This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its January 2015 decision in Fairview Valley Fire, Inc. v. California Department of Forestry, the California Court of Appeal upheld the California Department of Forestry’s stand-by emergency fire services agreements after finding that the agreements were not subject to the open competitive bidding requirements under the relevant state procurement statute. The case dealt with the creation of agreements, referred to as Cal-Fire 294s, for the provision of stand-by emergency fire services.
The Court of Appeal found that the agreements did not constitute a contract award since a contract would only be created if the emergency services were actually called on in an emergency situation:
Cal Fire argues the EERA’s embodied in Cal Fire-294’s are not binding contracts at the time they are approved by Cal Fire and only become contracts when, in an emergency, Cal Fire actually dispatches a vendor’s equipment. Accordingly, Cal Fire contends that its hiring of emergency equipment is not subject to the competitive bidding requirements of section 10340, subdivision (a). We agree with Cal Fire for a variety of related reasons. First and foremost, we agree with Cal Fire that although styled an agreement, by its terms, a Cal Fire-294 is not the award of a contract binding on Cal Fire. At most, it is an irrevocable offer or option by an equipment vendor, which may be accepted by Cal Fire in the event of (1) an emergency to which (2) the vendor is able to respond and (3) during which the vendor is next in line in Cal Fire’s dispatch rotation or an exception to that rotation. The theory of an irrevocable offer or option that is binding on the offeror, but does not become a contract binding on the offeree until accepted, is well established. (See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 168, p. 204; Rest.2d Contracts, § 87, subd. (1)(a).)
Our conclusion that the Cal Fire-294 is at most an irrevocable offer by the equipment vendor is supported in the main by its express language. As we have noted, the form expressly incorporates by reference the provision of the HEPP, which states that an EERA embodied in a Cal Fire-294 is a “pre-incident agreement” that only becomes a binding contract at the time of dispatch. This is clearly the language of an irrevocable offer or option, not a binding contract. (See Rest.2d Contracts, § 87, subd. (1)(a).) Our conclusion that a Cal Fire-294 is only an offer by a vendor and not a binding agreement is buttressed by the vendor selection process set forth in the HEPP. As we have noted, that process permits use of approved private vendors only after equipment from local public agencies has been exhausted and then on a rotating basis designed to support as many qualified vendors as possible. These policies, and the procedures HEPP employs to advance them, make it clear that at the time a Cal Fire-294 is executed there is no expectation by vendors or Cal Fire that any particular vendor will be hired during a fire emergency. This expectation in turn is consistent with our determination that no contract with a vendor is made until, as set forth in the HEPP, equipment is actually dispatched in an emergency.
The Court of Appeal also found that the contract awards would be exempt from the open bidding requirements under a California Public Contract Code exemption that applies to “cases of emergency where a contract is necessary to the immediate preservation of the public health, welfare or safety, or protection of state property.” As the Court of Appeal noted:
We are also inclined to accept Cal Fire’s characterization of its form for practical reasons. If we treated the Cal Fire-294 as an award of a contract at the time it is executed, under the code we would impose on Cal Fire the counterproductive requirement that it engage in a competitive bidding process at that point. Competition required at the outset, before any emergency, would inherently limit the number of equipment vendors available later when fire emergencies arise. However, the HEPP makes it clear that Cal Fire believes the public’s interest is best served if, in an emergency, there are more, rather than fewer, qualified vendors available to meet the agency’s needs.
As this case illustrates, the creation of stand-by agreements is a prudent measure that should be undertaken by purchasing institutions in order to secure their supply chains in advance of emergency situations so that they can quickly dispatch required services when those services are required.
