Opinion
We consider in this case whether the lowest responsible bidder that is wrongfully denied a public contract has a cause of action for monetary damages against the public entity, and if so, whether those damages include bid preparation costs and lost profits. We conclude bid preparation costs but not lost profits are available under a theory of promissory estoppel. We therefore reverse the judgment of the Court of Appeal.
I. Factual and Procedural Background
In April 1994, the Los Angeles Metropolitan Transportation Authority (MTA) solicited bids to build the Red Line Hollywood/Highland station and tunnels. The lowest bid was from Tutor-Saliba-Perini (Tutor-Saliba), but plaintiff Kajima/Ray Wilson (Kajima) successfully protested Tutor-Saliba receiving the award because Tutor-Saliba had not attained MTA’s goal regarding use of Disadvantaged Business Enterprises (DBE). Ultimately, none of the submitted bids were deemed responsive, and MTA exercised its right to reject all bids. (Pub. Util. Code, § 130232, subd. (a) [“The commission, at its discretion, may reject any and all bids and readvertise.”].) Tutor-Saliba filed suit challenging this action.
In November 1994, MTA solicited new bids for the same public project. This solicitation set a minimum DBE goal of 30 percent of the total amount bid. The three lowest bids came from Kajima at $68,912,089, Tutor-Saliba at $69,887,867 and Kiewit-Shea at $72,970,345. The contract was awarded to Tutor-Saliba despite the fact that its bid was almost $1 million more thаn Kajima’s. (See Pub. Util. Code, § 130232, subd. (a) [contracts in excess of $25,000 required to be awarded to the “lowest responsible bidder”].) Kajima again protested. Tutor-Saliba’s suit against MTA with regard to the April 1994 solicitation was subsequently dismissed.
MTA justified its selection on the ground that Tutor-Saliba, but not Kajima, satisfied the DBE participation goal. Kajima fell below the goal because it identified Manual Tejeda Trucking (Tejeda) as a “broker” in its bid, while Tutor-Saliba identified Tejeda as a “subcontractor.” Unknown to Kajima, MTA had an unwritten policy granting only a 5 percent DBE credit of bid amounts designated for entities identified as “brokers,” while awarding 100 percent credit of bid amounts for those identified as “subcontractors.” Had Kajima received the same percentage credit for the work to be performed by Tejeda as did Tutor-Saliba, Kajima’s DBE credit would have exceeded the 30 percent goal.
Kajima filed suit against MTA, seeking an injunction, issuance of a writ of mandate or prohibition, and damages. Kajima sought $93,411 for its round 1 bid and protest expenses, $134,092 for its round 2 bid and protest expenses, $1,298,589 in unabsorbed overhead expenses, and $1,544,034 in lost profit on the MTA contract. The total damages sought were $3,070,126, plus prejudgment interest.
Following a bench trial, the court issued a peremptory writ of mandate, ordering MTA to cease using its 5-percent-broker policy in connectiоn with DBE credits, “instead of evaluating the amount of work proposed to be subcontracted to the ‘broker.’ ” In addition, the court awarded Kajima $44,869 in round 2 bid expenses, $89,223 in round 2 bid protest expenses, $300,000 in unabsorbed overhead, $350,000 in lost profits, and $139,829.74 in prejudgment
The Court of Appeal affirmed. It first concluded MTA’s application of the 5 percent policy to Kajima’s bid was arbitrary, violated federal regulations, and was an abuse of discretion. MTA does not challenge this ruling here. It further held that the trial court acted within its discretion in awarding lost profits under a promissory estoppel theory. It stated, “We see no reason to draw a bright line in public works cases to precludе recovery of any specific type of damages under all circumstances, including lost profits .... Instead, because of the equitable nature of the [promissory estoppel] remedy, each case should be addressed on its merits to determine if the trial court has abused its discretion.” Finally, the court concluded MTA had waived the issue of overhead costs on appeal. MTA’s petition for rehearing was denied.
We granted MTA’s petition for review to determine whether the lowest responsible bidder who is wrongfully denied a public contract has a cause of action for monetary damages against the public entity, and if so, whether those damages include lost profits. We consider only whether Kajima was properly awarded its bid preparation costs and lost profits. While the trial court also awarded Kajima its round two bid protest costs and overhead costs, MTA has waived review of those issues.
II. Discussion
A. Background
In California, under the doctrine of promissory estoppel, “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.” (Rest.2d Contracts, § 90, subd. (1), p. 242; see
C & K Engineering Contractors
v.
Amber Steel Co.
(1978)
In
Drennan v. Star Paving Co.
(1958)
In
City of Inglewood-L.A. County Civic Center Auth. v. Superior Court
(1972)
In the subsequent appeal, the court first concluded the misaward by a public entity of a public works contract to one other than the lowest responsible bidder did not give the lowest bidder a cause of action in tort.
(Swinerton & Walberg Co.
v.
City of Inglewood-L.A. County Civic Center Authority
(1974)
In determining whether “ ‘injustice can be avoided only by enforcement of the promise,’ ” the court stated, “To hold that Argo was not entitled to rely upon this promise because of the just-mentioned reservation of the right to reject any and all bids would make the Authority’s promise an illusory one and render the whole competitive bidding process nugatory. . . . The public obviously has both an economic and a moral interest in public works contracts being awarded to the lowest responsible bidder. An award of monetary damages to the lowest responsible bidder for the misaward of a public works contract would be in the public interest as well as that of the injured bidder because such an award would deter such misconduct by public entities in the future.” (Swinerton, supra, 40 Cal.App.3d at pp. 104-105.) The court further stated, “the damages that Argo may recover in promissory estoppel might well be limited to those it sustained directly by reason of its justifiable reliance upon the Authority’s promise—in other words, to the expenses it incurred in its fruitless participation in the competitive bidding process. . . . Other courts have taken this view in cases which were really promissory estoppel cases. . . . [f] We hold that Argo stated . . . facts sufficient to constitute a cause of action in promissory estoppel against the public entities. What recovery Argo may attain on such cause of action will have to await the trial of the action and the trial court’s consideration of what is just under all of the circumstances—including Swinerton’s possible recovery in quantum meruit.” (Id. at p. 105.)
In
Universal By-Products, Inc. v. City of Modesto
(1974)
In
Monterey Mechanical Co. v. Sacramento Regional County Sanitation Dist.
(1996)
B. Analysis
1. Availability of Monetary Damages Against Public Entity
To the extent MTA awarded a contract, it was statutorily required under the circumstances of this case to award that сontract to the lowest responsible bidder. (Pub. Util. Code, § 130232, subd. (a) [contracts in excess of $25,000 required to be awarded to the “lowest responsible bidder”].) The question here is whether the lowest responsible bidder that is not awarded a public contract has a cause of action in California for monetary damages against the public entity once injunctive relief is no longer available. 1 Not surprisingly, MTA argues a disappointed bidder has no cause of action for damages against a public entity for misaward of a contract; Kajima disagrees.
In California, competitive bidding is largely governed by statute. None of these provisions, however, including the comprehensive 1982 Public Contract Code, address whether the lowest responsible bidder that is wrongfully denied a contract has a cause of action for monetary damages. (See Pub. Contract Code, § 100 [“The Legislature finds and declares that placing all public contract law in one code will make that law clearer and easier to find.”].) This could mean the Legislature has chosen not to provide such a
remedy. Or it may reflect a legislative assumption that a statutory remedy would be redundant because recovery is available under a promissory estoppel theory. In similar circumstances, California courts long ago authorized a disappointed biddеr to seek a writ of mandate to have a contract set aside; the Legislature has never codified this limited relief. (See, e.g.,
City of Inglewood, supra,
In addition, under Public Utilities Code section 130202, “All claims for money or damages against the [MTA] are governed by Division 3.6 (commencing with Section
Moreover, allowing recovery of some measure of damages once injunctive relief is no longer effectively available furthers the purposes of the competitive bidding laws by encouraging proper challenges to misawarded public contracts by the most interested parties, and deterring government misconduct. “ ‘The provisions of statutes, charters and ordinances requiring competitive bidding in the letting of municipal contracts are for the purpose of inviting competition, to guard against favoritism, improvidence, extravagance, fraud and corruption, and to secure the best work or supplies at the lowest price practicable . . . .’”
(Domar Electric, Inc. v. City of Los Angeles
(1994)
The parties agree that if monetary relief is available, it is available under a promissory estoppel theory. 2 That is, when a public entity solicits bids, it represents, consistent with the statutory mandate, that if the contract is awarded, it will be awarded to the lowest responsible bidder. In reliance on this representation or requirement, a bidder incurs costs (here Kajima spent $44,869) preparing and submitting a bid. If its bid is the lowest, and it is a responsible bidder, but the contract is awarded to a higher bidder, the elements of a promissory estoppel cause of action appear to be established. MTA does not argue otherwise.
It is important tо note, however, that while nothing precludes application of a promissory estoppel theory to the disappointed bidder context, it fits these circumstances imperfectly. Promissory estoppel was developed to do rough justice when a party lacking contractual protection relied on another’s promise to its detriment. Here, we use promissory estoppel primarily to further certain public policies by creating a damages remedy for a public entity’s statutory violation. Moreover, unlike the typical promissory estoppel situation, the MTA retains discretion to reject all of the bids as it did in round 1; the lowest bidder has no absolute right to be awarded the contract. These peculiarities play a role in determining the measure of damages available under a promissory estoppel theory, the subject to which we now turn. 3
2. Measure of Damages Under Promissory Estoppel
We now consider whether under a theory of promissory estoppel bid preparation
At the time Kajima’s bid was submitted, it had reasonably incurred bid preparation costs in reliance оn the representation that if the contract was awarded, it would be awarded to the lowest responsible bidder. Because the MTA was authorized to reject all bids, Kajima did not know at this point whether the contract would even be awarded. Nor, because of the secrecy of the bidding process, did Kajima know whether it was indeed the lowest responsible bidder. Therefore, given these uncertainties which are inherent in competitive bidding, bid preparation costs, not lost profits, were the only costs reasonably incurred.
Moreover, realistically, the lowest bid may be an unprofitable one. Any miscalculation or unanticipated rise in costs may erode or even extinguish the bidder’s profit margin. Thus, awarding plaintiff the profits it would have earned on the contract appears vastly disproportionate to the losses actually sustained as a result of its detrimental reliance and necessarily speculative. Indeed, such an award arguably places Kajima in a better position than if it had actually performed the contract. (See Rest.2d Contracts, § 90, com. d, p. 244 [“Unless there is unjust enrichment of the promisor, damages should not put the promisee in a better position than performance of the promise would have put him.”].)
Kajima argues that unless lost profits are recoverable, a disappointed bidder will have little incentive to pursue a valid claim, and will ultimately decline to participate in competitive bidding for public works contracts. The numerous cases in which a disappointed bidder has sought a writ of mandate to have the contract awarded to another set aside demonstrate that the incentive of significant monetary damages is not required for unsuccessful bidders to act as guardians of the competitive bidding process. (See, e.g.,
City of Inglewood, supra,
More importantly, it is clear “that neither the doctrine of estoppel nor any other equitable principle may be invoked against a governmental body where it would operate to defeat the effective operation of a policy adopted to protect the public.”
(County of San Diego v. Cal. Water etc. Co.
(1947)
Kajima summarily asserts that allowing lоst profits to a disappointed bidder will not result in double payment by the taxpaying public because the payments to the successful bidder “under that illegal contract should probably be recouped by the agency.” Kajima is apparently asserting that because the contract with Tutor-Saliba is allegedly void, all payments thereunder can be recovered and the profit Tutor-Saliba would have earned instead awarded to Kajima. Of course, neither the efficacy of MTA’s contract with TutorSaliba, nor MTA’s ability to recover payments made under that contract, is before us. It seems inappropriate to fashion a damages remedy based оn such speculation.
Kajima further argues a contract between a public entity and a private party is governed by the same laws that apply to a contract between private parties. That may be. However, Kajima does not have a contract with MTA. Rather, it may recover damages solely under the equitable doctrine of promissory estoppel. In determining what remedy “justice requires” (Rest.2d Contracts, § 90, subd. (1), p. 242), it is incumbent on this court to
consider the broad-ranging social consequences of the chosen remedy. Allowing recovery of lost profits whenever a contract is wrongfully denied “could drain the public fisc in response to mere сarelessness on the part of low level government officials.”
(Marbucco Corp. v. City of Manchester
(1993)
The law in a majority of other jurisdictions is similar. Indeed, in some jurisdictions a disappointed bidder has no cause of action for damages against the public entity.
4
These jurisdictions generally reason that such recovery is inappropriate
The majority of jurisdictions, however, allow either by statute
5
or case law
6
Indeed, while a few courts have stated in dicta that lost profits are a proper measure of damages when bad faith is demonstrated, only two cases have been brought to our attention in which lost profits were, as in this case, actually awarded to a disappointed bidder.
(City of Durant
v.
Laws Const. Co., Inc., supra,
721 So.2d at pp. 604-607 [upholding lost profits award];
Bradford & Bigelow, Inc.
v.
Com., supra,
509 N.E.2d at pp. 35, 37 [same]; . see
Marbucco Corp. v. City of Manchester, supra,
632 A.2d at pp. 524-525 [damages on remand limited to bid preрaration costs under promissory estoppel theory; lost profits available if public agency’s conduct tantamount to bad faith];
Peabody Construction Co., Inc.
v.
City of Boston
(1989)
In reaching its conclusion, the Court of Appeal relied on two California cases,
C & K Engineering Contractors v. Amber Steel Co., supra,
Disposition
The judgment of the Court of Appeal is reversed and the case remanded to that court for proceedings consistent with this opinion.
George, C. J., Mosk, J., Kennard, J., Baxter, J., Werdegar, J., and Chin, J., concurred.
Respondent’s petition for a rehearing was denied August 23, 2000.
Notes
Of course, as the parties agree, the most effective enforcement of the competitive bidding law is to enforce by injunction the representation that the contract will bе awarded to the lowest responsible bidder. This is generally done by setting aside the contract award to the higher bidder. (See, e.g.,
City of Inglewood, supra, 1
Cal.3d at p. 870;
Monterey Mechanical, supra,
Kajima concedes “[a] bidder deprived of a public contract, by the wrongful misaward of that contract, has neither a tort nor a breach of contract action against the public agency.”
In a number of other jurisdictions, such a remedy is governed (perhaps more appropriately) by statute. (See post, fns. 4, 5; see also 31 U.S.C. § 3554(c)(1); 4 C.F.R. § 21.8(d) (1999).) The Legislature has greater freedom than a court to fashion innovative remedies that balance the competing public policy concerns in this area.
(See, e.g., Mont. Code Ann. § 18-4-242(7) [For disappointed bidders, “there is no right under any legal theory to recover a form of damages or expenses for a solicitation or award of a contract in violation of law.”];
Lawrence Brunoli, Inc.
v.
Town of Branford
(1999)
(See, e.g., Alaska: Alaska Stat. § 36.30.585, subd. (c) [“if a protest is sustained in whole or part, the protester’s damages are limited to reasonable bid or proposal preparation costs”]; Arkansas: Ark. Code Ann. § 19-11-244, subd. (g) [“protesting bidder or offeror may be entitled to the reasonable costs incurred in connection with the solicitation, including bid preparation costs, through the commission”]; Colorado: Colo. Rev. Stat. § 24-109-104 [“protester shall be entitled to the reasonable costs incurred in connection with the solicitation, including bid preparation costs”]; Hawaii: Hawaii Rev. Stat. § 103D-701, subd. (g) [“In addition to any other relief, when a protest is sustained and the protestor should have been awarded the contract under the solicitation but is not, then the protestor shall be entitled to the actual costs reasonably incurred in connection with the solicitation, including bid or proposal preparation costs but not attorney’s fees.”]; Louisiana: La. Rev. Stat. Ann. art. 39, § 1671, subd. G [“In addition to any other relief, when the protest is . . . sustained and the protesting bidder or offeror should have been awarded the contract but is not, the protesting bidder or offeror shall be entitled to the reasonable costs incurred in connection with the solicitation, including bid preparation costs other than attorney’s fees . . . .”]; Maryland: Md. Code Ann., State Fin. & Proc. § 15-221.1, subd. (a) [“The Board of Contract Appeals may award a prospective bidder or offeror, a bidder, or an offeror the reasonable costs of filing and pursuing a protest, not including attorney’s fees . . . .”]; Minnesota: Minn. Stat. § 471.345, subd. 14 [“In any action brought challenging the validity of a municipal contract under this section, the court shall not award, as any part of its judgment, damages, or attorney’s fees, but may award an unsuccessful bidder the costs of preparing an unsuccessful bid.”]; South Carolina: S.C. Code Ann. § 11-35-4310, subd. (4) [bidder or offeror who should have been awarded contract, but is nоt, may be “awarded a reasonable reimbursement amount, including reimbursement of its reasonable bid preparation costs”]; Utah: Utah Code Ann. § 63-56-47, subd. (1) [“When a protest is sustained . . . and the protesting bidder or offeror should have been awarded the contract under the solicitation but is not, the protestor, in addition to any other relief, shall be entitled ... to the reasonable costs incurred in connection with the solicitation, including bid preparation and appeal costs”]; the District of Columbia: D.C. Code Ann. § 1-1189.8, subd. (f)(2) [“The Board may, when requested, award reasonable bid or proposal preparation costs and costs of pursuing the protest, not including legal fees, if it finds that thе District government’s actions toward the protester or claimant were arbitrary or capricious.”].)
(See, e.g.,
Heyer Products Company
v.
United States
(1956)