who refuse to accept the long (if a "mere" two and a half decades is long) held acknowledgement that our legal system is replete with non-jurisdictional claim-processing rules requiring that certain matters be raised at particular times, and that mindless application of such rules often causes waste of judicial resources and prejudice to innocent parties, without advancing the purpose of allowing those claims to be brought in the first place (which is what imbuing jurisdiction over claims by waiver of sovereignty is intended to do). They are not in step with the current law of the land as it has developed in the US Supreme Court.

On Guam, there is a similar last stand. See, e.g., the 2009 Decision of the Public Auditor in The Appeal of Guam Pacific Enterprises, Inc. (OPA-PA_09-003):
"The Public Auditor is required by the applicable law to strictly adhere to statutory time limits and has no discretion to consider personal circumstances or equity. Time provisions for filing an appeal are considered jurisdictional and cannot be waived. The U.S. Supreme Court held in United States v. Holpuch, 328 US 234 (1946), that a contractor's claim was "outlawed" by reason of the contractor's failure to appeal within the prescribed time."
More recently, in March of this year, the Governor of Guam, on advice of his legal counselors, vetoed a procurement reform bill (Bill 20-33) principally because of language in the bill that codified the case law noted here that the time limits are not jurisdictional. More pertinent, Guam law has kept pace with the US Supreme Court law.

In 2001 the Guam Supreme Court specifically adopted equitable tolling, in GHURA v. Dongbu, 2001 Guam 24. This case involved an insurance claim by a government agency against its carrier. The Court clearly explained the equitable rational for the doctrine, with examples clearly analogous to the protest claims process. 

In 2004, the Court applied equitable estoppel to a filing deadline, noting that the doctrine of equitable estoppel is codified in Guam law (Mobile v. Lee, 2004 Guam 24). 

In 2007, the Court applied the equities of tolling and estoppel to an administrative civil service claim made against the government (Limtiaco v. Guam Fire Department, 2007 Guam 10). 

Meanwhile, in the Guam Superior Court, two cases recognized that estoppel was applicable in procurement cases, one applying the doctrine to extend a time requirement, the other finding the facts did not justify it. (Pacific Security Alarm v. DPW, CV 0591-05, D&O, July 11, 2006 (applying tolling); and, TRC Environmental v. OPA, SP 160-07, D&O, Nov. 21, 2008 (not applying but specifically acknowledging "Limitations periods can be tolled on an equitable basis....")

It is simply quite amazing that this last decision in 2008, TRC Environmental v. OPA, was ignored by OPA in the Public Auditor's 2009 decision in the Guam Pacific Enterprises, above, adhering blindly to the hard line that "The Public Auditor is required by the applicable law to strictly adhere to statutory time limits and has no discretion to consider personal circumstances or equity."

Ai adai.

UPDATE SEPTEMBER 30, 2015

Note the following dealing with a procurement case in Ireland applying an equitable estoppel concept to extend, in legal theory anyway (based on procedural posture of the case). 

Also note that opponents of accepting equitable defenses to procurement timelines (and other administrative procedures) typically cannot help but exclaim Pandora's Box will be opened, releasing all the evils of the world. Pandora, like Eve in Abrahamic tradition, was supposedly the first woman in the world.  

Thus, Mommy's understanding hand should be kept far away and locked up from Daddy's firm fist.  According to that view.  For those of us who embrace the adoption of fair and equitable principles in the enforcement of time limits, it is worth remembering that the last little thing out of Pandora's Box was Hope.

The article was written by Peter Curran of Eversheds LLP, published on the Lexology website.

Bringing procurement challenges out of time: Pandora’s Box opened?
On 15 June 2015, the Irish High Court provided another potentially significant procurement decision in the case of Forum Connemara Ltd.-v- Galway County Local Community Development Committee.

The Court heard a preliminary application to strike out the legal proceedings on the grounds that they were commenced under an incorrect provision of the Rules of the Superior Courts and after a delay of several months. The Court’s approach to the issue of delay is particularly noteworthy.

Galway County Local Community Development Committee (the ‘Committee’), a statutory body, made a decision on 30 September 2014 to treat all of County Galway as a single lot for the purposes of a tender for a contract to distribute more than €1m of Government funds. From that date, Forum Connemara objected to both the decision itself and the manner in which it was made by a sub-group of the Committee. It argued that it made little sense for funds to be centrally distributed in Galway and that local distribution mechanisms were necessary in the west of the County, but its objections to the Committee were in vain.

Forum Connemara subsequently tendered for the contract to distribute the funds following the issue of an invitation to tender on 20 October 2014. It was notified that it was unsuccessful in March 2015, which prompted it to commence legal action in the High Court challenging the decision of 30 September 2014 to award the contract by way of a single lot.

The Committee sought to strike out the action on the ground that the statutory limitation period for challenging procurement decisions (generally 30 days) had long expired. Under Irish procurement law, procurement challenges must generally be brought within 30 days of the challenger being notified of a decision or within 30 days of the date the challenger knew or ought to have known of the infringement, although the Court has a discretion to extend this limitation period where it considers that there is ‘good reason’ to do so.

The Court accepted that this was a case in which the claim was brought well out of time. However, it considered that there were good reasons to allow the litigation to proceed.

The Court clearly had sympathy for Forum Connemara’s predicament and did not criticise it for failing to bring proceedings within 30 days of the decision on 30 September 2014. It took into account that Forum Connemara was a communitybased organisation, which had a ‘genuine fear’ of incurring significant legal costs in the High Court.

In taking a such an approach, the Court was aware that it could be accused of opening “a Pandora’s Box in which all manner of miseries will now be visited on contracting authorities in the form of challenges to their decisions”. However, it sought to distinguish the case on its facts, judging that it was unique and presenting characteristics which were unlikely to be present together in many (if any) other procurement cases. The Court pointed to the following in particular:

>There were governance issues arising in relation to the making of the decision on 30 September which the Court considered were unlikely to present in other procurement cases.
>It was alleged that Forum Connemara received assurances from central Government that the funds would be distributed on a different basis from that decided upon on 30 September, which gave rise to arguments as to legitimate expectation.
>The Court found that the case gave rise to ‘genuine public and political’ concern in Galway, to an extent which was not common in procurement cases.
>The contract concerned the disbursement of limited funds to vulnerable persons and the need for the affected public to ‘buy into’ the grant or refusal of funds was an important consideration.

All of these factors, when present together, persuaded the Court that there was good reason to allow Forum Connemara’s challenge to the decision of 30 September to proceed despite that challenge being initiated months later and only after Forum Connemara had been unsuccessful in the competition.

There is undoubtedly a balancing exercise to be conducted between the ‘need for speed’ in procurement cases and the need to protect fair procedures. In this particular case, the latter appears to have taken precedence.

The Court was at pains to explain that the circumstances of this case were ‘entirely unique’, however it does seem inevitable that the decision will be relied upon in the future by unsuccessful bidders who do not commence their procurement litigation within the standard 30 day limitation period. This will result in significant uncertainty for awarding authorities who may have previously considered they were relatively safe once the 30 day period expired.

This is an important decision in the Irish procurement context. It seems that, despite the endeavours of the Court to distinguish it on its own facts, this case is bound to lead to considerable uncertainty among awarding authorities as to when potential claims can be safely judged ‘out of time’. Pandora’s Box may well have been opened and it will be interesting to observe the extent to which disappointed bidders seek to exploit the uncertainty going forward.

Tuesday, June 2, 2015

Special needs and higher education

I'm not quite sure what it is about public universities and their yearning freedom from a scrutable contracting regime that is good enough for the rest of tax-supported government enterprise. The prior post was about plans to exempt Illinois colleges from common procurement practices of the state. Today I read of another such move afoot in Wisconsin:

UW funding cut trimmed
Lawmakers on the powerful budget committee trimmed Gov. Scott Walker’s proposed $300 million two-year funding cut to the University of Wisconsin System and introduced significant changes to faculty tenure and shared governance that will take away some power from faculty, students and staff and give more power to campus chancellors and the UW System Board of Regents, who are appointed by Walker. The proposed changes by the Joint Finance Committee also officially put an end to Walker’s proposal, supported by top System officials, to spin the system off from state control to be operated as a public authority.

The lawmakers restored at least in part two key operating flexibilities that were included in Walker’s public authority model. They’d be exempt from state oversight on purchasing and procurement once the regents develop their own rules governing them. They’d also be exempt from state rules on building projects provided the projects are funded entirely through gifts or grants.

The first proposal reminds me of a prior post about the University of Hawaii, and the second one of a post about the University of South Carolina.

The situation in Hawaii is particularly worth recalling.

UH’s procurement privilege could release $337M, May 23, 2010
The University of Hawaii system will be exempt from following the state’s public procurement code, which it has largely blamed for its backlog of deferred maintenance and capital improvement projects, under a new law that takes effect July 1.

University officials say the exemption, effective for two years, will help the 10-campus system operate more efficiently and with greater flexibility in awarding contracts for goods and services, including construction work. The university system has pointed to the existing code, which requires larger contracts to be awarded through a competitive sealed bidding process, for tying up projects and increasing costs as a result.

“This will allow the university to get construction projects started more efficiently and at a faster pace — and it has the added benefit of saving taxpayers’ money by allowing us to take advantage of current construction costs, which are coming in 30 [percent] to 40 percent lower in some cases.”

House Bill 347, which Gov. Linda Lingle signed into law May 6 as Act 82, allows the statewide public university system to come up with its own procurement process “in lieu of” the state procurement code. This was the sixth consecutive year that UH asked lawmakers for the exemption. It previously had flexibility from 1998 through 2004.
And how did that work out for them?

UH to lose procurement exemption as bill flops Apr 27, 2012

University of Hawaii Procurement Under Fire for Wasting Millions of Dollars on Fraud and Corruption March 12th, 2013
Local construction industry leaders are questioning as the University doles out a total of $622 million in contracts including $206 million for major contracts now underway, $229 million of major projects being procured and $187 million in health, safety, code and repairs and maintenance projects.

Dennis Mitsunaga, a successful and politically connected government contractor who has worked for virtually every state agency over the last 40 years, sent shock waves through his industry when he testified at a recent Senate hearing about waste, fraud and abuse that he witnessed firsthand in the University’s procurement system. Mitsunaga, a practicing structural engineer since 1969 and a general contractor since 1971, has worked on several projects including the University of Hawaii Chemistry building, the University of Hawaii Cancer Research Center, the Rainbow Baseball Stadium, and the University of Hawaii- Hilo Housing Project, Phase 1.

He focused much of his criticism on Brian Minaai, a University administrator who has overseen the capital improvement projects for all of the campuses since March 2008. “Brian’s process for selection of non-bid contracts is highly suspect. His selection committee consists of two ‘yes men’ assistants and a third member from the department involved in the project. In essence he controls two out of the three votes he himself makes each selection. He selects only friends from a pool of hundreds of qualified architects and engineers in Honolulu. An investigation will show that the consultants he selected were very small and not the best qualified for the projects he gave them,” Mitsunaga added.

Mitsunaga, who has two companies, Mitsunaga and Associates and Mitsunaga Construction, said Minaai directed him to replace his own civil engineering company on the job with Minaai’s pick, Wesley Segawa, even though Mitsunaga and Associates had applied for and was selected for the project as the civil engineer of record. Segawa charged the University another $293,260 for the civil engineering work and Mitsunaga and Associates had to add a 10 percent coordination fee of $29,326 plus General Excise tax; boosting the cost of the project by $30,000.

Minaai also directed Mitsunaga and Associates to replace Kimura International as the environmental assessment consultant with Wilson Okamoto and directed Mitsunaga and Associates to use Palekana Permitting and Planning to do the permit and processing at a cost of $23,000. “That work is usually covered by the companies involved so the $23,000 was an additional cost, plus a 10 percent coordination fee and GE Tax,” Mitsunaga said.

On another job for the University of Hawaii Cancer Research Center in Kakaako, Palekana Permitting and Planning charged $120,000 to process the permits even though the Kakaako district is currently exempt from such permitting.

Other architects and engineers have privately confirmed Mitsunaga’s claims. One claimed on average on University construction jobs, a construction management firm will charge 10 to 28 percent of the construction contract instead of 5 to 6 percent other state agencies would allow for the same service. Similar allegations were made public when the University of Hawaii agreed to pay $2.5 million to settle a lawsuit that alleged cronyism played a role in the award of a key development contract at the $120 million Cancer Research Center of Hawaii.

The University of Hawaii received a great deal of autonomy in 1999 from Legislature, including management of its own legal affairs, tuition and salaries and contracting.

But some senators said their own investigations have shown the University administration is failing in all of these areas. In addition, students have complained about tuition skyrocketing at the school, making it unaffordable for many local residents, because tuition has been increasing by 141 percent over the last 11 years.

Senate President Donna Mercado Kim proposed several bills this session that would take some of the power away from the University administration and its president, MRC Greenwood, including procurement responsibilities, and help bring what some legislators believe is excessive spending under control. However, during two recent Senate hearings, University officials opposed the plan to transfer procurement responsibilities to the state, and maintained autonomy is necessary.

The procurement bill passed the Senate Higher Education Committee this session, but was killed by Senators,