Hylton v. Mayor and City Council of Baltimore

Murphy, C. J., delivered the opinion of the Court. This appeal presents the question whether a contract between the Mayor and City Council of Baltimore (the City) and Monsanto Enviro-Chem Systems, Inc. (EnviroChem) for the construction of a resource recovery solid waste disposal system was concluded in violation of the competitive bidding requirements contained in § 4 of Article VI of the City’s Charter. The lower court (Ross, J.) determined that there was no such violation, as claimed by appellants, taxpayers and residents of Baltimore City. The appeal to us is from the court’s decree declaring the contract valid and binding upon the parties, notwithstanding the fact that it had been negotiated and executed without competitive bidding. 1 By the terms of the contract, Enviro-Chem agreed, for $14,742,000, to construct a resource recovery solid waste disposal plant for the City utilizing its “Landgard” non-patented proprietary process for disposing of one thou ²⁶⁹ sand tons per day of garbage and trash by pyrolysis 2 and recovering saleable by-products therefrom (resource recovery), viz., usable steam, glassy aggregate and ferrous metals.

The agreement specified that $6,000,000 of the contract price would be paid by the City from grant funds which it would receive from the Environmental Protection Agency (EPA) of the United States; that $4,000,000 would be paid from funds received by the City through the Maryland Environmental Service (MES), an agency of the State of Maryland; and that the remainder of the contract price would be paid by the City from its own resources. The contract, which was finalized on December 8, 1972, was executed against this factual background: In an effort to find a satisfactory solution to its problem of disposing annually of approximately 540,000 tons of garbage and trash, the City initiated an in-depth study in early 1970 of all available technology in the field of solid waste disposal; the study included on-site investigations of operational facilities throughout the nation. As a result, the City prepared specifications and sought competitive bids in 1970 for a seventeen-year service contract for a one thousand ton per day solid waste disposal system, operational within State pollution control requirements. The five bids received by the City failed to comply with the specifications set forth in the bidding documents and all bids were rejected.

The City thereafter explored the possibility that under the Solid Waste Disposal Act of 1965, as amended by the Resource Recovery Act of 1970, 42 U.S.C. §§ 3251 , et seq. (1970), it could obtain a grant of funds from the federal government to assist it in constructing its own solid waste disposal system. By those enactments, the Congress of the ²⁷⁰ United States recognized that the problem of solid waste disposal was a matter of national concern necessitating federal action through financial and technical assistance to municipalities “in the development, demonstration, and application of new and improved methods and processes to reduce the amount of waste and unsalvageable materials and to provide for proper and economical solid-waste disposal practices.” 42 U.S.C. § 3251 (a) (6). Acting through EPA the federal government was empowered to make grants to selected municipalities for the demonstration of .resource recovery solid waste disposal systems, the grants being limited in amount to 75% of project cost, including costs of design, construction, operation and maintenance. 42 U.S.C. § 3254b.

The grants were in furtherance of the congressional purpose “to promote the demonstration, construction, and application of solid waste management and resource recovery systems which preserve and enhance the quality of air, water, and land resources.” 42 U.S.C. § 3251 (b) (1). In addition to conditions imposed by the provisions of 42 U.S.C. § 3254b (b) (1) and 40 C.F.R. §§ 30.100 , et seq. (1972), proposals to be submitted by municipalities applying for grants were to be judged on requirements and criteria specified in an EPA document entitled “Instructions for Submitting a Pre-application for a Resource Recovery Systems Demonstration Grant” (the EPA Instructions). Under EPA standards, the proposed project could not duplicate a resource recovery system that had already been developed and operated at full scale; however, it could not be an untested system because the EPA Instructions provided that: “The feasibility of the unit processes of the proposed system must have been satisfactorily demonstrated in a pilot plant application at a sufficient rate to enable a reliable projection of the technical and economic performance of the proposed systems to be made.

The operation must have been documented in a formal technical report.” ²⁷¹ The EPA Instructions further provided that a minimum of 60% (by dry weight) of the solid waste input must be converted to useable energy or recovered as saleable materials; that purchase commitments, in the form of contractually binding purchase agreements or letters of intent, for at least 50% of the saleable materials must be included with the grant application; and that a market analysis defining markets for saleable products, particularly those for which no purchase commitments were included in the proposal, should be presented. The action taken by the City to obtain an EPA demonstration grant was thoroughly documented by F. Pierce Linaweaver, the City’s Director of Public Works, who, in an affidavit included in the record before us, stated: 3 “It then became necessary for us to choose a system upon which to base our application. At that point in time we reviewed all of the proposed solutions to Baltimore’s solid waste disposal problem in search of the one system that we felt was able to solve the problem and at the same time be eligible for Federal funding. In order to determine the system that best suited our situation, certain criteria were used.

The system which we were going to choose had to convince us that a scale-up from a prototype to 1,000 tons per day could be achieved. Another factor that was to be considered in the scale-up was that the system at 1,000 tons per day was economically justifiable when compared to other scale-up magnitudes. It was absolutely necessary that the system meet all pollution control standards of the State. The system’s resource recovery would have to be at a maximum and produce by-products which could be marketed.

In addition, it cannot be overlooked ²⁷² that a choice of a system had to be one which we felt would qualify for Federal funding under the Resources Recovery Act of 1970. * * * “We believed that in preparing the City’s application for a grant under the Act, our previous competitive bidding in 1970 as well as our continuing examination of all existing technologies had given the City a complete awareness of the state of the art in solid waste disposal systems. * * # It cannot be overlooked that the application could not be submitted with alternatives but had to have the City’s choice of one system.” (Emphasis supplied.) The City rejected incineration, composting, landfilling and “incineration residue separation” as unsuitable to its needs, a factual assertion which was not challenged at trial. Several other systems using pyrolysis were investigated and rejected. As to these, Linaweaver explained in his affidavit: “. . . there were several other companies proposing solid waste disposal systems using to varying extents a pyrolysis process, among them the Garrett Research and Development Company, Torrax Systems, Inc., and Union Carbide, Incorporated. None of these systems, however, had advanced to the point where they were ready for demonstration on a size of 1,000 tons per day.

Garrett Research and Development was not chosen because it had not advanced beyond the bench scale level. Torrax Systems, Inc., although it had a larger prototype, was not chosen because it was having difficulties with its then existing plant. Union Carbide, Incorporated, was not chosen because its resource recovery was not satisfactory. In any event, ²⁷³ none of the systems had advanced to the point where they were ready for demonstration on a size of 1,000 tons per day scale.” The substance of Linaweaver’s affidavit was confirmed and amplified by Dale Chapman, Vice President in charge of operations for Enviro-Chem, who testified at the trial that Garrett’s pilot plant had operated at a five tons per day level, had not yet published any information on its pollution levels, and produced fuel oil as the primary by-product; that Torrax’s pilot plant, with a capacity of 150 tons per day, had not performed consistently at that level, had not yet produced reliable information on air pollution levels, and produced steam and iron floes; that Union Carbide had operated at four tons per day, and had not yet published information on the level of air pollution.

In addition to these three pyrolysis systems, there was evidence of the existence of the so-called Melt-Zit process developed by American Thermogent and later acquired by Process Plants Inc.; that the Melt-Zit process was technically not a pyrolytic process, but rather high temperature incineration; that it operated at a one hundred tons per day level, did not meet Maryland pollution standards, and produced by-products similar to Torrax, i.e., steam, iron floes and a slag residue or frit of metal and glass chemically and by temperature fused. Both Linaweaver and Chapman unequivocally stated that Enviro-Chem was unique, of the some seventy companies investigated by the City, in possessing all the characteristics that the City was seeking. 4 Based on this evidence, the City selected Enviro-Chem’s “Landgard” pyrolysis process as the subject of its demonstration grant application. In enumerating the rea ²⁷⁴ sons for the City’s selection of Enviro-Chem, Linaweaver said in his affidavit: “In addition to the fact that this system had been tried on a prototype basis which made it clear to us that the technology would work, and the fact that there were opportunities for significant resource recovery, this company was willing to guarantee that it could meet the City’s 1.000 tons per day requirements and the stringent pollution control standards in the State of Maryland. This is the only company that was willing to make such a guarantee.

They also guaranteed the pay back of $4,000,000 of the City’s risk money in the unlikely event that the system would not work. This system had been proven through the prototype stage and was ready for demonstration on a size of 1,000 tons per day scale. This was also the only system which satisfied our size requirements of the 1.000 tons per day. * * * I should reiterate that this was the only system by any private company where the technology had been advanced to the point in its development where we were confident that the technology could satisfy our requirements on a size of 1.000 tons per day, meet our resources recovery goals, and meet pollution control requirements in the State of Maryland. In our opinion this system was the best system for Baltimore and its needs irrespective of the Federal funding. * * * “This system was the only one which was technologically advanced to meet all the requirements of Baltimore City.” (Emphasis supplied.) The City’s application was one of sixty-six received by EPA; the proposals were evaluated by EPA and nine ²⁷⁵ were selected for further consideration.

On September 8, 1972, EPA awarded demonstration grants to three applicants: Baltimore ($6,000,000), San Diego ($2,900,-000) and Lowell, Massachusetts ($2,400,000). Subsequent to the award, on November 30, 1972, EPA notified the City that: “. . . the awarded EPA funds can only be expended to demonstrate the Landgard solid waste pyrolysis system developed by Monsanto Enviro-Chem Systems, Inc. # * ♦ . . . the subject application was approved by EPA to demonstrate the Landgard system. No evidence has come to our attention that would indicate that anyone other than Monsanto Enviro-Chem Systems, Inc. could satisfactorily design and construct the Landgard system.” On condition that the project be that of Enviro-Chem, as specified in the EPA grant award, MES awarded $4,-000,000 to the City to be applied to the contract price, as authorized by the provisions of Maryland Code (1957, 1971 Repl. Vol.), Article 33B, § 4.

I It is undisputed that the contract between the City and Enviro-Chem is a contract for a public work, that it involves an expenditure of more than $5,000 and that the City neither advertised nor received bids in accordance with its Charter (1964 Rev.), Article VI, § 4 (b), which provides in pertinent part: “(b) In contracting for any public work, or the purchase of any supplies, materials, and equipment ... or of any services other than professional services, involving an expenditure of five thousand dollars or more, for the City or by any municipal agency, advertisements for ²⁷⁶ proposals for the same shall first be published at least twice in two or more daily newspapers published in Baltimore City unless otherwise provided by the Charter. * * * “The contract for any public work or the purchase of any supplies, materials, and equipment ... or of any services other than professional services, involving an expenditure of five thousand dollars or more shall be made by the Board of Estimates in the manner provided in sub-section (g).” Article VI, § 4 (g) of the Charter details the mechanism for opening and selecting bids and provides that the Board of Estimates “shall award the contract ... to the lowest responsible bidder” or else “shall reject all bids.” Appellants contend that the Charter requirements are mandatory. Relying upon Hanna v. Board of Education of Wicomico County, 200 Md. 49 , 87 A. 2d 846 (1952), and Maryland Pavement Co. v. Mahool, 110 Md. 397 , 72 A. 833 (1909), they claim that failure to adhere to the competitive bidding requirements of the Charter renders the contract in issue null and void. Appellants contend that there can be no exception to the competitive bid requirements other than those expressly outlined in §4 (d) of the Charter, which provides: “(d) When any supplies, materials, equipment, or services are of such a nature that no advantage will result in seeking or it is not practicable to obtain competitive bids or when the need for such supplies, materials, equipment, or services is of an emergency nature, and a certification to that effect is filed by the Department of Finance with the Board of Estimates, the provisions of subsection (b) may be dispensed with, but such purchase shall not be ²⁷⁷ made, nor shall the City incur any obligation therefor, until approval of the Board of Estimates. . . .” Clearly, the § 4 (d) exceptions from the competitive bidding requirements do not expressly cover contracts for public works involving expenditures of $5,000 or more. The relevant inquiry, therefore, is whether § 4 (b) admits of any exceptions other than those enumerated in § 4 (d).

The general purpose of competitive bid requirements is