Pennsylvania Commonwealth Court Holds Procurement Code Provides Exclusive Remedy for Substantive Challenges to Agency’s Contract Award, But Equitable Judicial Remedies Are Available Where Agency Deviates from Statutory Protest Procedures

GTECH Corp. v. Commonwealth, Dept. of Revenue
965 A.2d 1276 (Pa. Commw. 2009)

The Commonwealth Court of Pennsylvania considered whether the Pennsylvania Procurement Code provides the exclusive remedy for aggrieved bidders to challenge the procedure and outcome of bidding contests in the context of a procurement for the Pennsylvania Lottery. The Court found that while the Procurement Code provides an exclusive remedy for substantive challenges (i.e., a general right of protest to an offeror who is aggrieved in connection with the solicitation or award of a contract), it did not provide a remedy for procedural challenges.

In June 2007, the Pennsylvania Department of Revenue (the “Department”) issued a Request for Proposals to provide equipment and services for the Pennsylvania Lottery. Proposals were submitted by Scientific Games International, Inc. (“SGI”), the incumbent vendor, and GTECH Corporation (“GTECH”). Initially, the Department announced its selection of GTECH. Later, however, the Department solicited best and final offers from both GTECH and SGI, upon receipt of which the Department announced it had selected SGI instead of GTECH for the contract.

GTECH filed a bid protest and demanded that the Department stay contract negotiations with SGI pursuant to the Procurement Code. The Department, however, found the bid protest to be premature, alleging that the Procurement Code did not require action until a contract had actually been awarded. It was not until over four months later, when the terms of the contract with SGI were reached, that the Department activated GTECH’s bid protest. Still, the Department refused to stay execution of its contract with SGI pending resolution of GTECH’s protest, claiming that because its prior contract with SGI had expired, it was necessary to award the new contract without delay to protect the substantial interests of the Commonwealth. At the bid protest proceeding, an impartial hearing officer denied GTECH’s protest, to which GTECH appealed in a separate action.

Thereafter, GTECH Corporation brought an action against SGI and the Department, seeking, among other things, declaratory and injunctive relief to enjoin implementation of their contract. GTECH’s action consisted of: (1) a substantive challenge to the selection of SGI as the winning offeror, and (2) a procedural challenge to the Department’s handling of GTECH’s protest. The Department and SGI filed preliminary objections to GTECH’s claims, contending that GTECH’s exclusive remedy was the bid protest proceeding set forth in the Procurement Code, not an original jurisdiction action such as the one filed in the case at hand.

The Court turned to the Procurement Code to determine whether it had jurisdiction to hear GTECH’s claims. First, with respect to GTECH’s substantive challenges, the Court agreed that GTECH’s exclusive remedy was the bid protest proceeding in the Procurement Code. Where the aggrieved bidder is unhappy with the outcome of such bid protest proceeding, only then, upon a final determination denying a protest, may the aggrieved bidder appeal the determination to the Commonwealth Court. Accordingly, because GTECH had already availed itself of the protest remedy and the Department’s designated hearing officer had subsequently issued a final determination denying GTECH’s protest, GTECH’s remedy was to appeal the Department’s final determination to the Commonwealth Court, which it had done pursuant to a separate action. As such, the Court sustained the preliminary objections and dismissed GTECH’s claims to the extent they attempted to challenge the Department’s selection of SGI.

Next, the Court turned to GTECH’s procedural challenges. The Court found that, unlike substantive challenges, the protest provisions in the Procurement Code do not address how a party aggrieved by the process of a protest (not just the result) may seek redress. The Court agreed that GTECH was aggrieved by the process when the Department refused to take immediate action on GTECH’s bid protest and to stay contract negotiations with SGI. The Department’s refusal was improper under Section 1711.1(k) of the Procurement Code, which requires a stay of the procurement proceeding upon filing of a protest “unless and until the head of the purchasing agency … makes a written determination that the protest is clearly without merit or that award of the contract without delay is necessary to protect substantial interests of the Commonwealth.” Although the Department had attempted to invoke the exception, the GTECH Court held that the Department could not invoke the exception when its own violation of the Procurement Code, i.e., its failure to act promptly on the bid protest, had caused the need for the exception. Thus the Court denied the preliminary objections with respect to GTECH’s procedural challenges.

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