Competitive Bidding Requirements Under the Federal-Aid Highway Program ( 2013 )

Competitive Bidding Requirements Under
the Federal-Aid Highway Program
The competitive bidding requirement of 23 U.S.C. § 112 imposes, in addition to proce-
dural 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 par-
ticular 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 com-
petition in contravention of the substantive component of section 112’s competitive
bidding requirement.
August 23, 2013
MEMORANDUM OPINION FOR THE ACTING GENERAL COUNSEL
DEPARTMENT OF TRANSPORTATION
This memorandum responds to your office’s request for an opinion re-
garding the requirement in 23 U.S.C. § 112 that state and local govern-
ments receiving federal-aid highway grant funds use competitive bidding
in awarding highway construction contracts. 1
Section 112 requires a state transportation department to award con-
tracts using federal highway funds by “competitive bidding, unless the
State transportation department demonstrates . . . that some other meth-
od 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 de-
partment must award contracts for projects “only on the basis of the
lowest responsive bid submitted by a bidder meeting established criteria
1 See Letter for Virginia Seitz, Assistant Attorney General, Office of Legal Counsel,
from Robert S. Rivkin, General Counsel, Department of Transportation (Oct. 3, 2012)
(“DOT Letter”).
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37 Op. O.L.C. 33 (2013)
of responsibility.” Id. § 112(b)(1). A 1986 opinion of this Office con-
cluded 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 depar-
ture from competitive bidding requirements was justified by considera-
tions 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 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 Pro-
gram, 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
2 Although FHWA has promulgated regulations governing the policies, requirements,
and procedures relating to federal-aid highway projects, see 23 C.F.R. pt. 635 (2012),
your office has asked about, and we address, only the scope of the statutory requirements,
see 23 U.S.C. § 112.
3 Examples of such “procedural” rules are the process requirements that bids be solicit-
ed from a pool of potential responsible contractors based on specifications advertised in
advance and that the contract be awarded to the lowest responsive bidder.
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
performance of the necessary work; and (2) if section 112(b)(1) imposes a
substantive limitation, what the nature of that limitation is. As we explain
in Part II below, in our view section 112’s competitive bidding require-
ment has a “substantive” component. That is, even where a bidding pro-
cess 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 pre-
cludes any and all state or local bidding or contractual restrictions that
have the effect of reducing the pool of potential bidders for reasons unre-
lated 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 that has more than an incidental effect on
the pool of potential bidders and does not relate to the work’s perfor-
mance 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, con-
sistent with section 112, that the requirement does not unduly limit com-
petition, 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 perfor-
mance of the necessary work in a competent and responsible manner) are
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37 Op. O.L.C. 33 (2013)
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. Pur-
suant to 23 U.S.C. §§ 104 and 302 (2006 & Supp. V 2011), FHWA dis-
burses 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 neces-
sary 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 re-
quire 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,
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 estab-
lished 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 ob-
ligation is otherwise lawful and is specifically set forth in the ad-
vertised specifications.
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
23 U.S.C. § 112(a), (b)(1). Section 112(d) bars state transportation de-
partments 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 application of section 112 to a New York
City law, Local Law 19, that authorized the city to impose disadvantages
on bidders for city contracts who failed to sign an anti-apartheid certifi-
cate stating (1) that in the previous twelve months they had not conducted,
and for the term of the impending contract they would not conduct, busi-
ness with South Africa or Namibia; and (2) that in contracts to supply
goods to the city, none of the goods originated in South Africa or Namib-
ia. Competitive Bidding Requirements, 10 Op. O.L.C. at 101–02. Local
Law 19 provided that if a bidder complying with the anti-apartheid certi-
fication requirement made a bid no more than five percent higher than a
low bid submitted by a non-complying contractor, both bids were to be
passed on to a city board. That board was authorized to determine that it
was in the “public interest” to award the contract to a bidder other than
the lowest responsible bidder. Id. at 102. New York City declared its
intention to apply the law to federally funded projects. Id.
Our opinion concluded that section 112 required the Department of
Transportation to withhold funding for highway construction projects
subject to Local Law 19. We explained that section 112 “reflect[ed] a
congressional judgment that the efficient use of federal funds afforded by
competitive bidding is to be the overriding objective of all procurement
rules for federally funded highway projects, superseding any local interest
in using federal funds to advance a local objective.” Id. at 103. We found
that “[b]y imposing disadvantages on a class of responsible bidders,”
Local Law 19 “distort[ed] the process of competitive bidding” in order to
advance a local objective “unrelated to the cost-effective use of federal
funds.” Id. In addition, the opinion emphasized, the 1983 amendment to
section 112(b)(1)—which imposed the current requirement that departures
from competitive bidding be justified by a demonstration that they are
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37 Op. O.L.C. 33 (2013)
more cost-effective than the alternative—made clear that “the efficient
use of federal funds is the touchstone by which the legality of state pro-
curement rules for federally funded highway projects is to be tested.” Id.
at 105. By imposing disadvantages on a certain class of contractors (those
who had not signed an anti-apartheid certificate), we concluded, the city
may have discouraged responsible contractors from bidding and under-
mined the competitive bidding process without demonstrating that the
requirement was cost-effective. Id. The opinion did not consider other
types of bidding restrictions and did not address the legality of restrictions
designed to protect the integrity of the competitive bidding process or to
promote the efficient use of federal funds over the long term.
Your office has explained that, since the issuance of our 1986 opinion,
FHWA has taken the position that, in the absence of federal statutory
authorization, state or local requirements that restrict the pool of appli-
cants available to bid on a federal-aid highway contract, or that otherwise
favor certain potential bidders over others in ways unrelated to the capa-
bility of the bidder to perform the work, conflict with the competition
requirements in section 112 and the agency’s regulations implementing
that section, 4 and therefore are not permitted. DOT Letter at 1–6. Conse-
quently, FHWA has prohibited state and local grant recipients from adopt-
ing policy preferences restricting bidders’ political contributions (so-
called “pay-to-play” provisions), requiring equal benefits for domestic
partners, or mandating the inclusion of local hiring preferences or project
4 In this regard, FHWA’s implementing regulations require, in part, that “[a]ctual
construction work . . . be performed by contract awarded by competitive bidding,” unless
the state transportation department “demonstrates to the satisfaction of the Division
Administrator that some other method is more cost effective or that an emergency
exists,” 23 C.F.R. § 635.104(a), and obligate the state transportation department to
“assure opportunity for free, open, and competitive bidding.” Id. To that end, the regula-
tions prohibit approval of any “procedure or requirement for bonding, insurance,
prequalification, qualification, or licensing of contractors” that, “in the judgment of the
Division Administrator, may operate to restrict competition, to prevent submission of a
bid by, or to prohibit the consideration of a bid submitted by, any responsible contractor,
whether resident or non-resident of the State wherein the work is to be performed.” Id.
§ 635.110(b). The regulations further provide that “[i]f any provisions of State laws,
specifications, regulations, or policies may operate in any manner contrary to Federal
requirements . . . to prevent submission of a bid, or prohibit consideration of a bid submit-
ted by any responsible bidder appropriately qualified in accordance with § 635.110, such
provisions shall not be applicable to Federal-aid projects.” Id. § 635.112(d).
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
labor agreements, on the ground that these policy preferences violate
section 112. Id. at 1, 4–6.
II.
We first address the threshold question of whether section 112(b)(1)’s
requirement that federally aided construction projects be “performed by
contract awarded by competitive bidding,” 23 U.S.C. § 112(b)(1), con-
tains a substantive component authorizing FHWA to examine bid specifi-
cations and conditions to determine whether they impede competition, or
whether it requires only, as a matter of process, that the contract be
awarded to the lowest responsive bidder, but otherwise leaves state and
local governments free to impose on bidders whatever conditions they
choose, including conditions that reduce the pool of potential bidders for
reasons unrelated to the cost-effective use of federal funds.
In our 1986 opinion, we concluded that New York City’s anti-apart-
heid certification requirement violated the procedural requirement of
competitive bidding that contracts be awarded to the lowest responsible
bidder and was therefore incompatible with the statute. See Competitive
Bidding Requirements, 10 Op. O.L.C. at 104–07. However, our opinion
also implicitly recognized that section 112’s competitive bidding re-
quirement has a substantive dimension that calls into question any state
and local requirements that diminish the pool of eligible contractors,
absent a showing of greater cost-effectiveness. See, e.g., id. at 105 (“By
imposing disadvantages on a certain class of contractors, New York City
discourages responsible contractors from bidding and undermines the
competitive bidding process.”); id. (“The 1982 amendments . . . make
clear that the efficient use of federal funds is the touchstone by which the
legality of state procurement rules for federally funded highway projects
is to be tested.”).
We have reassessed our opinion in light of contrary dicta in a 2007 de-
cision of the U.S. Court of Appeals for the Sixth Circuit, cited in the DOT
Letter at page 5. In City of Cleveland v. Ohio, 508 F.3d 827 (6th Cir.
2007), the court sustained FHWA’s withdrawal of federal funds from a
Cleveland public works project on the ground that the city had incorpo-
rated a local hiring preference into the contract without advertising the
preference in the bid specifications—a violation of section 112(b)(1),
which prohibits the imposition of a requirement or obligation as a condi-
tion precedent to the award of a contract “unless such requirement or
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37 Op. O.L.C. 33 (2013)
obligation . . . is specifically set forth in the advertised specifications.” Id.
at 843 (quoting 23 U.S.C. § 112(b)(1)). In dicta, the court added that the
statute’s reference to “competitive bidding” was intended to deal “only
with the process of how bids are awarded—competitive bidding or ‘some
other method’—not the substance of the underlying contracts them-
selves.” Id. at 841. The court rejected FHWA’s argument that the public
body awarding the contract was required to justify its “requirements or
obligations” as “more cost effective” than competitive bidding, or neces-
sitated by emergency. Instead, in the court’s view, such conditions apply
only when the body awarding the contract “seeks to depart from competi-
tive bidding as the method for awarding a contract.” Id. Thus, the court
concluded that section 112(b) “by itself confers no authority upon the
FHWA to evaluate substantive contract requirements to determine wheth-
er they might inhibit competition or disqualify otherwise qualified bid-
ders.” Id. 5
Contrary to the Sixth Circuit’s dicta, we continue to believe that section
112(b)(1) is best read to impose more than a procedural requirement that a
state or local highway department accept the lowest responsive bid after
soliciting bids from a pool of potential responsible bidders. Instead,
section 112(b)(1) requires FHWA to evaluate state or local bidding speci-
fications or contract requirements to determine whether they unduly
inhibit competition. To explain how we reach this conclusion, we begin
with the text of section 112, first examining the historical evolution of the
statute and then describing the prevailing understanding of the concept of
“competitive bidding” in 1954, when Congress enacted the express statu-
5 Although City of Cleveland acknowledged that the Administrator would have discre-
tion to disapprove of bidding specifications based on a judgment that they are not “con-
sistent with the overall goals of the [Federal-Aid Highway Program],” 508 F.3d at 842,the court’s dicta suggested that, consistent with section 112(b)(1), the Administrator could
approve contract specifications that limit the pool of potential bidders for reasons unrelat-
ed to the performance of the contract, so long as the procedure of competitive bidding was
followed. Id. at 841; see also Bldg. & Constr. Trades Dep’t v. Allbaugh, 172 F. Supp. 2d
138, 161–62 (D.D.C. 2001) (in obligating the Secretary of Transportation to “require such
plans and specifications and such methods of bidding as shall be effective in securing
competition” in section 112(a), Congress was “clearly discussing the procedures for bid
submission, and not the substantive requirements that a State may impose upon prospec-
tive bidders”; substantive requirements that bidders must fulfill are addressed in section
112(b)(1), and there “Congress explicitly permitted such requirements as long as they are
lawful and bidders are given sufficient notice”), rev’d on other grounds, 295 F.3d 28(D.C. Cir. 2002).
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
tory requirement that federally funded highway contracts be “awarded by
competitive bidding.” Finally, we address why language added to section
112(b) in 1968 to address the imposition of additional contract require-
ments after the end of the bidding process does not affect the meaning of
“competitive bidding.”
A.
In our view, the phrase “competitive bidding” in section 112(b)(1) is
best read to impose both procedural and substantive requirements. Sec-
tion 112(b)(1)’s requirement that contracts be “awarded by competitive
bidding” must be read in the context of section 112 as a whole. The
statute’s text is focused on “securing competition,” 23 U.S.C. § 112(a),
on “cost effective[ness],” id. § 112(b), and on preventing “any action in
restraint of free competitive bidding,” id. § 112(c). It is difficult to rec-
oncile section 112’s evident and overriding focus on the efficient use of
federal funds with a reading of its “competitive bidding” requirement that
is purely procedural and thus indifferent to state or local restrictions that
would shrink the pool of bidders for reasons unrelated to cost or efficien-
cy.
The substantive dimension of the statute’s competitive bidding re-
quirement is particularly apparent when its text is considered in the
context of its drafting history. Congress’s commitment to competitive
bidding for federally assisted highway construction projects—and Con-
gress’s understanding of what “competitive bidding” requires—can be
discerned in the historical evolution of the statutory regime that culmi-
nated in 23 U.S.C. § 112, in substantially its current form, in the 1950s.
In 1938, Congress amended the Federal-Aid Road Act of 1916, ch. 241,
39 Stat. 355, to adopt the precursor to what is now section 112(a). That
statute required that the Secretary of Agriculture (then the agency head
with authority to approve federally funded highway projects) approve, in
connection with federally aided highway construction projects, “only
such methods of bidding and such plans and specifications of highway
construction for the type or types proposed as will be effective in secur-
ing competition and conducive to safety, durability, and economy of
maintenance.” Pub. L. No. 75-584, § 12, 52 Stat. 633, 636 (1938). As
evidenced in the legislative history, Congress contemplated that this
addition would promote “open competition in bidding.” H.R. Rep. No.
75-2094, at 7 (1938) (using the heading “open competition in bidding” to
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37 Op. O.L.C. 33 (2013)
describe the amendment); 83 Cong. Rec. 6385 (1938) (statement of Rep.
Whittington) (the provision “says that there shall be competitive bidding”
and that “all bids will be on an equal footing and that all bidders will be
given equal treatment”). That history also suggests that Congress con-
templated that the agency head with authority to approve federally fund-
ed highway projects would exercise a gate-keeping function in determin-
ing whether projects adequately provided for competitive bidding, with
the result that “only plans, specifications, and methods that provide for
competition will be approved.” 83 Cong. Rec. 6385 (statement of Rep.
Whittington).
Congress made those purposes even clearer in 1954, when it amended
the statute to add the precursor to what is now section 112(b)(1). The new
subsection provided:
Highway construction work performed in pursuance of agree-
ments between the Secretary of Commerce and any State highway
department which requires approval by the Secretary of Commerce
and which is financed in whole or in part by funds authorized under
this or succeeding Acts, shall be performed by contract awarded by
competitive bidding under such procedures as may by regulations be
prescribed by the Secretary of Commerce, unless the Secretary of
Commerce shall affirmatively find that, under the circumstances re-
lating to a given project, some other method is in the public interest.
All such findings shall be reported promptly in writing to the Com-
mittees on Public Works of the Senate and the House of Representa-
tives.
Federal-Aid Highway Act of 1954, Pub. L. No. 83-350, § 17(a), 68 Stat.
70, 75 (1954). At the same time, Congress instructed that in any case in
which the Secretary of Commerce approved highway construction work,
the Secretary had to require as a condition precedent “a sworn state-
ment,” executed by or on behalf of the person or entity to which such
contract is to be awarded, “certifying” that such person or entity “has not,
either directly or indirectly, entered into any agreement, participated in
any collusion, or otherwise taken any action in restraint of free competi-
tive bidding in connection with such contract.” Id. § 17(b), 68 Stat. at 75
(codified at 23 U.S.C. § 112(c)).
The legislative history of the 1954 Act underlines that Congress adopt-
ed the more specific language requiring competitive bidding and the
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
“sworn statement” requirement to eliminate collusion and obstacles to
free competitive bidding. The Senate committee report accompanying the
legislation, for example, explained that the committee adopted section 17
“to prohibit collusion or any other action in restraint of free competitive
bidding in connection with any contract for highway construction work
performed by cooperative agreements between the Secretary and any State
highway department requiring approval by him and financed wholly or in
part by funds authorized in this or succeeding acts.” S. Rep. No. 83-1093,
at 14 (1954); see also 100 Cong. Rec. 5124 (1954) (statement of Sen.
Gore) (praising the provision as doing “a great deal to restrain what . . .
amounts to a widespread practice of kickbacks of certain portions of the
funds under highway contracts, collusion in restraint of free competitive
bidding, and other malpractices”). Significantly, Congress also adopted
section 17 to promote the most efficient use of federal funds. As the
Chairman of the Senate Subcommittee on Public Roads emphasized in the
floor debate: “The committee felt it was only proper that competitive
bidding should be required in order to obtain the maximum number of
roads in quality and quantity for the dollars spent.” 100 Cong. Rec. 4671
(1954) (statement of Sen. Case).
In 1958, Congress amended and codified in 23 U.S.C. § 112(a) and (b)
the above provisions from the 1938 and 1954 Acts. The revised subsec-
tions provided:
(a) In all cases where the construction is to be performed by the
State highway department or under its supervision, a request for
submission of bids shall be made by advertisement unless some oth-
er 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) Construction of each project, subject to the provisions of sub-
section (a) of this section, shall be performed by contract awarded by
competitive bidding, unless the Secretary shall affirmatively find
that, under the circumstances relating to such project, some other
method is in the public interest. All such findings shall be reported
promptly in writing to the Committees on Public Works of the Sen-
ate and the House of Representatives.
Pub. L. No. 85-767, § 112(a)–(b), 72 Stat. 885, 895 (1958). In addition,
section 112(d) barred states and localities from entering into a contract
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37 Op. O.L.C. 33 (2013)
awarded by competitive bidding pursuant to section 112(b) “without
compliance with the provisions of this section, and without the prior
concurrence of the Secretary in the award thereof.” Id. § 112(d), 72 Stat.
at 895. Both the accompanying House and Senate committee reports
clarified that the bill would place in one enactment “a clear, concise, up-
to-date version of all the existing Federal highway laws in an orderly and
logical arrangement,” and that the bill was “not intended to change any of
the fundamental and underlying concepts of existing Federal highway
legislation or to make any changes of real substance.” H.R. Rep. No. 85-
1938, at 2 (1958); S. Rep. No. 85-1928, at 2 (1958); see also H.R. Rep.
No. 85-1938, at 40 (confirming that the new section 112 derives from
section 12 of the 1938 Act and section 17(a) of the 1954 Act); S. Rep. No.
85-1928, at 42 (same).
It is difficult to reconcile this history with a characterization of section
112’s “competitive bidding” requirement as imposing a purely procedural
constraint. Instead, Congress envisioned from the start that the head of
the responsible federal agency (a designation that has changed over time)
would ensure that state and local conditions on bidding would not impede
competition and would decline to approve federally aided highway con-
struction contract awards when federal competitive bidding requirements
were not met. The current text of the statute supports this view. Section
112 mandates that the agency head, now the Secretary of Transportation,
“require” “such plans and specifications and such methods of bidding as
shall be effective in securing competition.” 23 U.S.C. § 112(a). The
statute further instructs that construction of each project “be performed
by contract awarded by competitive bidding,” unless the Secretary makes
an exception. Id. § 112(b)(1); see infra note 14 (discussing the grounds
for an exception). Finally, under the statute, the Secretary must concur in
the decision to award any federally funded highway contract, 23 U.S.C.
§ 112(d), and must receive, as a condition precedent to that approval, a
sworn statement certifying that the person or entity to whom a contract is
to be awarded “has not . . . entered into any agreement, participated in
any collusion, or otherwise taken any action in restraint of free competi-
tive bidding in connection with such contract,” id. § 112(c). See also
Glasgow, Inc. v. FHWA, 843 F.2d 130, 135 (3d Cir. 1988) (emphasizing
the four instances in section 112 “in which Congress references the
Secretary’s obligation to ensure competitive bidding”).
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
B.
Section 112(b)(1)’s requirement that federally funded highway con-
tracts be “awarded by competitive bidding” must also be interpreted in
light of the prevailing understanding of the concept of “competitive bid-
ding” when Congress added that language to federal-aid highway re-
quirements in 1954. “Competitive bidding” was not a novel concept when
Congress enacted the Federal-Aid Highway Act of 1954. Instead, it was
the subject of judicial rulings in federal and state courts, bid-protest
decisions rendered by the Comptroller General, and widely cited treatises.
These sources together confirm that the requirement of competitive bid-
ding was understood then, as it is now, to have a substantive component,
rendering invalid those bidding specifications that unduly restrict compe-
tition among potential responsible bidders. 6 Nothing in the legislative
record suggests that in requiring competitive bidding in awards of federal-
ly aided highway construction contracts, Congress intended to depart from
this general understanding.
A 1954 opinion of the U.S. Court of Appeals for the Ninth Circuit ex-
emplifies this prevailing understanding. As the Ninth Circuit explained,
“[t]he object of competitive bidding is to invite competition, by allowing
all persons having the ability to furnish the supplies or materials or to
perform the work to compete freely without any unreasonable re-
strictions.” Gamewell Co. v. City of Phoenix, 216 F.2d 928, 933 (9th Cir.
1954), amended on other grounds, 219 F.2d 180 (9th Cir. 1955). Signifi-
cantly, contract specifications “must be free of provisions, the effect of
which would stifle competition.” Id. at 934. Applying this rule, the court
found a city contract invalid because the specifications called for certain
6 A responsible bidder is one who has “the ability to respond by the discharge of the
contractor’s obligation in accordance with what may be expected or demanded under
terms of a contract. The lowest responsible bidder . . . must be held to imply skill, judg-
ment and integrity necessary to the faithful performance of the contract, as well as
sufficient financial resources and ability.” 10 Eugene McQuillin, The Law of Municipal
Corporations § 29.73, at 353 (3d ed. 1950) (internal quotation marks omitted); see also
Henry A. Cohen, Public Construction Contracts and the Law 80 (1961) (“The expression
‘lowest responsible bidder’ . . . means the lowest bidder whose offer best responds in
quality, fitness, and capacity to the particular requirements of the proposed work.”);
Picone v. City of New York, 29 N.Y.S.2d 539, 541 (N.Y. Sup. Ct. 1941) (the term “lowest
responsible bidder” “implies skill, judgment and integrity as well as sufficient financial
resources”).
45
37 Op. O.L.C. 33 (2013)
equipment manufactured by only one bidder, such that “real competitive
bidding was impossible.” Id. at 937.
Like Gamewell, state courts and the authors of widely cited treatises
at that time also understood unduly restrictive requirements to be at
odds with competitive bidding. Gamewell cited a leading treatise for
the proposition that the object of competitive bidding was to invite
competition without unreasonable restriction. See Gamewell, 216 F.2d
at 933 (citing 10 Eugene McQuillin, The Law of Municipal Corpora-
tions § 29.44 (3d ed. 1950) (“McQuillin”)). That treatise pronounced
then, as it does now: “The request for bids must not unduly restrict
competition.” 10 McQuillin § 29.44, at 297; accord 10 McQuillin
§ 29:48, at 536 (3d rev. ed. 2009) (same); 43 Am. Jur. Public Works
and Contracts § 51, at 794 (1942) (“The terms and conditions upon
which bids may be asked are subject to the limitations that they must
not be such as to prevent or restrict full and free competition[.]”); see
also id. § 35, at 777 (“terms and conditions” “should contain nothing
that would otherwise prevent or restrict full and free competition”). As
McQuillin elaborated: “A law demanding competition in the letting of
public work is intended to secure unrestricted competition among
bidders, and hence, where the effect of an ordinance is to prevent or
restrict competition and thus increase the cost of the work, it manifest-
ly violates such law and is void[.]”). 10 McQuillin § 29.48, at 303–04
(3d ed. 1950). It was also well established in state courts by the 1950s
that contracting authorities following competitive bidding principles
must not impose restrictions that stifle competition. See id. at 297–98
(citing cases); see also, e.g., Prescott Courier, Inc. v. Moore, 274 P.
163, 166 (Ariz. 1929); Wilmington Parking Auth. v. Ranken, 105 A.2d
614, 631–35 (Del. 1954); Weiss v. Town of Woodbine, 289 N.W. 469,
474–75 (Iowa 1940); Miller v. City of Des Moines, 122 N.W. 226, 230
(Iowa 1909); Jackson v. Sullivan, 124 S.W.2d 1019, 1021–22 (Ky.
1939); Ledwith v. City of Lincoln, 193 N.W. 763, 764–65 (Neb. 1923). 7
7 To be sure, McQuillin in 1950 recognized that the authorities “may, without violating
the rule requiring freedom of competition, insert proper conditions in their proposals for
bids, and the bidders are bound to observe them,” 10 McQuillin § 29.44, at 298 (3d ed.
1950), but the examples provided related to the nature of the work to be performed and
the bidder’s capability of performing it, such as restrictions as to the kind and quality of
the material to be used or requirements that a successful bidder have the requisite plants
46
Competitive Bidding Requirements Under the Federal-Aid Highway Program
Necessarily, of course, “[a]ll specifications restrict competition since
they narrow the range of acceptable bids.” 1B John Cosgrove McBride et
al., Government Contracts: Cyclopedic Guide to Law, Administration,
Procedure § 10.50[1], at 10-164 (2012). The question is whether a partic-
ular bidding specification “unduly” restricts competition. Id. at 10-166;
see also To the Elgin Sweeper Co., 43 Comp. Gen. 680, 682 (1964) (legal
question is whether the specification was “unduly restrictive, i.e., restric-
tive to the point of preventing the pecuniary benefits which we believe to
flow from free and open competition”). The notion that specifications that
“unduly restrict” competition are inconsistent with competitive bidding
requirements has long been a background principle informing government
contracts law, as reflected in bid-protest decisions by the Comptroller
General. In the 1950s (as is the case now), for example, the Comptroller
General, in deciding bid protests under direct federal procurement laws,
deemed it within his purview “to determine whether specifications as
written are unduly restrictive of competition,” while emphasizing that the
inability or unwillingness of a particular bidder to meet the minimum
requirements will not be a sufficient reason to conclude that specifications
unduly limit competition. To York Corp., 36 Comp. Gen. 251, 252 (1956);
see also To the Postmaster General, 32 Comp. Gen. 384, 386 (1953)
(questioning the restrictiveness of specifications that appeared to have
been drawn with reference to a particular company’s sweeper and “in such
a manner as to preclude all other companies from submitting responsive
and facilities for doing the job, rather than conditions unrelated to the project or the
contractor’s capability of performing it. See id.We note that the consistency with state competitive bidding laws of specifications and
conditions that promote social policy goals not directly related to the needs of the project
has been the subject of considerable disagreement among state courts and federal courts
applying state law. Compare, e.g., Domar Elec., Inc. v. City of Los Angeles, 885 P.2d 934(Cal. 1994) (city could require bidders to comply with subcontractor outreach program),
and Court St. Steak House, Inc. v. Cty. of Tazewell, 643 N.E.2d 781 (Ill. 1994) (county
jail food supply contract could be awarded to higher bidder who would provide food
service training for mentally handicapped), with Council of City of New York v. Bloom-
berg, 846 N.E.2d 433 (N.Y. 2006) (city law requiring contractors to provide domestic
partner benefits to employees violated competitive bidding requirements), and Tex. Hwy.
Comm’n v. Tex. Ass’n of Steel Importers, Inc., 372 S.W.2d 525 (Tex. 1963) (Texas
Highway Commission order requiring construction contracts to require that materials be
manufactured in the United States violated competitive bidding law); see also infra pp.
57–60 (citing additional cases).
47
37 Op. O.L.C. 33 (2013)
bids thereunder”). 8 To be sure, the Comptroller General bid protests
tended to focus on whether bidding specifications were too rigid in tech-
nical respects—e.g., whether specifications requiring a desk with “sand-
wich construction” were too restrictive, see To the Secretary of the Navy,
48 Comp. Gen. 345, 346–49 (1968) (yes)—rather than on whether bidders
were being excluded categorically on the basis of other legal require-
ments. That focus was attributable partly to the era, and partly to the fact
that most bid protests addressed by the Comptroller General involve direct
federal procurement, which is subject to detailed regulation. Moreover,
Congress, unlike local governments subject to federal or state competitive
bidding requirements, may enact legal restrictions on competitive bidding,
and such restrictions will not be subject to challenge in bid protests before
the Comptroller General. The key point, for present purposes, is that the
Comptroller General, like federal and state courts, undertook a substantive
review of whether bidding specifications were unduly restrictive. 9
8 Accord To Control Corp., 33 Comp. Gen. 586, 588 (1954) (observing that “the law
requiring advertising for bids and award of contracts to the lowest responsible, responsive
bidder . . . contemplates fair and unrestricted competition” but that the fact that a particu-
lar bidder may be unable or unwilling to meet the minimum requirements for supplying
the needs “will not be sufficient to warrant the conclusion that the specifications are
unduly restricted” (emphasis added)); To the Secretary of the Interior, 33 Comp. Gen.
567, 570 (1954) (because qualifying language of stated minimum requirements left
bidders in doubt as to whether it would be permissible not to meet those minimums, the
specifications were “legally defective” as being “unduly restrictive of competition”;
proper course was to advertise “on the basis of specifications which will permit the
broadest field of competition within the actual minimums required”); To the Chairman,
Atomic Energy Commission, 30 Comp. Gen. 368, 370 (1951) (determining that the
challenged specifications, while potentially eliminating particular bidders who might be
unable to meet the minimum requirements for supplying an agency’s needs, were not
“unduly restrictive” to “the point of precluding free and open competition”).
9 We also note that regulations implementing the Federal-Aid Highway Program have
long authorized the responsible agency head or delegee to disallow state or local proce-
dures or requirements that restrict competition. See, e.g., 23 C.F.R. § 635.110(b) (2012)
(“No procedure or requirement for bonding, insurance, prequalification, qualification, or
licensing of contractors shall be approved which, in the judgment of the Division Adminis-
trator, may operate to restrict competition, to prevent submission of a bid by, or to
prohibit the consideration of a bid submitted by, any responsible contractor[.]” (emphasis
added)); see also supra note 4. Nearly identical variations of this provision date back to at
least 1951. See 25 Fed. Reg. 4162, 4163 (1960) (23 C.F.R. § 1.16); 22 Fed. Reg. 1063,
1065 (1957) (23 C.F.R. § 1.10(d)); 16 Fed. Reg. 387, 389 (1951) (23 C.F.R. § 1.10(d)).
48
Competitive Bidding Requirements Under the Federal-Aid Highway Program
C.
Finally, we explain our view that the language added to section 112(b)
in 1968, and cited by the Sixth Circuit in City of Cleveland, does not
show that section 112(b)’s competitive bidding requirement is merely
procedural. The Sixth Circuit’s conclusion in dicta to the contrary rested,
in part, on the last sentence of section 112(b)(1): “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 obliga-
tion is otherwise lawful and is specifically set forth in the advertised
specifications.” 23 U.S.C. § 112(b)(1), quoted in City of Cleveland, 508
F.3d at 841. The court compared subsection (b)(1)’s reference to a “re-
quirement or obligation” imposed upon contractors with the reference to
competitive bidding as a “method” in its first sentence. Based on this
contrast, the court concluded that the public body awarding a contract
need not justify the “requirements or obligations” imposed on contractors
as “more cost effective” than competitive bidding or as necessitated by an
emergency, because the need for such showings is triggered only when
the public body seeks to depart from competitive bidding as the “method”
for awarding a contract. Id. Thus, the court reasoned, section 112(b)
“confers no authority upon the FHWA to evaluate substantive contract
requirements to determine whether they might inhibit competition or
disqualify otherwise qualified bidders.” Id.This reading of the text of section 112(b)(1), however, overlooks that
the last sentence of this provision was added in 1968—years after Con-
gress enacted the requirements in 1938, 1954, and 1958 that the Secretary
“require such plans and specifications and such methods of bidding as
shall be effective in securing competition,” 23 U.S.C. § 112(a), and that
federally aided highway construction contracts be “performed by contract
awarded by competitive bidding,” id. § 112(b)(1). See supra Part II.A
(quoting earlier versions of the Act). 10 Neither the text of the 1968
10 The 1968 amendment added the following two sentences to what was then subsec-
tion (b):
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 re-
sponsibility. No requirement or obligation shall be imposed as a condition prece-
49
37 Op. O.L.C. 33 (2013)
amendment nor its legislative history supports the conclusion that by
adding this language, Congress intended to inject into the statute a new
distinction between the “method” or “process” of competitive bidding, on
the one hand, and substantive “requirements or obligations” imposed on
contractors, on the other. Nor did Congress add the last sentence to sug-
gest that “any requirement or obligation” must be accepted by FHWA so
long as it is “otherwise lawful” and “specifically set forth in the adver-
tised specifications.”
Apart from adding the last two sentences of what is now section
112(b)(1), the 1968 amendment did not amend the text of either section
112(a) or (b), leaving unchanged the pre-existing requirements that the
Secretary “require such plans and specifications and such methods of
bidding as shall be effective in securing competition” in subsection (a),
and that federally assisted contracts be “awarded by competitive bidding”
in subsection (b)(1). For the reasons discussed above in Part II.A–B, we
think that Congress, in enacting these earlier provisions, intended the
statute’s competitive bidding requirement to have a substantive dimension
empowering the responsible agency head (or delegee) to ensure that state
and local bidding specifications and conditions adhere to competitive
bidding principles and do not unduly restrict competition.
The 1968 amendments were not intended to alter this authority. Ra-
ther, the 1968 amendments are better understood to address only one
particular axiom of competitive bidding—that a requirement or obliga-
tion not be imposed as a condition precedent to the award of a contract,
or to the Secretary’s concurrence in the award, “unless such requirement
or obligation is otherwise lawful and is specifically set forth in the
advertised specifications.” 23 U.S.C. § 112(b)(1). The legislative history
reflects that this language, paraphrased from a Comptroller General
dent 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 specifi-
cations.
Federal-Aid Highway Act of 1968, Pub. L. No. 90-495, § 22(c), 82 Stat. 815, 827. The
amendment also added a new section 140 (Equal employment opportunity), which
obligated the Secretary to require that each state “include in the advertised specifica-
tions, notification of the specific equal employment opportunity responsibilities of the
successful bidder.” Id. § 22(a), 82 Stat. at 826 (codified at 23 U.S.C. § 140(a) (2006)).
50
Competitive Bidding Requirements Under the Federal-Aid Highway Program
opinion requested by a member of Congress, was added to the statute to
address a specific problem. As the congressional committee reports
explain, the two sentences were added in response to the Department of
Labor’s effort to compel contractor compliance with equal employment
opportunity requirements imposed by Executive Order 11246 of Sep-
tember 24, 1965, 3 C.F.R. 167 (1965 Supp.), by negotiating such re-
quirements with contractors after they had been determined to be the
lowest responsive bidders but before the contracts were awarded. 11
Congress found the Department of Labor’s approach problematic be-
cause it added “grave uncertainty about the exact nature of the legal
obligation and requirements which may be imposed upon the low bidder
on Federal-aid highway projects.” S. Rep. No. 90-1340, at 16 (1968);
see also H.R. Rep. No. 90-1584, at 13 (1968) (“No State can expect to
conduct competitive bidding unless it is able to say, when it advertises
for bids, what the requirements of the contract will be. No contractor can
be expected to bid responsively unless he knows, when he prepares his
bid, what the contract will require of him.”). To address this concern,
the 1968 amendments prohibited any requirements except those “specif-
ically set forth in the advertised specifications,” drawing on language
from a Comptroller General letter describing the obligation to set forth
the “specific and definite minimum requirements” of a contract in the
invitation to bid. 12
11 According to congressional committee reports, the Department of Labor was evalu-
ating individual contractors’ compliance with these requirements on a contract-by-
contract basis for each highway project, after the low bidder on a federal-aid construction
contract was determined but before the award to the low bidder was made. S. Rep. No.
90-1340, at 16 (1968); see also H.R. Rep. No. 90-1584, at 13 (1968); id. at 51 (minority
views). The Labor Department required the low bidder to submit an “acceptable affirma-
tive action program” for the employment of members of minority groups, but the adver-
tised specifications contained no detailed description of what would be considered an
acceptable program. Instead, the acceptability of the program was left to negotiation after
the bids were opened but before the contract was awarded. H.R. Rep. No. 90-1584, at 51.
12 Representative William Cramer asked the Comptroller General if the Department of
Labor’s approach violated the competitive bidding requirements of the federal-aid high-
way laws. In a letter opinion, the Comptroller General responded that
the basic principles of competitive bidding require that bidders be assured that
award will be made only on the basis of the low responsive bid submitted by a bid-
der meeting established criteria of responsibility, including any additional specific
and definite requirements set forth in the invitation, and that award will not thereaf-
51
37 Op. O.L.C. 33 (2013)
As both the statute’s text and history show, Congress adopted the
1968 amendments to require that the Secretary comply with what Con-
gress and the Comptroller General understood to be a basic principle of
competitive bidding—that a contract award be made only on the basis of
the lowest responsive bid submitted by a bidder meeting established
criteria of responsibility, including any specific and definite require-
ments set forth in advance in the advertised specifications. With this
amendment, Congress declared out of bounds the conditioning of a
federally funded contract award on a requirement or obligation that has
not been specifically set forth in the advertised specifications or is not
otherwise lawful. But Congress did not amend and did not intend to
significantly alter the meaning of the preexisting portions of section
112(b) to permit unduly restrictive state and local specifications so long
as they are otherwise lawful and advertised in advance. Apart from
codifying that one specific principle of competitive bidding, the 1968
amendment does not change FHWA’s required determinations that the
plans and specifications of the state or local contracting authority are
“effective in securing competition” and comply with the requirements of
“competitive bidding,” 23 U.S.C. § 112(a), (b)(1).
ter be dependent upon the low bidder’s ability to successfully negotiate matters
mentioned only vaguely before the bidding.
To Rep. William C. Cramer, 47 Comp. Gen. 666, 670 (1968), quoted in H.R. Rep.
No. 90-1584, at 51, and 114 Cong. Rec. 19,398–99 (1968) (statement of Rep. Cramer);
see also H.R. Rep. No. 90-1584, at 13 (citing Comptroller General opinion); S. Rep.
No. 90-1340, at 17 (same). Consequently, the Comptroller General concluded that the
Department of Labor could require bidders to submit affirmative action programs
before contract awards were made only if the agency issued regulations that included a
statement of definite minimum requirements to be met by the bidder’s program and any
other standards or criteria by which the acceptability of the program would be judged.
47 Comp. Gen. at 670. Concerned that the Department of Labor was not complying
with the Comptroller General opinion, H.R. Rep. No. 90-1584, at 51, and believing that
equal opportunity requirements should be “work[ed] out in advance,” id. at 13, the
House committee adopted an amendment to section 112 “to incorporate the effect of
this ruling of the Comptroller General into the Federal-aid highway laws, to require
resolution of the problem of equal employment programs before the bidding.” Id. at 51
(minority views); see also id. at 13; H.R. Rep. No. 90-1799, at 34 (1968) (Conf. Rep.)
(adopting House version of amendment).
52
Competitive Bidding Requirements Under the Federal-Aid Highway Program
*****
For these reasons, and consistent with our 1986 opinion, we believe
that section 112(b)(1)’s requirement of “competitive bidding” for federal-
ly assisted highway construction contracts not only describes a procedural
method for awarding contracts, but also contains a substantive component
that would render some conditions imposed by state or local governments
impermissible (even if the conditions are announced in advance and are
otherwise lawful).
III.
There remains the question of the scope and nature of the substantive
limitation that section 112(b)(1) imposes on state or local bidding re-
strictions unrelated to performance of the necessary work. As explained
below, we do not think that the requirement that contracts be “awarded by
competitive bidding” precludes any and all state and local bidding re-
quirements that might reduce the pool of eligible, responsible bidders. In
our view, FHWA retains some discretion under the statute to evaluate
whether a particular state or local law or policy that has more than an
incidental effect on the pool of potential bidders is nonetheless compatible
with section 112(b)(1)’s competitive bidding requirement.13 See generally
Rothrock v. United States, 62 F.3d 196, 198–99 (7th Cir. 1995) (noting
the Secretary’s broad discretion in approving federal highway projects);
Glasgow, 843 F.2d at 136 (“The Act, in general, indicates that the FHWA
is to have discretion in its administration.”). FHWA’s exercise of that
discretion, however, is constrained by the objectives of the statute: state
or local bidding requirements that disadvantage or exclude a class of
potential bidders from the pool of applicants for reasons not directly
related to the contractors’ capability of performing the work are compati-
ble with section 112 only if such requirements advance the purposes of
competitive bidding. Accordingly, FHWA may reasonably conclude that a
state or local bidding requirement that constricts the pool of potential
13 Thus, as discussed further below, the assessment of whether any particular state or
local law or policy restricting the pool of potential bidders is compatible with section 112
properly belongs to FHWA and DOT. Consequently, we do not address here whether any
particular state or local bidding restriction or requirement, including those discussed in
the DOT Letter, would be consistent with section 112’s competitive bidding mandate.
53
37 Op. O.L.C. 33 (2013)
bidders is nonetheless consistent with section 112 because the require-
ment advances the purposes of competitive bidding and thus does not
unduly limit competition. In making that judgment, FHWA may permissi-
bly weigh whether the bidding requirement promotes the efficient and
effective use of federal funds in the short or long run, or otherwise safe-
guards the integrity of the competitive bidding process. It is for FHWA
and DOT to determine the regulatory approach the agency should take in
exercising this discretion and in evaluating whether certain state and local
requirements are consistent with the statutory mandates that “plans and
specifications and [the] methods of bidding . . . be effective in securing
competition” and that bidding be “competitive” unless some other method
is “more cost effective” or “an emergency exists.” 23 U.S.C. § 112(a),
(b)(1). 14
It is a truism that promoting the efficient use of federal funds is a cen-
tral purpose of the competitive bidding requirement in section 112. Con-
sequently, state or local bidding requirements that foster the efficient and
14 Section 112 authorizes the Secretary to approve federally assisted highway con-
tracts that have been let through a method other than competitive bidding if “the State
transportation department demonstrates, to the satisfaction of the Secretary, that some
other method is more cost effective or that an emergency exists.” 23 U.S.C. § 112(b)(1).
Thus, a process for letting a contract that includes state or local restrictions that are
inconsistent with competitive bidding principles may nonetheless be approved as an
alternative method if one of these conditions is met—at least in theory. See, e.g., 23
C.F.R. §§ 635.201–635.205 (prescribing procedures for the performance of federally
funded highway construction contracts by a method other than competitive bidding); see
also Competitive Bidding Requirements, 10 Op. O.L.C. at 105–06 (New York City was
required to justify its departure from competitive bidding principles by considerations of
cost effectiveness). We find it difficult to envision a situation, however, where FHWA
could determine that a process for letting a contract by competitive bidding is not
consistent with the substantive requirements of competitive bidding because it includes a
state or local restriction that imposes an “undue” limit on competition (reflecting a
regulatory determination that the restriction does not promote the efficient use of federal
funds or protect the integrity of the process), but where FHWA nonetheless could find
that the process is “more cost effective” for purposes of determining that it qualifies for
the exception. Instead, as FHWA’s regulations recognize, the “cost effectiveness”
exception is more meaningful in authorizing complete departures from the method of
competitive bidding, such as negotiated contracts or the “force account” method of
construction, in which a state transportation department, a county, a railroad, or a public
utility company directly performs the highway construction work. See 23 C.F.R.
§ 635.203(b), (c) (defining the meaning of “some other method of construction” as used
in 23 U.S.C. § 112(b), and of “force account”).
54
Competitive Bidding Requirements Under the Federal-Aid Highway Program
effective use of federal funds, either in the short or long term, do not
conflict with the competitive bidding requirement of section 112. Thus,
we concluded in our 1986 opinion that “[s]ection 112 clearly reflects a
congressional judgment that the efficient use of federal funds afforded by
competitive bidding is to be the overriding objective of all procurement
rules for federally funded highway projects, superseding any local interest
in using federal funds to advance a local objective, however laudable, at
the expense of efficiency.” Competitive Bidding Requirements, 10 Op.
O.L.C. at 103. 15 Although not addressed in our 1986 opinion, state or
local bidding requirements that protect the integrity of the competitive
bidding process, and therefore its ability to safeguard the public fisc in the
long run, similarly would not conflict with the competitive bidding re-
quirement in section 112.
As described above, over time Congress has adopted amendments to
the Act to foster the efficient use of federal funds, as well as to eliminate
collusion and other threats to the integrity of the competitive bidding
process. See supra Part II.A; see also Mahler v. United States, 306 F.2d
713, 721 (3d Cir. 1962) (recounting the legislative history of federal-aid
highway legislation, with the observation that “[t]he concern of Congress
was to make sure that federal funds were effectively employed and not
wasted”). One classic description recognizes that the requirements of
15 Our 1986 opinion relied in part on the 1983 amendment to section 112(b), which
replaced the public interest exception (“unless the Secretary shall affirmatively find that,
under the circumstances relating to such project, some other method is in the public
interest”) with the current requirement that departures from competitive bidding be
justified by a demonstration that the alternative is more cost-effective (“unless the State
highway department demonstrates, to the satisfaction of the Secretary, that some other
method is more cost effective”). See Surface Transportation Assistance Act of 1982, Pub.
L. No. 97-424, § 112, 96 Stat. 2097, 2106 (1983). Based in part on this amendment, our
1986 opinion reasoned that Congress had intended that “cost-effectiveness be the only
criterion” for awarding contracts for highway projects funded by the federal government,
and that Congress had made clear that “the efficient use of federal funds is the touchstone
by which the legality of state procurement rules for federally funded highway projects is
to be tested.” Competitive Bidding Requirements, 10 Op. O.L.C. at 105 (citing Surface
Transportation Assistance Act of 1982, Pub. L. No. 97-424, 96 Stat. at 2106). Although
we continue to believe that the efficient use of federal funds is central not only to the
cost-effectiveness exception but also to the core requirements of competitive bidding
itself, we now believe that the new language introduced in 1983 changed only the nature
of the exceptions justifying a departure from competitive bidding, and not the nature of
the competitive bidding requirement itself.
55
37 Op. O.L.C. 33 (2013)
competitive bidding are “for the purpose of inviting competition, to guard
against favoritism, improvidence, extravagance, fraud and corruption in
the awarding of municipal contracts, and to secure the best work or sup-
plies at the lowest price practicable.” 10 McQuillin § 29.29, at 266 (3d ed.
1950); see also 64 Am. Jur. 2d Public Works and Contracts § 28, at 648–
49 (2011) (“The purpose of requiring governmental entities to conduct
competitive bidding is to eliminate favoritism, fraud, and corruption; to
avoid misuse of public funds; and to stimulate advantageous marketplace
competition. Such competitive bidding statutes are intended not only to
ensure that the awarding authority obtains the lowest price among respon-
sible contractors but also to establish an open and honest procedure for
competition for public contracts.”). 16
Case law construing competitive bidding requirements under state and
local law is, of course, not binding on FHWA in implementing the com-
petitive bidding mandate of 23 U.S.C. § 112 (and, indeed, courts in differ-
ent jurisdictions often have reached different conclusions regarding the
validity of similar bidding restrictions, see supra note 7). But this case
law illustrates the kinds of analyses that courts use to determine whether
state and local restrictions or contract conditions comply with competitive
bidding requirements, as well as the background understanding of “com-
petitive bidding.” As discussed above, see supra Part II.B, courts have
long set aside state and local specifications and contract conditions that
they consider unduly restrictive under competitive bidding principles.
What is particularly instructive are the reasons courts cite in rejecting or
16 Before Congress added the explicit competitive bidding requirements to the statute
in 1954, one treatise explained that honest and effective competition is the means by
which the end of securing public contracts at a low cost may be achieved:
The purposes of [competitive bidding] are to secure economy in the construction of
public works and the expenditures of public funds for materials and supplies need-
ed by public bodies, to protect the public from collusive contracts, to prevent favor-
itism, fraud, extravagance, and improvidence in the procurement of these things for
the use of the state and its local self-governing subdivisions, and to promote actual,
honest, and effective competition to the end that each proposal or bid received and
considered for the construction of a public improvement, the supplying of material
for public use, etc., may be in competition with all other bids upon the same basis,
so that all such public contracts may be secured at the lowest cost to taxpayers.
43 Am. Jur. Public Works and Contracts § 26, at 767 (1942).
56
Competitive Bidding Requirements Under the Federal-Aid Highway Program
sustaining restrictions on eligible bidders unrelated to the capability of the
bidder to perform the work in a competent and responsible manner.
For example, many courts have identified protection of the public fisc,
by obtaining the best work at the lowest possible price, as one of chief
objectives of their states’ competitive bidding laws. These courts tend to
invalidate state or local bidding restrictions that are not intended to safe-
guard public funds, even though the restrictions may serve other desirable
public policy goals. See, e.g., Associated Gen. Contractors of Cal., Inc. v.
City & Cty. of San Francisco, 813 F.2d 922, 926 (9th Cir. 1987) (competi-
tive bidding statutes are designed to protect against “a variety of ills,”
including “insufficient competition to assure that the government gets the
most work for the least money”; invalidating San Francisco ordinance
giving preferences to minority-owned, women-owned, and locally-owned
business enterprises as inconsistent with city charter requiring contracts to
be let “to the lowest reliable and responsible bidder”); Council of City of
New York v. Bloomberg, 846 N.E.2d 433, 438–39 (N.Y. 2006) (ruling that
exclusion of responsible bidders that do not provide domestic partner
benefits violates competitive bidding requirements because the purpose
and likely effect of the law was not “to make the City’s contracts cheaper
or their performance more efficient,” and the law may open the door to
“favoritism” by allowing the city to design its requirements to match the
benefit structure of its preferred bidder); Associated Builders & Contrac-
tors, Inc. v. City of Rochester, 492 N.E.2d 781, 782–83 (N.Y. 1986)
(holding city ordinance granting preference to contractors with appren-
ticeship training programs invalid given competitive bidding statute’s
“predominate purpose” of “protection of the public fisc”); Am. Inst. for
Imported Steel, Inc. v. Office of Gen. Servs., 365 N.Y.S.2d 56, 58 (N.Y.
App. Div. 1975) (invalidating “Buy-American” policy as contrary to
competitive bidding statute, the purpose of which is “to invite competi-
tion” and thereby furnish the state with “the best product at the lowest
price practicable,” and thus “conserve the taxpayers’ money”; this pur-
pose “could easily be neutralized if any group of responsible bidders is
wrongfully eliminated”); Clarkie’s, Inc. v. City of Philadelphia, 67 Pa.
D. & C. 2d 68, 75, 77–91 (1973) (“Where competitive bidding is required,
any ordinance which unduly limits the number of bidders, thus tending to
increase the cost of the work, is void”; invalidating proof-of-competency
specification requiring prior experience in a stadium, race track, or arena
57
37 Op. O.L.C. 33 (2013)
with seating capacity of at least 10,000, for Veterans’ Stadium janitorial
and maintenance services contract, as an “arbitrary” and “undue re-
striction on competitive bidding”).
On the other hand, where state or local bidding restrictions or contract
conditions are intended to promote the efficient use of government funds,
courts are more likely to find them consistent with competitive bidding
requirements. In New York State Chapter, Inc. v. New York State Thruway
Authority, 666 N.E.2d 185 (N.Y. 1996), for example, the New York Court
of Appeals considered whether public authorities governed by state com-
petitive bidding laws may lawfully adopt prebid specifications known as
project labor agreements (“PLAs”) for construction projects, despite their
“anticompetitive impact on the bidding process.” Id. at 188. 17 Reading its
past cases as identifying two central purposes of New York’s competitive
bidding statutes—protection of the public fisc by obtaining the best work
at the lowest possible price, and prevention of favoritism, improvidence,
fraud, and corruption in the awarding of public contracts—the court held
that the public authority bears the burden of showing that a decision to
enter into a PLA has “as its purpose and likely effect” the advancement of
these interests. Id. at 190. Applying this test, the court sustained one PLA
requirement in connection with a major bridge construction project, on the
ground that the public authority’s focus on “the public fisc—both cost
savings and uninterrupted revenues” demonstrated that the PLA was
adopted in conformity with competitive bidding statutes. Id. at 191. The
court invalidated a second PLA, however, because of the absence of
record evidence regarding projected “cost savings” or “labor unrest”
threatening the project, even though the authority’s goals of promoting
women and minority hiring through the PLA were “surely laudable.” Id.
at 192–94; accord John T. Callahan & Sons, Inc. v. City of Malden, 713
N.E.2d 955, 964 (Mass. 1999) (upholding PLA where record reflected
17 A PLA is a prebid contract between a construction project owner and a labor union
establishing the union as the collective bargaining representative for all persons who will
perform work on the project. The PLA provides that only contractors and subcontractors
who sign the prenegotiated agreement with the union can perform project work. A PLA
generally requires all bidders on the project to hire workers through the union hiring halls;
follow specified dispute resolution procedures; and comply with union wage, benefits,
and other rules. In return for a project owner’s commitment to insist in its specifications
that all successful bidders agree to be covered by the PLA, the union promises labor peace
throughout the life of the contract. Thruway, 666 N.E.2d at 188.
58
Competitive Bidding Requirements Under the Federal-Aid Highway Program
that city sought to obtain “the lowest price for its work that the competi-
tion among responsible contractors can secure” and where the PLA served
to “place[] all general contractors and subbidders on an equal footing in
the competition to gain the contract” (internal quotation marks omitted));
see also State ex rel. Associated Builders & Contractors v. Jefferson Cty.
Bd. of Comm’rs, 665 N.E.2d 723, 727 (Ohio Ct. App. 1995) (sustaining
PLA as consistent with competitive bidding laws, the purpose of which is
“to enable a public contracting authority to obtain the best work at the
lowest possible price while guarding against favoritism and fraud”). But
see George Harms Constr. Co. v. N.J. Turnpike Auth., 644 A.2d 76, 79,
95 (N.J. 1994) (holding that PLAs may not be used by state agencies,
given “paramount policy” of state’s public-bidding laws to foster “unfet-
tered competition” in public contracts).
Furthermore, courts have sustained bidding restrictions and contract
conditions that are designed to protect the integrity of competitive
bidding procedures itself—a process goal that helps ensure fairness to
bidders, enhance participation of potential bidders, and ultimately
achieve cost savings. To give an obvious example, contracting authori-
ties may reject fraudulent bids. 10 McQuillin § 29.69, at 408 (3d rev. ed.
1966) (citing People v. Stephens, 71 N.Y. 527 (1878)). A city require-
ment that bidders list their subcontractors in their bid proposals has been
upheld on the ground that it prevents “bid shopping,” thus yielding “the
lowest possible cost for the taxpayer, and fairness to bidders and sub-
contractors.” See C.R. Kirby Contractors, Inc. v. City of Lake Charles,
606 So.2d 952, 955 (La. Ct. App. 1992). Under section 112 itself, a
federally funded highway construction contract may not be approved in
the absence of a sworn statement that the grantee has not participated in
collusion. 23 U.S.C. § 112(c); see also Glasgow, 843 F.2d at 138 (up-
holding FHWA decision to withhold concurrence in highway contract
award because the agency could have found that the state transportation
department’s renegotiation of the disadvantaged business enterprise
participation goal “damaged the integrity of the bidding process” and
“was not consistent with ‘free, open and competitive bidding’” (quoting
23 C.F.R. § 635.104(a) (1987))). Courts have upheld restrictions de-
signed to open up the competitive bidding process, maximizing the
number of potential responsible bidders and thereby securing the best
work at the lowest possible price. See, e.g., Domar Elec., Inc. v. City of
59
37 Op. O.L.C. 33 (2013)
Los Angeles, 885 P.2d 934, 940–41 (Cal. 1994) (upholding good-faith
subcontractor outreach program as consistent with competitive bidding
requirements, which “necessarily imply equal opportunities to all whose
interests or inclinations may impel them to compete at the bidding” and
because the city board “could reasonably have concluded that the pro-
gram will assist the City in securing the best work at the lowest price
practicable” (internal quotation marks omitted)). And, relevant to the
validity of state or local restrictions on political contributions by poten-
tial bidders, a New York court, in a widely cited decision, upheld a city
board decision to reject the lowest bid, in reliance on a mayoral execu-
tive order directing city agencies not to do business with a list of con-
tractors (including the low bidder) who had given gifts to city officials.
Kayfield Constr. Corp. v. Morris, 225 N.Y.S.2d 507 (N.Y. App. Div.
1962); see also 10 McQuillin § 29.69, at 408 (3d rev. ed. 1966) (citing
Kayfield ); 10 McQuillin § 29:76, at 620 (3d rev. ed. 2009) (same). 18
Against the backdrop of these conventions in construing competitive
bidding requirements, and consistent with the congressional purposes in
requiring competitive bidding here, we conclude that section 112 author-
izes FHWA to exercise discretion to approve federally funded highway
construction contracts—notwithstanding state or local requirements that
have more than an incidental impact on the pool of eligible bidders and
are unrelated to the necessary work—so long as such requirements, in
FHWA’s judgment, advance the purposes of this statute and thus do not
unduly limit competition. Restrictions that FHWA determines promote the
short- or long-term efficient use of federal funds, or protect the integrity
of the competitive bidding process itself, do not unduly inhibit competi-
tion and need not satisfy one of the exceptions under section 112(b)(1)
(although the contract awards remain subject to FHWA’s prior concur-
rence under section 112(d)). In light of the limits on the agency’s discre-
tion, however, we believe that FHWA will rarely, if ever, be in a position
18 Federal law also prohibits any person who enters into a contract with the United
States or a federal department or agency, at any time between the commencement of
negotiations for, and the later of the completion of performance under or the termination
of negotiations for, such contract, “directly or indirectly to make any contribution of
money or other things of value, or to promise expressly or impliedly to make any such
contribution to any political party, committee, or candidate for public office or to any
person for any political purpose or use.” 2 U.S.C. § 441c(a)(1) (2012).
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
to conclude that state or local requirements that eliminate or disadvantage
a class of responsible bidders (for reasons unrelated to the necessary
work) to advance objectives that neither enhance the efficient use of
federal funds nor protect the fundamental integrity of the bidding process
are compatible with the competitive bidding requirement of section 112.
DOT (and accordingly its delegee FHWA) must establish the process
by which the agency will exercise its discretion under section 112. As
explained above, in our view, section 112 does not compel FHWA’s
current position and permits FHWA to authorize state and local require-
ments that might diminish the pool of potential bidders for a particular
contract, provided that the agency concludes that such requirements do
not unduly limit competition. FHWA also has discretion to structure an
appropriate regulatory process to reach such determinations. For example,
the agency could initiate a rulemaking that would enable FHWA to make
categorical determinations about the types of state and local bidding
conditions that are permissible under the statute or, alternatively, it could
initiate a rulemaking that would establish an administrative process
through which the agency would make case-by-case assessments about
the validity of particular restrictions, outlining the factors the agency
would take into account in making such assessments.
IV.
In sum, we reaffirm the view expressed in our 1986 opinion that “the
efficient use of federal funds is the touchstone by which the legality of
state procurement rules for federally funded highway projects is to be
tested,” Competitive Bidding Requirements, 10 Op. O.L.C. at 105, but
we do not understand section 112’s competitive bidding requirement to
compel FHWA to reject every state or local bidding specification or
contract requirement that may have the effect of reducing the number of
potential bidders for a particular contract. Rather, in our view, FHWA
may reasonably conclude, consistent with 23 U.S.C. § 112, that certain
state or local requirements promote the efficient and effective use of
federal funds or protect the integrity of the competitive bidding process
either in connection with the particular contract or when considered
over the long term—even if the requirements may have the effect of
constricting the pool of potential responsible bidders in particular
instances. FHWA may establish a regulatory process to determine
61
37 Op. O.L.C. 33 (2013)
whether particular state or local bidding restrictions, whether consid-
ered as a class or case by case, satisfy the competitive bidding require-
ments of section 112.
VIRGINIA A. SEITZ
Assistant Attorney General
Office of Legal Counsel
62