If a vendor files a protest while an Illinois state contract is still being bid out, can the agency award the contract before resolving the protest?
Plain-English summary
In late 2006 the Illinois Department of Revenue (IDOR) issued a request for proposals for a comprehensive beverage vending and pouring rights program covering state facilities, employees, visitors, and participating universities. Two beverage companies bid: Coca-Cola Enterprises and PepsiAmericas. A third interested party, the Nedlog Company, never bid; instead it filed a protest a week after the RFP was posted, arguing that the RFP's pricing structure (license fee, annual vending commitment, marketing commitment) ran afoul of section 20-50 of the Illinois Procurement Code, which forbids state agencies from making "monetary or other financial contributions or donations" an explicit or implied term of a contract.
IDOR did not respond to the Nedlog protest. Instead, the agency continued through evaluation, opened the pricing proposals, and awarded a 10-year contract to PepsiAmericas on July 27, 2007. Only after Nedlog's lawyers contacted the Department of Central Management Services on August 1, 2007 to remind the state that the protest was still unanswered did IDOR finally deny the protest, that same day.
The Legislative Audit Commission, building on a 2009 management audit by the Auditor General, asked the Attorney General whether IDOR had properly awarded the Pepsi contract while the Nedlog protest was pending. Attorney General Lisa Madigan concluded that, assuming the protest was timely and properly filed, IDOR had violated section 1.5550(d) of the Standard Procurement Rules. That rule requires the procurement officer to make no award until the protest is resolved, unless the officer (with Protest Review Office approval) determines that the state's needs require an immediate award. The audit record showed neither resolution before award nor Protest Review Office approval to override the stay. The opinion noted that the contract was therefore voidable rather than void, leaving the chief procurement officer to decide whether ratifying it was in the state's best interests under section 50-60(a) of the Procurement Code.
Currency note
This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Common questions
Q: What did the protest rule actually require?
A: At the time of this opinion, section 1.5550(d) of the Standard Procurement Rules said: "When a protest has been timely filed and before an award has been made, the Procurement Officer shall make no award of the contract until the protest has been resolved." There was a narrow exception: with Protest Review Office approval, the procurement officer could go ahead with an award if "the needs of the State require an immediate award and performance under the contract." Neither condition was satisfied for the IDOR award, according to the audit record the AG reviewed.
Q: Did the AG conclude the contract was void from inception?
A: No. Under section 50-60(a) of the Procurement Code, a contract entered into in violation of the Code "may be declared void by the chief procurement officer or may be ratified and affirmed, provided the chief procurement officer determines that ratification is in the best interests of the State." The AG concluded that the post-2010 reforms reorganizing chief-procurement-officer authority did not change this analysis: the contract was voidable, and an independent chief procurement officer had to decide which way to take it.
Q: What was wrong with the RFP under section 20-50 of the Procurement Code?
A: Nedlog's substantive complaint was that the RFP solicited four payments from the winning vendor: a license fee, an annual vending commitment fee, a vending percentage commission, and a marketing commitment fee. Section 20-50 generally forbids state RFPs from requiring a "monetary or other financial contribution or donation as an explicit or implied term or condition for awarding or completing the contract." The AG's opinion did not adjudicate the underlying section 20-50 question. The opinion was about the timing of the protest's resolution, not the merits.
Q: How did the post-2010 procurement reforms change the picture?
A: Public Acts 96-795, 96-920, and 96-1444 transferred procurement authority from the CMS Director to independent chief procurement officers appointed by the Executive Ethics Commission. The Standard Procurement Rules were redesignated as "Chief Procurement Officer for General Services Standard Procurement." But the protest-resolution requirement in section 1.5550(d) remained substantively unchanged. The AG flagged that the 2007 timing problem would still be a problem under the reformed regime.
Q: How does this opinion treat the underlying Auditor General report?
A: The opinion treats the audit findings as background. The Auditor General had identified numerous procurement deficiencies and concluded that he could not determine whether the Pepsi award was in the state's best interest. Those findings provided the factual record the AG used to apply the protest-stay rule. The audit also documented that the contract did not actually start performance until August 2008, more than a year after award, which the AG noted made the "immediate need" exception even harder to support.
Background and statutory framework
The Illinois Procurement Code establishes the policy that "principles of competitive bidding and economical procurement practices . . . be applicable to all purchases and contracts by or for any State agency" (30 ILCS 500/1-5). Most state contracts must be awarded by competitive sealed bidding under section 20-10. The Code authorizes the chief procurement officer to adopt rules for resolving protested solicitations and contract disputes (30 ILCS 500/20-75). Those rules live in 44 Ill. Adm. Code Part 1.
Section 1.5550 of those rules sets up two key features. First, an actual or prospective bidder, offeror, or vendor "may file a protest provided the aggrieved party has evidence of a violation of the Illinois Procurement Code or other law, any associated rules, or the solicitation itself, including evaluation or award." Second, when a protest is timely filed and an award has not yet been made, the procurement officer must hold off on the award until the protest is resolved. The narrow safety valve allows an immediate award only with the express approval of the Protest Review Office and on a finding that the state's needs require it.
Section 50-60(a) of the Code is the remedy provision. A contract entered into in violation of the Code is voidable: the chief procurement officer can declare it void or ratify and affirm it, "provided the chief procurement officer determines that ratification is in the best interests of the State." Ratification is "without prejudice to the State's rights to any appropriate damages." Section 1.5540 of the rules tracks the same idea: a contract awarded in violation of law "shall be terminated at no cost to the State unless statute or rule allows the State to modify, ratify or take other corrective action."
The 2010 procurement reforms (Public Acts 96-795, 96-920, 96-1444) restructured the chief-procurement-officer role and clarified the relationship between purchasing agencies and procurement officers. They did not change the protest-stay requirement. The AG's opinion flagged that the timing issue would still be controlling under current law.
Citations and references
Statutes and regulations (as cited in the opinion):
- 30 ILCS 500/1-5, 1-15.15, 1-15.70, 10-5, 20-5, 20-10, 20-50, 20-75, 25-15, 50-60(a)
- 44 Ill. Adm. Code §§ 1.15, 1.5540, 1.5550
- Public Acts 96-795, 96-920, 96-1444
Cases:
- People v. Bonutti, 212 Ill. 2d 182 (2004)
- People ex rel. Madigan v. Illinois Commerce Comm'n, 231 Ill. 2d 370 (2008)
- Sartwell v. Board of Trustees of the Teachers' Retirement System, 403 Ill. App. 3d 719 (2010)
- Illinois Department of Healthcare & Family Services v. Warner, 227 Ill. 2d 223 (2008)
Audit and other authorities referenced:
- Auditor General, Management Audit, State's Multi-Year Beverage Vending and Pouring Contract, March 2009
- Legislative Audit Commission, Management Audit, State's Multi-Year Beverage Vending and Pouring Contract, March 2009
- Illinois Department of Revenue, Beverage Vending and Pouring Program RFP No. 22011731 (December 6, 2006)
Source
- Landing page: https://illinoisattorneygeneral.gov/opinions/
- Original PDF: https://illinoisattorneygeneral.gov/dA/f78e1faa77/2011%2011-006%20STATE%20MATTERS%20Beverage%20Vending%20and%20Pouring%20Rights%20Contract.pdf
Original opinion text
Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.
OFFICE OF THE ATTORNEY GENERAL
STATE OF ILLINOIS
Lisa Madigan
ATTORNEY GENERAL
December 30, 2011
FILE NO. 11-006
STATE MATTERS:
Beverage Vending and Pouring Rights Contract
Ms. E. Jane Stricklin
Executive Director
Legislative Audit Commission
622 William G. Stratton Building
Springfield, Illinois 62706
Dear Ms. Stricklin:
You have inquired, on behalf of the Legislative Audit Commission, whether a State contract was properly awarded. The specific contract at issue in your inquiry is the Beverage Vending and Pouring Rights Contract (contract) that the Illinois Department of Revenue (IDOR) awarded to PepsiAmericas, Inc. on July 27, 2007, prior to resolving a protest challenging the legality of the pricing specifications in the initial request for proposals (RFP). For the reasons discussed below, assuming that the protest was properly filed, it is my opinion that the contract was not awarded in accordance with Illinois law because IDOR did not resolve the pending protest prior to awarding the contract. Although the General Assembly has made a number of changes to the Illinois Procurement Code (the Code) since the award of this contract, including transferring the exercise of all procurement authority to the chief procurement officers (30 ILCS 500/10-5 (West 2010)), the issue concerning the timing of the protest's resolution is unchanged by the amendments to the law and continues to be significant.
BACKGROUND
Beverage Vending and Pouring Rights Procurement
Based on information that you provided, it is our understanding that on December 6, 2006, IDOR posted a Beverage Vending and Pouring Program RFP seeking a qualified vendor to provide comprehensive beverage vending services to State facilities, employees, visitors, participating universities, and special events locations. The RFP provided that the vendor will be responsible for managing vending machines on both State and university properties and will be the exclusive beverage provider for organizations that resell beverage vending on behalf of the State or participating universities. The Nedlog Company (Nedlog) filed a protest challenging the RFP's compliance with the Code on December 13, 2006. The Nedlog protest, which is described in detail below, asserted that the pricing specifications in the RFP were prohibited by the Code. IDOR did not respond to Nedlog's protest before awarding the contract. IDOR's timing in awarding the contract and then resolving the Nedlog protest forms the basis of your inquiry.
On December 18, 2006, IDOR held a vendor conference attended by six potential vendors. Ultimately, two of those vendors, Coca-Cola Enterprises Bottling Companies (Coke) and PepsiAmericas, Inc. (Pepsi), timely submitted the technical and pricing proposals required by the RFP. Both Coke and Pepsi made vendor presentations on March 22, 2007. A nine-person committee evaluated the responses to the RFP. The committee members individually scored the technical proposals from Coke and Pepsi, and completed the scoring process on April 16, 2007. Reference checks were conducted in late March/early April 2007 by two evaluation committee members representing IDOR. Pricing proposals from Coke and Pepsi were opened on April 19, 2007. Separate vendor conference calls with Coke and Pepsi were conducted on April 30, 2007. After opening the pricing proposals and conducting vendor conferences, IDOR officials realized that Coke had failed to receive the minimum number of points required on the technical proposal evaluation to proceed to the pricing phase. On July 27, 2007, IDOR awarded the 10-year contract to Pepsi; the contract was executed and was effective June 6, 2008.
Audit Findings
Based on questions raised by Coke regarding the propriety of the contract award process, the Illinois House of Representatives adopted a resolution directing the Auditor General to conduct an audit of the procurement practices related to the contract to determine whether the chief procurement officer's actions and decisions in connection with the contract were in the State's best interests. The Auditor General conducted a management audit of the procurement practices in connection with the award of the contract. As part of this audit, the Auditor General identified numerous deficiencies in the contract's procurement process, including noncompliance with the Rules and the Department of Central Management Services' (CMS) Evaluation Guidelines. Because of these deficiencies, the Auditor General was unable to determine whether the award of the contract to Pepsi was in the State's best interest.
Nedlog Protest
The Nedlog protest, filed in December 2006, claimed that the RFP was in direct conflict with section 20-50 of the Code (30 ILCS 500/20-50 (West 2006)), which prohibits a State agency from issuing solicitations or specifications that "require, stipulate, suggest, or encourage a monetary or other financial contribution or donation as an explicit or implied term or condition for awarding or completing [a] contract." Nedlog expressed concerns regarding, among other things, the pricing specifications in the RFP with respect to: (1) a license fee the selected vendor was expected to pay at the initiation of the contract for exclusively managing the beverage operations; (2) an annual vending commitment fee the selected vendor was expected to pay as an annual guarantee of vending commissions; (3) the vending percentage commission the selected vendor was expected to pay for vending sales; and (4) the marketing commitment fee the vendor was expected to pay on an annual basis for marketing benefits. In a follow-up letter dated April 10, 2007, attorneys for Nedlog set out in greater detail the payment concerns raised in the protest letter and also noted that Nedlog had yet to receive a response to its protest. Upon learning that IDOR had awarded the contract in late July, attorneys for Nedlog contacted CMS on August 1, 2007, noting that Nedlog had not received a response to its December 2006 protest. Later that day, IDOR formally denied Nedlog's protest. Against this background, you have asked whether the contract was properly awarded if the Nedlog protest was still pending at the time of the contract's award.
ANALYSIS
Procurement Code and Standard Procurement Rules
It has long been the State's policy that "principles of competitive bidding and economical procurement practices . . . be applicable to all purchases and contracts by or for any State agency." 30 ILCS 500/1-5 (West 2010). To this end, at the time that IDOR posted the RFP and awarded the contract, the Code generally required that all State contracts, including contracts for supplies and services, be awarded by competitive sealed bidding in accordance with section 20-10 of the Code (30 ILCS 500/20-10 (West 2006)), except as otherwise provided. 30 ILCS 500/20-5, 20-10, 25-15 (West 2006). Further, the "chief procurement officer," a term that was defined to refer to the Director of CMS in this context (30 ILCS 500/1-15.15 (West 2006)), was authorized to establish "by rule procedures to be followed by purchasing agencies in resolving protested solicitations and awards and contract controversies . . . and for resolving other procurement-related disputes." 30 ILCS 500/20-75 (West 2006). CMS adopted the Rules to implement the Code's provisions. See generally 44 Ill. Adm. Code § 1.1 et seq., as amended by 30 Ill. Reg. 17305 (effective October 20, 2006). Section 1.5550 of the Rules addresses protests and provides, in pertinent part:
a) Protest Resolution by the Protest Review Office
An actual or prospective bidder, offeror, or vendor that may be aggrieved in connection with a procurement action may file a protest provided the aggrieved party has evidence of a violation of the Illinois Procurement Code or other law, any associated rules, or the solicitation itself, including evaluation or award.. . .
d) Stay of Procurements During Protest
When a protest has been timely filed and before an award has been made, the Procurement Officer shall make no award of the contract until the protest has been resolved. If timely received but after award, the award shall be stayed without penalty to the State or the award may be honored or revoked in whole or in part depending on the outcome of the protest review. Whether or not a protest has been received, the Procurement Officer may, with the approval of the Protest Review Office, make the award or reinstate the award upon a determination that the needs of the State require an immediate award and performance under the contract. (Emphasis added.)
Administrative regulations have the force and effect of law and are to be construed according to the same standards that govern the construction of statutes. People v. Bonutti, 212 Ill. 2d 182, 188 (2004). The primary purpose of statutory construction is to ascertain and give effect to the intent of the General Assembly. Illinois Department of Healthcare & Family Services v. Warner, 227 Ill. 2d 223, 229 (2008). Likewise, the touchstone of construction of an administrative rule or regulation is administrative intent. Sartwell v. Board of Trustees of the Teachers' Retirement System of the State of Illinois, 403 Ill. App. 3d 719, 725 (2010). The surest and most reliable indicator of intent is the language of the rule or regulation itself. People ex rel. Madigan v. Illinois Commerce Comm'n, 231 Ill. 2d 370, 380 (2008). Accordingly, where the language of an administrative rule is clear and unambiguous, it must be given effect as written. Madigan, 231 Ill. 2d at 380.
Under the plain and unambiguous language of subsection 1.5550(a), a prospective bidder that is aggrieved with a procurement action is authorized to file a protest, provided that the prospective bidder "has evidence of a violation of the . . . Code or . . . any associated rules[.]" Further, under subsection 1.5550(d) it is clear that if a protest is timely filed and an award of the contract has not been made, then "the Procurement Officer shall make no award of the contract until the protest has been resolved." Subsection 1.5550(d), however, also indicates that "[w]hether or not a protest has been received, the Procurement Officer may, with the approval of the Protest Review Office, make the award . . . upon a determination that the needs of the State require an immediate award and performance under the contract."
According to the audit report, Nedlog's protest was still pending at the time the contract was awarded. Assuming that the Nedlog protest was properly filed in accordance with subsection 1.5550(b) of the Rules, IDOR did not resolve the protest prior to awarding the contract as generally required by subsection 1.5550(d). Further, nothing in the information that you have provided indicates that IDOR determined "that the needs of the State require[d] an immediate award and performance under the contract" or that IDOR sought approval from the protest review office to make an immediate award of the contract. Consequently, based on the information that you have provided to us, IDOR did not comply with section 1.5550 of the Rules by either resolving the Nedlog protest prior to awarding the contract or making the award with the approval of the protest review office.
In fact, although IDOR awarded the contract to Pepsi on July 27, 2007, the parties did not execute the contract until over a year later. Pepsi signed the contract on May 14, 2008, the IDOR Chief Legal Counsel signed the contract on June 6, 2008, and the IDOR Director signed but did not date the contract. A handwritten note attached to the contract said that August 15, 2008, was being used as the start date because that was when the IDOR Procurement Officer received the contract. IDOR sent a copy of the fully-executed contract to Pepsi on that date. In the Management Audit, the Auditor General concluded that based on the signature dates in the contract, the contract should have commenced on June 6, 2008, not August 15, 2008. As a result, it does not appear that the immediate award and performance of the contract was necessary.
CONCLUSION
Subsection 1.5550(a) of the Standard Procurement Rules generally authorizes a prospective bidder that is aggrieved by a procurement action to file a protest provided that the prospective bidder has evidence of a violation of the Illinois Procurement Code or any associated rules. Under the plain and unambiguous language of subsection 1.5550(d) of the Rules, if a protest is timely filed before a contract is awarded, then the procurement officer is to refrain from making an award of the contract until the protest is resolved. Based on the information provided to us, the Illinois Department of Revenue did not resolve the Nedlog protest until after the contract was awarded. Accordingly, assuming that the protest was properly filed, it is my opinion that IDOR improperly awarded the contract under section 1.5550 of the Rules.
In determining the effect of this conclusion, I would direct your attention to section 1.5540 of the Rules (44 Ill. Adm. Code § 1.5540), which addresses, among other things, contracts based on awards that were made improperly:
b) Determination that Contract Violates the Code or this Part
Contracts based on awards or solicitations that were in violation of law shall be terminated at no cost to the State unless statute or rule allows the State to modify, ratify or take other corrective action. (Emphasis added.)
In this regard, subsection 50-60(a) of the Code (30 ILCS 500/50-60(a) (West 2010)) provides:
(a) If any contract or amendment thereto is entered into or purchase or expenditure of funds is made at any time in violation of this Code or any other law, the contract or amendment thereto may be declared void by the chief procurement officer or may be ratified and affirmed, provided the chief procurement officer determines that ratification is in the best interests of the State. If the contract is ratified and affirmed, it shall be without prejudice to the State's rights to any appropriate damages. (Emphasis added.)
Based on the foregoing, it is clear that a contract that was entered into in violation of the Code is not void as a matter of law. Rather, the contract is voidable. Further, under the plain and unambiguous language of the statute, the contract may also be ratified and affirmed, if the chief procurement officer determines that ratification is in the State's best interests. Therefore, it will be necessary for the independent chief procurement officer appointed by the Executive Ethics Commission (see 30 ILCS 500/1-15.15 (West 2010)) to review the contract and determine whether it is in the State's best interest to ratify the contract or to declare it void.
Very truly yours,
LISA MADIGAN
ATTORNEY GENERAL