West Virginia Legislative Claims Commission

Volume Number: 29
Category(s): VENDOR
Opinion Issued February 14, 2013
     Paul Stroebel and Edward J. Tolchin, Attorneys at Law, for Claimant.
     Katherine A. Schultz, Senior Deputy Attorney General, for Respondent.
      Design & Production Inc. (“Claimant”), a corporation, brings this claim for damages arising from an alleged breach of contract by the West Virginia Department of Administration (“Respondent”). Claimant asserts that certain taxes were paid beyond the rate represented by Respondent’s agents, and Respondent is responsible for the full reimbursement of said additional taxes already paid to the State, as well as for taxes, interest and penalties still due and owing to the City of Charleston. Respondent denies the allegations in Claimant’s Notice of Claim, asserts that Claimant failed to engage in due diligence, and that the contract terms were clear and unambiguous; therefore, Claimant, as a sophisticated party, had a duty to determine the tax consequences of doing business in the State of West Virginia.
      In early 2008, the Procurement Officer for the West Virginia Division of Culture and History, Gloria Anderson, requested approval from the Director of Purchasing, David Tincher, for the use of a Request for Proposal (“RFP”) format for evaluating and contracting with a specialty contract or for what was known as the Museum Renovation Project (“Project”). Upon approval, the RFP was announced and bids were solicited for specialty fabrication work to be performed by manufacturers.
      On February 14, 2008, Claimant’s Vice President, Dan Moalli, attended a mandatory bid conference in Charleston, West Virginia. The goal of this conference was to clarify all aspects of the RFP and to evaluate the pool of potential bidders. Moalli testified that Respondent’s agents stated at this conference that the project was to be performed by manufacturers, and that the only license needed to perform the work would be a manufacturers license. Moalli also sought clarification on the potential tax liability for performing work as a manufacturer in the State of West Virginia. Moalli left the conference believing that the City of Charleston’s lower 0.3 per cent manufacturers tax rate would apply to the winning bidder–not the 2 per cent contractors rate. Moalli testified that he was told by Respondent’s agents that taxes were to be included in the total bid amount and not separately listed. Moalli stated he was not concerned about other State taxes as it would be provided a tax exempt certificate for Claimant’s use throughout the project.
      Claimant submitted its bid on March 27, 2008. Complying with Respondent’s directions, Claimant included $27,000.00 for anticipated State taxes. Respondent accepted Claimant’s proposal and awarded it a contract in May 2008 for “museum, specialty fabrication” services for the Commodity Code “49565," which is the code for “Museum Preparations and Supplies: Labels, Etc.” The Attorney General approved the form of this contract.
      Shortly after the contract was awarded, the West Virginia Department of Labor (“DOL”), based on an anonymous complaint, determined that despite the fact that Respondent awarded Claimant a contract for manufacturing work, Claimant was actually a construction contractor by DOL’s statutory definition of a contractor. Claimant immediately contacted Respondent to determine what action it should take with regard to DOL’s position. Respondent apparently attempted to intervene, but eventually informed Claimant it would have to deal with DOL on its own. Nancy Arnold, Administrator for Claimant, testified that DOL told her that Respondent had improperly solicited and awarded the contract as a manufacturing contract. DOL also insisted that in order to continue with the project Claimant would have to obtain a contractor license.
      In order to comply with DOL’s ruling and save the project, Claimant attempted to obtain certification as a contractor; however, these efforts proved futile given Claimant’s inexperience in the construction field. Eventually, DOL permitted Claimant to obtain a carpentry license rather than a contractor’s license. This license substitution allowed the project to continue; however, Claimant’s tax exempt certificate was revoked due to DOL’s directive to obtain a contractor’s license. Claimant asserts that these actions resulted in increased taxes due the State, and it further alleges that it resulted in the City of Charleston’s taxing at a higher rate.
      Claimant represented to the Court that it had attempted to reconcile the price difference in taxes through the use of a change order. Respondent, through Director Tincher, testified that no change was ever submitted to it by Claimant.
      Claimants now seek damages in the amount of $253,858.00 for extra costs incurred through the alleged breach of contract by Respondent in the amount of $80,296.00 for the alleged damages. This amount, Claimant maintains, was paid to the State for taxes improperly levied due to forced reclassification from manufacturer to construction contractor. The remaining $173,562.00 of alleged damages are sought to account for the consequent alleged higher tax rate levied by the City of Charleston. The Court is of the opinion to award this claim, in part, and deny, in part, for the reasons more fully stated below.
      In this State, the procedures for awarding public contracts can be divided into four steps: (1) advertisement of the fact that the agency will accept bids for a public works contract; (2) a written “invitation for bids” that provides information about the project and the procedures for submitting bids; (3) the preparation and submission of bids; and (4) the consideration of bids and the award of the contract by the public entity. The first two activities are informational in nature–that is, they concern the information that the government must provide to potentially interested bidders. The latter two have to do with the actual process by which bids are submitted and the successful bidder is selected. These four steps apply whether the bid is for a RFQ or a RFP.
      The written and oral representations made by Respondent were incomplete and misleading as to critical terms of the bid that were established and in existence at the time the representations were made; Claimant relied upon the unqualified written representations made by Respondent in the bid information and instructions, in formulating and submitting its initial sealed bid.
      We are particularly concerned by these unique circumstances because, at the time of bid opening, Claimant’s bid incorporated the manufacturing tax rate, which was consistent with written representations in Respondent’s bid documents. The governmental body’s invitation for bids for a public contract is not an offer that a bidder has the power to accept through a responsive bid; it is, instead, the solicitation of an offer.
      A public contract awarded pursuant to competitive bidding procedures must be substantially in accordance with the terms of the invitation to bid. Yet, it is the bid for a public contract that constitutes an offer to contract. There is no contract until the offer is accepted. The Respondent accepted Claimant’s bid in May 2008. The accepted bid changed when the DOL determined that the Claimant was required to obtain a contractor’s license, which was clearly a requirement neither of the parties contemplated at the time of the bid. This change adversely affected Claimant’s bid specifically as to the anticipated tax rate it would be assessed. Since the bid documents were the sole source of Claimant’s bid information and estimates, this change was also a material change to the accepted bid. More importantly, the change occasioned by requiring a contractor’s license occurred after the Claimant had already begun performance of the contract.
      Thus, where intent is complete, clear and unambiguous as evidenced by the plain meaning of the language the parties chose to employ in the contract, it should be enforced as written. There is no need to look further. The Court finds that the information provided the Claimant by DOA was the guide used to determine the amount of Claimant’s bid and the subsequent change was neither contemplated nor considered. Given these circumstances, the Court is of the opinion and finds that the increased costs incurred by an increased (different) state tax rate–which in this instance is $80,296.00–should be reimbursed.
      Claimant also seeks reimbursement from this Court for what it alleges was an increased tax rate assessed by the City of Charleston. The Court is of the opinion that issues between the Claimant and the City of Charleston relating to tax rates and assessments are issues that, if resolved, should be resolved under the procedures provided by the city.
      Based on the foregoing, the Court is of the opinion to grant the Claimant’s claim, in part, and deny, in part.
      Award $80,296.00.

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