Gravel company alleges Glendale violated public contract rules

A lawsuit that a Glendale-based gravel and mining business recently filed in Maricopa County Superior Court alleges that the city violated its own procurement rules when it awarded a competing company’s bid to purchase city-owned property along the Agua Fria River.

In its Nov. 27 complaint, Rare Earth LLC accused the city of crafting the solicitation process so it favored M.R. Tanner Construction’s proposal to buy the nearly 48 acres of dry bed between Glendale Avenue and Bethany Home Road.

Rare Earth also argued that the terms of the city’s contract with M.R. Tanner differed from those outlined in the bid request. It’s asking the court to force Glendale to redo the solicitation process using criteria that “actually promotes competitive bidding.”

Rare Earth cites city emails to contend that Glendale altered the terms of the procurement process so the company's competitor would come out as the favorable bidder. However, the city disputes the claim that it colluded with M.R. Tanner, and said both companies were given an equal chance to bid on the project.

While asking the court to dismiss the case, the city of Glendale denied Rare Earth’s assertions, arguing that it followed its own municipal code and “was not arbitrary and capricious” when it awarded the contract to M.R. Tanner.

A separate filing from the Gilbert-based M.R. Tanner noted that Rare Earth’s $2 million offer for the property “was significantly less” than M.R. Tanner’s $4.75 million bid.

At issue is whether both companies were making purchase offers under the same set of rules and guidelines — namely regarding the city’s requirement to fill in a large hole and build berms at the site within a 90-day window.

M.R. Tanner submitted its bid, noting that the 90-day period to finish the work was unreasonable. That didn’t preclude M.R. Tanner’s offer from being accepted by the city, which later stipulated in the sale and purchase agreement that a 240-day extension could be granted.

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Rare Earth’s bid was so low, explained Tim La Sota, the company’s attorney, because it was under the belief it would only have 90 days to complete the site improvements.

“It’s just a very expensive undertaking that adds greatly to the cost of any bid for this property," La Sota said.

While La Sota didn’t have an exact dollar figure to quote, he said in court filings that Rare Earth would have offered to pay much more for the property if the terms were clear that it could just ask for additional time to make the improvements.

“Normally, all the terms are included in the actual invitation for bids, that way everyone knows what they’re bidding on,” La Sota said Tuesday. “If you start affording certain (circumstances) to bidders … you don’t actually have competition, you have favoritism.”

However, the city argues that Rare Earth had the same opportunity as M.R. Tanner to address any concerns with the site improvements and the 90-day timeframe when the company submitted its bid.

The ongoing litigation comes at a time when the city has faced criticism over its process of awarding public contracts.

Most recently, the city inked a $72 million agreement for a parking garage near State Farm Stadium and the soon-to-open VAI Resort. The city's route in awarding the construction contract, which went to the same company developing VAI, has also raised a few eyebrows.

What’s in Rare Earth’s Complaint?

At the heart of the latest complaint are a pair parcels located on the city’s Agua Fria property, just east of El Mirage Road, in between Bethany Home and Glendale Avenue.

Rare Earth owns property a quarter mile north of Camelback Road, at 119th Avenue. ABC Sand and Rock is the operational arm of the business that conducts sand and gravel mining.

ABC Sand and Rare Earth’s interest in portions of the city properties was first expressed in May 2019, when the companies’ CEO David Waltemath sent a letter to City Manager Kevin Phelps asking if Glendale was interested in a mineral royalty lease, according to the lawsuit.

Under such an agreement, a mineral rights owner receives a percentage of the proceeds, or royalties, earned from the mineral’s production and sale.

In July 2019, Phelps responded, declining the offer because part of the land is where the Glendale Water Services Department’s groundwater recharge sits.

“This use is integral to the city’s water resource portfolio for recharge credits,” Phelps said in the July 25, 2019 response. “There are no plans to cease operations of this site.”

Roughly a year later, in July 2020, Waltemath sent another letter. The company president was now offering $500,000 for the land he sought — but only portions that weren’t being used for the aquifer recharge.

The city again rebuffed the offer.

In August 2022, Rare Earth would get a chance to buy some city-owned parcels, though it would have to compete with other interested parties, as the city announced the opening of the solicitation process, referred to as an invitation for bids.

While the city was advertising the site “as is,” it required the awarded company to make the site improvements within 90 days of the purchase. One improvement was filling in and grading an 850-foot-wide and 400-foot-deep area so it would be level with Glendale Avenue.

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The second improvement was to create a berm, or level strip of land, along portions of the parcels’ boundaries. According to the city’s bid invitation, the 90-day period to make the improvements could be extended one time.

On Sept. 8, 2022, the city opened the bids, revealing the two competitors’ offers. More than two months later, the city announced its intention to award the sale to M.R. Tanner, which has mining operations off El Mirage Road, just south of Glendale Avenue.

Between January and April of 2023, Rare Earth’s attorney, La Sota, contacted the city multiple times inquiring about the status of the city’s contract with M.R. Tanner.

Rare Earth, the lawsuit explained, “sought information regarding the status of the contract because of some mining decisions regarding building an extensive armoring structure (Rock Chute) adjacent to the land listed in the bid request.

The city responded in mid-May, letting Rare Earth know the city and M.R. Tanner were still negotiating the deal.

In July, Rare Earth filed a public records request seeking, among other things, the city’s communications with M.R. Tanner and other mining companies. With the city appearing to lag on getting Rare Earth those records, the company filed a complaint in Maricopa County Superior Court on Sept. 8.

In response to the complaint for the public records, the city’s attorney sent Rare Earth the final draft of the sale agreement.

“It appears the contract terms are different from the bid,” Rare Earth stated in the lawsuit.

It goes on to note that the agreement requires M.R. Tanner to make the site improvements in 90 days, with one caveat: That “the period for completing the improvements may be extended by the city, in its sole unreviewable discretion, for up to 240 days in one or more signed writings, without the additional approval of the City Council. The city’s approval of buyer’s request(s) for such extension(s) shall not be unreasonably withheld.”

What did Rare Earth find in the public records?

By about mid-November, Rare Earth received the rest of the records requested. What La Sota found in the emails among city management and representatives of M.R. Tanner was an appearance of favoritism, according to the lawsuit.

A September 2021 email showed that a lobbyist for M.R. Tanner had contacted the city about mining “the property at El Mirage and Glendale Avenue to ‘create a unique, public space with that property for the city of Glendale.’”

In response, city officials had engaged in a back-and-forth email chain to discuss whether selling the site was in the city’s best interest.

Rare Earth also cited meeting notes that Assistant City Manager Jamsheed Mehta emailed to himself on Jan. 20, 2023.

In the notes, Mehta outlined a discussion with Phelps who asked whether ABC Mining’s bid price was based on the site improvements. Phelps wanted “to make sure that the city is not at risk” over its decision to award M.R. Tanner.

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“I explained that staff chose Tanner mining company because that bid was over $4 million compared to ABC’s under $3 million. However, to Kevin’s point, Tanner said they could not do the inert fill job within the time frame as they explained it would take much longer,” Mehta wrote.

“Staff only approved the Tanner deal because staff has the authority to extend the time frame,” Mehta continued in his notes. “However, ABC was not given that option. I am going to set up a meeting quickly with procurement, engineering, water services to see if we are on solid ground and if not, we can redo the (invitation for bids) with more specificity.”

Based on those communications, Rare Earth claims that its competitor submitted a bid on the contract despite knowing it couldn’t complete the site improvements within 90 days, and alleges the city was working with M.R. Tanner on selling the property while rejecting its initial offers.

“The bid itself was crafted in favor of M.R. Tanner,” the lawsuit stated.

The complaint went on to state that had Rare Earth known it would be given more time to fill in the site and construct the berm, “and would be given years and years to make payment to the City of Glendale for the parcels offered for sale,” it would have offered more than $4.75 million.

How have the city and M.R. Tanner responded?

In its Dec. 22 motion asking the court to dismiss the case, the city acknowledged that M.R. Tanner contacted the city between June and September 2021 seeking to buy the property.  However, the city explained, it hadn’t yet determined whether selling the property was in its best interest.

“Rather than accept an unsolicited offer,” the city stated, it issued its invitation for bids on Aug. 15, 2022.

“It contained the requirements for responses and the bid scoring/evaluation criteria,” the city added. “Most importantly, the (invitation for bids) made it clear that ‘the city will accept the offer to purchase the property from the most responsible and responsive bidder whose offer is the highest price for the property.’”

Addressing Rare Earth’s sentiments regarding the company’s previous failed attempts to lease or buy the land years before, the city argued those efforts don’t entitle Rare Earth to preferential treatment.

“No matter what reason the City gave Rare Earth for rejecting these offers to lease or purchase the property, these offers create no legal rights for (Rare Earth), as there was no meeting of the minds and no contract between the parties,” the city stated.

In arguing against Rare Earth’s accusation that the city acted favorably toward its competitor, the city noted the “key differences” between the two companies’ bids.

“Tanner offered a $4.75 million purchase price and a plan for constructing the site improvements that suggested more than 90 days would be needed to complete them,” the city stated. “Rare Earth offered $2 Million and said it would hire an unnamed third party to complete the work in the time specified in the (invitation for bids).”

According to the city, when Rare Earth described the work of the third party, it could have also told the city that the improvements couldn’t be made within the timeframe.

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“But Rare Earth did not take advantage of its equal opportunity,” the city stated.

As further evidence of that, the city pointed to the line in the invitation for bids that stated an “additional extension may be authorized by the city."

As part of the bidding process, companies were required to describe their plans for improving the site. While participating in a pre-bid conference, where prospective bidders could ask questions and get clarity on the potential contract, La Sota asked three questions.

One he asked was whether a company would be disqualified if it didn’t respond specifically to the section regarding the site improvements. The city told La Sota that the company would be considered “non-responsive” and therefore disqualified.

“Rare Earth apparently misinterpreted the city’s answer,” the city stated. “Had Tanner (or any other bidder) not submitted a response to that item at all, or had it not agreed to perform the permanent Site Improvements, indeed it would have been disqualified.”

“But Tanner did submit a plan for implementing the required work; it simply included an implementation schedule that was longer than the city’s initial, ‘unextended’ 90-day time frame,” the city continued.

M.R. Tanner echoed that argument. The company noted that it had requested additional time to make the improvements, while Rare Earth “failed to do so.”

“Having failed to request an extension, (Rare Earth) cannot now complain that the city chose Tanner and did not provide (Rare Earth) with an extension,” M.R. Tanner stated.

Judge Timothy J. Ryan heard the city’s motion to dismiss the case in court on Feb. 22. A ruling has not yet come down.

Shawn Raymundo covers the West Valley cities of Glendale, Peoria and Surprise. Reach him at sraymundo@gannett.com or follow him on X @ShawnzyTsunami.

This article originally appeared on Arizona Republic: Gravel company alleges Glendale violated public contract rules