Best Bus Joint Venture v. Board of Education

FIFTH DIVISION

May 9, 1997

No. 1-96-2927

BEST BUS JOINT VENTURE, LAIDLAW )

TRANSIT, INC., WILLETT MOTOR COACH )

COMPANY, ROBINSON BUS SERVICE, INC., ) APPEAL FROM THE

LATINO EXPRESS, INC., EXPRESS LATINO, ) CIRCUIT COURT OF

INC., and B&B COACH, ) COOK COUNTY.

)

)

Plaintiffs-Appellants, )

v. )

)

THE BOARD OF EDUCATION OF THE CITY )

OF CHICAGO, and RR JOINT VENTURE, )

)

Defendants-Appellees )

)

(Alltown Bus Service, Inc., Art's ) THE HONORABLE

Transportation, Inc., Jewel's ) JOHN MADDEN,

Transportation, Inc., Paige Bus ) JUDGE PRESIDING.

Enterprises, Paige Transportation, )

Inc., and White Transportation, )

Intervenors and Defendants-Appellees). )

JUSTICE SOUTH delivered the opinion of the court:

Plaintiffs, Best Bus Joint Venture (Best Bus), Laidlaw

Transit, Inc. (Laidlaw), Willett Motor Coach Co. (Willett),

Robinson Bus Service, Inc. (Robinson), Express Latino, Inc.

(Express), Latino Express, Inc. (Latino), and B&B Coach (B&B)

challenged the Board of Education of the City of Chicago's (the

Board's) award of bus contracts for the 1996-97 through 1998-99

school years and sought permanent injunctive relief. At issue

was the Board's application of a 2% local business preference (2%

LBP) to Best Bus; the validity of such a preference; and the

Board's award of bus contracts.

In count I, plaintiffs sought an order compelling the Board

to apply the 2% LBP based upon the entity plaintiffs claimed

would actually provide service (Willett), rather than the entity

which participated in the bid (Laidlaw). In the alternative, in

count II, plaintiffs sought to invalidate the 2% LBP. In count

VII, plaintiffs claimed that the Board's action must be reversed

as "palpable error, amounting to constructive fraud." In count

VIII, plaintiffs claimed that Board Rule 5.5 violates due process

and equal protection.

Plaintiffs filed a complaint only three weeks before the

start of the school year. They sought a preliminary injunction,

and a hearing was held by the trial court on August 12, 14 and

16, 1996. Both the Board and codefendant RR Joint Venture (RR)

raised the affirmative defense of estoppel.

The parties entered into a number of stipulations. The

parties also agreed to the authenticity of a number of documents.

The stipulations and documents are as follows.

On January 24, 1996, the Board adopted Rule 5.5,

establishing a 2% LBP for contracts over $10,000. Pursuant to

Board Rule 5.5, a company must meet the following four

requirements in order to qualify for the 2% LBP: (1) be

authorized to do business and doing business in Chicago; (2) be

located in the City of Chicago; (3) have the majority of its

regular full-time work force in Chicago; and (4) be subject to

City of Chicago taxes.

In March 1996, the Board let out for bid contracts for

provision of school bus services for the 1996-97 through 1998-99

school years, bid number 96-130050. The Board notified

prospective bidders of the bid period and pre-bid meeting by a

letter dated March 12, 1996. All plaintiffs and defendants

present at the preliminary injunction hearing received the

letter. Bid specifications were made available to the public on

March 15, 1996.

The pre-bid meeting was held on March 21, 1996.

Representatives from all of the plaintiffs and defendants present

at the preliminary injunction hearing attended the March 21,

1996, pre-bid meeting.

A list of revisions and additions from the previous contract

was made available to the public by the time of the pre-bid

meeting. The list of revisions and additions noted the 2% LBP on

page 9 of the contract. The terms and conditions of the 2% LBP

were described during the March 21, 1996, pre-bid meeting and

were set forth on page 9 of bid number 96-130050. The terms and

conditions of the 2% LBP were set forth in the bid prepared and

proposed on behalf of Best Bus.

Best Bus submitted a bid to provide services to transport

students for the Board. Laidlaw was a member of Best Bus, but

Willett was not. Laidlaw was not a local company as defined in

the bidding specifications. As applied by the Board, Best Bus

was not qualified as local under Board Rule 5.5 and the bids

specifications because the majority of Laidlaw's employees work

outside Chicago and, therefore, the majority of employees of the

venturers in the joint venture also work outside Chicago.

At the meeting of the Board on July 24, 1996, the bus

service contracts were awarded. Although Best Bus was the lowest

bidder for type I buses, when the 2% LBP was considered, RR

became the low bidder for these buses and received the award.

Diane Minor, chief purchasing officer in the Chicago public

school system, testified that when she became the Board's chief

purchasing officer she brought with her knowledge regarding the

city's use, application of and experience with a 2% LBP in its

competitive bidding process, and she wished to apply that

knowledge and those benefits to purchasing for the Board. Minor

testified that a 2% LBP had been used by the city in evaluating

who was the lowest responsible bidder in procurement of

contracts. In her experience, the 2% LBP had an impact on the

ability of local businesses to compete because it provided local

businesses with a more level playing field in competing with

suburban businesses that had lower operating or fixed costs as a

result of being located outside the City of Chicago.

Minor testified that the city did undertake a study to

quantify the allotted extra costs that it determined were

associated with doing business in the city and it arrived at the

2% amount as a balancing factor. She believed that the 2% LBP

was a success as used by the city, and it was her intent to

obtain the same success for the Board. In Minor's experience,

the 2% LBP allowed local companies to bid successfully and

eventually, in some cases, actually bid lower than the nonlocal

companies.

Minor relied upon the knowledge that she had from working

with the 2% LBP while employed by the city. She did not hold any

public hearings prior to presenting it to the Board. The Board

did make the rule available for public commentary, but Minor did

not recall any public commentary on the rule. The Board was

familiar with the requirements of Rule 5.5 and its intended

purpose at the time the Board voted on it. Rule 5.5 was

presented to the Board and passed unanimously.

Minor testified that the four requirements of the 2% LBP

were designed to improve education indirectly by improving the

local communities. Companies located in the City of Chicago pay

real estate taxes that go to support the public school system

directly in terms of monies that go to education. Employment of

city residents would lead to children who are better fed, clothed

and housed and such children are better students.

Minor first became familiar with Best Bus and its members

in July 1996, while reviewing all Board reports submitted for

recommendation of the award of bus contracts. She was familiar

with the provision of the Best Bus Joint Venture agreement, which

stated that Laidlaw may assign its responsibilities and duties

under the agreement. She asked her staff whether it was aware of

any assignment by Laidlaw. Minor's staff was unsure at that

point. In any event, she considered the assignment provision

irrelevant because the bid documents that she had and the

information presented in the bid showed Laidlaw as the bidding

partner and a member of the Best Bus Joint Venture. She agreed

that if Willett had been the bidding member of Best Bus rather

than Laidlaw, Best Bus would have qualified for the 2% LBP.

Minor testified with regard to assignment that page 7 of

the general conditions on the bid specifications requires that

any assignee of rights under the contract file written notice of

that assignment with the Board of Education. She testified that

she did not receive any written notice of the assignment from

Best Bus Joint Venture or Laidlaw. Minor testified that general

conditions of the bid also prohibit delegation of performance

without prior written consent of the Board. She testified that

the Board never provided written consent to either Best Bus or

Laidlaw to allow Willett to perform.

The Best Bus' bid submission indicated that Laidlaw was a

member of the joint venture, not Willett. Minor indicated that,

if Best Bus had called and told her that the documents contained

a mistake and that Willett was actually a member, she would have

been unable to consider that information in evaluating the bid.

She was required to evaluate the bids based on the information

submitted in the bid. Prior to the lawsuit filed by Best Bus on

July 25, 1996, no one from Laidlaw, Willett or Best Bus

challenged the validity of the 2% LBP. They only challenged

whether or not it should be applied to Best Bus.

Francisco DuPrey, director of student services of the

Chicago Board of Education, testified that the assignment of bus

routes takes approximately four to six weeks. The bureau of

student services did not run an alternative routing process based

on the pending lawsuit because this would have taken away from

its ability to complete the initial routing process.

DuPrey testified that the Board transports approximately

50,000 students and that manipulating data in order to design

routes is a cumbersome process. If the preliminary injunction

were allowed, the bureau of student transportation would have to

go back and begin the process from day one, including inspecting

the Best Bus buses. He did not believe this could be done before

school started since the bureau already had inspections scheduled

through the end of August at the time of the hearing.

McNair Grant, director of the bureau of purchasing,

testified that he was responsible for administering the 2% LBP

for contracts adopted by the Board. He explained the bid

specifications, including Rule 5.5, at the March 21 pre-bid

meeting. After the pre-bid meeting, Grant was approached by

Clifton Hudson, whom he recognized as representing Willett.

Hudson asked him if Best Bus would be okay under this new rule.

Grant told him to just make sure that he submitted all the

documents. Grant's emphasis on supplying the documents was to

enable the Board to evaluate whether or not Hudson's joint

venture was a local business. Grant stated that he would not

promise Hudson that he would be considered a local business and

that he did not indicate to Hudson that it was his opinion that

Best Bus would be a local business. He stated that Hudson did

not identify to which company he was referring, did not tell him

he was inquiring about the locality of Laidlaw, and did not tell

Grant that Laidlaw would be a member of Best Bus.

Grant did not have further contact with Hudson until the

middle of July, at which time he requested additional information

on Laidlaw to determine its eligibility as a local business. He

called Hudson because Hudson was identified on the bid document

as the manager of Best Bus Joint Venture. Grant asked Hudson to

provide disclosure-of-ownership forms. The Board requested a Dun

& Bradstreet report, which indicated that Laidlaw had 80,000

employees with the majority of their work force located outside

the City of Chicago.

The Board did not as a regular matter of course allow

parties to delegate performance of any obligations under

contracts to wholly owned subsidiaries without prior written

consent of the Board. The issue of an assignment to another

entity had never previously impacted the question of whether

there would be an award based on the 2% LBP because Rule 5.5 did

not apply to those prior contracts.

Clifton Hudson, the president of Willett Motor Coach

Company, testified that Best Bus Joint Venture had contracts with

the Board before and after the purchase of Willett by Laidlaw.

He believed that the joint ventures previously showed Laidlaw as

one of the joint venture partners subsequent to the merger and

that contract documents indicated at those times that Laidlaw

might or would assign performance to Willett. In each of those

cases, an assignment was made, but it was not done in writing,

and no notice was given to the Board of the actual fact of

assignment. Hudson testified that the Board never objected to

Willett providing services on behalf of Laidlaw even though it

knew that was occurring.

Hudson spoke with Grant after the March 21 pre-bid meeting.

He asked whether Willett would be considered local. He did not

tell Grant that Willett was not a bidder under the joint venture.

At the time he spoke with Grant, the bid had not been submitted.

Hudson admitted that after Grant told him that Willett would be

considered local, Best Bus submitted its bid with Laidlaw as the

joint venture member. He also admitted that the 1996 joint

venture agreement did not anywhere indicate that Willett would be

doing the bus service for Laidlaw.

According to Hudson, Best Bus submitted the material

requested by the Board in order to demonstrate that it was local.

Best Bus did not challenge the validity of the 2% LBP during the

pre-bid meeting, during the Board's analysis of the bids, or

during the Board's meeting convened to hear public comment on the

bids prior to voting on the awards. Hudson stated that Best Bus

did not challenge the validity of the 2% LBP until Best Bus was

informed it would not get the benefits of the preference.

Rachel Hubka is the president and owner of Rachel's as well

as the chief operating officer for RR. RR is composed of two

member bus companies, Rachel's Bus Company (Rachel's) and

Reliable Bus Company (Reliable). Rachel's is certified as a

"Women's Business Enterprise" (WBE). The purpose of the joint

venture is to comply with the minority participation goals set by

the Board for affirmative action.

Both Rachel's and Reliable were aware of the Board's

adoption of the 2% LBP and had determined that RR qualified for

the 2% LBP at the time RR submitted its bid. Hubka testified

that Rachel's met the Board's qualifications for a local

business, because Rachel's is authorized to do business in the

City of Chicago, has offices and bus facilities in Chicago, has a

license to do business in Chicago, has all its full- and part-

time employees working in the City of Chicago, and pays the head

tax imposed by the City of Chicago.

After reviewing the schedule of the various bids, Hubka

determined that RR was entitled to the 2% LBP and that Best Bus

was not entitled to the 2% LBP, and determined that RR would be

awarded buses based on its bid and the application of the 2% LBP.

She took certain steps in reliance on the fact that the Board

would apply the 2% LBP in its determination of awards, such as

renewing leases with various bus companies. When the Board

notified RR of its award of type I buses, she expended monies to

prepare the buses for the upcoming school year.

Rachel's revenues during the 1995-96 school year amounted to

$4.5 million, of which less than 1% came from routes or vehicles

other than those awarded by the Board. Other than the public

school routes awarded under the bid, Rachel's has one year of a

three-year contract left with the Board for six nonpublic school

routes. Those routes alone are not sufficient to keep Rachel's

in business without the Board's public school routes, and

Rachel's would not be able to continue to service the nonpublic

school routes without the award of the public school routes.

Without the public school routes, Rachel's would lose all of its

drivers, would not be able to maintain its leases on the vehicles

or the property and would be forced to terminate its full-time

and part-time staff.

Edmond Ellis, president and owner of Reliable, testified

that Reliable does not have a parent or subsidiary relationship

with any other company. He is also RR's administrative manager,

responsible for the day-to-day contact and relationships with the

Board. Reliable met the Board's qualifications for a local

business. In reliance on the expectation that the Board would

honor the integrity of the bid and apply the 2% LBP accordingly,

Reliable took the same steps that Hubka testified about to

prepare its buses for the school year, but with the additional

step of submitting its vehicles for emission testing.

Reliable's revenues during the 1995-96 school year amounted

to approximately $10 million, of which 1% to 2% percent came from

routes or vehicles other than those awarded by the Board.

Without the public school routes, Reliable would have to close

one of its two facilities, would only be able to keep between 10

to 12 of its 50 full-time employees and would only be able to

keep 130 of its 325 part-time employees.

The trial court denied Best Bus' motion under count I. The

trial court found that Best Bus was not a local business as

defined by Rule 5.5 and, therefore, not entitled to a 2% LBP.

The trial court found that Laidlaw, not Willett, was the party to

the joint venture agreement.

As to counts II, VII and VIII, the trial court found that

Best Bus was estopped from challenging the validity of the 2%

LBP.

Despite its ruling estopping Best Bus from asserting the

invalidity of Rule 5.5, the trial court did rule on the

constitutionality of the statute. The court rejected Best Bus'

allegation that the 2% LBP violated the interstate commerce

clause of the United States Constitution. However, the trial

court accepted Best Bus' allegation that the 2% LBP is

unconstitutional because the Board lacks statutory authorization.

The Board moved to reconsider that portion of the opinion

ruling on the constitutionality of Rule 5.5. The Board's motion

was denied. Plaintiffs moved to reconsider the trial court's

findings. The plaintiffs' motion was denied.

We now address the validity of the local business

preference.

The Illinois School Code requires that certain contracts be

awarded to the lowest responsible bidder. 105 ILCS 5/34-21.3

(West 1994). The purposes for requiring public bodies to engage

in competitive bidding are to invite competition, to guard

against favoritism, improvidence, extravagance, fraud and

corruption and to secure the best work or supplies at the lowest

price practicable. Compass Health Care Plans v. Board of

Education, 246 Ill. App. 3d 746, 751, 617 N.E.2d 6, 9 (1992);

O'Hare Express, Inc. v. City of Chicago, 235 Ill. App. 3d 202,

208, 601 N.E.2d 846, 850-51 (1992). While the competitive

bidding statute does not automatically compel the Board to award

a contract solely on the basis of lowest cost (S.N. Nielsen Co.

v. Public Building Comm'n, 81 Ill. 2d 290, 299, 410 N.E.2d 40, 44

(1980); Court Street Steak House, Inc. v. County of Tazewell, 163

Ill. 2d 159, 165, 643 N.E.2d 781, 784 (1994)), it does specify

that the contracts be awarded to the "lowest responsible bidder"

after due advertisement. 105 ILCS 5/10-20.21 (West 1994). It is

the public body that specifies the terms of the contract for

which it solicits bids and the criteria that bidders must meet in

order to be considered a "responsible bidder." Compass Health,

246 Ill. App. 3d at 751, 617 N.E.2d at 9. Thus, the law is clear

that a public body possesses great discretion in determining the

lowest responsible bidder. Financial responsibility and ability

to perform are not the only relevant factors. A contract may be

awarded to a higher bidder, "where this is done in the public

interest, in the exercise of discretionary power granted under

the laws, without fraud, unfair dealing or favoritism and where

there is sound and reasonable basis for the award as made." 10

McQuillin on Municipal Corporations 29.73a, at 429-30 (3d ed.

1966).

The Board has certain enumerated powers granted by the

Illinois legislature. Specifically stated in the School Code is

that "the board shall also exercise all other powers that *** may

be requisite or proper for the maintenance and development of a

public school system, not inconsistent with the other provisions

in this Article *** which apply to all school districts." 105

ILCS 5/34-18 (West 1994). This section also empowers the Board

to "approve programs and policies for providing transportation

services to students." 105 ILCS 5/34-18(8) (West 1994).

While the Board possesses a broad range of powers to

implement policies relating to education, it is limited to those

powers expressly granted by law. The Illinois Constitution

states that "school districts *** shall have only powers granted

by law." Ill. Const. 1970, art. VII, 8.

The Board argues that there is nothing in the School Code

that prohibits the Board from including a local preference factor

when determining who is the lowest responsible bidder. We think

that the appropriate question is whether there is anything in the

School Code that allows the Board to give preferential treatment

to local businesses.

A reading of the School Code and the record before this

court presents nothing that expressly authorizes the Board to

create a local business preference. Section 29-6.1, which

authorizes school boards to enter into transportation contracts,

does not provide any authority for preferences in bidding. Also,

section 10-20.21, which enumerates the awarding of all contracts

based upon the lowest responsible bidder, does not grant

authority to create a local preference. The Board's Rule 5.5

appears to be designed to favor local business. As this court

stated in Cardinal Glass Co. v. Board of Education of Mendota

Community Consolidated School District No. 289, 113 Ill. App. 3d

442, 448, 447 N.E.2d 546 (1983), such favoritism, "without

adequate and sufficient justification, *** would constitute

arbitrary and capricious action." We believe that the 2% local

business preference has no proper legislative authority and is an

arbitrary and capricious delegation of power to a municipal unit

and is therefore unconstitutional.

We now address whether Best Bus is estopped from challenging

the validity of the 2% LBP.

On January 24, 1996, the Board adopted Rule 5.5,

establishing a 2% local business preference for contracts over

$10,000. A pre-bid meeting was held on March 21, 1996, at which

time a representative from each member of the joint venture,

along with Hudson from Willett, was in attendance. Prior to the

pre-bid meeting, a list of revisions and additions from the

previous contract containing the addition of the 2% LBP was made

available to the public. The terms and conditions of the 2% LBP

were described by McNair Grant at the pre-bid meeting, and those

same terms and conditions are set forth in the Best Bus bid.

Every member of Best Bus, along with Willett, was aware of

the 2% LBP by the March pre-bid meeting. Plaintiffs were aware

that Laidlaw was not local, yet Laidlaw did nothing at this point

to challenge the 2% preference. In fact, Hudson, president of

Willett, asked Grant if his company would be okay under the new

rule. He testified that he was inquiring about the status of

Willett, not Laidlaw, since Laidlaw could not be considered local

under Rule 5.5. At any rate, we do not accept Best Bus' argument

that it relied upon the assurances of Grant and, therefore,

thought that it would qualify as a local company. Best Bus knew

before submitting its bid that it did not qualify as a local

business because of Laidlaw, yet it still submitted a bid with

Laidlaw listed as one of the joint venturers. Laidlaw, when

requested by the Board, submitted documents without questioning

the validity of the 2% LBP. It was only in late July when the

awards were made and Best Bus was not awarded the type I buses

that plaintiffs sought to invalidate the 2% LBP.

In City of Wyoming v. Illinois Liquor Control Comm'n, 48

Ill. App. 3d 404, 407, 362 N.E.2d 1080, 1082-83 (1977), the court

held that "a party who fails to assert the invalidity of an

ordinance within a reasonable time after its passage[] is

estopped from so asserting if the failure resulted from that

party's lack of due diligence and the opponent has substantially

changed his position in reliance on the ordinance." The Board

had contracted with other vendors and developed bus routes to

prepare for the school year by the time Best Bus challenged the

validity of the 2% LBP. RR had incurred obligations in reliance

on being awarded the contract. To grant relief to Best Bus would

mean a rerouting of buses and schedules; rescinding current

contracts with other vendors that, in reliance on receiving the

award, prepared their buses and drivers and expended money in

other related costs; awarding new buses to new vendors; and

reinspection of buses.

Best Bus, after attempting to benefit from the 2% LBP, now

cannot seek to challenge the Board's authority when not a

beneficiary of the new rule. Cochennet v. Ambrose, 21 Ill. 2d

520, 524, 173 N.E.2d 454, 456 (1961) ("right to question the

validity of a statute may be waived *** by any course of conduct

which shows an intention to waive any question as to the validity

of the statute"). While this court has ruled that the 2% LBP is

invalid, we find that Best Bus is estopped from challenging the

validity of this statute because it waited until it did not

receive the benefits of the ordinance before contesting it.

Since we have determined that the 2% LBP is invalid and that

Best Bus is estopped from asserting the ordinance's invalidity,

we will not address the remaining issues.

Accordingly, the judgment of the circuit court is affirmed.

Affirmed.

HARTMAN, P.J., concurs.

HOFFMAN, J., specially concurs.

JUSTICE HOFFMAN, specially concurring:

I concur with the result reached by the majority in this

case. I write specially, however, to register my disagreement

with my colleagues on both substantive and procedural grounds.

The trial court's finding that Best Bus Joint Venture (Best

Bus) was not a local business entity as defined by Rule 5.5 of

the Board of Education of the City of Chicago (Board) is amply

supported by the record. Laidlaw Transit's participation in the

joint venture resulted in a majority of Best Bus's regular full-

time work force being employed outside of the City of Chicago.

Consequently, the trial court properly denied the plaintiffs

requested relief under count I of their amended complaint.

I agree with the majority that Best Bus has waived the right

to challenge the constitutionality of, or Board's authority to

promulgate, the 2% local business preference (LBP) set forth in

Rule 5.5 and the subject bid specifications. By participating in

the Board's bidding process under Rule 5.5 and seeking to avail

itself of the benefits of the 2% LBP without questioning the

constitutionality of such a preference or the Board's power to

enact it, Best Bus waived its right to challenge the validity of

Rule 5.5 and the LBP on either statutory or constitutional

grounds. See Calabrese v. State Farm Mutual Automobile

19

Insurance Co., 187 Ill. App. 3d 349, 543 N.E.2d 215 (1989). The

trial court, therefore, properly denied the plaintiffs injunctive

relief under counts II, VII and VIII of their amended complaint.

For the reasons stated above, and only for those reasons, I

concur in the result reached by majority in this case.

Substantively, I cannot agree that Best Bus was estopped to

raise the invalidity of Rule 5.5 or the Board's LBP. Equitable

estoppel is a doctrine which acts to preclude a party from

asserting rights against another who, in good faith, relied upon

the party's voluntary representations or conduct, and was

thereby led to change its position for the worse. Trochelman v.

Village of Maywood, 259 Ill. App. 3d 1, 631 N.E.2d 334 (1994);

Stoller v. Exchange National Bank of Chicago, 199 Ill. App. 3d

674, 557 N.E.2d 438 (1990). Nothing in the record in this case

reflects that either the Board or RR Bus Service Joint Venture

(RR Bus) changed its position in reliance upon any representation

or conduct of the plaintiffs. Bust Bus did not induce the Board

to enact Rule 5.5 or the LBP; it did not induce the Board to

advertise for bids; and it did not, by representation, action or

inaction, induce RR Bus to participate in the subject bidding

process. To my mind, the majority confuses waiver and estoppel.

The doctrines are similar, but they are not identical.

Lastly, I believe that the majority should have refrained

from addressing the validity of Rule 5.5 and the Board's LBP.

Once having found that Best Bus did not qualify as a local

business entity under Rule 5.5 and that it had waived the right

to challenge either the rule or the LBP, nothing more need have

been stated. Particularly troubling to me are the majority's

constitutional findings. Constitutional questions should be

avoided when the issue before a court can be decided on other

grounds. Rescue Army v. Municipal Court, 331 U.S. 549, 568-69,

91 L. Ed. 1666, 67 S. Ct. 1409 (1947); People v. Mitchell, 155

Ill. 2d 344, 356, 614 N.E.2d 1213 (1993).