Municipio de Aguada v. W Construction, LLC

Municipio de Aguada v. W Construction, LLC

KLAN202200738 (consolidated with KLAN202200740), Tribunal de Apelaciones de Puerto Rico, Panel I (March 21, 2023). Before Sánchez Ramos, J. (President, dissenting), Rivera Torres, J. (Reporting Judge), and Salgado Schwarz, J. Appeal from the Superior Court of Aguada, Case No. AU2021CV00596.

Relevant Facts

• In October 2018, the Municipality of Aguada published an RFP for debris removal and vegetation clearing services following Hurricane María. The RFP required bidders to have a minimum of 2 years of experience in disaster recovery logistics, knowledge of FEMA public assistance reimbursement procedures, and prior service in jurisdictions with at least 10,000 persons. Funding was structured as 10% municipal and 90% FEMA.

• W Construction, LLC, which had been incorporated on August 30, 2017 (only 14 months before the contract), was awarded the contract on December 4, 2018. On December 11, 2018, the Municipality and W Construction executed an initial contract for $3,000,000 with a 2-year term.

• On March 28, 2019, the contract was amended to add $4,000,000, increasing the total to $7,000,000—a 133% increase. W Construction completed all debris removal work within the agreed timeframe. FEMA reimbursed the Municipality $4,669,894.33 for services rendered.

• A former legislator (later mayor) filed a complaint with the Department of Justice alleging possible governmental corruption. Subsequent investigations by the Department of Justice, the Special Independent Prosecutor Panel (FEI), and the Administrative Disciplinary Processing Unit (UPAD) all concurred in finding irregularities.

• On November 11, 2021, the Municipality filed a declaratory judgment action seeking to void the contract and amendment. Recovery Finance Limited intervened, claiming it had financed 80% of W Construction's costs and was the principal beneficiary of contract proceeds. The trial court declared both the contract and the amendment null and void.

Legal Issues

• Whether the trial court had jurisdiction to adjudicate the contract's validity through a declaratory judgment action rather than through judicial review of the RFP adjudication process.

• Whether W Construction failed to meet the essential two-year experience requirement because the corporation was only 14 months old when the RFP was published.

• Whether the contract amendment (exceeding 30% of the original value) required a new bidding process under Puerto Rico's Autonomous Municipalities Law.

• Whether defects in the RFP process rendered the contract void ab initio or merely voidable.

Positions of the Parties

• The Municipality argued the contract was void because W Construction lacked the required 2 years of corporate experience, and that the 133% amendment violated the Autonomous Municipalities Law's 30% threshold for change orders requiring a new bidding process.

• W Construction argued that its president's personal experience of over 17 years in demolition and debris removal satisfied the RFP requirement, that experience should be evaluated based on individuals associated with the corporation (under AEE v. Maxon), and that the trial court lacked jurisdiction to collaterally attack a final RFP adjudication. Recovery Finance Limited argued it was denied due process and sought payment for having financed 80% of W Construction's costs.

Decision of the Court and Reasons

The Court of Appeals affirmed the trial court's declaration that both the contract and the amendment were null and void (Judge Sánchez Ramos dissenting).

On the experience requirement, the majority held that the RFP explicitly required the bidder entity to demonstrate at least two years of experience, and that the notice did not authorize evaluation of shareholders' or employees' personal experience as a substitute for corporate experience. Allowing municipal officials to arbitrarily decide when to apply bidding requirements undermines the integrity of public procurement and violates fair competition principles.

On the amendment, the court held that a 133% increase far exceeded the 30% statutory threshold under the Autonomous Municipalities Law, and thus required a new bidding process. The amendment was invalid even assuming emergency circumstances.

On the nature of the defect, the court found the contract was void ab initio (not merely voidable) because it violated essential legal requirements of the procurement process.

Judge Sánchez Ramos dissented, arguing that under AEE v. Maxon, the president's personal experience should satisfy the requirement, that the Municipality bore the burden of proving non-compliance but failed to introduce the complete bidding file, and that practical justice favored enforcement given that services were satisfactorily performed and FEMA had reimbursed over $4 million.