Competitive Bidding Requirements Under The Federal-Aid Highway Program

• Decision Date: 23 August 2013
• Docket Number: 13-4
• Citation: 37 Op. O.L.C. 1
• Parties: Competitive Bidding Requirements Under the Federal-Aid Highway Program
• Court: Opinions of the Office of Legal Counsel of the Department of Justice

37 Op. O.L.C. 1

Competitive Bidding Requirements Under the Federal-Aid Highway Program

No. 13-4

United States Department of Justice

August 23, 2013

VIRGINIA A. SEITZ Assistant Attorney General Office of Legal Counsel.

Competitive Bidding Requirements Under the Federal-Aid Highway Program

The competitive bidding requirement of 23 U.S.C. § 112 imposes in addition to procedural rules dictating the process by which bids are awarded, a substantive limitation on state or local bidding requirements that are unrelated to the bidder's performance of the necessary work.

Section 112's competitive bidding requirement does not preclude any and all state or local bidding or contractual restrictions that have the effect of reducing the pool of potential bidders for reasons unrelated to the performance of the necessary work. Rather, section 112 affords the Federal Highway Administration discretion to assess whether a particular state or local requirement unduly limits competition.

Generally state or local government requirements that eliminate or disadvantage a class of potential responsible bidders to advance objectives unrelated to the efficient use of federal funds or the integrity of the bidding process are likely to unduly impede competition in contravention of the substantive component of section 112's competitive bidding requirement.

MEMORANDUM OPINION FOR THE ACTING GENERAL COUNSEL DEPARTMENT OF TRANSPORTATION

This memorandum responds to your office's request for an opinion regarding the requirement in 23 U.S.C. § 112 that state and local governments receiving federal-aid highway grant funds use competitive bidding in awarding highway construction contracts.^[1]

Section 112 requires a state transportation department to award contracts using federal highway funds by “competitive bidding, unless the State transportation department demonstrates . . . that some other method is more cost effective.” 23 U.S.C. § 112(b)(1) (2006); see also Id. § 112(a) (“The Secretary shall require such plans and specifications and such methods of bidding as shall be effective in securing competition”). For a bidding process to be “competitive, ” the state transportation department must award contracts for projects “only on the basis of the lowest responsive bid submitted by a bidder meeting established criteria of responsibility.” Id. § 112(b)(1). A 1986 opinion of this office concluded that section 112 obligated the Secretary of Transportation to withhold federal funding for highway construction contracts that were subject to a New York City law imposing disadvantages on a class of responsible bidders, where the city failed to demonstrate that its departure from competitive bidding requirements was justified by considerations of cost-effectiveness. See Compatibility of New York City Local Law 19 with Federal Highway Act Competitive Bidding Requirements, 10 Op O.L.C. 101 (1986) (“Competitive Bidding Requirements”). Since the issuance of [ 2] our 1986 opinion, the Federal Highway Administration (“FHWA”), the Department of Transportation (“DOT”) agency that has been delegated authority to administer the Federal-Aid Highway Program, see 49 U.S.C. § 104 (2006); 49 C.F.R. § 1.85(a)(1) (2012), has taken the position that state or local bidding specifications or contract requirements that limit the pool of potential bidders violate section 112's competition requirement unless they directly relate to the bidder's performance of the necessary work in a competent and responsible manner. DOT Letter at 1, 3.

In connection with a reevaluation by DOT of FHWA's position your office has asked whether section 112's competitive bidding requirement compels FHWA to adhere to this approach, or whether section 112 leaves room in some circumstances for state or local bidding requirements that may limit the pool of potential bidders for specific federal-aid highway construction contracts for reasons other than the bidder's ability to perform the work in a competent and responsible manner. Id. at 1, 7.^[2] Answering your office's question involves resolving two related issues: (1) whether section 112(b)(1)'s requirement that contracts be awarded by “competitive bidding” imposes, in addition to procedural rules dictating the process by which bids are awarded, ^[3] any substantive limitation on state or local bidding requirements that are unrelated to the bidder's performance of the necessary work; and (2) if section 112(b)(1) imposes a substantive limitation, what is the nature of that limitation. As we explain in Part II below, in our view section 112's “competitive bidding” requirement has a “substantive” component. That is, even where a bidding process meets the procedural requirements of competitive bidding, it may nonetheless violate section 112's competitive bidding requirement in substance if responsive bidders are required to comply with state or local requirements that unduly limit the pool of potential bidders. However, we do not believe that the statute's competitive bidding requirement precludes any and all state or local bidding or contractual restrictions that have the effect of reducing the pool of potential bidders for reasons unrelated to the performance of the necessary work. Rather, we believe that section 112 affords the FHWA Administrator (as the Secretary's delegee) discretion to assess whether a particular state or local requirement unduly limits competition.

We address what unduly limiting competition entails in this context in Part III. A state or local requirement that has only an incidental effect on the pool of potential bidders or that imposes reasonable requirements related to the performance of the necessary work would not unduly limit competition. But a requirement [ 3] that has more than an incidental effect on the pool of potential bidders and does not relate to the work's performance would unduly limit competition unless it promotes the efficient and effective use of federal funds. In assessing whether a requirement does so, FHWA may take into account both whether the requirement promotes such efficiency in connection with the letting of a particular contract and also whether it more generally furthers the efficient and effective use of federal funds in the long run or protects the integrity of the competitive bidding process itself. Where a state or local requirement serves these purposes, we believe the Administrator may reasonably determine, consistent with section 112, that the requirement does not unduly limit competition, even if it may have the effect of reducing the number of eligible bidders for a particular contract. Generally speaking, however, state or local government requirements that eliminate or disadvantage a class of potential responsible bidders (and thus have a non-trivial effect on the pool of such bidders) to advance objectives unrelated to the efficient use of federal funds or the integrity of the bidding process (or to the performance of the necessary work in a competent and responsible manner) are likely to unduly impede competition in contravention of the substantive component of section 112's competitive bidding requirement.

I.

Some background is necessary to place our reasoning in context. Pursuant to 23 U.S.C. §§ 104 and 302 (2006 & Supp. V 2011), FHWA disburses federal-aid highway funds to states, which administer those funds through their transportation departments. Section 112, on the letting of contracts, requires both (1) that federally funded highway construction projects performed or supervised by state transportation departments be awarded by contract through a competitive bidding process, unless an exception applies; and (2) that the Secretary of Transportation require whatever plans and specifications and methods of bidding as are necessary to be effective in securing competition. The section provides in relevant part:

(a) In all cases where the construction is to be performed by the State transportation department or under its supervision, a request for submission of bids shall be made by advertisement unless some other method is approved by the Secretary. The Secretary shall require such plans and specifications and such methods of bidding as shall be effective in securing competition.

(b) Bidding requirements.-

(1) In general.-Subject to paragraphs (2) and (3), construction of each project, subject to the provisions of subsection (a) of this section, shall be performed by contract awarded by competitive bidding, unless the State transportation department demonstrates, [ 4] to the satisfaction of the Secretary, that some other method is more cost effective or that an emergency exists. Contracts for the construction of each project shall be awarded only on the basis of the lowest responsive bid submitted by a bidder meeting established criteria of responsibility. No requirement or obligation shall be imposed as a condition precedent to the award of a contract to such bidder for a project, or to the Secretary's concurrence in the award of a contract to such bidder, unless such requirement or obligation is otherwise lawful and is specifically set forth in the advertised specifications.

23 U.S.C. § 112(a) & (b)(1). Section 112(d) bars state transportation departments and local subdivisions from entering into a contract awarded by competitive bidding pursuant to subsection (b) and subject to the provisions of section 112, “without compliance with the provisions of this section” and without “the prior concurrence” of the Secretary in the contract award. Id. § 112(d). In addition, Congress has delegated to the Secretary authority “to prescribe and promulgate all needful rules and regulations for the carrying out of the provisions” of the title. Id. § 315 (2006).

In 1986, we considered the...