The City of Scottsdale owns several swimming pools. In 2016 Neptune complained the City’s contract with a non-profit group called SAC for operating the swimming leagues should be open for bidding. Neptune asserted SAC was not paying a fair value for the contract and violated the Gift Clause. The City ignored this and renewed a three year contract with SAC thus continuing a 50-year relationship. But as that contract was expiring, the City for the first time issued a Request for Proposal. Neptune and SAC submitted proposals. City employees used a grading matrix and initially said SAC’s proposal scored substantially higher. Not true. The City then said it was a virtual tie and came up with other reasons for awarding the contract once again to SAC. Then when this was questioned, the City cancelled the RFP and stated the City was not required to use the RFP process. Neptune filed suit.

The Arizona Supreme Court holds the Gift Clause does not require competitive bidding or accepting the highest bid although the competitive bid process is a factor as to the market value of the license. The focus is on whether a public entity gets more than it gives. The Gift Clause is violated if the “give” and “get” are grossly disproportionate. Public entities may also consider nonpecuniary factors. “In sum, the Gift Clause serves to check mismanagement of public resources, but it does not require a public entity to maximize profits in every transaction.” Neptune did not prove a violation of the Gift Clause. The Court recognized, however, that failing to follow its own rules and cancelling the RFP may violate the public interest and be an abuse of discretion. The RFP is different from an invitation to bid on a contract where a public entity is required to award a contract “to the lowest responsible and responsive bidder.”  An RFP allows for discretion. While the City was not required to award Neptune the contract, “We conclude that disputed issues of material fact exist as to whether the City acted with a ‘fixed intent’ to award the license to SAC throughout the RFP process and engaged in favoritism by canceling the RFP after Neptune submitted the more advantageous proposal.” The Court runs through a list of questionable actions and remands the case for further consideration.  On remand, the trial court has been given pretty good reasons for finding an abuse of discretion.

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