We started this investigation after a contractor showed us a letter from a Bay Area government agency saying it rejected a bid because it was too low. The agency wound up choosing a company with a bid that was 60 percent higher than the lowest bidder.
The South San Francisco Housing Authority received a $174,000 stimulus grant through the Department of Housing and Urban Development last March to paint the exterior of 37 buildings of low-income housing. So they placed an ad inviting contractors to submit bids.
"I hand-delivered it about two, three hours prior to the bid opening in a manila envelope," Public Works contractor Eleni Tripsas said.
Tripsas thought she had a good chance of winning with a bid of $68,000.
"I placed a phone call to get the results and see where I stood and I was told that it was not opened," she said. "I was shocked. I said, 'Excuse me, I hand-delivered it to you."
Tripsas says the Housing Authority's executive director Barbara Schumacher told her she never opened the envelope because it did not have the exact phrase "sealed bid -- do not open" written on it.
And Tripsas was not the only one. The Housing Authority refused to open 14 of the 23 bids, even though most of them were clearly marked with the bid date, time of opening, and a description of the project.
Tripsas says it does not make sense to disqualify more than half of the bidders over a minor technicality.
"In the 25 years that I have been submitting bids, this had never, ever occurred before," she said.
She complained to the Housing Authority board, but the members stuck by the decision.
"I said, 'Aren't you curious to see how much money you are going to be throwing out?' And they looked at me and they shrugged their shoulders," Tripsas said.
Nicolaos Theodorides had the lowest bid of the nine envelopes that did get opened at $72,400. However, he says Schumacher was unimpressed.
"Walked into her office and I told her that I'm from Axios Painting, I'm the lowest bidder, and she says, 'Low bidder doesn't mean anything around here.'"
Theodorides has been a painting contractor for more than 20 years. The board rejected his bid because he recently incorporated a new company and could not provide current references with the new company name.
Noyes: Did they spend too much for that project?
Theodorides: Well, they could've gotten the project done for the lowest bid.
The next lowest bid was $25,000 more at $97,700, but the Housing Authority turned that down, too.
In a letter to Housing and Urban Development, Schumacher wrote that it was rejected because "the amount bid was considered too low."
"As far as his price, he wasn't very far from what I was, so I think you could do the job for that kind of money," painting contractor Fotios Tsiglieris said.
Tsiglieris won the contract with a bid of $116,000 -- over $40,000 more than the lowest bid.
"I was kind of surprised because at least two guys were lower than I was," he said.
"I don't think most taxpayers will be particularly happy when they find out that an agency said that a bid was too low," taxpayer advocate Doug Heller of ConsumerWatchdog.org said.
Heller says government agencies need to be more careful with our stimulus dollars.
"If you multiply this $40,000 gaffe by as many times as it's probably happened around the country, then you're adding up to some serious money," he said.
A HUD spokesman declined to talk to us on camera about this grant, which was administered through its San Francisco office, because of the possibility of a lawsuit. But in e-mails obtained by the I-Team, that same spokesman wrote that it "will be hard to explain to the media why this agency is spending a great deal more than the low bid." Another HUD official wrote that she had "serious concerns" about the bid process.
We caught up with Schumacher at a Housing Authority meeting last month.
Noyes: How could the lowest bid not get the contract?
Schumacher: The Housing Authority has done nothing wrong.
Noyes: Please answer the question. Why didn't you use the lowest bid?
Schumacher: I'm sorry... (walks away).
Most of the board members did not want to talk either. We tried talking to Housing Authority board member Nancy Stampfer
Noyes: Why not take the lowest bid in that contract?
Stampfer: It's a majority rule.
Noyes: Well, can you explain your vote please?
Stampfer: No, I don't care to.
Board member John Baker says he put forward a motion to accept the second-lowest bidder.
Noyes: And what happened?
Baker: And the board decided to go with another, another company. I was outvoted.
Theodorides says decisions like that end up costing the taxpayers.
"A lot of money got wasted," he said.
The Housing Authority board members are not elected officials, they are chosen by the mayor. The state has a stimulus czar who is now looking into what we have uncovered. We will keep you posted.
Have a tip on this or another investigation? E-mail the ABC7 I-Team or call 1-888-40-I-TEAM.