The Supreme Court of Ohio ruled on May 20, 2008 that no property interest is created when a city does not award a public contract to the low bidder based on the city’s proper exercise of its discretion to reject bids deemed not to comply with requirements included in the bid invitation. The Court’s 6-1 decision, authored by Justice Judith Ann Lanzinger, reversed a ruling in which the 1st District Court of Appeals held that a construction company that submitted the low bid for a portion of a public construction contract had a property interest in that contract and therefore could pursue a claim for money damages against the city of Cincinnati. Here is a link to the decision - http://www.supremecourtofohio.gov/rod/docs/pdf/0/2008/2008-Ohio-2337.pdf.
The case, discussed in the January 2008 case law update, involved a suit filed by Cleveland Construction Inc., which submitted a bid that was lower than the bid of Valley Interiors Systems for the drywall portion of a $145 million expansion and renovation of the Cincinnati Convention Center. The city’s purchasing agent disqualified Cleveland’s bid and accepted Valley’s bid as “lowest and best” on the basis that Valley’s bid met the city’s specification that at least 35 percent of the contract would be fulfilled by small business enterprises (SBEs) while Cleveland’s bid did not meet that requirement.
Arguing that as the low bidder it had a protected property interest in the drywall contract, Cleveland filed suit seeking damages for lost profits and injunctive relief to prevent Valley from proceeding on the drywall contract for the project. The trial court denied the injunctive relief, but later held that Cleveland had a constitutionally protected interest in the drywall contract and that the city had deprived it of that interest without providing due process of law. The trial court awarded Cleveland attorney fees and costs, but granted a directed verdict in favor of the city on the company’s claim for lost profits.
Cleveland appealed, and the city filed a cross-appeal. On review, the 1st District Court of Appeals affirmed the trial court’s judgment by holding that Cleveland had a protected property interest in the contract. The court of appeals awarded attorney fees, but reversed the lower court’s directed verdict in favor of Cincinnati and remanded the case for trial on Cleveland’s claim for money damages. The city appealed that ruling, and the Supreme Court agreed to review the case.
In its May 20, 2008 decision, the Court reversed the 1st District and reinstated the trial court’s directed verdict in favor of the city. Writing for the majority, Justice Lanzinger quoted the U.S. Supreme Court’s 2005 holding in Town of Castle Rock v. Gonzales that a party does not obtain a constitutionally protected entitlement to a benefit “if government officials may grant or deny (the benefit) in their discretion.”