This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 2004 decision in Miami-Dade County School Board v. J. Ruiz School Bus Services, Inc., the Florida Third District Court of Appeal reversed a lower court decision that awarded lost profit damages to an unlawfully disqualified bidder. The case dealt with a tendering process for school transportation services. The plaintiff’s bid was rejected for failure to submit a required employment records form. A lower court ruling found the missing form to be a minor irregularity and, after finding that the plaintiff’s bid was improperly rejected, awarded the plaintiff damages for lost profits. However, the Court of Appeal reversed this ruling, finding that lost profit damages were not available as a remedy to losing bidders in a Florida government tendering process:
Here, the School Board did not challenge the finding that it acted arbitrarily and capriciously when it failed to award the contracts to the appellees as the lowest bidders. That said, the question becomes whether the appellees are nevertheless entitled to a recoupment of their lost profits for the time period in which they were wrongfully denied the contracts if equitable relief may no longer be available. The Administrative Procedure Act (the “Act”), under which the appellees’ bid protests were heard, grants a reviewing court the authority to order such ancillary relief as it finds necessary to redress the effects of wrongfully taken or withheld official action. See § 120.68(6)(a) 2., Fla. Stat. (1999). Neither the Act nor Florida case law, however, has ever countenanced an award of lost profits to an unsuccessful bidder. See Hoon v. Pate Constr. Co., Inc., 607 So.2d 423, 432 (Fla. 4th DCA 1992); City of Cape Coral, 567 So.2d at 514; Berbusse, 117 So.2d at 552.
The trial court based its lost profits award on dicta found in the City of Cape Coral case. There, the Second District, affirmed a previous holding that lost profits were not recoverable against a public entity. City of Cape Coral, 567 So.2d at 514. The court added that this was particularly true “in the absence of arbitrary, capricious, dishonest, illegal, fraudulent or oppressive misconduct.” Id. (emphasis added). It is this added dicta which the appellees have seized upon as support for their claims of lost profits. We conclude, however, that this dicta was not meant to imply that lost profits are a proper measure of damages where there has been a finding of arbitrary, capricious, dishonest, illegal, fraudulent, or oppressive misconduct by the public entity.
To support its ruling, the Court of Appeal noted case law from multiple United States jurisdictions that recognized that lost profit damages were not available as a remedy to bidders who challenged a government tendering process:
To date, no other Florida court has expressly addressed the issue of whether lost profits are recoverable by a bidder who was wrongfully denied a public contract. A survey of decisions from other states, however, shows that the overwhelming weight of authority is against allowing an award of lost profits to unsuccessful bidders of public contracts. See, e.g., Kajima/Ray Wilson v. Los Angeles County Metro. Transp. Auth., 23 Cal.4th 305, 96 Cal.Rptr.2d 747, 1 P.3d 63, 70 (2000). The courts reason that competitive bidding statutes were enacted for the benefit of taxpayers and that the general public does not benefit from allowing a disappointed bidder to recover lost profits. Id. These courts hold that permitting the recovery of lost profits “unduly punishes the tax-paying public” and provides an unfair windfall to unsuccessful bidders for work they did not perform and risks they did not incur. Id. See also Lawrence Brunoli, Inc. v. Town of Branford, 247 Conn. 407, 722 A.2d 271, 275 (1999) (“[A]n unsuccessful bidder does not have standing to seek money damages. To conclude otherwise would run counter to the sound and established purpose of protecting the public interest that underlies the municipal bidding statutes.”); Court St. Steak House, Inc. v. County of Tazewell, 163 Ill.2d 159, 205 Ill. Dec. 490, 643 N.E.2d 781, 786 (1994) (quoting Beaver Glass & Mirror Co. v. Bd. of Ed. Of Rockford School Dist., 59 Ill.App.3d 880, 17 Ill.Dec. 378, 376 N.E.2d 377, 380 (1978)) (“If the statute were held to create such a remedy [i.e., lost profits], then taxpayers, whom the statute was designed to protect, would be injured twice whenever the school board failed to award a contract to the lowest responsible bidder: the first time, through the unjustified additional expenditure of funds on the awarded contract, and then, a second time through the necessity for paying a judgment for lost profits to the aggrieved low bidder.”); Marbucco Corp. v. City of Manchester, 137 N.H. 629, 632 A.2d 522, 525 (1993) (stating that recovery of lost profits whenever contract is wrongfully denied could drain public fisc in response to mere carelessness on part of low level government officials); Stride Contracting Corp. v. Bd. of Contract & Supply, 181 A.D.2d 876, 581 N.Y.S.2d 446, 448 (N.Y.App.Div.1992) (finding no cause of action for lost profits, only standing to require contract be awarded to lowest responsible bidder); Conway Corp. v. Constr. Eng’rs, Inc., 300 Ark. 225, 782 S.W.2d 36, 41 (1989) (holding unsuccessful bidder could not recover lost profits); Sutter Bros. Constr. Co. v. City of Leavenworth, 238 Kan. 85, 708 P.2d 190, 195–96 (1985) (finding no cause of action for lost profits where bidder commenced action long after contract awarded to second lowest bidder and work completed); Tel. Assocs. v. St. Louis County Bd., 364 N.W.2d 378, 383 (Minn.1985) (holding unsuccessful bidder could not recover lost profits); M.A. Stephen Constr. Co. v. Borough of Rumson, 125 N.J.Super. 67, 308 A.2d 380, 385 (App.Div.1973) (holding lowest responsible bidder not entitled to damages even if bids rejected in violation of statute); Aqua–Tech, Inc. v. Como Lake Prot. & Rehab. Dist., 71 Wis.2d 541, 239 N.W.2d 25, 29 (1976) (stating statutory bid laws are intended to benefit public, not bidder); City of Scottsdale v. Deem, 27 Ariz.App. 480, 556 P.2d 328, 330 (1976) (same).
While the Court of Appeal noted that many jurisdictions permit the recovery of bid preparation and bid protest costs, it concluded that, as in other jurisdictions, the remedy of lost profit damages was not available to unsuccessful bidders in Florida:
Although finding that lost profits are not recoverable, most jurisdictions permit, either by statute or case law, the recovery of bid preparation and/or bid protest costs where an injunction or other equitable relief is no longer available. See Kajima, 96 Cal.Rptr.2d 747, 1 P.3d at 68, 71–72. We find the reasoning of the majority of jurisdictions around the country against the award of lost profits to unsuccessful bidders to be sound and reverse the award of lost profits to the appellees. We do, however, remand for a factual determination of whether the School Board may rectify the losses caused by its wrongful denial of appellees’ bids by simply awarding the appellees comparable or similar school bus routes in a future school year. The trial court, however, will have to make this determination based upon competent evidence. If the trial court finds this remedy to be unavailable, then we conclude that appellees’ recovery shall be limited to their bid preparation and/or protest costs. See City of Cape Coral, 567 So.2d at 512.
The Court of Appeal therefore overturned the lower court’s award of lost profits and ruled in a manner consistent with past case law that denied this remedy to losing bidders in the United States.
