Attorney General's Opinion
Attorney General, Richard Blumenthal
July 7, 2004
The Honorable Marc S. Ryan
Office of Policy and Management
450 Capitol Avenue
Hartford, CT 06106-1308
Dear Secretary Ryan
As you have described in prior communications, including your recent letter to me dated April 28, 2004, the Office of Policy and Management ("OPM") and the Department of Public Works ("DPW") have been attempting to make an appropriate and beneficial disposition of certain surplus State property, namely the property and facilities known as the Norwich State Hospital (the "Hospital"). You previously requested and received from me a formal opinion (dated April 12, 2004) treating certain questions regarding the legal ramifications of allowing a consultant to the State, named Spaulding & Slye, to submit a competitive proposal for its own purchase and development of the Hospital after it had worked for many months, under contract to the State, studying the possible development and sale of the Hospital, and helping to solicit and evaluate proposals for the property from other parties.
On April 12, 2004, I issued an opinion concluding that Spaulding & Slye should not be permitted to compete for the Hospital purchase contract. Its long and exclusive opportunity to develop knowledge of the Hospital, of the market and possibilities for its development and sale, and of the knowledge and views of State officials involved with the Hospital and with the solicitation and evaluation of proposals for its development and sale, would likely give other bidders the legal opportunity to challenge the bid process based on illegal favoritism, even though unintended. I also concluded that action taken to prohibit Spaulding & Slye from participating in the bid process would likely, if challenged, be found to be appropriate.
You have now asked, in your April 28, 2004 letter, essentially the same questions regarding C.B. Richard Ellis ("Ellis"), a consultant retained by the State in 1997 to assist in the disposition of the Hospital. You have been informed that Ellis may make a competitive proposal for purchase and development of the property, either in its own right or on behalf of one of its clients. Specifically, you ask: "Are there any ethical and/or legal preclusions that would prohibit the State from allowing Ellis from submitting and/or representing an entity that intends to [submit] a bid in response to the State's RFP [request for proposal for purchase of the Hospital]?"
It is my conclusion that the provisions of the 1997 contracting process between Ellis and the State specifically prohibit Ellis from submitting a proposal or representing an entity submitting a proposal on the Hospital property. Additionally, given the relevant facts, and applying the legal principles set forth in my April 12, 2004 opinion concerning Spaulding & Slye, if Ellis is allowed to submit a proposal, other proposers would likely have standing to challenge an award to Ellis or an entity it represents on the basis of unlawful favoritism, even if unintended. Ellis, on the other hand, would likely not have standing to challenge the State's denial to it of an opportunity to submit a proposal.
As stated in your April 28, 2004 letter, on or about October 1996, the Department of Mental Health and Addiction Services advised OPM of its intent to close the Hospital because the Hospital was no longer necessary and, therefore, was surplus property under Section 4b-21 of the Connecticut General Statutes. Accordingly, OPM requested plans from other State agencies for the reuse of the Hospital. None of those agencies responded to the request.
In March of 1997, OPM issued a request for proposals (the "March 1997 RFP," Attachment A to your letter) seeking a real estate consultant to assist the State in disposing of certain major surplus State properties, including the Hospital. The March RFP requested that each responding firm submit a "statement acknowledging [that it] will represent only the State of Connecticut and not any potential buyer or lessee of any specific State of Connecticut property involved in this consultation assignment during the term of or after the expiration [of] a contract awarded pursuant to this request for proposals."
With a signed transmittal letter dated April 9, 1997, Mr. Mark R. Costello of Ellis (apparently then called the "CB Commercial Real Estate Group, Inc.,") forwarded to OPM its proposal responding to the March 1997 RFP. At page 10 of said proposal, the text repeats the language (the "Acknowledgement") of the RFP requirement quoted in the preceding paragraph of this Opinion, and then states, mirroring that language:
Ultimately, four (4) consultants were chosen, one for each of the properties known as the Norwich State Hospital, Fairfield Hills, and Seaside, and another consultant for certain smaller State properties. Ellis was selected as the consultant for the Norwich State Hospital and the resulting contract (Attachment B to your letter) was for $205,000. The contract period was November 1, 1997 through October 31, 2000.
Ellis's responsibilities under its contract included identifying goals and objectives for the disposition of the Hospital; developing baseline data and analyzing what would be the best and highest use of the property; evaluating possible dispositions of the Hospital; selecting strategies for accomplishing the marketing and disposition of the Hospital; and advising and assisting the State with respect to the disposition of the Hospital. Pursuant to its contractual duties, Ellis made a report on these matters to the State in September of 1998, titled "Norwich State Hospital Marketing Plan" (Attachment C of your letter to me).
The State then issued another request for proposals (the "Sale RFQ"), soliciting proposals from developers for a purchase of the Hospital. The two responsive proposals that received the most attention from the State's evaluation committee were from the Mohegan Tribe and from Spaulding & Slye as a representative of the Pfizer Corporation. Officials or citizens of towns in the area of the Hospital made it clear to the State that they preferred the Pfizer proposal, and the Mohegan Tribe withdrew its proposal. Subsequently, Pfizer also withdrew its proposal. The State retained Spaulding & Slye to help continue the search for a buyer for the Hospital.
In March 2004, OPM issued another RFP for the purchase and development of the property. On April 15, 2004, OPM held a mandatory bidders conference concerning, at least in part, the disposition of the Hospital. A development entity named Joshua Gutman was represented at that conference by Ellis, and submitted registration papers (Attachment D to your letter) as a potential developer of the Hospital. Some individuals at the conference questioned whether it was permissible or proper for Ellis to be allowed to be, or to compete to be, a developer of the Hospital, in light of its prior work as consultant to the State on the possible disposition of that property.
ANALYSIS AND CONCLUSIONS
I. The terms and conditions of the March 1997 RFP and of Ellis's proposal in response thereto specifically prohibit
Ellis from representing an entity submitting a proposal for purchase of the Hospital.
The terms and conditions of the March 1997 RFP concerning the contract to assist the State in disposing of the Hospital required each responding proposer to acknowledge that it would "represent only the State of Connecticut and not any potential buyer or lessee of any specific State of Connecticut property involved in this consultation assignment during the term of or after the expiration [of] a contract awarded pursuant to this request for proposals." As a necessary condition of its eligibility to receive the 1997 contract, Ellis made this acknowledgement, committing itself to refrain from doing precisely what it now seeks to do: act as the representative of another entity in its attempt to purchase the Hospital. Clearly, its own prior commitment, in responding to the March 1997 RFP, now bars it from doing so. It cannot validly complain to the courts if the State now requires that Ellis honor its own mandatory and formal commitment.
II. For the State to allow Ellis to represent a prospective purchaser of the Hospital could give rise to a claim of favoritism.
The circumstances of Ellis's prior months-long work on development and marketing of the Hospital would give it an irremediable advantage over other proposers in vying for the Hospital contract. Part I of the March 1997 RFP (Attachment A of your letter) specifically describes the close working relationship between Ellis and the State on this project: "It is contemplated that the firm or firms selected will work with State personnel in the Department of Public Works and Office of Policy and Management on a day-to-day basis."
Ellis had many months of daily opportunities to study matters relevant to the disposition of the Hospital, and access to the views of the representatives of the bidding authority regarding those matters. Its involvement with State officials in the development of disposition strategies, analysis of the property and evaluation of possible uses for the Hospital, gives it an irremedial advantage over other bidders.
As we stated in our April 12, 2004 opinion, under similar factual circumstances, an award to an entity with a previous contractual relationship on the same subject matter may confer standing on other bidders under a claim of favoritism, even if inadvertent. Ardmare Construction Company, Inc. v. Freedman, 191 Conn. 497, 501 (1983); Spiniello Construction Company v. Town of Manchester, 189 Conn. 539, 544 (1983). If the State were to take steps to award the Hospital contract to Ellis, competing bidders, and perhaps even certain non-bidders, could have standing to seek an injunction barring the State from awarding the contract to Ellis, or barring the State from honoring the terms of such a contract.
Moreover, as required by the March 1997 RFP, Ellis, in its response to the RFP, acknowledged that it would not represent any entity other than the State of Connecticut in connection with the sale or development of this property. If the State were to allow Ellis to disregard the terms and conditions of the Acknowledgement and the bid terms and conditions of the 1997 RFP, then other bidders and possibly some non-bidders would have a claim against the State for favoritism. All potential proposers for the 1997 consulting contract were required to agree that in order to obtain that contract, they would have to give up the potential income and other economic benefits that they might obtain as a purchaser, or agent for a purchaser, of the Hospital. Current proposers may have sought the 1997 consulting contract if they had known that they would not have had to forego involvement in future dispositions of the property. It would undermine the integrity of the present proposal process for the State to create an unlevel playing field after the fact in this way. Additionally, Ellis can not now object if the State takes Ellis at its word and does not allow Ellis to do what it agreed not to do.
The State, therefore, should preclude Ellis from submitting a proposal or representing an entity submitting a proposal for the Hospital contract to avoid the appearance of even unintentional governmental favoritism. Additionally, as set forth in our April 12, 2004 opinion, the probability of Ellis having standing to challenge the State's refusal to allow it to participate on the Hospital disposition is remote.
Very truly yours,