SOFTWARE TECHNOLOGY, INC. VS. FARRIS (JOHN), ET AL.
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RENDERED: APRIL 2, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-001678-MR
SOFTWARE TECHNOLOGY, INC.
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 06-CI-00898
JOHN FARRIS (IN HIS OFFICIAL
CAPACITY AS SECRETARY OF THE
KENTUCKY FINANCE & ADMINISTRATIVE
CABINET); KAY KENNEDY; AND
INFINITE CAMPUS, INC.
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: MOORE AND WINE, JUDGES; HENRY, SENIOR JUDGE.
MOORE, JUDGE: This matter originated from the award of contract for a Student
Identification System (SIS), which is a computerized system to track student
records for the 174 public school districts in Kentucky. The SIS was procured by
the Commonwealth of Kentucky, Finance and Administrative Cabinet’s Office of
Material and Procurement Systems (Cabinet), on the behalf of the Kentucky
Department of Education (KDE), under the Kentucky Model Procurement Code
(KMPC) pursuant to Kentucky Revised Statute (KRS) 45A.085.
Prior to the procurement that is the subject of this appeal, Software
Technology, Inc. (STI) had been the provider of the SIS for the KDE since 1999.
A Request for Proposals (the first RFP) for the SIS was issued, which was based
on a server-based computer technology. STI submitted a proposal in response to
the RFP.
The evaluation of the proposals was to be completed as follows: (1) a
technical evaluation; (2) a cost evaluation; and (3) an oral presentation, at the
discretion of the Cabinet. The technical evaluation was completed and under the
consensus method that was used by the group of scorers, STI scored the highest.
Prior to the additional evaluations, the first RFP was cancelled. The record
supports that the responses to the first RFP were low in quantity and quality and
that the KDE learned that the technology had advanced to a web-based, rather than
server-based, system. Evidence in the record also supports that the web-based
system would result in monetary savings to the Commonwealth.
A second RFP was issued, which specifically required a web-based
system, rather than the server-based system. STI again presented a proposal, as did
other vendors including Infinite Campus, Inc. The full evaluation took place under
consensus scoring, and Infinite Campus was awarded the bid.
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STI contends that input from Jefferson County Public Schools (JCPS)
into the procurement process resulted in the cancellation of the first RFP and the
award to Infinite Campus of the contract under the second RFP in violation of the
KMPC. According to STI there was a “secret unlawful deal” made between the
KDE and the JCPS that prevented STI from being awarded the contract. In
essence, STI maintains that JCPS blackballed it from receiving the contract and
that KDE’s allowance of JCPS’s “unfettered discretion” over the process violated
the KMPC and gave arbitrary authority to JCPS over the procurement process.
Pursuant to the KMPC, STI filed bid protests with the Cabinet
regarding the cancellation of the first RFP and then the award to Infinite Campus.
Both of the protests were denied.
STI filed a complaint in Franklin Circuit Court challenging the
cancellation of the first RFP and the SIS procurement process. Extensive
discovery was taken and thereafter the circuit court, in granting summary judgment
to the appellees, noted that the primary issue before it was “whether JCPS’s role in
the evaluation process constituted an arbitrary exercise of power by the agency.”
Finding that “STI has made no showing, after extensive pretrial discovery, of any .
. . improper or illegal influences on the purchasing decisions of the Cabinet and
KDE” and that the “allegation of nefarious conspiracies and clandestine bidrigging are unsupported by the record,” the court granted summary judgment. STI
appealed.
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Turning to our standard of review, we have researched numerous
cases, each recognizing that appellate review of an award or decision under the
KMPC is limited to whether the award or decision was arbitrary and capricious or
contrary to law. See e.g., Commonwealth v. Yamaha Motor Mfg. Corp., 237
S.W.3d 203, 206 (Ky. 2007); Laboratory Corporation of America Holdings v.
Rudolph, 184 S.W.3d 68, 73 (Ky. 2005), rehearing denied (2006); Pendleton
Brothers Vending, Inc. v. Commonwealth, Finance and Admin. Cabinet, 758
S.W.2d 24, 25 (Ky. 1988). “[A]bsent fraud or collusion, the courts will not
interfere with power to accept or reject bids by a governmental agency.” Ohio
River Conversions, Inc. v. City of Owensboro, 663 S.W.2d 759, 761 (Ky. App.
1984); see also, Pendleton Bros. Vending, 758 S.W.2d at 30; KRS 45A.280. We
are required by statute and binding case law to
take it as a given that the presumption is [that
governmental] officials are honest, have performed with
integrity, and have carried out their statutory duties to the
best of their ability as required by law. Indeed, the
statute provides a “presumption of correctness,” KRS
45A.280. . . .
Pendleton Bros. Vending, 758 S.W.2d at 30. Of course, this presumption is not
conclusive. Id. But the statute and case law make clear that to invalidate the
procurement process, the aggrieved bidder must present evidence of fraud or
collusion such that the award of the contract is not factually supported. In
reviewing cases under the KMPC, “it must be kept in mind that its primary
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function is to benefit the citizens, as is the real purpose of government itself and
the laws pertinent thereto.” Ohio River Conversion, 663 S.W.2d at 760.
As STI did in the circuit court, STI’s brief before this Court is filled
with assertions of secret dealings, secret agreements and a plot by JCPS to derail it
from being awarded the SIS contract. Basically, STI argues that the procurement
process was a sham to give JCPS what it wanted, which was not the product or
services offered by STI. The appellees respond with numerous arguments going to
the merits of STI’s claims of violation of the KMPC, as well as arguments as to
whether STI has standing to bring this cause of action.
We have reviewed the circuit court’s well-reasoned opinion and agree
with it. After extensive discovery, STI failed to produce evidence of fraud or
collusion to show that the decision of the appellees was arbitrary or capricious,
despite STI’s assertions to the contrary.
We turn first to the issue of standing and conclude that based on the
allegations in its complaint, STI had standing to bring this cause of action. From
any vantage point, it is clear that STI realizes that to have standing, it needed to
allege fraud or collusion in its complaint. Certainly its complaint so alleges, and
its brief is filled with allegations of backroom deals and secret meetings. However,
when the actions it relies on are reviewed after extensive discovery, in context of
the KMPC, and under the proper standard of review giving proper deference to the
agency’s decision, we agree with the trial court that STI’s allegations fall flat.
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STI is obviously dissatisfied that the first RFP was cancelled after the
first of three rounds of scoring. When the first round of scoring was completed, it
had the highest score. Reviewing the reasons given by the appellees for cancelling
the first RFP under the standard by which we are bound -- both by statute and
precedent -- we find no error in this decision.
Pursuant to KRS 45A.105:
An invitation for bids, a request for proposals, or other
solicitation may be canceled, or all bids or proposals may
be rejected, if it is determined in writing that such action
is taken in the best interest of the Commonwealth and
approved by the purchasing officer.
The reasons given by the Cabinet, which are supported in the record,
include that the bids it received from the first RFP were of low quality and
quantity; only five proposals were submitted in response to the RFP. The first RFP
was also based on a server-based computer system. After it put out the first RFP,
the Cabinet learned that it was better to implement a web-based SIS system, which
it believed to be state of the art. Had it stayed with the first RFP, the Cabinet
would have been bound to buy a service that it no longer believed was the best.
This certainly would not be in the best interest of the Commonwealth. Rather, the
new RFP sought a “web-based system with a centralized enterprise database,
without the need to install client software” and a “design consistent with current
industry best practices.” Although STI argues that the first RFP was cancelled to
exclude it, we cannot say that the Cabinet’s reasons to cancel it was not “in the best
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interest of the Commonwealth” or that the decision was arbitrary or a product of
fraud or collusion.
Like the circuit court, we are not troubled by the input of the JCPS in
the process. Nothing in the statute or case law leads us to conclude that it was
arbitrary for the Cabinet to receive input from the largest consumer of the SIS
services. Certainly it must be difficult to buy technological services, or any
services or products for that matter, meant to function statewide and that will serve
the needs of all school districts from the very small ones to larger ones. To the
contrary, it would appear to be that the Cabinet is being responsive to the needs of
the consumer, in this case the school systems, to take into account the input from
the largest district. Moreover, although STI claims that JCPS “blackballed it,” the
evidence in the record includes that it was not STI as a company to which JCPS
objected. Rather, it was the server-based system STI had used in the past, which
caused many problems in the JCPS system, including losing thousands of student
records. Accordingly, we do not find the cancellation of the first RFP to be in
violation of the KMPC and agree with the circuit court that “the Cabinet has shown
a valid public policy reason for the cancellation, regardless of allegations of secret
plans or bias against STI . . . .”
STI also claims that allowing input from JCPS into the formation of
the second RFP was in violation of the KMPC. Like the circuit court, we disagree.
Input from a consumer of the procurement of goods or services under the KMPC
alone is not akin to fraud or collusion and does not on its face amount to capricious
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or arbitrary conduct on behalf of the Cabinet. Certainly if legitimate reasons did
not support the involvement of a consumer and evidence of fraud or collusion
existed, the outcome might be otherwise. Here, there are only unfounded
allegations of fraud in the involvement of individuals from JCPS. For the reasons
cited above, we find no violation of the KMPC based on this allegation.
Regarding the selection of Infinite Campus under the second RFP, the
primary argument presented by STI is that this was a continuation of the violation
occurring under the cancellation of the first RFP. It does not present evidence that
the award to Infinite Campus was not correct. Rather, STI argues that the first RFP
should not have been canceled and that JCPS should not have had input into the
procurement process. We find neither argument to have merit for many of the
same reasons articulated above including that STI has not made a showing of fraud
or collusion in the cancellation of the first RFP or that the cancellation was a result
of arbitrary or capricious conduct by the Cabinet. Also, like the circuit court and
for the reasons stated supra, we do not find that input from JCPS into the second
RFP resulted in an arbitrary or capricious procurement process. And while STI
may challenge how Infinite Campus performed during the scoring process, it does
not present evidence to rebut the presumption in KRS 45A.280. This was STI’s
burden, and it has failed to produce evidence to overcome the presumption that the
award of the contract to Infinite Campus was correct such that we should now
question the Cabinet’s decision.
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Additionally, STI has not shown that it would have been awarded the
contract under the second RFP. This is apparently why STI so sternly fights the
cancellation of the first RFP. “[A] notice inviting bids does not constitute an offer
but merely a solicitation of offers, which does not impose any contractual
obligations.” Ohio River Conversions, 663 S.W.2d at 761 (citing 72 C.J.S.
Supplement Public Contracts §11 (1975); Fosson v. Fiscal Court of Boyd County,
369 S.W.2d 108 (Ky. 1963)). Finding no violation with the cancellation of the first
RFP and considering STI’s failure to overcome the presumption of correctness, we
discern no violation of KMPC that would grant STI any relief.
Having found that the Cabinet did not act arbitrarily or capriciously or
with fraud and that it did not violate the KMPC in the cancellation of the first RFP,
the development of the second RFP or the award to Infinite Campus of the contract
under the second RFP, we decline to address other issues raised by STI because
they are moot. And, there being no violation of the KMPC, STI’s claims against
Kay Kennedy are also moot.
For the reasons as stated, we affirm the judgment entered by the
Franklin Circuit Court.
ALL CONCUR.
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BRIEF FOR APPELLANT:
Laurence J. Zielke
Nancy J. Schook
David N. Hise
Louisville, Kentucky
BRIEF FOR APPELLEE
COMMONWEALTH OF
KENTUCKY:
Bradford A. Nilsson
Frankfort, Kentucky
BRIEF FOR APPELLEE KAY
KENNEDY:
Jack Conway
Stuart W. Cobb
Frankfort, Kentucky
BRIEF FOR APPELLEE INFINITE
CAMPUS, INC.:
Larry C. Ethridge
Louisville, Kentucky
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