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Pan-Alaska Const. v. State Dept. of Admin. (3/24/95), 892 P 2d 159
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Notice: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501; telephone (907) 264-0607, fax (907) 276-
5808.
THE SUPREME COURT OF THE STATE OF ALASKA
PAN-ALASKA CONSTRUCTION, INC.,)
) Supreme Court No. S-6082
Appellant, )
) Superior Court No.
) 3AN-92-07389 Civil
v. )
) O P I N I O N
STATE OF ALASKA, DEPARTMENT OF)
ADMINISTRATION, DIVISION OF ) [No. 4183 - March 24, 1995]
GENERAL SERVICES, )
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Joan M. Woodward, Judge.
Appearances: Brent A. Johnson, The Law
Offices of Royce & Brain, Anchorage, for
Appellant. Ross A. Kopperud and Rhonda F.
Butterfield, Assistant Attorneys General,
Anchorage, and Bruce M. Botelho, Attorney
General, Juneau, for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, Compton and Eastaugh,
Justices.
MOORE, Chief Justice.
I. INTRODUCTION
This case concerns an alleged abuse of administrative
discretion by the Department of Administration (DOA) in its
handling of a contractor's claim for reimbursement of reasonable
bid preparation costs. This is the second time that the
contractor, Pan-Alaska Construction, Inc. (Pan-Alaska), has
appealed its case to this court. See Pan-Alaska Constr., Inc. v.
State, Dep't of Admin., Mem. Op. & J. No. 537 (Alaska, February
27, 1991) (Pan-Alaska I). In Pan-Alaska I, we reversed the
superior court's denial of Pan-Alaska's claim and remanded with
instructions for the DOA to afford the contractor an
administrative hearing. Id. at 4-5.
Following the ordered hearing, the hearing officer
denied Pan-Alaska's claim, finding that Pan-Alaska had failed to
prove that the State was liable for the contractor's bid
preparation costs under former AS 44.77.010(c). Pan-Alaska
appealed, arguing that in light of the DOA's decision to
reimburse three other claimants for costs expended in preparing
bids for the same procurement, the denial of its claim violated
the corporation's right to equal protection. The superior court
affirmed the DOA's decision. We also affirm, holding that Pan-
Alaska has not proved its entitlement to bid preparation costs
under either a statutory or equal protection theory.
II. FACTS AND PROCEEDINGS
The involved history of this case spans over ten years
of administrative and legal proceedings. In late 1984, the DOA
requested that contractors submit bids to design and build the
Anchorage Office Complex (AOC), a procurement that the State had
previously cancelled twice. Five contractors submitted
proposals, including Pan-Alaska. The DOA sent a notice of award
to Dick Fischer Development No. 2, Inc. (Dick Fischer), but
terminated the project less than three months later in June 1985.
The State has since cited several reasons for cancelling the AOC
project, including a lack of legislative support and problems
with financing. Dick Fischer Dev. No. 2., Inc. v. Department of
Admin., 838 P.2d 263, 266 (Alaska 1992) (case arising out of same
cancelled procurement).
In response to the cancellation, within four months
Dick Fischer and two unsuccessful bidders other than Pan-Alaska
submitted claims to the DOA for bid preparation costs. DOA
regulations require that claims for reimbursement be submitted
within six months of the date the services were provided. AS
44.77.010(a); 2 AAC 25.010(b). Former AS 44.77.010(c)1 provided
the standard by which aggrieved bidders could recover bid
preparation costs, but required claimants to prove that their bid
proposals were rejected "wrongful[ly]" or that the bid
solicitation was cancelled in an "arbitrary and unreasonable"
manner.
After considering the three bidders' claims, DOA
Commissioner Eleanor Andrews decided to partially reimburse their
bid preparation costs not as a matter of statutory entitlement,
but rather due to "overriding policy concerns." In an October
1985 memorandum to Governor William Sheffield, she expressly
discounted any liability the DOA might have to the bidders, but
acknowledged that, in her judgment, the DOA should reimburse
their bid costs:
I have concluded that, under the
circumstances of this procurement, it is fair
and appropriate for the state to pay
reasonable bid preparation costs. The
project has a long and unfortunate history of
false starts dating well before this
administration. . . . Each procurement
prompts bidders to spend considerable time
and money toward preparation of a proposal. .
. . I believe it fundamentally unfair to ask
bidders to bear the economic burden of the
state's repeated decision to cancel the
procurement in midstream. Bidders have
repeatedly responded in good faith on AOC
procurements, and we should respond
accordingly if we expect bidders to have
confidence in subsequent procurements for
major state office facilities. . . . My
decision, in sum, is not based on a finding
of legal liability, but on independent policy
considerations.
(Emphasis added.)
A team of auditors reviewed the three contractors'
claims to assess their reasonable expenses. Due to the
complexity of the structure of each claim, by February 1986 the
Commissioner opted to extend each claimant a uniform payment of
$238,222. This amount was determined by dividing the total funds
appropriated for the AOC project by the number of bidders who had
submitted claims. Dick Fischer Dev. Co., 838 P.2d at 265.
Pan-Alaska submitted its claim for reimbursement of bid
preparation costs in April 1986, ten months after the
cancellation of the AOC project. DOA Commissioner Andrews denied
Pan-Alaska's $303,380 claim by a letter dated May 22, 1986, on
the grounds that it was submitted after the expiration of the six-
month time limitation set by DOA regulation 2 AAC 25.010(b), and
that it failed to articulate a basis for legal entitlement under
AS 44.77.010(c). The Commissioner noted that her "decision to
pay limited bid preparation expenses to the three bidder groups
who submitted timely claims has no bearing on [Pan-Alaska's]
legal entitlement to recoup bid preparation costs."
Pan-Alaska appealed the DOA's denial of its claim. In
an October letter, Commissioner Andrews granted Pan-Alaska the
opportunity to show at an administrative hearing "good cause"why
its claim for bid preparation costs should be accepted as timely.
If "good cause" could be shown, Pan-Alaska would be given a
second hearing on the merits of its claim.
At the administrative hearing in March 1987, the DOA
stipulated that Pan-Alaska had shown sufficient "good cause" to
obtain a waiver of any applicable time limitation on its claim
for bid preparation costs. The DOA formally "accepted" Pan-
Alaska's claim, but noted that the stipulation was "binding upon
the parties only as to the issue of timeliness."
Instead of proceeding to a hearing on the merits,
counsel for the DOA then denied Pan-Alaska's claim by letter. It
stated that even though Pan-Alaska's claim was regarded as
timely, the "policy decision made by former Commissioner Andrews
during the Sheffield administration to pay a portion of the bid
preparation cost of some of the bidders on the AOC"would not be
carried forward by the new administration of Governor Steven
Cowper. Moreover, it concluded that Pan-Alaska lacked any other
factual or legal basis for entitlement, and that any applicable
administrative procedures should be considered "exhausted."
Pan-Alaska filed suit against the DOA in June 1987. In
its motion for summary judgment, Pan-Alaska argued that by
reimbursing all claimants except Pan-Alaska, the DOA failed to
treat similarly situated parties alike, thereby violating the
contractor's right to equal protection under article I, section 1
of the Alaska Constitution.
The State filed a cross-motion for summary judgment,
contending that Pan-Alaska must show that the DOA cancelled the
AOC procurement arbitrarily or capriciously in order to recover
bid preparation costs under AS 47.77.010(c). Moreover, the State
asserted the defense that Commissioner Andrews' original policy
to voluntarily reimburse bidders for bid preparation costs
constituted an ultra vires act in violation of article IX,
section 13 of the Alaska Constitution.2
At oral argument, the superior court agreed with Pan-
Alaska that there was no rational basis for distinguishing
between the three bidders that received payment and Pan-Alaska,
which did not. However, the court granted summary judgment in
favor of the State, on the basis that the Commissioner's original
policy to repay costs was beyond the scope of statutory
authority, and therefore, the court was powerless to order the
continuation of "unlawful acts."
Pan-Alaska appealed the decision to this court. In Pan-
Alaska I, we reversed and remanded, ruling that the DOA had
improperly reneged on its promise to provide Pan-Alaska a hearing
on the merits of its claim. Mem. Op. & J. No. 537 at 4-5. In
doing so, we declined to reach the substance of Pan-Alaska's
claim until the contractor had an opportunity to exhaust its
administrative remedies. Finally, we noted that even if there
were no statutory authority for the DOA to pay Pan-Alaska's bid
costs, Pan-Alaska had the right to attempt to obtain a judgment
and present it to the Alaska Legislature for possible payment.
Id. at 5.
On remand, and following the ordered hearing, the
hearing officer reviewed the evidence and concluded that Pan-
Alaska failed to meet its twofold burden under former AS
44.77.010(c): (1) that the State acted arbitrarily or
capriciously in cancelling the procurement, and (2) that the
amount requested be substantiated by supporting documentation.
In its subsequent appeal to the superior court, Pan-
Alaska reasserted its contention that the DOA violated its right
to equal protection. The court affirmed the hearing officer's
determination that Pan-Alaska failed to present substantial
evidence of its statutory entitlement to bid preparation
expenses. In addition, the court refused to address Pan-Alaska's
equal protection argument. In the superior court's view, our
decision to remand Pan-Alaska's claim for a full administrative
hearing implied that we found the contractor's equal protection
argument had no merit.
Pan-Alaska appeals the lower court's decision affirming
the DOA's denial of its claim for reasonable bid preparation
costs. We now consider the merits of Pan-Alaska's claim for the
first time.
III. DISCUSSION
A. Equal Protection
Pan-Alaska contends that when the DOA excluded it from
the policy to partially reimburse contractors for their
reasonable bid preparation costs, the DOA denied Pan-Alaska its
right to equal protection under the Alaska Constitution. Alaska
Const. art I, 1.3 Specifically, Pan-Alaska argues that despite
the fact that its economic interest in this case is traditionally
entitled to the lowest level of judicial scrutiny, under Alaska
law, cost savings alone is not sufficient to justify
discrimination by the government. Herrick's Aero-Auto-Aqua
Repair Serv. v. State, Dep't of Transp. & Pub. Facilities, 754
P.2d 1111, 1114 (Alaska 1988) (in the absence of a legitimate,
independent distinction, cost savings alone do not justify
selective enforcement of state regulations).
We apply a sliding scale approach to equal protection
questions arising under the Alaska Constitution. State v.
Ostrosky, 667 P.2d 1184, 1192-93 (Alaska 1983). Under this
method, "[a]s the right asserted becomes 'more fundamental' or
the classification scheme employed becomes 'more constitutionally
suspect,' the challenged law 'is subjected to more rigorous
scrutiny at a more elevated position on our sliding scale.'"
State, Dep't of Revenue v. Cosio, 858 P.2d 621, 629 (Alaska 1993)
(quoting Ostrosky, 667 P.2d at 1193).
Although economic and commercial interests
traditionally result in minimal scrutiny under our state equal
protection analysis, Alaska's approach is more protective of
individual rights than that employed in the federal courts.
State v. Anthony, 810 P.2d 155, 157 (Alaska 1991). Even under
the lowest form of judicial scrutiny, the means chosen must bear
a "fair and substantial" relation to the attainment of a
legitimate government objective. Cosio, 858 P.2d at 629.
The DOA's objectives in dealing with the failed AOC
procurement were legitimate. In order to maintain goodwill with
the construction industry, the DOA chose to equitably distribute
funds otherwise appropriated for the AOC to contractors who had
in good faith responded to the cancelled procurement. It was
within the DOA's discretion to plan to divide the available funds
equally among all deserving claimants. Because the bid cost
reimbursement would deplete a fixed pool of funds, however, the
DOA needed to know with reasonable promptness the total number of
contractors pursuing valid claims. The DOA therefore had a sound
administrative interest in setting a deadline beyond which the
policy would be unavailable as a means of recovery.
The DOA's ultimate refusal to extend the reimbursement
policy to Pan-Alaska's claim bore a "fair and substantial
relation" to the DOA's goals. First, Pan-Alaska submitted its
claim for bid costs much later than the contractors who
successfully recouped their expenses. In October 1985, when
Commissioner Andrews formulated the DOA policy to reimburse
claimants for reasonable costs expended in preparing bids for the
AOC project, three bidders had already submitted formal claims.
Pan-Alaska was not among them. For reasons of its own, the
contractor did not submit its claim for reasonable bid costs for
another seven months.
By the time Pan-Alaska did submit its claim for
reasonable bid costs, the six-month time limitation imposed by
state regulation upon the submission of reimbursement claims had
long since passed. 2 AAC 25.010(b). Although the six-month
period would have ordinarily applied to claims proceeding on a
theory of statutory liability such as under former AS
44.77.010(c), it was reasonable for the DOA to use the same
timeframe as a benchmark deadline for claims proceeding under the
State's limited voluntary reimbursement policy. Under this
approach, the window of opportunity for all claims became closed
on a uniform date. Because Pan-Alaska clearly missed this six-
month deadline, we conclude that Pan-Alaska's delay in submitting
its claim supplied a reasonable ground for different treatment by
the DOA.
Pan-Alaska places great significance on the March 1987
stipulation in which the DOA formally "accepted" Pan-Alaska's
claim as timely. The contractor implies that because the agency
agreed to consider the merits of Pan-Alaska's claim, the DOA
cannot rely upon the contractor's status as a latecomer as the
basis for excluding it from the reimbursement policy. We
disagree with this interpretation of the stipulation.
When the DOA accepted Pan-Alaska's claim as timely, the
agency waived only whatever limitations defense it had in 2 AAC
25.010(b). In doing so, the DOA did not alter its position that
Pan-Alaska was not entitled to bid costs under Commissioner
Andrews' October 1985 policy. Rather, the DOA afforded Pan-
Alaska an opportunity where it had none, to prove its entitlement
to bid preparation costs by merit under former AS 44.77.010(c).
At that late date, restricting Pan-Alaska to showing its
entitlement to bid costs under statute was more than reasonable.
Pan-Alaska's claim was submitted well beyond the usual six-month
time limitation, and the funds which had been made available by
the DOA under its earlier voluntary reimbursement policy had
already been disbursed.
In its handling of the contractor's claim for
reasonable bid preparation costs, the DOA treated Pan-Alaska
fairly and provided it the same opportunity as it did the other
AOC bidders. Based upon the foregoing analysis, we conclude that
the DOA's decision to exclude Pan-Alaska from the State's bid
cost reimbursement policy survives the minimal scrutiny test
required by the Alaska Constitution.
B. Statutory Entitlement
Except in the exceedingly rare circumstances where an
agency opts to voluntarily reimburse claimants for reasonable bid
preparation costs, the standard manner by which a contractor can
recover bid preparation costs from the State is by way of
statutory authority. Before its repeal in 1986, AS 44.77.010(c)
allowed individuals to make a claim against the state government
for "wrongful rejection of a bid proposal or for an arbitrary or
unreasonable cancellation of a bid solicitation." This is the
standard that applies to Pan-Alaska's claim.
On remand, the administrative hearing officer framed
the issues as follows: whether Pan-Alaska could prove by a
preponderance of the evidence (1) that the State acted
arbitrarily or capriciously in cancelling the award of the AOC
contract; and (2) that the bid preparation costs Pan-Alaska
claimed represented actual costs incurred. The State argues that
Pan-Alaska put forth very little evidence to support either of
these propositions, and as such, we should uphold the hearing
officer's denial of the contractor's claim. In State, Alcoholic
Beverage Control Board v. Decker, 700 P.2d 483 (Alaska 1985),
this court held that "we have consistently adhered to the
substantial evidence on the whole record test . . . for reviewing
administrative fact findings in quasi-judicial proceedings
subject to the APA." Id. at 486.
According to the administrative hearing officer, Pan-
Alaska devoted "little time"to its task of showing that the
State cancelled the AOC project in an arbitrary or unreasonable
manner. On the other hand, the State offered the testimony of
former Assistant Attorney General John Rubini, who presented
several justifications for the State's decision. Among these
were financing problems and a lack of support from the Alaska
Legislature.
The hearing officer's ultimate decision that the State
was justified in cancelling the AOC procurement was further
bolstered by this court's decision handed down less than two
months later in Dick Fischer Development No. 2, Inc. v.
Department of Administration, 838 P.2d 263 (Alaska 1992). Dick
Fischer, the successful bidder in the AOC procurement, sued the
DOA for breach of contract, lost profits, and full bid
preparation costs after the State cancelled the AOC construction
project. Id. at 265. We denied the contractor's claim for full
bid preparation costs, holding that of the State's three reasons
for terminating the project, lack of legislative support,
financing problems, and impropriety surrounding the bidding
process, "any of these reasons [would] be enough to justify the
State's cancellation of the project."4 Id. at 266.
As to its second obligation, Pan-Alaska did supply
documents to support the amount claimed as its bid preparation
costs. However, with the exception of one $200 expense, an
expert witness for the State testified that Pan-Alaska's
documentation was insufficient to render the costs reimbursable.
Although the State provided Pan-Alaska with guidance on how to
substantiate its claim, the contractor's documentation failed to
verify the exact nature, purpose, and relevance for each expense.
The hearing officer apparently placed significant weight on the
expert's testimony that the series of credit card slips and
invoices presented by Pan-Alaska lacked the level of reliability
required by the DOA under the Federal Acquisition Regulations and
Generally Accepted Accounting Principles.
On appeal, Pan-Alaska argues that its financial
documents were subjected to greater scrutiny than those of any
other claimant requesting costs following the cancellation of the
AOC project. This complaint lacks merit. The State's expert
testified that he personally participated in the audit of the
three successful AOC claimants when the DOA chose to voluntarily
reimburse reasonable bid costs. He explained that not only were
Generally Accepted Accounting Principles used to assess the other
claimants' records, but also that if Pan-Alaska had presented its
claim contemporaneously with the others, Pan-Alaska's
documentation still would have been deemed insufficient.
The superior court correctly ruled on appeal that
"[t]here is more than substantial evidence in the record to
support [the hearing officer's] determination." Because we
conclude that Pan-Alaska failed to show that the State cancelled
the AOC bid solicitation arbitrarily or unreasonably and
otherwise failed to adequately substantiate its claimed costs, we
also defer to the agency's conclusion that Pan-Alaska failed to
establish its entitlement to recoup bid preparation costs under
state statute.
IV. CONCLUSION
Pan-Alaska has not satisfactorily demonstrated its
entitlement to reasonable bid preparation costs from the DOA
under either an equal protection or statutory theory. For this
reason, the judgment of the trial court affirming the decision of
the hearing officer is AFFIRMED.
_______________________________
1 AS 44.77.010(c) was repealed in 1986. See Ch. 106,
67, SLA 1986.
2 Article IX, section 13 commands that "[n]o money shall
be withdrawn from the treasury except in accordance with
appropriations made by law,"and that "[n]o obligation for
payment of money shall be incurred except as authorized by law."
3 Under article I, section 1 of the Alaska Constitution,
"all persons are equal and entitled to equal rights,
opportunities, and protection under the law." Corporations that
have received permission to do business within Alaska are
entitled to equal treatment under this clause. Lynden Transport,
Inc. v. State, 532 P.2d 700, 706 (Alaska 1975).
4 Interestingly, we also required Dick Fischer to disgorge
the $238,222 it received under Commissioner Andrews' policy to
partially reimburse aggrieved AOC claimants. Id. at 268. We
held that because Fischer did not provide consideration for the
DOA's promise to pay bid costs, no enforceable contract was
created between the contractor and the State. Id.
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