Chesapeake Thermite Welding, LLC, d/b/a CTW v. DOT

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Chesapeake Thermite Welding, LLC, :
d/b/a CTW, :
:
Petitioner :
:
v. : No. 548 C.D. 2021
: Argued: June 23, 2022
Department of Transportation, :
:
Respondent :
BEFORE: HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
HONORABLE MARY HANNAH LEAVITT, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE WOJCIK FILED: October 17, 2022
Chesapeake Thermite Welding, LLC d/b/a CTW (CTW) petitions for
review of the determination of the Acting Executive Deputy Secretary (Secretary)
of the Department of Transportation (Department) that dismissed CTW’s bid protest
regarding the Intermodal Terminal Rehabilitation project in Beaver, Pennsylvania
(Project), because CTW lacked standing to file a protest against the Department and
because the protest is barred by sovereign immunity. CTW presents three issues for
our review. First, CTW argues that the Department’s Bureau of Rail Freights, Ports,
and Waterways (Bureau) lacked compelling justification to reject CTW’s bid, and
that the Secretary’s determination was arbitrary and capricious, an abuse of
discretion, or an error of law. Second, CTW argues that the Rail Freight Preservation
and Improvement Act (Act)1 which, in relevant part, authorizes the Department to
provide grants to railroad companies to undertake capital projects to maintain,
improve, and rehabilitate rail freight transportation services, does not except such
grants from competitive bidding under the Procurement Code, 62 Pa. C.S. §§101-
4604, where the grantee is an agent of the Department. Third, CTW argues that the
contract between the Department and grantee is a contract for procurement of
construction, subject to Section 102(f) of the Procurement Code, 62 Pa. C.S. §102(f).
After careful review, we conclude that the contract for the Project is not a contract
for procurement of construction under the plain language of Section 102(f) of the
Procurement Code, because its primary purpose is not to procure construction for
the Department, but rather to procure construction for the grantee, a private entity.
Accordingly, we affirm the Secretary’s May 4, 2021 determination.
The relevant facts as found by the Secretary are as follows. CTW filed
a protest on March 11, 2021, regarding the Project. Secretary 5/4/21 Determination
at 1. The protest concerned the invitation to bid under which a private company,
Pittsburgh Intermodal Terminals, Inc. (PIT), through its Project manager, Railroad
Solutions, Inc. (RSI), solicited bids on December 24, 2020. Id. After review, PIT
ultimately awarded the contract to Keystone Railroad Services (KRS) and not to
CTW. Id. at 7. The Project is to be funded by a grant made through the Rail Freight
Assistance Program (RFAP), one of the grants authorized by the Act, to assist in the
construction or rehabilitation of local railroad lines primarily used by businesses
within the Commonwealth. Id. The RFAP provides 70% of the funding for the
1
Act of July 5, 1984, P.L. 587, No. 119, 55 P.S. §§696.1-696.11.
2
Project, and the owner, in this case PIT, provides the remaining 30% of the funding.
Id.
The Secretary determined that CTW’s protest was timely under the
Procurement Code, which the Department does not dispute. Secretary 5/4/21
Determination at 1-2. The Secretary also determined that a hearing was not
necessary to render a decision, which CTW does not dispute. Id. The Department
filed a motion to dismiss on March 18, 2021, requesting the summary dismissal of
CTW’s protest because CTW lacked standing to file its protest, and because the
Department lacked jurisdiction over a private procurement under the Procurement
Code. Id. at 3. The Department noted that CTW’s counsel previously represented
a different entity, K.W. Reese, Inc. (KWR), in a protest “containing the same set of
facts” present here, and that CTW’s protest should be dismissed for the same
reasons.2 Id. The Secretary stated that here, as in the earlier KWR case, she must
resolve “exactly what role the Department played, who the active parties are in this
bid protest, which parties entered into the ensuing contract, and whether or not [the
Department] is a contract holder as defined in the Procurement Code.” Id. The
2
The Secretary’s January 22, 2020 Determination in the KWR protest may be found in the
Reproduced Record (R.R.) at 141a-48a. The Secretary summarized the KWR Determination as
follows:
[KWR] filed a bid protest on a project that was partially funded
(70%) through the RFAP administered by the Bureau, grantor, in
which a private company, Mineral Manufacturing Corp[oration],
was the grantee. The resulting contract of the bidding process was
between two private entities, Mineral Manufacturing Corp[oration]
and Track Builders, Inc.; not the Department [] or the Bureau. Thus,
under the Procurement Code, [KWR] lacked standing and the claim
was barred by sovereign immunity.
Secretary 5/4/21 Determination at 4, n.6. The parties did not represent, nor did our research reveal,
that KWR appealed the Secretary’s decision in that matter.
3
Secretary determined that here, as in the earlier KWR Determination, the
Department “is not the contract holder or the purchasing agent” as defined under the
Procurement Code, and granted the Department’s motion to dismiss. Id. at 4.
Nevertheless, the Secretary addressed CTW’s and the Department’s arguments as if
she had reached the merits of the case. Id.
The Secretary found that here, similar to the KWR case, the Department
entered into a Rail Freight Grant Agreement (Grant Agreement) with PIT, 3 which
“succinctly enumerates the role of the Department in this matter.” Secretary 5/4/21
Determination at 4. The Secretary determined that the Grant Agreement is clear that
the Department’s role in the Project is as a “grantor, with an oversight on how these
monies are expended.” Id.; see also R.R. at 165a. The Secretary also determined
that the Grant Agreement required PIT to secure competitive bids for expenditures
exceeding $5,000, to develop bid specifications, advertise, open bids, and award the
contract to the lowest responsive bidder. Secretary 5/4/21 Determination at 4; see
also R.R. at 169a.
CTW argued that because the Department required PIT to comply with
competitive bidding laws, that PIT was acting as an agent for the Department, citing
in support Pennsylvania Federation of Teachers v. School District of Philadelphia,
484 A.2d 751 (Pa. 1984), which struck down as unconstitutional part of the Public
School Employees’ Retirement Code4 that increased the basic retirement
contribution rate for Public School Employees’ Retirement System members prior
to the effective date of the legislation. In so doing, the Supreme Court rejected the
Commonwealth’s argument that public school districts are independent employers
3
The Grant Agreement may be found in the Reproduced Record at 165a-78a.
4
24 Pa. C.S. §§8101 - 8535.
4
and are not part of the Commonwealth. Pennsylvania Federation of Teachers, 484
A.2d at 753. The Secretary determined that CTW’s argument that PIT was the
Department’s agent was “not well taken because there is a significant distinction
between a public school and a private company.” Secretary 5/4/21 Determination at
5. The Secretary determined that it is well established that public school districts
are agents of the Commonwealth, to which the legislature delegated the
responsibility to provide public education, and that school districts are publicly
owned and operated, which the Supreme Court explained in Pennsylvania
Federation of Teachers. Id. In contrast, the Secretary determined that PIT is a
“privately owned entity” and the grant funds are merely to assist in defraying the
cost of construction, maintenance and repair performed on rail lines owned by a
private entity within the Commonwealth. Id.; see also R.R. at 165a. The Secretary
determined that “evidence of a state government providing grants with a private
entity is not sufficient to establish control by a government agency, and such
relationship as grantor/grantee does not automatically transform a private entity into
an agent of the government.” Secretary 5/4/21 Determination at 5.
The Secretary next addressed CTW’s argument that because the Project
is funded by an RFAP grant with a primary purpose of construction, that the grant is
not a grant but is rather a “procurement contract” under Section 102(f) of the
Procurement Code. Secretary 5/4/21 Determination at 5-7. CTW argued generally
that railway projects are public improvements that may not be altered without the
approval of the Commonwealth or the Public Utility Commission, citing McNulty
Brothers Company v. Pennsylvania Railroad Company, 116 A. 362 (Pa. 1922),
Bachrach v. Huntingdon & Broad Top Mountain Railroad & Coal Company, 133
A. 641 (Pa. 1926), and the Pennsylvania Law Encyclopedia, 41 P.L.E. Railroads §4
5
(Matthew Bender & Company, Inc. 2022). CTW further argued that the Bureau
Project Management Policy describes the grant as necessary to assist the Bureau in
the development and construction of rail improvement projects, and deems the grant
funded projects to be construction. R.R. at 131a-34a. CTW further argued that
because the Project work is construction related, that Section 102(f) of the
Procurement Code should apply.
The Department responded that bid protest procedures set forth in
Section 1711.1(a) of the Procurement Code, 62 Pa. C.S. §1711.1(a), apply only to
contracts as defined in the Procurement Code, and not to grants. Section 102(f) of
the Procurement Code, 62 Pa. C.S. §102(f), states:
This part does not apply to grants. For purposes of this
part, a grant is a furnishing of assistance by the
Commonwealth or any person, whether financial or
otherwise, to any person to support a program. This term
does not include an award whose primary purpose is to
procure construction for the grantor. Any contract
resulting from such an award is not a grant but a
procurement contract. (Emphasis added.)
The Secretary reviewed Section 102(f) of the Procurement Code and
determined “[t]hat exception does not apply here, however, because the primary
purpose of the construction that comprises the Project is for the benefit of PIT and
not the Department,” and that the exception argued by CTW is “simply not
applicable.” Secretary 5/4/21 Determination at 6. The Secretary further explained
that even if Section 102(f) of the Procurement Code applied for sake of argument,
any contract resulting from the award would be between PIT and the successful
contractor, and would therefore not satisfy the definition of “contract” under Section
103 of the Procurement Code, 62 Pa. C.S. §103, which requires that all contracts
6
with the Commonwealth be reviewed and signed under the Commonwealth
Attorneys Act.5 Secretary 5/4/21 Determination at 6.
The Secretary further explained that the contract defined in Section 103
of the Procurement Code, 62 Pa. C.S. §103, does not apply to the contract objected
to by CTW, stating:
PIT is a private corporation and neither the Department
nor any other Commonwealth agency is or will be a party
to the contract awarded by PIT to Kennedy Railroad
Services (“KRS”)[, the successful bidder on the Project].
The Department’s sole involvement in the Project is that
of grantor. The Department is merely providing funding
to a private corporation, PIT, to assist with rehabilitating
its privately-owned infrastructure, which is unlike a school
district or a state highway which is a publicly owned
entity. When these definitions are applied to this
procurement, which is the subject of [CTW’s] [p]rotest, it
is clear that the protest procedures set forth in the
Procurement Code do not apply since none of the critical
elements of the definitions have been satisfied.
Secretary 5/4/21 Determination at 7.
The Secretary then addressed additional arguments regarding CTW’s
standing to file a bid protest against the Department, as governed by Section 1711.1
of the Procurement Code. Secretary 5/4/21 Determination at 7-9. The Department
argued that PIT, not the Department, was the purchasing agency responsible for
soliciting bids and awarding contracts under the Grant Agreement, and that PIT, not
the Department, will be a party to the resulting contract with KRS. Id. at 7. Relevant
here, Section 103 of the Procurement Code defines purchasing agency as “[a]
Commonwealth agency authorized by this part or by other law to enter into contracts
for itself or as the agent of another Commonwealth agency.” 62 Pa. C.S. §103. In
5
Act of October 15, 1980, P.L. 89, as amended, 71 P.S. §§732-101-732-506.
7
relevant part, Section 1711.1(a) of the Procurement Code permits a bidder aggrieved
in connection with the solicitation or award of a contract to “protest to the head of
the purchasing agency in writing.” 62 Pa. C.S. §1711.1(a). Section 1711.1(b) of the
Procurement Code requires the disappointed bidder to file its protest “with the head
of the purchasing agency.” 62 Pa. C.S. §1711.1(b).
The Secretary reviewed these statutory provisions and determined that
the Procurement Code does not authorize disappointed bidders to protest to anyone
other than the head of the purchasing agency, nor does it authorize anyone other than
the head of the purchasing agency to entertain bid protests. Secretary 5/4/21
Determination at 8. The Secretary determined that the plain language of the
Procurement Code “does not authorize the Secretary to entertain this protest since
the ensuing contract is between two private entities[,] PIT and KRS, and not a
Commonwealth agency.” Id. The Secretary determined that “there appears to be no
conflict or ambiguity” in Sections 102 and 103 of the Procurement Code which both
refer to “Commonwealth agencies under any contract.” Id. at 9.
CTW argued that because the Bureau sets forth, oversees, and approves
all aspects of the bidding process, it should be required to address bid protests even
when the bidding process is managed by a third party, such as RSI. Secretary 5/4/21
Determination at 9. The Secretary reviewed the exhibits attached to CTW’s bid
protest and found those documents “contrary to establishing any plausible basis for
concluding that the Bureau has any contractual rights or obligations relative to a
contract holder or owner” under the Procurement Code. Id. at 9-10 (emphasis in
original). The Secretary noted that CTW was in possession of the Project bid
package when it submitted its bid. Id. at 10. See also R.R. at 21a-85a. In the Project
bid package, PIT is referred to as the “Owner” responsible for inviting bids to
8
perform the Project. R.R. at 23a. The Project bid package further explains that the
Project Manager (here, RSI) assists the Owner with administering the
Commonwealth’s grant requirements. Id. at 26a. The Project bid package also states
that “[t]he Owner alone will determine whether a given Bidder is sufficiently
qualified and experienced to properly commence, perform and complete the
[P]roject and work herein specified.” Id.
CTW further argued that, pursuant to the Bureau Project Management
Policy, PIT must provide “compelling justification” for rejecting CTW’s low bid,
and that PIT failed to conduct an appropriate investigation to justify denying CTW’s
bid. Secretary 5/4/21 Determination at 10-11; see also R.R. at 131a-34a. The
Bureau Project Management Policy provides specifications for grant-funded rail
projects that apply to rail grant project agreements (like the Grant Agreement here).
The Secretary reviewed the Bureau Project Management Policy and determined that
“it is clear that during the bidding process PIT, the Owner, was the decision maker
and actual investigator, not [the Department] or the Bureau.” Secretary 5/4/21
Determination at 11. After review of the Project bid package, including the Bureau
Project Management Policy, the Secretary determined that
CTW cannot utilize the bid protest procedures set forth in
the Procurement Code because the Department was not the
purchasing agency that issued the solicitation and the
Department did not enter into a contract with KRS. These
threshold requirements have not been met and therefore
the protest procedures are not available to CTW to
challenge the contract award made by a private company.
Id.
The Secretary then addressed the Department’s argument that CTW’s
protest is barred by sovereign immunity. The Secretary explained that aggrieved
bidders must use Section 1711.1 of the Procurement Code to challenge the
9
solicitation or award of a contract, or a contractor may pursue a contract claim under
Section 1712.1 of the Procurement Code, 62 Pa. C.S. §1712.1, as the “sole avenues
of relief against the Department.” Secretary 5/4/21 Determination at 11-12. The
Secretary further explained that the Commonwealth enjoys sovereign immunity
under article I, section 11 of the Pennsylvania Constitution.6 In Section 1702 of the
Procurement Code, 62 Pa. C.S. §1702, the General Assembly reaffirmed the
Commonwealth’s sovereign immunity except for claims against Commonwealth
agencies brought under Section 1711.1 or 1712.1 of the Procurement Code, but only
to the extent set forth in the Procurement Code. Secretary 5/4/21 Determination at
11-12.
The Department argued that our Supreme Court’s holding in Scientific
Games International, Inc. v. Commonwealth, 66 A.3d 740 (Pa. 2013), reaffirms the
Commonwealth’s sovereign immunity from contract claims except as permitted by
Section 1711.2 of the Procurement Code, vesting exclusive jurisdiction over contract
claims with the Board of Claims, and rejecting this Court’s original jurisdiction to
provide equitable relief outside the Procurement Code. CTW disputes the
applicability of Scientific Games because that case addressed jurisdiction over
contract disputes when a solicitation is cancelled, which is not at issue here. The
Secretary agreed with CTW but determined that this distinction “in no way
diminishes the force of the well-established doctrine of sovereign immunity” under
the Procurement Code “which is designedly structured to accord immunity, subject
to specific and limited exceptions.” Secretary 5/4/21 Determination at 12.
6
Pa. Const. art. I, §11. Article I, section 11 states in relevant part: “Suits may be brought
against the Commonwealth in such manner, in such courts and in such cases as the Legislature
may by law direct.”
10
The Secretary determined that, “in light of these facts” CTW’s protest
must be dismissed “on the basis that the Department is not the contract owner, is not
acting on behalf of another Commonwealth agency” and “is not a purchasing
agency” as defined in the Procurement Code. Secretary 5/4/21 Determination at 13.
Because CTW’s protest is not within the “category of administrative procurement
protests” authorized by Section 1711.1 of the Procurement Code, the Secretary
dismissed CTW’s protest against the Department for lack of standing, and because
it is barred by sovereign immunity. Id. CTW then petitioned the Court for review.7
As to the first issue, CTW argues that it had no other avenue to pursue
its bid protest than under Section 1711.1 of the Procurement Code, and that the
Secretary erred in dismissing its protest for lack of jurisdiction. CTW argues that in
Brayman Construction Corporation v. Department of Transportation, 30 A.3d 560(Pa. Cmwlth. 2011) (Brayman II), our Court granted Brayman’s motion for summary
judgment and a permanent injunction barring the Department from using a short-list
process, instead of a lowest responsible bidder process, to award a design-build
construction contract. In Brayman II, the issue was whether a design-build
construction contract was exempt from competitive bidding as a professional
services contract, and our Court held that it was not, because the Procurement Code
defines design-build construction contracts as a type of construction contract.
7
Our standard of review in a bid protest under the Procurement Code is as follows:
The [C]ourt shall hear the appeal, without a jury, on the record of
determination certified by the purchasing agency. The court shall
affirm the determination of the purchasing agency unless it finds
from the record that the determination is arbitrary and capricious, an
abuse of discretion or is contrary to law.
62 Pa. C.S. §1711.1(i).
11
Brayman II, 30 A.3d at 565. Brayman II did not involve a grant, nor was there a
contract between private parties at issue.
CTW argues that our Court’s holding in Brayman II should be extended
to permit CTW to seek equitable relief from the Department, even if the contract at
issue might not technically be within the purview of the Procurement Code. 8 CTW
then argues that the Secretary, sitting in equity, could have found there was no
“compelling justification” for PIT to reject CTW’s low bid, which it argues applies
to PIT by way of the Bureau Project Management Policy. See R.R. at 131a-34a.
CTW then proceeds to argue against the merits of PIT’s rejection of CTW’s bid,
disagreeing with the reasons given in PIT’s denial letter. See id. at 127a. CTW
avers, without reference to the record below, that because PIT did not conduct any
investigation before rejecting CTW’s bid “any negative information could only have
come from [Project manager] RSI,” and RSI’s information “is wrong.” See CTW’s
brief at 16-17. CTW argues that because PIT failed to provide compelling
justification to deny CTW’s low bid, the Secretary arbitrarily and capriciously
disregarded PIT’s actions or erred as a matter of law when she dismissed CTW’s
protest for lack of standing.
8
CTW also argues that if it lacks standing as a disappointed bidder under the Procurement
Code, it could be granted taxpayer status even though it is a Virginia limited liability company.
The Department denies that CTW qualifies for taxpayer standing, and CTW did not develop or
offer support for this argument. Therefore, we find that CTW waived any taxpayer standing claim,
because it failed to present argument in its brief to this Court. See Pa. R.A.P. 2119(a) (“The
argument shall be divided into as many parts as there are questions to be argued; and shall have at
the head of each part . . . the particular point treated therein, followed by such discussion and
citation of authorities as are deemed pertinent.”); Commonwealth v. Spotz, 716 A.2d 580, 585 n.5
(Pa. 1998), cert. denied, 526 U.S. 1070 (1999) (holding that the failure to develop issue in appellate
brief results in waiver); Browne v. Department of Transportation, 843 A.2d 429, 435 (Pa. Cmwlth.
2004) (“At the appellate level, a party’s failure to include analysis and relevant authority results in
waiver.”).
12
The Department responds that Brayman II is distinguishable from the
facts presented here, and does not expand the Department’s jurisdiction over protests
not covered by the Procurement Code. The Department rejects CTW’s attempts to
introduce information not contained in the record below, relating to CTW’s
disagreement with the reasons for PIT’s denial of CTW’s bid. The Department
points to PIT’s denial letter, which acknowledges that CTW submitted the lowest
bid for the Project, but notes that Section E of the Project bid package clearly states
that “price alone is not the sole qualification for the contract to be awarded and that
[PIT] alone will determine whether a [b]idder is sufficiently qualified and
experienced.” R.R. at 127a; see also id. at 26a. The Department responds that PIT,
and not the Department, was responsible for reviewing CTW’s bid and assessing
CTW’s record and experience with other projects in the Commonwealth. PIT
concluded that it must reject CTW’s bid for several reasons including, without
limitation, CTW’s limited access to credit for a project of this size and concerns
about the construction schedule, as well as “significant concerns regarding the
quality of work at prior projects and jobsite safety practices.” Id. at 127a. The
Department responds that although the Secretary correctly concluded that CTW’s
bid protest did not fall under the Procurement Code, the Secretary correctly analyzed
the merits of the denial, reached a well-reasoned conclusion, and was not arbitrary
or capricious, and the decision was not contrary to law. The Department rejects
CTW’s argument that PIT failed to provide “compelling justification” to reject
CTW’s bid, when the Bureau Project Management Policy, by its stated terms,
applies to the Department’s Grant Agreement with PIT, and not to PIT’s rejection
of CTW’s bid. Id. at 131a-34a.
13
As to the second issue, CTW argues that although the bid solicitation
and resulting contract will be between two private parties, its bid protest should still
proceed under the Procurement Code because PIT is an agent of the Department.
CTW argues that Section 7(b) of the Act, 55 P.S. §696.7(b), which authorizes the
Commonwealth to provide assistance to preserve, rehabilitate and improve rail
freight services, requires “competitive bids” to be secured “before any purchase or
sale, by contract, or otherwise is made or before any contract is awarded for
construction . . . repairs or maintenance or for rendering any services to the
[D]epartment.” CTW argues that the phrase “or otherwise” should be interpreted to
apply to grants. CTW further argues that PIT should be considered an agent of the
Department, based on the persuasive, if not controlling, holding in Pennsylvania
Federation of Teachers, 484 A.2d 751. CTW argues that under the traditional
agency law, because the bid protest provisions in the Procurement Code are
applicable to the Department, they should also be applicable to PIT as the
Department’s agent.
The Department rejects CTW’s argument that PIT acted as the
Department’s agent for the Project, and focuses on the plain language of the
Procurement Code that provides protest procedures for bids or contracts for
Commonwealth contracts, and not for contracts between private parties or for grants.
The Department responds that Pennsylvania Federation of Teachers does not
support a finding that PIT acted as the Department’s agent, because PIT is a private
entity and not a public school. The Department further responds that Section 102 of
the Procurement Code applies to “Commonwealth agencies under any contract,” and
does not apply to a contract between a private entity, PIT, and the bid winner, another
private entity, KRS. The Department further responds that Section 103 of the
14
Procurement Code further defines contract as an agreement “for the procurement of
construction . . . executed by all parties in accordance with . . . the Commonwealth
Attorney’s Act.” 62 Pa. C.S. §103. The Department argues that because the contract
awarded will be between PIT and KRS, two private entities, to which the Department
is not a party, this contract does not fall within the Procurement Code definition.
The Department further responds that CTW concedes that per Section
102(f) of the Procurement Code, 62 Pa. C.S. §102(f), bid protest procedures do not
apply to grants. The Department argues that our Supreme Court’s holding in U.S.
Venture, Inc. v. Commonwealth, 255 A.3d 321 (Pa. 2021), further supports the
interpretation that the Procurement Code does not apply to grants. In U.S. Venture,
the Supreme Court analyzed whether two grant agreements awarded by the
Department of Community and Economic Development (DCED) to U.S. Venture to
construct or upgrade fuel stations by adding compressed natural gas pumps should
be considered “procurement contracts” to “procure construction for the grantor
[here, DCED,]” under Section 102(f) of the Procurement Code. Id. at 323. Because
the construction contract did not procure construction for DCED, but procured
construction for a private entity on property which it owned, the Supreme Court held
that the resulting contract did not meet the Procurement Code definition of
“contract.” Id. at 340. Although U.S. Venture sought review of a contract dispute
by the Board of Claims under Section 1711.2 of the Procurement Code, and not a
bid protest under Section 1711.1, the Department argues that the Supreme Court’s
analysis of Section 102(f) of the Procurement Code should also apply here. The
Department argues that U.S. Venture further applies because, herein, the record
contains no evidence that the contract on which CTW bases its bid protest is
primarily to benefit the Department; the language in the Grant Agreement defines
15
the Department as grantor; and the Bid package defines PIT as Owner. In its reply
brief, CTW argues that U.S. Venture is completely distinguishable from this case
because it involved different enabling legislation, different grants, and a contract
dispute rather than a bid protest.
As to the third issue CTW argues that because railroads are considered
public improvements under McNulty Brothers Company, 116 A. 362, and Bachrach,
133 A. 641, the contract resulting from the RFAP grant should be deemed a
procurement contract “whose primary purpose is to procure construction for the
grantor” under Section 102(f) of the Procurement Code. CTW also cites 41 P.L.E.
Railroads §4 for the proposition that “[w]hen public lands or the lands of others are
taken in any quantity for the construction and operation of a railroad, the railroad
becomes a public highway for the public benefit, subject to the police power of the
Legislature and the regulation of the Public Utility Commission.” CTW argues that
Section 2 of the Act, 55 P.S. §696.2, which is the enabling legislation for the RFAP
grant, clearly states that the purpose of the RFAP grant is to provide “State financial
assistance for the preservation and improvement of essential rail freight
transportation services, systems[,] and facilities,” which the legislature found to be
essential for the provision of “efficient and coordinated rail freight transportation
services” within the Commonwealth. 55 P.S. §696.2(b), 696.2(a)(3). CTW argues
that because the RFAP grant benefits the Commonwealth, the resulting contract
should be viewed as one which procures construction for the Commonwealth as
grantor.
The Department rejects CTW’s interpretation of Section 102(f) of the
Procurement Code, and responds that the RFAP grant does not procure construction
for the Department as grantor, but rather procures construction for PIT, a private
16
entity and owner of the railroad property. The Department further responds that the
contract resulting from the RFAP grant is not a contract as defined in the
Procurement Code because it is a contract between PIT and KRS, two private
entities, to which the Commonwealth is not a party, and which does not require
review under the Commonwealth Attorneys Act.
The Department further argues that the Secretary correctly determined
that the Commonwealth’s sovereign immunity barred CTW’s bid protest, as limited
by the waiver for bid protests and contract claims under the plain language of the
Procurement Code. The Department argues that Section 1702(a) of the Procurement
Code “reaffirms” the Commonwealth’s sovereign immunity, except for the specific
provisions in Section 1702(b) of the Procurement Code, which waives sovereign
immunity to claims against Commonwealth agencies “brought in accordance with
[S]ections 1711.1 (relating to protests of solicitations or awards) and 1712.1 (relating
to contract controversies) . . . but only to the extent set forth in this chapter.” The
Department argues that CTW may not seek relief from the Commonwealth except
as outlined in Section 1711.1 of the Procurement Code, which CTW may not do
because of the reasons already discussed.
The Department argues that in Scientific Games, 66 A.3d 740, the
Supreme Court held that the waiver of sovereign immunity is limited by the language
of the Procurement Code. Specifically:
The Procurement Code establishes administrative
processes to address disputes arising in the procurement
setting. On account of the doctrine of sovereign immunity,
however, contractors, bidders, and offerors have limited
recourse and remedies. Relative to controversies in
matters arising from procurement contracts with
Commonwealth agencies, the Board of Claims retains
exclusive jurisdiction (subject to all jurisdictional
17
prerequisites), which is not to be supplanted by a court of
law through an exercise of original jurisdiction.
Scientific Games, 66 A.3d at 760. The Department argues that the Supreme Court
considered Scientific Games in U.S. Venture, where the Supreme Court held that
“Section 102(f) [of the Procurement Code] preserves sovereign immunity for
disputes involving grants, and the provision in its entirety must be construed in favor
of preserving sovereign immunity.” U.S. Venture, 255 A.3d at 337. The Department
argues that the plain language of Section 102(f) of the Procurement Code, as
interpreted by Scientific Games and U.S. Venture, prohibits CTW from seeking
equitable relief against the Commonwealth outside the Procurement Code, because
such actions are barred by sovereign immunity. In its reply brief, CTW argues that
U.S. Venture is distinguishable from its bid protest, because the enabling legislation
and resulting grant were not RFAP grants.
We reject CTW’s first argument and affirm the Secretary’s May 4, 2021
Determination because it was not arbitrary or capricious nor not contrary to law, as
defined by the applicable standard of review in Section 1711.1(i) of the Procurement
Code. The additional standard proposed by CTW, that PIT must provide
“compelling justification” to reject the low bidder, found in the Bureau Project
Management Policy, is not applicable here. The Bureau Project Management Policy
states that “[i]t is understood and agreed that, unless otherwise indicated in writing
in an executed Rail Grant Project Agreement, the specifications hereinafter set forth
apply to and become part of all Rail Grant Projects[.]” R.R. at 131a.
Here, the Grant Agreement between the Department and PIT specifies
the applicable standard that “[f]or contracted or subcontracted work, the [g]rantee[,
here PIT,] shall determine the lowest responsive bidder,” and then the grantee shall
forward “a copy of all bids as received . . . and the determination of the selected
18
bidder” to the Department. R.R. at 169a. The Project bid package specifies that the
owner, here PIT, alone will determine whether a given bidder is sufficiently qualified
and experienced to perform the Project. Id. at 26a. It further states that the owner
may investigate as it deems necessary to determine the bidder’s ability to perform
the work, including the bidder’s “record and experience” in performing work on
other Department grants. Id. The Project bid package further states that the owner
will award the contract “to the lowest responsive and responsible” bidder. Id. at 27a.
In considering whether a bidder is responsible, the owner may consider the bidder’s
equipment, manpower, performance on other Department projects, and construction
schedule. Id. Any history of untimely project completion, unauthorized substitution
of materials, other departures from bid specifications, or any pending or threatened
litigation on other Department grant projects “may be deemed to demonstrate that
the [b]idder does not satisfy the threshold as a responsible [b]idder.” Id. PIT
followed its Grant Agreement and the terms of the Project bid package when it
rejected CTW’s low bid and gave numerous reasons for the rejection, even though
CTW does not agree with those reasons. Id. at 127a.
We also reject CTW’s second argument that PIT is an agent for the
Department, given the plain language of the Procurement Code, Grant Agreement,
and Project bid package, all of which designate the Department as grantor, and PIT
as grantee or owner, with the resulting contracts between PIT and KRS, both private
entities. We decline to extend the holding of Brayman II as urged by CTW, because
the underlying facts of Brayman II did not involve a grant-funded project, or a
construction contract between two private parties, which are the facts before us here.
Brayman II involved a construction contract between the Department and the
contractor to replace a bridge along an interstate highway. Brayman II, 30 A.3d at
19
561. Because the project in Brayman II involved a contract between the Department
and a contractor to make improvements on a public road, and did not involve a grant,
or a contract between private parties to make improvements on private property, it
is distinguishable from the Project here.
Pennsylvania Federation of Teachers does not advance CTW’s
argument that PIT’s grant-funded Project to improve freight railroad facilities on its
own property makes it an agent for the Department or for the Commonwealth. We
agree with the Secretary who determined that CTW’s argument that PIT was the
Department’s agent was “not well taken because there is a significant distinction
between a public school and a private company.” Secretary 5/4/21 Determination at
5. We agree that public school districts are agents of the Commonwealth, to which
the legislature delegated the responsibility to provide public education, and that
school districts are publicly owned and operated, which the Supreme Court
explained in Pennsylvania Federation of Teachers, 484 A.2d at 753. In contrast,
PIT is a privately owned entity, and the grant funds are being provided by the
Department to assist in defraying the cost of construction, maintenance and repair
performed on rail lines owned by PIT. We agree with the Secretary’s determination
that “evidence of a state government providing grants [to] a private entity is not
sufficient to establish control by a government agency, and such relationship as
grantor/grantee does not automatically transform a private entity into an agent of the
government.” Secretary 5/4/21 Determination at 5.
We also reject CTW’s third argument that its bid protest falls within the
exception in Section 102(f) of the Procurement Code, as an award the primary
purpose of which “is to procure construction for the grantor” based on the plain
language of the Procurement Code, and the guidance provided by Scientific Games
20
and U.S. Venture. At issue is the interpretation of Section 102(f) of the Procurement
Code, and specifically, whether the “primary purpose” of the RFAP grant awarded
to PIT “is to procure construction for the grantor.” 62 Pa. C.S. §102. When
presented with issues of statutory interpretation, this Court’s standard of review is
de novo and our scope of review is plenary. Whitmoyer v. Workers’ Compensation
Appeal Board (Mountain Country Meats), 186 A.3d 947, 954 (Pa. 2018).
We are mindful, as always, that the object of statutory
interpretation is to ascertain the intent of the General
Assembly, the best indicator of which is the plain language
of the statute itself. 1 Pa. C.S. §1921(a)(b); Department of
Labor & Industry v. [Workers’ Compensation Appeal
Board] (Lin & [Eastern] Taste), 187 A.3d 914, 922 (Pa.
2018). Where statutory language is clear and
unambiguous, this Court must give effect to the words of
the statute. Crown Castle NG [East] LLC v. Pennsylvania
Public Utility Commission, 234 A.3d 665, 674 (Pa. 2020).
When interpreting a statute, courts may not look beyond
the plain meaning of a statute under the guise of pursing
its spirit. Id.; see also Warrantech Consumer Products
Services, Inc. v. Reliance Insurance Company in
Liquidation, 96 A.3d 346, 354 (Pa. 2014).
City of Johnstown v. Workers’ Compensation Appeal Board (Sevanick), 255 A.3d
214, 221 (Pa. 2021).
Section 102(f) of the Procurement Code excepts grants from the bid
protest process. CTW does not dispute the Project is a grant-funded project. Section
102(f) provides that a grant may be a procurement contract, and thus, subject to the
bid protest process, only if the primary purpose of the award is “to procure
construction for the grantor.” The Act and the Grant Agreement clearly designate
the Department as the grantor and PIT as the Project owner. As such, the primary
purpose of the award is to procure construction for PIT, and not the Department.
21
We are unpersuaded by CTW’s argument that railway projects may not
be altered without the approval of the Commonwealth or the Public Utility
Commission because they are public improvements, or that the “primary purpose”
of the RFAP grant here is to procure construction for the Department as grantor. In
McNulty Brothers, cited by CTW, our Supreme Court considered whether a
subcontractor on a railway project could enforce a mechanics lien against a railroad
company for work it performed on a railroad office building connected to the freight
station. McNulty Brothers, 116 A. at 363. The Court held that the subcontractor
could not enforce the agreement because the “defendant railroad company is a public
service corporation, and no property reasonably necessary to the enjoyment and
operation of its franchise can be sold on such writ.” Id. In Bachrach, also cited by
CTW, the Supreme Court addressed the rights of bondholders to payment on bonds
issued and secured by a railroad company’s mortgage, which was given to certain
trustees for the protection of the bondholders. Bachrach, 133 A. at 641. The Court
held the bondholders “had no legal right to enforce an attachment against this money,
which equitably belongs to the trustees, for the benefit of all the bondholders.” Id.
at 642. Although both McNulty and Bachrach address limits to enforcing liens or
bond payments against railroad property, neither case holds that railroads are public
property whereby a construction project to improve railroad property equates to a
construction project to improve Department property.
We agree with CTW that railroads are subject to regulation by the
Public Utility Commission, and are “public utility corporations” with the power of
eminent domain. See e.g., Sections 1103 and 1511 of the Business Corporation Law
of 1988, 15 Pa. C.S. §§1103 and 1511. However, these characteristics do not erase
the distinction between PIT, a private rail company, and the Department, for
22
purposes of interpretating Section 102(f) of the Procurement Code. In Pierce v.
Commonwealth, 104 Pa. 150 (1883), the Supreme Court analyzed whether a railroad
company was a private corporation, where its board of directors’ election was
subject to the cumulative voting provision in former article 16, section 4 of the
Pennsylvania Constitution that was then in effect. The Court held that the provision
applied to the railroad’s election of directors because “[r]ailroad and canal
companies are private corporations.” Pierce, 104 Pa. at 155. The Court favorably
cited earlier case law to determine that “a railroad company is not public, nor does
it stand in the place of the public; it is but a private corporation over whose rails the
public may travel if [it] choose[s] to ride in its cars.” Id. The Court further stated:
Indeed, we regard it a misnomer to attach even the name
“quasi[-]public corporation” to a railroad company, for it
has none of the features of such corporations, if we except
its qualified right of eminent domain, and this is because
of the right reserved to the public to use its way for travel
and transportation. Its officers are not public officers, and
its business transactions are as private as those of a
banking house. Its road may be called a quasi[-]public
highway, but the company itself is a private corporation
and nothing more.
Id. Although the RFAP grant authorized by the legislature and issued by the
Department is designed to provide a general economic benefit to citizens of the
Commonwealth through improved rail freight operations, the Project primarily
benefits PIT, the private owner of the rail freight station improved by the grant.
Because the grant here does not have the primary purpose to procure construction
for the Department, CTW’s bid protest is not permitted by Section 102(f) of the
Procurement Code.
This interpretation is supported by the fact that the resulting contract,
which CTW protests, is between PIT and KRS, to which the Department is not a
23
party. Therefore, the contract does not meet the definition of “contract” in Section
103 of the Procurement Code. A contract is defined in relevant part in Section 103
of the Procurement Code, as a written agreement for the procurement of construction
“executed by all parties in accordance with . . . the “Commonwealth Attorneys Act.”
62 Pa. C.S. §103. Section 103 of the Commonwealth Attorneys Act states that “[n]o
party to an action, other than a Commonwealth agency . . . shall have standing to
question the authority of the legal representation of the agency.” 71 P.S. §732-103.
A Commonwealth attorney did not review or approve the contract between PIT and
KRS, the Department is not a party to the contract, and the Department did not
execute the contract. Therefore, the contract to which CTW objects is not subject to
the Procurement Code.
This interpretation is further supported by the Supreme Court’s
decision in Scientific Games, which held that a contract between two private entities
arising out of a grant-funded project is not within the contract dispute provisions of
the Procurement Code. Scientific Games, 66 A.3d at 759. The Court stated “[t]he
Procurement Code establishes the administrative processes to address disputes
arising in the procurement setting. On account of the doctrine of sovereign
immunity, however, contractors, bidders, and offerors have limited recourse and
remedies.” Id. at 760. Although the Commonwealth agency and grant program in
Scientific Games are different from the ones at issue here, the interpretation of the
Procurement Code remedies is applicable and persuasive.
Accordingly, we affirm the Secretary’s determination.
MICHAEL H. WOJCIK, Judge
24
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Chesapeake Thermite Welding, LLC, :
d/b/a CTW, :
:
Petitioner :
:
v. : No. 548 C.D. 2021
:
Department of Transportation, :
:
Respondent :
ORDER
AND NOW, this 17th day of October, 2022, the Determination of the
Acting Executive Deputy Secretary of the Department of Transportation dated May
4, 2021, is AFFIRMED.
__________________________________
MICHAEL H. WOJCIK, Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Chesapeake Thermite Welding, LLC, :
d/b/a CTW, :
Petitioner :
:
v. : No. 548 C.D. 2021
: Argued: June 23, 2022
Department of Transportation, :
Respondent :
BEFORE: HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
HONORABLE MARY HANNAH LEAVITT, Senior Judge
OPINION NOT REPORTED
CONCURRING OPINION
BY SENIOR JUDGE LEAVITT FILED: October 17, 2022
I join the majority’s decision. I write separately to note that this
construction of the Commonwealth Procurement Code1 exposes the Department of
Transportation to the type of equity action available to challenge the award of a
contract as a misuse of state funds.
Section 1711.1(a) of the Procurement Code provides a right of protest
to “[a] bidder or offeror, a prospective bidder or offeror or a prospective contractor
that is aggrieved in connection with the solicitation or award of a contract[.]” 62 Pa.
C.S. §1711.1(a). Prior to the enactment of the Procurement Code, only a taxpayer
had standing to challenge the award of a contract to a party that did not submit the
lowest bid on grounds that it wasted taxpayer dollars. The litigant had to be a
taxpayer because a disappointed bidder has no property interest in the award of a
contract and, thus, is not aggrieved. See Michael Facchiano Contracting, Inc. v.
Pennsylvania Turnpike Commission, 621 A.2d 1058, 1059-60 (Pa. Cmwlth. 1993);
1
62 Pa. C.S. §§101-2311.
Lutz Appellate Printers, Inc. v. Department of Property and Supplies, 403 A.2d 530,
532 (Pa. 1979). The Procurement Code changed this paradigm by giving
disappointed bidders the opportunity to challenge the solicitation or the award of a
public contract.
“The enactment of the Procurement Code, however, has not taken
away the right of taxpayers to bring an action in equity before this Court to enjoin
the award of a contract when the bidding requirements were not followed.” Direnzo
Coal Company v. Department of General Services, Bureau of Purchases, 779 A.2d
614, 617 n.4 (Pa. Cmwlth. 2001). “An aggrieved taxpayer, who lacks standing to
file a protest under the Procurement Code, may still file an equity action in this
Court’s original jurisdiction to protest the award of a contract.” Id., see also
Pennhurst Medical Group, P.C. v. Department of Public Welfare, 796 A.2d 423, 426
(Pa. Cmwlth. 2002).
Here, Pittsburgh Intermodal Terminals, Inc. (PIT) received a grant from
the Commonwealth to rehabilitate local railroad lines, as authorized under the Rail
Freight Preservation and Improvement Act.2 Because public monies are involved in
the grant, the Department of Transportation required PIT to hire the lowest
responsive bidder to do the work. Reproduced Record at 169a. Chesapeake
Thermite Welding, LLC d/b/a CTW, cannot pursue the disappointed bidder
provisions of the Procurement Code. However, all it has to do is find a Pennsylvania
taxpayer to serve as the plaintiff in an equity action in this Court’s original
jurisdiction to challenge the Department of Transportation’s expenditure of public
funds.3 Balsbaugh v. Department of General Services, 815 A.2d 36, 40 (employees
2
Act of July 5, 1984, P.L. 587, No. 119, 55 P.S. §§696.1-696.11.
3
In the instant case, however, Chesapeake Thermite Welding, LLC concedes that it is a Virginia
Company and not a taxpayer of the Commonwealth. CTW Brief at 13 n.7.
MHL-2
of subcontractors used by the disappointed bidder had standing to bring complaint
in equity because they were taxpayers in the Commonwealth).
____________________________________________
MARY HANNAH LEAVITT, President Judge Emerita
MHL-3