Wisconsin Court of Appeals Finds Disappointed Bidders May Not Recover Lost Profits as Damages

October 4, 2006

On February 28, 2006, the Wisconsin Court of Appeals held that lost profit damages are not an available remedy to a disappointed bidder for a municipal road construction project. The court determined that a disappointed bidder may recoup lost profits by properly enjoining a municipality from awarding a contract to another bidder and either recovering the contract or at least a chance to bid again. D.M.K., Inc. v. Town of Pittsfield, 711 N.W.2d 672 (Wis. Ct. App. 2006).
The Facts of the Case: D.M.K., Inc. entered bids for four municipal road construction projects and was the lowest bidder for each. However, the town board, acting as the bidding authority, expressed concern with D.M.K. s performance of previous contracts. The town board discussed awarding only two of the four contracts to D.M.K. based on these concerns, and D.M.K. indicated that it intended to refuse a fewer number of contracts and sue the town. The parties negotiated for some time about the number of contracts D.M.K. would require in order to sign a waiver relinquishing the right to sue. Eventually the town withdrew its offer to award two contracts to D.M.K., and awarded all the contracts to other bidders. D.M.K. filed a claim against the Town of Pittsfield for over $200,000 dollars of lost profits. D.M.K. argued that the town had implicitly decided D.M.K was a responsible bidder by offering two contracts, and therefore acted in violation of its duty to award contracts to the lowest responsible bidder under Wis. Stat. 60.47. D.M.K. also argued that lost profits were an available remedy for such a violation. The circuit court held that the town was not liable for its exercise of discretion in finding that D.M.K. was not a responsible bidder. The court also found that the damages available to a disappointed bidder do not include lost profits. D.M.K. appealed.
The Court’s Decision: The court of appeals affirmed the circuit court’s judgment, holding that the town’s offer merely represented a negotiation in which it attempted to avoid litigation, and that the later determination that D.M.K. was not a responsible bidder was a valid exercise of discretion. The court held that lost profits are not among the damages available to a disappointed low bidder, because it would be unfair to expect a municipality to pay for a project twice. The court reasoned that adequate remedy existed in a bidder’s ability to enjoin a municipality from awarding a contract to another bidder, or a successful bidder from performing the contract. The court explained that through this remedy, a disappointed bidder may force its receipt of a contract, or at least gain the ability to bid again if the contracts are relet, thereby having an opportunity to recoup lost profits without separate remedy.
The Resulting Law: This case establishes that a disappointed bidder who disputes the award of a contract to a successful bidder must seek to enjoin the award or the contract’s performance in order to obtain the contract. A disappointed bidder will not be able to recover lost profits as damages. Damages are limited to the cost of preparing the first bid and obtaining the required bond, and the additional remedy for a disappointed bidder is injunction.
If you have questions regarding the above, please contact any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.

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