NUTS AND BOLTS OF STATE PROCUREMENT CONTRACT APPEALS, PROTESTS AND OBJECTIONS

by Andy Marker*
I. II. INTRODU CTION .................................................................................. STATE PURCHASING: A PRIMER ........................................................ A. State Purchasing and GeneralServices Act (Chapter2151 of the Texas Government Code) ................................................... B. ProcurementMethods .............................................................. C. "Best Value" Standard............................................................. III. DELEGATIONS AND ExcLusIONS FROM THE COMPTROLLER'S PURCHASING AUTHORITY ................................................................. A. Texas Department of Transportation: Bids and Contractsfor Highway Projectsand Logo Signs ........................................... B. University of Texas MD. Anderson Cancer Center................. C. The Texas Lottery Commission ................................................ TV. PROTEST PROCEDURES ......................................................................
V.

339 340 340 341 342 344 344 345 346 349

CA SES ...................................................................... 35 1

Texas Logos, L.P. v. Texas Department of Transportation et al ........................................................................................... 351 B. Texas Lottery Commission v. Scientific Games International, In c ............................................................................................ 3 55 VI. PRA CTICE TIPS ................................................................................... 358
V II. C ONCLU SION ..................................................................................... 359

A.

APPENDIX A. RULES ON PROTESTS Summary of the ProtestProcess and GuidelinesAccording to the Texas Administrative Code ................................................................ I. INTRODUCTION

360

This paper is intended as a practical how-to guide for navigating the sometimes choppy waters of state contracts, specifically how, when, why, and,
* Andy Marker is Chief of the General Counsel Section for the Texas Lottery Commission. Prior to joining the Lottery Commission, Mr. Marker served as regional counsel for a national telecommunications services provider and as an assistant city attorney for the City of Houston, where he received the Edward A. Cazares Award presented by the City Attorney for excellence and professionalism in the practice of municipal law. Mr. Marker received his law degree from South Texas College of Law in Houston and earned a bachelor's degree in journalism at The University of Texas at Austin. Mr. Marker spoke on this topic at the State Bar of Texas Twentieth-Annual Advanced Administrative Law Course in Austin, Texas, in September 2008.

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on occasion, why not, to protest the issuance of a solicitation for goods or services or to appeal the award of a state contract. II. STATE PURCHASING: A PRIMER Before examining the statutes and rules for contract protests, appeals, or objections, it is important to understand how state purchasing works. A. State Purchasingand GeneralServices Act (Chapter2151 of the Texas Government Code) General rules and procedures for state purchasing are found in chapter 2155 of the Texas Government Code. Effective September 1, 2007, as part of the reorganization of the Texas Building and Procurement Commission (TBPC), powers and duties for state purchasing were transferred from TBPC to the Texas Comptroller of Public Accounts (comptroller).' The comptroller is now responsible for acquiring "by purchase, lease, rental, or another manner all goods and services for a state agency, including a purchase that does not require a competitive bid or a spot purchase." 2 Except as otherwise provided in chapter 2155 (Purchasing: General Rules and Procedures), "a purchase of or contract for goods or services3 shall, whenever possible, be accomplished through competitive bidding.", The Texas Supreme Court addressed the purpose and intent behind competitive bidding requirements in Texas Highway Commission v. Texas Association of Steel Importers: "Competitive bidding" requires due advertisement, giving opportunity to bid, and contemplates a bidding on the same undertaking upon each of the same material items covered by the contract; upon the same thing. It requires that all bidders be placed upon the same plane of equality and that they each bid upon the same terms and conditions involved in all the items and parts of the contract, and that the proposal specify as to all bids the same or substantially similar specifications. Its purpose is to stimulate competition, prevent favoritism and secure the best work and materials at the lowest practicable price, for the best interests and benefit of the taxpayers and property owners. There can be no competitive bidding in a legal sense where the terms of the letting of the contract prevent or restrict competition, favor a contractor or materialman, or increase the cost of the work or of the 4 materials or other items going into the project.

1. 2. 3. 4.

TEx. GoV'T CODE ANN. 2151.004 (Vemon 2008). Id. 2155.061(a). Id. 2155.063. Tex. Highway Comm'n v. Tex. Ass'n of Steel Importers, 372 S.W.2d 525, 527 (Tex. 1963)

(quoting Sterrett v. Bell, 240 S.W.2d 516, 520 (Tex. Civ. App.-Dallas 1951, no writ)).

2009]

NUTS AND BOLTS B. ProcurementMethods

Below are descriptions of different procurement methods from the comptroller's State of Texas ContractManagement Guide: [The invitation for bids (IFB)] uses the competitive sealed bid method. This method is used when the requirements are clearly defined, negotiations are not necessary and price is the major determining factor for selection. Best value considerations can also be used with the IFB method .... Requests for information [(RFI)] are used primarily as a planning tool. The RFI is an optional method that may be used to gather information in order to prepare a complete and accurate solicitation document when an agency does not have the necessary information to prepare a complete and accurate solicitation document. RFIs are used to identify industry standards, best practices, potential performance measures, and cost or price structures or to generally ascertain the level of interest of prospective respondents. A preliminary solicitation document which provides an initial description of the program objectives and specifications usually accompanies an RFI for review by potential respondents. Agencies may use the information derived from the responses to finalize their solicitation document. Agencies are not required to incorporate any or all of the comments or suggestions made by the contractor, but the hope is that the contractor will provide useful information 5 in the RFI development process. A request for offer (RFO) is "used for IT Commodity Purchases exempt from the DIR IT Commodity Program. The process is generally the same as the RFP process. [RFO] purchases include the purchase of automated information systems and are covered under Texas Administrative Code, title 34, section 20.391 . A request for proposal (RFP) is used when competitive sealed bidding is not practicable or advantageous. Generally this is when factors other than price are to be considered or when objective criteria cannot be defined. One of the key differences between an IFB and an RFP is that negotiations are allowed in an RFP. Discussions are allowed with the respondents and best and fimal offers are solicited. Unless otherwise exempted, agencies must submit their RFPs to [Comptroller of 7 Public Accounts (CPA)] for review prior to solicitation. A request for qualifications (RFQ) is "generally used for professional services where the respondents are evaluated based solely on their
5. STATE OF TEXAS CONTRACT MANAGEMENT GUIDE VERSION 1.6, 18-19 available at http://www. window.state.tx.us/procurement/pub/contractguide/CMGVersion_1_6.pdf. 6. Id. 19. at 7. Id.

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qualifications. Price is not considered until after selection is made by the agency based on qualifications. ''8 The following purchasing methods are exempt from competitive bidding: Emergencies occur as the result of unforeseeable circumstances and may require an immediate response to avert an actual or potential public threat. If a situation arises in which compliance with normal procurement practice is impracticable or contrary to the public interest an emergency purchase may be warranted to prevent a hazard to life, health, safety, welfare, property or to avoid undue additional cost to the state. Agencies may have specific rules or policies pertaining to emergency purchases .... Proprietary purchases are required to comply with Texas Government
Additionally, a product or service is proprietary Code section 2155.083 ....

if it has a distinctive feature or characteristic that is not shared or provided by competing companies or similar products or services. When the specification requirement limits consideration to one manufacturer, one product, or one service provider, a written justification must be provided and is subject to review by CPA. Proprietary purchases should be placed on
CPA's Electronic State Business Daily; this provides transparency to the

process and gives the entire vendor community the ability to view the specifications and provide de facto agreement to its proprietary nature by not responding. See the State of Texas Procurement Manual for more information on Proprietary Purchases .... Potential contractors apply with an agency to contract through an open enrollment process, [resulting in open enrollment contracts]. Vendor eligibility is usually based on previously determined criteria established by state or federal statute or agency rules. The enrollment process is open to new applicants throughout the contract term.9 C. "Best Value" Standard For purchases that state agencies make under chapter 2155, state agencies must use a best value standard and purchase goods and services "that provide the best value for the state."' Best value replaced "lowest bid" in general state purchasing statutes in 1997 when the legislature added section 2155.074.1 "[T]he purchase price and whether the goods or services meet specifications are the most important considerations" in determining best value; however, state agencies may consider other relevant factors, including
8. Id. 9. Id. at 20-21; see also STATE OF TEXAS PROCUREMENT MANUAL 70-71 (1998), available at http://www.cpa.state.tx.us/procurement/pub/manual/2-2l .pdf. 10. TEX. GOV'T CODE ANN. 2155.074 (Vernon 2008). 11. See Tex. S.B. 1752, 75th Leg., R.S. (1997) (deleting "lowest and best" and inserting "offering the best value").

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(1) installation costs;

(2) life cycle costs; (3) the quality and reliability of the goods and services; (4) the delivery terms; (5) indicators of probable vendor performance under the contract such as past vendor performance, the vendor's financial resources and ability to perform, the vendor's experience or demonstrated capability and responsibility, and the vendor's ability to provide reliable maintenance agreements and support; (6) the cost of any employee training associated with a purchase; (7) the effect of a purchase on agency productivity; (8) the vendor's anticipated economic impact to the state or a subdivision of the state, including potential tax revenue and employment; and (9) other factors relevant to determining the best value for the state in the context of a particular purchase.12 For competitive procurements valued at more than $100,000, state agencies must receive the comptroller's approval before considering factors other than price and meeting specifications, 13 and, for all competitively bid purchases (regardless of value), the request for bids/proposals must specify the 4 1 best value factors. Agencies must post notices of procurements exceeding $25,000 on the Electronic State Business Daily (ESBD) website, which the comptroller maintains, 15 including procurements exempt from the comptroller's purchasing authority, purchases made under delegated purchasing authority, construction 16 projects, and procurements of professional or consulting services. "Competitive bidding, whether formal or informal, is required for a purchase by a state agency if the purchase: (1) exceeds $5,000; and (2) is made under a written contract., 17 A state agency "must attempt to obtain at least three competitive bids from [vendors] listed on the" Centralized Master Bidders List (CMBL) that the comptroller maintains. 8 The CMBL contains the names and addresses of prospective bidders and can be accessed through the 9 comptroller's website.'

12.

2155.074(b).

13.

Id.

14. Id. 2155.075; see, e.g., 2156.125(a) ("The commission or other state agency shall make a written award of a contract to the offeror whose proposal offers the best value for the state, considering price, past vendor performance, vendor experience or demonstrated capability, and the evaluation factors in the request for proposals."). 15. See ELECTRONIC STATE BusINEss DAILY, http://esbd.cpa.state.tx.us (last visited May 11, 2009).

16.
17. 18.

2155.083.
Id. 2155.132(e). Id. 2155.132(h)(1).

19. See CENTRALIZED MASTER BIDDERS LIST, http. /www.window.state.tx.us/procurement/cmbVcmbl hub.html (last visited May 11, 2009).

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DELEGATIONS AND EXCLUSIONS FROM THE COMPTROLLER'S

PURCHASING AUTHORITY The comptroller may delegate purchasing authority to a state agency.2 For example, the comptroller has delegated procurement authority to the Health and Human Services Commission, except for purchases of common commodities or services. 21 Health and human services agencies "shall acquire goods or services by any procurement method approved by the Health and Human Services Commission that provides the best value to the agency"
considering all relevant factors.2 2

The comptroller also has delegated authority to make certain purchases to the Texas Commission on Environmental Quality (TCEQ),23 Employees Retirement System,24 General Land Office,2 5 and Railroad Commission.26 Further, the comptroller has delegated purchasing authority to state agencies for purchases less than $15,000, and by rule, may delegate authority for purchases exceeding $15,000.27 However, it is important to note that for cause the comptroller may revoke purchasing authority delegated to an agency.2 8 A. Texas Department of Transportation:Bids and Contractsfor Highway Projects and Logo Signs Highway improvement projects must be competitively bid. 29 The Texas Department of Transportation (TxDOT) will tabulate all highway improvement project bids that it receives and does not reject, and the agency will award the contract to the lowest bidder.30 However, it is important to note comprehensive development agreements 3' also require competitive bidding, but the agency
20. 2155.131. 21. Id. 2155.144. In fiscal year 2007, the Health and Human Services Commission ranked third among state agencies in contract spending, reporting more than $542.1 million in total expenditures. See TEXAS COMPTROLLER, FISCAL YEAR 2007 ANNUAL HUB REPORT: TOP 50 AGENCIES BY TOTAL EXPENDTURES 1 (2007), available at http://www.window.state.tx.us/procurement//hub/hubreport/fy7/ lgexp.pdf. 22. 2155.144(c). 23. Id. 2155.145. 24. Id. 2155.146. 25. Id. 2155.147. 26. Id. 2155.150. 27. Id. 2155.132. 28. Id. 29. TEX. TRANSp. CODE ANN. 223.001 (a) (Vernon 2008). In fiscal year 2007, the Texas Department of Transportation (TxDOT) led all state agencies in contract spending, reporting more than $6.4 billion in total expenditures. See TEXAS COMPTROLLER, FISCAL YEAR 2007 ANNUAL HUB REPORT, supranote 2 1, at 1. 30. 223.0041. 31. Under section 223.201(a) through (b) of the Texas Transportation Code, a comprehensive development agreement is "an agreement that, at a minimum, provides for the design and construction, rehabilitation, expansion, or improvement" of a toll project, the Trans-Texas Corridor, a state highway project that includes tolled and non-tolled lanes, or in which a private entity has an interest in the project. Id. 223.201(a)-(b).

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awards the contract to "the private entity whose proposal offers the apparent 32 best value to the department. Section 391.09 1(a) of the Texas Transportation Code authorizes TxDOT to "contract with an individual, firm, group, or association in this state to erect and maintain specific information logo signs and major shopping area guide signs at appropriate locations along an eligible highway., 33 TxDOT may use the procurement method it "determines is the most practical or advantageous for the state, including competitive bids, competitive sealed proposals, and open market contracts. 34 TxDOT must evaluate proposals and contracts using a best value standard, including (1) revenue to the department, (2) sign fees, (3) quality, (4) the contractor's financial resources and ability to perform, and (5) any other relevant factor.35 Purchases under section 391.091 are exempt from general rules for state purchasing under subtitle D, title 10, of the Government Code.36 B. University of Texas MD. Anderson Cancer Center The University of Texas M.D. Anderson Cancer Center is a member of The University of Texas at Houston, subject to the management and control of The University of Texas System.37 The Government Code expressly authorizes UT M.D. Anderson Cancer Center to "acquire goods or services by the method that provides the best value to the institution, including (1) competitive bidding, (2) competitive sealed proposals, (3) catalogue purchase, (4) a group 38 purchasing program, or (5) an open market contract.', In determining best value, the institution must consider: (1) the purchase price; (2) the reputation of the vendor and of the vendor's goods or services; (3) the quality of the vendor's goods or services; (4) the extent to which the goods or services meet the institution's needs; (5) the vendor's past relationship with the institution; (6) the impact on the ability of the institution to comply with laws and rules relating to historically underutilized businesses; (7) the total long-term cost to the institution of acquiring the vendor's goods or services; and

32. Id. 223.203(h).

33. Id. 391.091(a). 34. Id. 391.091(b). 35. Id. 391.091(c). 36. Id. 391.091(e). 37. TEx. EDUC. CODE ANN. 73.001 (Vernon 2008). 38. Id. 73.115 (d)(I)-(5). In fiscal year 2007, the UT M.D. Anderson Cancer Center was second among all state agencies in contract spending, reporting more than $826.7 million in total expenditures. See TEXAS COMPTROLLER, FISCAL YEAR 2007 ANNUAL HUB REPORT, supranote 21, at 1.

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(8) any other relevant factor that a private business entity would consider in 39 selecting a vendor. This section controls "over any other law relating to the purchasing of goods and services except a law relating to contracting with historically underutilized businesses, ' 4 and therefore, purchases by M.D. Anderson Cancer Center are exempt from general state purchasing requirements. Also note that the comptroller's procurement rules do not apply to a "general academic teaching institution" as section 61.003 of the Texas Education Code defines it. 4' General academic teaching institutions include The University of Texas at Austin, Texas A&M University, Prairie View A&M University, Texas Tech University, and the University of Houston, along with other institutions listed in chapter 61 "and any other college, university, or institution so classified as provided in this chapter or created and so classified, ' 2 expressly or impliedly, by law. A
C. The Texas Lottery Commission

"When the [Texas] Lottery Commission was created, the Legislature exempted them from certain procurement practices in order to expedite the start-up processes and to begin generating funds for the state.'43 The State Lottery Act exempts contracts for "the acquisition or provision of facilities, supplies, equipment, materials, or services related to the operation of the lottery" from general state purchasing requirements under subtitle D, title 10 of the Texas Government Code, including laws and rules under chapters 2054 (Information Resources) and 2254 (Professional and Consulting Services) of the Texas Government Code. 44 Texas Government Code section 466.101 contains the Texas Lottery Commission's procurement procedures: (a) The executive director may establish procedures for the purchase or lease of facilities, goods, and services and make any purchases, leases, or contracts that are necessary for carrying out the purposes of this chapter. The procedures must, as determined feasible and appropriate by the executive director, promote competition to the maximum extent possible.

39. 40. 41. 42. 43.

TEx. EDUC. CODE ANN. 73.115 (b)(l)-(8) (Vernon 2008). Id. 73.115(c). See 34 TEX. ADMIN. CODE 20.217 (2008) (Comptroller of Public Accounts, Exceptions and TEx. EDUC. CODE ANN. 61.003(3) (Vernon 2008). Analysis, Tex. H.B. 1179, 80th Leg., R.S. (2007). See House Committee on State Affairs Bill

Exclusions).

44.

TEX. GOV'T CODE ANN. 466.105 (Vernon 2008).

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(b) In all procurement decisions, the executive director shall take into account the particularly sensitive nature of the lottery and shall act to promote and ensure integrity, security, honesty, and fairness in the operation and administration of the lottery and the objective of producing revenues for the state treasury. (c) The procurement procedures adopted by the executive director must, as determined feasible and appropriate by the executive director, afford any party who is aggrieved by the terms of a solicitation or the award of a contract an opportunity to protest the executive director's action to the commission. The protest procedures must provide for an expedient resolution of the protest in order to avoid substantially delaying a solicitation or contract award that is necessary for the timely implementation of a lottery game. A protest must be in writing and be filed with the commission not later than 72 hours after receipt of notice of the executive director's action. (d) A party who is aggrieved by the commission's resolution of a protest under Subsection (c) may file an action in the district court of Travis County. The court shall give preference to hearings and trials of actions under this section. If the party filing the action seeks to enjoin the implementation of a solicitation or contract, the party shall post a bond that is payable to the state if the party does not prevail in the appeal, and is in an amount sufficient to compensate the state for the revenue that would be lost due to the delay in lottery operations. (e) The commission shall require any person seeking to contract for goods or services relating to the implementation and administration of this chapter to submit to competitive bidding procedures in accordance with rules adopted by the commission. The procedures must be for the purpose of 45 ensuring fairness and integrity. Texas Lottery Commission rules require the agency to conduct a formal competitive solicitation and attempt to obtain at least three competitive bids or proposals for all purchases over $25,000.46 In evaluating bids and proposals, the agency, at minimum, must consider: (i) the proposer's price to provide the goods or services; (ii) the probable quality of the offered goods or services; (iii) the agency's evaluation of the likelihood of the proposal to produce the desired outcome for the agency, considering, among other criteria: (I) the quality of the proposer's past performance in contracting with the agency, with other state entities, or with private sector entities; (II) the qualifications of the proposer's personnel;

45. Id. 46. 16 TEX. ADMIN. CODE 401.101(bX3) (2008) (Tex. Lottery Comm'n, Lottery Procurement

Procedures).

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(III) the experience of the proposer in providing the requested goods or services; (IV) the financial status of the proposer; and (iv) whether the proposer performed the good faith effort required by the HUB subcontracting plan, when the agency has determined that 47 subcontracting is probable. "For all formal competitive solicitations, the agency will award a contract to the most qualified bidder or proposer as determined during the evaluation of 8 the proposals." During the 80th regular session of the Texas Legislature, the House and Senate approved House Bill 1179 to repeal certain sections of the State Lottery Act (chapter 466 of the Texas Government Code) and make the Texas Lottery Commission subject to general law governing purchasing and contracts by state agencies. 49 However, Governor Rick Perry vetoed House Bill 1179, concluding: Since its creation, the Lottery Commission has been allowed to independently negotiate purchases rather than going through the TBPC procurement process. Although it has proceeded independently, the Lottery has followed the same practices as the TBPC, resulting in effective evaluation and selection of contractors and contracts that include the required statutory provisions. I support the philosophy behind House Bill No. 1179 of promoting competition in the marketplace and protecting the state's interests with respect to procurement practices. However, I am vetoing House Bill No. 1179 because the Lottery negotiated many of its contracts based on its current procurement process. Eliminating the purchasing flexibility in the Texas Lottery Commission's procurement process could jeopardize its future success. The Lottery should retain its flexibility in purchasing because the agency is contracting for and operating a unique business that deals with a limited vendor community qualified to operate the games. These purchases are different from consumable goods, such as office supplies, that other agencies purchase and which TBPC rules are designed to cover.50

47. 48. 49.

50.

Id. 401.101(f)(1)(E). Id. 401.101(e)(3). Analysis (dated May 9, 2007). See 80(R), H.B. 1179, Engrossed Version, Bill
OFFICE OF THE GovERNOR RICK PERRY, MESSAGE - JUNE 15,2007 RELATING TO HB No. 1179,

http://governor.state.tx.us/news/veto/messagehbl 179/ (last visited May 11, 2009).

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IV. PROTEST PROCEDURES

Consistent with rules the comptroller promulgated, state agencies must adopt protest procedures, including standards for maintaining purchasing documents to be used in the event of a protest. 5' The attached appendix outlines the protest procedure requirements for various state agencies.52 The appendix includes citations to rules, protest deadlines, submission requirements (i.e., who the protest must be submitted to and what must be included), and information about appeals. 3 Most agencies require the receipt of bid protests "no later than ten working days after the aggrieved persons knows, or should have known, of the occurrence of the action which is protested," and do not allow late protests absent a showing of good cause for delay or unless the agency determines the protest raises significant issues about the agency's procurement practices or procedures. 4 Protests generally must be filed with a division director or the 5 5 agency's contracts manager. Protests must be in writing and sworn; some agencies (including the TCEQ, Texas Facilities Commission, Texas Department of Public Safety, the Railroad Commission, the Department of State Health Services, and the Department of Family and Protective Services) also require the notarization of 56 protests. Protests must include (1) the provision or rule alleged to have been violated, (2) a specific description of the alleged violation, (3) a precise statement of the relevant facts, (4) the issue or issues to be resolved, (5) argument and authorities in support of the protest, and (6) a statement that the protest was mailed to all interested parties.57
51. TEX. GoV'T CODE ANN. 2155.076 (Vernon 2008). 52. See infra Appendix A. 53. See infra Appendix A. 54. See, e.g., I TEX. ADMIN. CODE 69.2(a) (2008) (Office of the Attorney Gen., Filing of Protest); 34 TEx. ADMIN. CODE 1.72(a) (2008) (Comptroller of Public Accounts, Protests of Agency Purchases). 55. See, e.g., 34 TEx. ADMIN. CODE 1.72(b) ("Any actual or prospective bidder, offeror, or contractor who considers himself to have been aggrieved in connection with the agency's solicitation, evaluation, or award of a contract may formally protest to the Director of Administrative Services."); 19 TEX. ADMIN. CODE 30.2002 (2008) (Tex. Educ. Agency, Procedures for Protests, Dispute Resolution, and Appeals Relating to Purchasing and Contract Issues) (requiring the submission of bid protests to the Texas Education Agency division responsible for purchasing and contracts). 56. See, e.g., 30 TEX. ADMIN. CODE 11.2 (2008) (Tex. Comm'n on Envtl. Quality, Protest Procedures for Vendors); 1 TEX. ADMIN. CODE 111.32 (2008) (Tex. Facilities Comm'n, Protests/Dispute Resolution/Hearing); 37 TEX. ADMIN. CODE 1.231 (2008) (Tex. Dep't Pub. Safety, Procedures for Vendor Protests of Procurements); 16 TEX. ADMIN. CODE 20.1 (2008) (R.R. Comm'n of Tex., Procedures for Filing and Resolving Protests of a Contract Solicitation or Award); 25 TEx. ADMIN. CODE 417.60 (2008) (Dep't of State Health Servs., Protest and Appeal Procedures); 40 TEx. ADMIN. CODE 732.229 (2008) (Dep't of Family and Protective Servs., Is There a Procurement Protestor Appeal Procedure Available?). 57. See, e.g., 43 TEx. ADMIN. CODE 9.3(c)(2) (2008) (Tex. Dep't of Transp., Protest of Dep't Purchases Under the State Purchasing and Gen. Servs. Act); 1 TEX. ADMIN. CODE 201.2(b) (Dep't ofInfo. Servs., Procedures for Complaints, Vendor Protests and the Negotiation and Mediation of Certain Contract Disputes and Bid Submission, Opening and Tabulation Procedures).

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If a bidder files a protest, an agency cannot proceed with the solicitation or contract award unless the agency-typically, the executive director or his or her designee-makes a written determination that the award of the contract without delay is necessary to protect substantial interests of the state and the 58 agency. If mutual agreement does not resolve the protest, the agency official who received the protest (typically, a division director or the agency's contracts manager) will issue a written determination, including the reasons for the determination, to all interested parties. 59 If a violation of rules or statutes has occurred and the contract has not been awarded, the determination may include corrective or remedial action.60 If the agency official determines a violation has occurred and a contract was awarded, the corrective action may include voiding the contract. 6' An aggrieved bidder may appeal a written determination.62 Most agencies require appeals be filed within ten working days after the written determination is issued and limit appeals to review of the determination.63 At TxDOT, appeals are submitted to the executive director and reviewed by the general counsel, who prepares a written opinion and recommendation. 64 The TxDOT executive director may issue a final written determination on the appeal or refer the matter to the Texas Transportation Commission for consideration at a regularly scheduled open meeting.6 5 The commission may request that the interested parties (including the department) make oral presentations and submit written documents. 66 The commission chair may decide the amount of time allowed for presentation; the commission's determination on the appeal is adopted by order and reflected in the meeting minutes.67 The decision of the commission or the TxDOT executive director is final.68 The Texas Lottery Commission's protest procedures are different. The deadline for filing a protest is set by statute-not administrative rule-and shorter (seventy-two hours versus ten working days), and unlike protest procedures applicable to other agencies, the legislature expressly authorizes
58. See, e.g., 43 TEX. ADMIN. CODE 9.3(d); 37 TEx. ADMIN. CODE 1.231(c) (2008) (Tex. Dep't of Pub. Safety, Protest/Dispute Resolution/Hearings). 59. See, e.g., 43 TEX. ADMIN. CODE 9.3(f). 60. Id. 9.3(f)(2). 61. See, e.g., 25 TEX. ADMIN. CODE 417.60(0 (2008) (Dep't of State Health Servs., Protest and Appeal Procedures); 43 TEX. ADMIN. CODE 9.3(f) (stating that written determination may include "(A) declaring the purchase void; (B) reversing the award; and (C) re-advertising the purchase using revised specifications"). 62. See, e.g., 43 TEx. ADMIN. CODE 9.3(g). 63. See, e.g., 31 TEX. ADMIN. CODE 51.350(0 (2008) (Tex. Parks and Wildlife Dep't, Vendor Protest Procedures). 64. 43 TEX. ADMIN. CODE 9.3(g). 65. Id. 66. Id. 67. Id. 68. Id.

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aggrieved bidders to seek judicial relief by filing an action in the Travis County 69 District Court.
V. CASES

A. Texas Logos, L.P. v. Texas Department of Transportation et al. In 2007, the Third Court of Appeals rejected a vendor's attempt to overturn a contract award made by TxDOT for the state's logo sign program, concluding sovereign immunity barred the vendor's claims for declaratory relief.7 TxDOT issued a request for proposals in December 2005 seeking proposals from vendors to operate the logo sign program after the current contract expired. 71 Texas Logos was the incumbent vendor and held the logo sign contract since the TxDOT program began in the early 1990s. 72 TxDOT awarded the new contract to another vendor, and Texas Logos unsuccessfully attempted to overturn the award by first seeking relief under TxDOT's administrative protest rules then later requesting a contested case proceeding under the Administrative Procedures Act (APA), which the agency denied.73 Texas Logos sued TxDOT and its executive director alleging the agency "'exceeded its statutory authority' by violating or waiving the requirements of various statutes and rules governing its procurement of the logo sign contract., 74 Texas Logos sought relief under the Uniform Declaratory Judgments Act (UDJA), 75 arguing (1) TxDOT violated procurement statutes and, as a result, the contract was void, and (2) TxDOT was statutorily required to adjudicate Texas Logos's protest through a contested-case proceeding.76 In addition, Texas Logos claimed TxDOT's protest rules violated the APA.77 Section 2001.038 of the APA provides declaratory relief to challenge the validity or applicability of an agency rule:

69. TEX. GOV'T CODE ANN. 466.101(c)(d) (Vernon 2008); see also 16 TEX. ADMIN. CODE 401.102(b) (2008) (Tex. Lottery Comm'n, Protests of the Terms of a Formal Competitive Solicitation) ("A protest of the terms of any formal competitive solicitation must be filed, in writing, with the commission's general counsel within 72 hours after issuance of the formal competitive solicitation."); 401.103(b) (Protests of Contract Award) ("A protest of any contract award must be filed, in writing, with the commission's general counsel within 72 hours after receipt of notice of contract award."). 70. Texas Logos, L.P. v. Tex. Dep't ofTransp. et al., 241 S.W.3d 105 (Tex. App.-Austin 2007, no pet.). 71. Id. at 109. 72. Id. at 108-09. 73. Id. 74. Id.
75. 76. TEX. CIV. PRAc. & REM. CODE ANN. 37.001-.011 (Vernon 2008). Texas Logos, 241 S.W.3d at 108-09.

77.

Id.

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(a) The validity or applicability of a rule, including an emergency rule adopted under Section 2001.034, may be determined in an action for declaratory judgment if it is alleged that the rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff. (b) The action may be brought only in a Travis County district court. (c) The state agency must be made a party to the action. (d) A court may render a declaratory judgment without regard to whether the plaintiff requested the state agency to rule on the validity or applicability of the rule in question. (e) An action brought under this section may not be used to delay or stay a hearing in which a suspension, revocation, or cancellation of a license by a state agency is at issue before the agency after notice of the hearing has been given. (f) A Travis County district court in which an action is brought under this section, on its own motion or the motion of any party, may request transfer of the action to the Court of Appeals for the Third Court of Appeals District if the district court finds that the public interest requires a prompt, authoritative determination of the validity or applicability of the rule in question and the case would ordinarily be appealed. After filing of the district court's request with the court of appeals, transfer of the action may be granted by the court of appeals if it agrees with the findings of the district court concerning the application of the statutory standards to the action. On entry of an order by the court of appeals granting transfer, the action is transferred to the court of appeals for decision, and the validity or applicability of the rule in question is subject to judicial review by the court of appeals. The administrative record and the district court record shall be filed by the district clerk with the clerk of the court of appeals. The court of appeals may direct the district court to 78 conduct any necessary evidentiary hearings in connection with the action.
79 TxDOT filed a plea to the jurisdiction based on sovereign immunity. 8 0 The district court granted the plea and dismissed Texas Logos's claims. Texas Logos pointed to numerous alleged errors in the winning bidder's proposal and alleged TxDOT "violated or exceeded its statutory authority by ignoring" the bid deficiencies and failing to consider certain required best value factors under the State Purchasing and General Services Act and TxDOT's statutes and rules. 81 Further, Texas Logos argued that "by requiring protests to be filed within ten days after a contract award-a deadline

78.

TEx. Gov'T CODE ANN. 2001.038 (Vernon 2008). See, e.g., Gen. Servs. Comm'n v. Little-Tex

Insulation Co., Inc., 39 S.W.3d 591, 599 (Tex. 2001) ("Texas law recognizes no right to judicial review of

an administrative order unless (1)a statute provides the right, (2) the order adversely affects a vested property right, or (3) the order otherwise violates some constitutional right.").
79. Texas Logos, 241 S.W.3d at 109.

80.
81.

Id.
Id.at1ll-12.

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corresponding to TxDOT's response deadline for any Public Information Act 82 request-the TxDOT rules effectively preclude discovery." In reviewing Texas Logos's assertion that the district court had subjectmatter jurisdiction under the UDJA for both the contract challenge and protest denial order, the Third Court of Appeals stated that "a UDJA action will lie within the subject-matter jurisdiction of the district courts when there is (1) a justiciable controversy as to the rights and status of parties actually before the court for adjudication; and (2) that will be actually resolved by the declaration sought., 83 Further, the court wrote that "a justiciable controversy regarding whether a state agency or officer has acted beyond statutory authority provides a jurisdictional basis for a UDJA action seeking construction of that statutory authority. This type of UDJA action, furthermore, does not implicate sovereign immunity." 84 The court noted Texas Logos's declaratory claims did not implicate sovereign immunity, and the "UDJA does not authorize (by sovereign immunity waiver or otherwise) a claim that seeks to control state action. 85 TxDOT argued the district court lacked subject-matter jurisdiction because the legislature did not provide for judicial review of TxDOT's actions.86 The court cited Texas Department of Protective and Regulatory Services v. Mega ChildCare, Inc., noting the parties acknowledged there was no explicit judicial right to review under the Purchasing Act or Transportation Code, nor did Texas Logos have a vested property right in the contract. 87 However, the court rejected TxDOT's assertion: TxDOT's argument is misplaced. A UDJA claim is sui generisand, all other things being equal, the district court's subject-matter jurisdiction over it exists
independently of any administrative remedies .... Likewise, the mere fact

that Texas Logos lacked vested property rights in the contract award that could give rise to an inherent right ofjudicial review would not deprive it of standing to prosecute a proper UDJA claim challenging TxDOT's statutory authority in regard to the contract procurement. 88 Turning to TxDOT's assertion that sovereign immunity barred Texas Logos's claims, the court noted that "[i]t is well-established that a claimincluding one under the UDJA-'seeking to establish a contract's validity, to enforce performance under a contract, or to impose contractual liabilities are

82.

Id. at 113.

83. Id. at 114 (citations omitted). 84. Id. (citations omitted). 85. Id. at 115, n.12 (citations omitted). 86. Id. at 116. 87. Id. (citing Tex. Dep't of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 172 (Tex. 2004)) ("'In Texas, a person may obtain judicial review of an administrative action only ifa statute provides a right to judicial review, or the action adversely affects a vested property right or otherwise violates a constitutional right."'). 88. Id. at 116-17.

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suits against the State."' 89 The court added that "[s]uits to nullify a contract made for the benefit of the state would likewise implicate sovereign immunity principles as currently articulated by the Texas Supreme Court." 9 The court said a suit to overturn the logo sign contract would interfere with TxDOT's policy and budget decisions and implicates sovereign immunity. 91 Further, the court said chapter 2155 of the Texas Government Code provides remedies to aggrieved bidders short of voiding a contract: "This statutory scheme contemplates that while contracts executed in violation of the Act's requirements might be subject to invalidation by the agency or other statutory remedies, they would not be rendered a legal nullity on that basis. 92 Because Texas Logos alleged only past statutory violations, "the 'only plausible remedy' ... is the invalidation of the contract," and, therefore, the court held sovereign immunity barred Texas Logos's claims: "Such a remedy [voiding a contract], we have seen, implicates sovereign immunity and bars Texas Logos's UDJA 93 claims challenging the logo sign contract and procurement." Similarly, the court rejected Texas Logos's claims for declaratory relief under the APA. "[T]his Court has long held that, absent express statutory authority, the APA does not independently provide a right to a contested case hearing., 94 The court noted that section 2001.038 of the Texas Government Code "creates a cause of action for declaratory judgment regarding '[t]he validity or applicability of a rule... if it is alleged that the rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff."' 95 The court held that because sovereign immunity barred Texas Logos's UDJA claims to invalidate the contract and protest order, there was no justiciable controversy and overruled Texas Logos's second issue: The relief provided under section 2001.038 does not extend to invalidating either TxDOT's protest order or its ultimate contract award, but only the rules by which the protest was conducted. At this juncture, Texas Logos' section 2001.038 challenge to the validity of those rules would amount to a 96 mere abstract, advisory opinion. However, in a companion case, the Third Court held Texas Logos could pursue common-law tort theories and the district court had jurisdiction to hear 97
the claims.
89. 90.
91.

Id. at 119 (citation omitted). Id. at 120.

Id.

92. 93.
94.

Id. 121. at Id. at 122-23 (citations omitted).

Id. at 123.

95. Id. 96. Id. at 123-24.

97. Tex. Logos, L.P. v. Brinkmeyer, 254 S.W.3d 644, 654-55 (Tex. App.-Austin 2008) ("Even if

there is some overlap between the issues raised by Texas Logos's tort damages claims and those TxDOT

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B. Texas Lottery Commission v. Scientific Games International, Inc. In 2003, the Third Court of Appeals ruled the Texas Lottery Commission lacked express statutory authority to consider 9a potential vendor's economic impact on the state when awarding a contract. 8 Scientific Games International, Inc. (SGI) and Pollard Banknote Limited (Pollard) sued the commission to prevent the agency from considering a proposer's economic impact on the state when evaluating proposals. 99 The lawsuit followed an announcement by the agency's executive director in an open commission meeting in February 2002 that consistent with the 2001 amendment to section 2155.074 of the Texas Government Code (referring to best value standard for purchase of goods or services), she "would now consider the 'potential vendor's economic impact on the state' in awarding contracts worth over $100,000, beginning with the [commission's] upcoming procurement for instant-ticket games."' l SGI and Pollard sought a declaratory judgment claiming the commission 01 lacked the authority to support the new policy. 1 The district court agreed and 0 granted SGI's and Pollard's joint motion for summary judgment. 1 2 The commission appealed on the grounds that (1) SGI and Pollard lacked standing and (2) the agency possessed "the statutory authority to consider 0potential 3 economic impact on the state in making its procurement decisions."' The court noted there were only a handful of companies worldwide qualified to bid on the commission's instant-ticket contracts (including SGI, Pollard and Oberthur Gaming Technologies (OGT)), and only one of those companies-OGT-had a manufacturing facility in Texas.' 4 The court found SGI and Pollard had shown an actual or imminent threat of injury peculiar to their circumstances and not suffered by the public generally and therefore had standing: 0 5 The public at large is not qualified to bid on lottery contracts; manufacture of instant-ticket games is a major part of SGI and Pollard's business; inclusion of an economic-impact factor would benefit OGT at the expense of
decided when awarding the logo sign contract, we cannot conclude that the legislature intended to divest the district court of its subject-matter jurisdiction over those claims."). 98. Tex. Lottery Comm'n v. Scientific Games Int'l, Inc., 99 S.W.3d 376 (Tex. App.-Austin 2003, pet. denied). 99. Id. at 379. 100. Id. at 379-80. Section 2155.074(b)(8) of the Texas Government Code authorizes a state agency, in determining the best value for the state, to consider "the vendor's anticipated economic impact to the state or a subdivision of the state, including potential tax revenue and employment." TEX. GOV'T CODE ANN. 2155.074(b)(8) (Vernon 2008). 101. Scientific Games, 99 S.W.3d at 378. 102. Id. at 380. 103. Id. 104. Id. 105. Id.

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SGI and Pollard. These facts are more than sufficient to show an actual or imminent threat of injury peculiar to the appellees' circumstances and not suffered by the public generally. SGI and Pollard unquestionably have standing. The court then turned to the commission's claim that it possessed statutory authority to consider economic impact to the state in its procurement decisions. 107 The court discussed the source of and limits on an agency's powers: An administrative agency has only those powers conferred upon it by clear and unmistakable language. When the legislature expressly confers a power on an agency, it also impliedly intends that the agency have whatever powers are reasonably necessary to fulfill its express functions or duties. An agency may not, however, exercise what is effectively a new power on the theory that such exercise is expedient for the agency's purposes.l18 The court rejected the commission's argument "that consideration of economic impact both promotes competition and fulfills the legislative objective of producing revenues for the state treasury" under section 466.101 (b) of the Texas Government Code.'0 9 Section 466.101(b) provides that "[i]n all procurement decisions, the executive director shall take into account the particularly sensitive nature of the lottery and shall act to promote and ensure integrity, security, honesty, and fairness in the operation and administration of the lottery and the objective ofproducing revenuesfor the state treasury.""0 The commission's contention that consideration of economic impact would promote "competition because 'all vendors who bid will be required to seek the best way to increase the number of employees in Texas, resulting in an impact on Texas's economy"' did not persuade the court.' The court held that the commission had unreasonably interpreted the phrase "promote competition" in section 466.101(b): Under the Commission's reading of the statute, the language requiring the Executive Director to "promote competition to the maximum extent possible" does not substantively restrict the criteria the Commission may consider in its procurement procedures. The Commission instead implies that "promot[ing] competition" means only that each potential bid must be evaluated under the same criteria. Such a broad reading of the word

106. 107. 108. 109. 110. 111.

Id. Id. Id. at 381. Id. TEx. Gov'T CODE ANN. 466. 101(b) (Vernon 2008) (emphasis added). Scientific Games, 99 S.W.3d at 382.

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"competition" is misplaced in the context of a statute addressing procurement policies. The court stated that competitive-bidding statutes are intended "to maximize competition for government contracts in order to obtain the best work or product at the lowest practicable price," ' 1 3 adding that "[a]n agency subject to a competitive-bidding statute is therefore limited in its procurement decisions to considerations relating to quality or price in the absence of explicit statutory authority to consider additional factors."'1 14 The court concluded that section 466.101 (a) "does not explicitly grant the Commission the authority to consider factors other than quality or price" and rejected the commission's claim that consideration of economic impact actually promotes competition.' 15 The court said that " [s]ection 466.101 (b) simply requires the Commission to consider its bottom line when awarding contracts. That is, it requires the Executive Director to consider the objective of producing revenues for the state ' treasuryfrom the lottery itself."1 6 The court held that section 466.101(b) "does not authorize the Commission to jeopardize lottery revenues to favor other economic benefits such as increased employment in the state or increased ' 7 collection of franchise taxes." "1 The court referred to the preference for Texas businesses in section 466.106(a) to "confirm our conclusion that the legislature did not intend to authorize the Commission to consider the general economic impact on the state in making its procurement decisions. ' 1 8 "When the legislature has spoken so directly, an agency may not act in a way that effectively nullifies the legislature's pronouncement, even though the matter may fall within the general regulatory field of that agency." ' 1 9 The court determined consideration of a bidder's potential economic impact on the0 state "will in fact create an in12 state preference unrelated to cost or quality."' Similarly, the court found unpersuasive the commission's argument "that by giving credit only to a bidder who creates new jobs in Texas (its alleged measure of economic impact, which is not part of the record before this court), it would not be favoring an in-state bidder.' 2 1 The court noted: "The
Commission asserts a distinction without a difference ....
112. Id. at 381-82 (citations omitted). 113. Id. 114. Id. (citations omitted).
115. 116. Id. Id.

Simply put, by

117. Id. 118. Id. at 383. Section 466.106(a) provides the following: "In all contracts for lottery equipment, supplies, services, and advertising, the commission and each lottery operator shall give preference to equipment or supplies produced in this state or services or advertising offered by bidders from this state, the cost to the state and quality being equal." TEx. GOV'T CODE ANN. 466.106(a) (Vernon 2008). 119. Scientific Games, 99 S.W.3d at 383. 120. Id. 121. Id.

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considering economic impact in the bidding process, the Commission would not be promoting competition to the maximum extent possible, as section 122 466.101(a) requires."' 23 The court affirmed the summary judgment in favor of SGI and Pollard.1 The commission appealed the Third Court's ruling to the Texas Supreme Court, which denied its petition for review. VI. PRACTICE TIPS In preparing the solicitation document and determining the factors to evaluate bids and proposals, agencies are limited to consideration of evaluation criteria centered on price and meeting specifications consistent with determining best value. For agencies not subject to general purchasing rules the under chapter 2155, only 24 evaluation factors found in the agency's enabling legislation may be used. 1 Failure to post a procurement notice on the ESBD for the minimum period that section 2155.083 of the Texas Government Code requires (21 days for notice only and 14 days if notice includes the entire bid or solicitation package) 5 renders a contract or procurement award void.12 Start early. Do not wait until you receive a protest to review your agency's protest procedures. Review your administrative rules (1) while preparing the bid specifications, (2) after the solicitation document is issued, (3) again after bids are submitted, and (4) throughout the bid evaluation review process and after contract award. Conduct training on a regular basis both for purchasing staff and technical experts who may advise or evaluate bids and proposals. Remember conduct pre-issuance can be just as harmful as conduct during the bid evaluation process. For example, favoritism to or spoken or unspoken bias against a particular vendor in preparing bid specifications can unfairly color a formal competitive solicitation before it begins. 26 Similarly, collusion among bidders can thwart competition and is contrary to the spirit and intent of the competitive bidding process. Be specific. Avoid ambiguities in drafting bid specifications and determining evaluation criteria. Similarly, when preparing a bid protest, allege specific violations of applicable statutes and rules instead of general claims about unfairness or difference in quality.
122. Id. 123. Id. 124. See id. (granting summary judgment in favor of vendors who claimed Texas Lottery Commission did not have express statutory authority to consider potential proposer's economic impact to the state when evaluating proposals). 125. TEX. GOv'T CODE ANN. 2155.0836) (Vernon 2008). 126. See, e.g., id. 2155.004(a) ("A state agency may not accept abid or award a contract that includes proposed financial participation by a person who received compensation from the agency to participate in preparing the specifications or request for proposals on which the bid or contract is based.").

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Follow the rules. Although many agencies' protest rules are similar, there are differences, too. Know who to submit protests to and by what date, and make sure the protest includes all required elements. An agency will likely reject even the most well reasoned protest if not timely filed or incomplete (e.g., failure to have the protest sworn and notarized or provide copies of the protest to all interested parties can result in rejection of the protest without consideration of the merits of the claim).
VII. CONCLUSION

Promoting bidding opportunities and maximizing value to the state are not mutually exclusive goals. During all stages of the procurement process (drafting the bid specifications, preparing the solicitation document, conducting pre-proposal conferences, vendor presentations, evaluating bids, awarding contracts, and reviewing protests), remember the "plane of equality" must remain level otherwise no meaningful competition can exist. Know the rules of the game, and do not lose sight of the spirit and intent of the competitive bidding statutes and rules.

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