ECONOMIC STIMULUS SPENDING – A RECIPE FOR MORE BID PROTESTS?
On February 17, 2009, President Obama signed into law the much anticipated stimulus package known as the American Recovery and Reinvestment Act of 2009. Under the $787 billion Act, $27.5 billion has been allocated for highway restoration, repair, and construction. According to some estimates, Arizona may receive as much as $522 million for highway related projects.
There are strings attached, however, including “use it or lose it” provisions. For example, within 120 days following the date of apportionment of the monies to the States, 50% of the monies awarded to a State for highway projects that are not obligated will be lost and redistributed. Additionally, if a State does not obligate highway funds one year from the date of apportionment, the monies will be redistributed to other states, unless the State can establish that it has encountered “extreme conditions that create an unworkable bidding environment or other extenuating circumstances.”
The new law also contains a special provision with regard to contracts that it funds. It calls for fixed-price contracts garnered through the use of competitive procedures to the “maximum extent possible.” This provision ratifies and reinforces the central theme of government contracting- contracts should generally be awarded to the lowest bidder that will provide the most beneficial product and/or service to the government. For example, Arizona has adopted the Arizona Procurement Code. A.R.S. § 41-2501 et seq. and associated regulations. The Code includes numerous provisions governing State contracts, competitive bidding and disputes (including bid protests).
Although price is important and is sometimes determinative, price is not the only factor the government generally considers in making an award. The government is also entitled to consider “responsibility.” “Responsibility” involves evaluating the bidder’s experience, skill, facilities, integrity, prior performance and other factors affecting the bidder’s ability to successfully perform the proposed contract at the specified price within any applicable deadlines. Some discretion is inherent in determining the responsibility of each bidder. But, that discretion is not without limit. As one Arizona court stated, “‘in exercising the power to reject any or all bids, and proceeding anew with the awarding of the contract, the officers cannot act arbitrarily or capriciously, but must observe good faith and accord to all bidders just consideration, thus avoiding favoritism, abuse of discretion, or corruption. Although the courts generally will not disturb an honest exercise of discretion, it has been said that they will intervene to prevent the arbitrary rejection of a bid when its effect is to defeat the object to be attained by competition.’”
But, Arizona does have a statute that actually permits the State to enter a contract with the higher bidder, a legal preference. For example, licensed Arizona contractors who have paid taxes in Arizona for at least two years are entitled to a preference over non-Arizona companies where the non-Arizona company bid is less than 5% lower than the Arizona company’s bid. So, if the Arizona company’s bid is less than 5% more than the non-Arizona company’s bid, the Arizona company’s bid “shall be deemed a better bid.” It remains to be seen whether these legal preferences are allowed under the stimulus Act.
The new law also gives protection to whistle-blowers that report violations related to agency contracts awarded involving covered funds. Specifically, an employer may not discharge, demote or otherwise discriminate against an employee as a reprisal for the employee reporting the employer for “(1) gross mismanagement of an agency contract or grant relating to covered funds; (2) a gross waste of covered funds; (3) a substantial and specific danger to public health or safety related to the implementation or use of covered funds; (4) an abuse of authority related to the implementation or use of covered funds; or (5) a violation of law, rule, or regulation related to an agency contract (including the competition for or negotiation of a contract) or grant, awarded or issued relating to covered funds.” If an employee makes such a report and then believes that the employer has made a reprisal, the employee may file a complaint with the inspector general. If the employer is found to have violated the prohibition on reprisals, the federal agency may order the employer to abate the reprisal, reinstate the employee with back pay and order the employer to reimburse the employee for costs and attorneys’ fees in making the complaint. After the expiration of certain deadlines, the employee may file a civil action for damages resulting from the employer’s violation of the Act.
There is also a “Buy American” provision that, with certain exceptions, mandates the use of American iron, steel, and manufactured goods in connection with constructing, maintaining or repairing public buildings and works funded by the new law. Specifically, Section 1605(a) of the Act, provides that “none of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.” However, there are broad exceptions where the “Buy American” restriction “(1) would be inconsistent with the public interest; (2) iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or (3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.” Finally and perhaps most importantly, if there is other law prohibiting a trade restriction, the other law would govern. For example, there are various laws and regulations establishing thresholds for foreign trade. Depending on how those laws are interpreted and applied to the Act, the Buy American provision may only affect smaller contracts (i.e., those under $7,433,000, the current Trade Agreements Act threshold for several countries).
At the same time that many state and local governments are dealing with being understaffed and over budget, the new stimulus package may very well present them with the added pressure of quickly having to conduct competitive bid processes. This may lead to mistakes and shortcuts in a process that is supposed to be free of even the appearance of impropriety.
The new law calls for the creation of a website that is to provide, among other things, information about contracts awarded by the Government, including information about the competitiveness of the contracting process, as well as a link to information about solicitations for contracts to be awarded.
Contractors who are looking to sustain or revive their businesses should consider the many government projects and business opportunities that will likely result from the new law. Contractors should also consider the possibility that more bid protests may result due to the amount of money at stake and time pressures created by the new law, and the overall state of our economy.
Bid protests provide a beneficial “check and balance” in government contracting, helping to ensure that the process is truly competitive and in the best interests of the government. Interestingly, according to federal bid protest statistics, bid protests are surprisingly successful. According to the U.S. Government Accountability Office (GAO) 2008 annual report, there were 1,652 protests filed in 2008, which was an increase of 17% from 2007, and protesters were “effective” (meaning a protester received “some form of relief from the agency”) in 42% of the cases.