Competitive Bidding Requirements Under the Federal-Aid Highway Program

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 High-
way 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.
August 23, 2013
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
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”).
1
Opinions of the Office of Legal Counsel in Volume 37
our 1986 opinion, the Federal Highway Administration (“FHWA”), the Depart-
ment 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 circum-
stances 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 limita-
tion, 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 require-
ments 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 perfor-
mance of the necessary work would not unduly limit competition. But a require-
2
Although FHWA has promulgated regulations governing the policies, requirements, and proce-
dures 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 solicited from a
pool of potential responsible contractors based on specifications advertised in advance and that the
contract be awarded to the lowest responsive bidder.
2
Competitive Bidding Requirements Under the Federal-Aid Highway Program
ment 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 sec-
tion 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 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) 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,
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Opinions of the Office of Legal Counsel in Volume 37
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 con-
tract to such bidder for a project, or to the Secretary’s concur-
rence in the award of a contract to such bidder, unless such re-
quirement 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 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 certificate stating (1) that in the
previous twelve months they had not conducted, and for the term of the impending
contract they would not conduct, business 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 Namibia. Competitive Bidding Requirements, 10 Op. O.L.C. at 101–02.
Local Law 19 provided that if a bidder complying with the anti-apartheid certifica-
tion 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 Transporta-
tion 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 overrid-
ing 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
4
Competitive Bidding Requirements Under the Federal-Aid Highway Program
112(b)(1)—which imposed the current requirement that departures from competi-
tive bidding be justified by a demonstration that they are more cost-effective than
the alternative—made clear that “the efficient use of federal funds is the touch-
stone by which the legality of state procurement 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 certifi-
cate), we concluded, the city may have discouraged responsible contractors from
bidding and undermined 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 applicants available to bid on a
federal-aid highway contract, or that otherwise favor certain potential bidders over
others in ways unrelated to the capability 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. Consequently, FHWA has prohibited state and local grant recipients
from adopting 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 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 require-
ment that federally aided construction projects be “performed by contract awarded
by competitive bidding,” 23 U.S.C. § 112(b)(1), contains a substantive component
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 regulations prohibit approval of any “procedure or requirement for bonding, insurance,
prequalification, qualification, or licensing of contractors” which, “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
submitted 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).
5
Opinions of the Office of Legal Counsel in Volume 37
authorizing FHWA to examine bid specifications 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 other-
wise 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-apartheid certifi-
cation requirement violated the procedural requirement of competitive bidding that
contracts be awarded to the lowest responsible bidder and was therefore incompat-
ible 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 requirement 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 decision 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 incorporated 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
condition precedent to the award of a contract “unless such requirement or
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 themselves.” Id. at 841 (emphasis in
original). 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 necessitated by emergency. Instead, in the
court’s view, such conditions apply only when the body awarding the contract
“seeks to depart from competitive bidding as the method for awarding a contract.”
Id. (emphasis in original). Thus, the court concluded that section 112(b) “by itself
confers no authority upon the FHWA to evaluate substantive contract require-
6
Competitive Bidding Requirements Under the Federal-Aid Highway Program
ments to determine whether they might inhibit competition or disqualify otherwise
qualified bidders.” 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 specifications 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
statutory 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 requirements 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. Section 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 reconcile 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 efficiency.
The substantive dimension of the statute’s competitive bidding requirement is
particularly apparent when its text is considered in the context of its drafting
history. Congress’s commitment to competitive bidding for federally assisted
5
Although City of Cleveland acknowledged that the Administrator would have discretion to
disapprove of bidding specifications based on a judgment that they are not “consistent 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 unrelated 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 prospective 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”)
(emphasis in original), rev’d on other grounds, 295 F.3d 28 (D.C. Cir. 2002).
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Opinions of the Office of Legal Counsel in Volume 37
highway construction projects—and Congress’s understanding of what “competi-
tive bidding” requires—can be discerned in the historical evolution of the statutory
regime that culminated 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 securing 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 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 contemplated that the agency head with authority to approve federally
funded highway projects would exercise a gate-keeping function in determining
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 section
provided:
Highway construction work performed in pursuance of agreements
between the Secretary of Commerce and any State highway depart-
ment 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 com-
petitive bidding under such procedures as may by regulations be pre-
scribed 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 statement,” executed by or on behalf of
8
Competitive Bidding Requirements Under the Federal-Aid Highway Program
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
competitive 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 adopted the
more specific language requiring competitive bidding and the “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), reprinted in 1954 U.S.C.C.A.N. 2162, 2175; 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 sections provided:
(a) In all cases where the construction is to be performed by the State
highway department or under its supervision, a request for submis-
sion of bids shall be made by advertisement unless some other meth-
od is approved by the Secretary. The Secretary shall require such
plans and specifications and such methods of bidding as shall be ef-
fective in securing competition.
(b) Construction of each project, subject to the provisions of subsec-
tion (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.
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Opinions of the Office of Legal Counsel in Volume 37
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 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 construction 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
competitive 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”).
B.
Section 112(b)(1)’s requirement that federally funded highway contracts be
“awarded by competitive bidding” must also be interpreted in light of the prevail-
ing understanding of the concept of “competitive bidding” when Congress added
that language to federal-aid highway requirements in 1954. “Competitive bidding”
was not a novel concept when Congress enacted the Federal-Aid Highway Act of
10
Competitive Bidding Requirements Under the Federal-Aid Highway Program
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 bidding was
understood then, as it is now, to have a substantive component, rendering invalid
those bidding specifications that unduly restrict competition among potential
responsible bidders.6 Nothing in the legislative record suggests that in requiring
competitive bidding in awards of federally 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 exemplifies
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 restrictions.” 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). Significantly, 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 equip-
ment 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 competi-
tive 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 Munici-
pal Corporations § 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
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, judgment 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 (N.Y. Sup. Ct. 1941) (the term “lowest responsible bidder” “implies skill,
judgment and integrity as well as sufficient financial resources”).
11
Opinions of the Office of Legal Counsel in Volume 37
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 manifestly 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); Wilming-
ton 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
Necessarily, of course, “[a]ll specifications restrict competition since they
narrow the range of acceptable bids.” 1B John Cosgrove McBride et al., Govern-
ment Contracts: Cyclopedic Guide to Law, Administration, Procedure § 10.50[1],
at 10-164 (2012). The question is whether a particular 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., restrictive 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 competi-
tion,” while emphasizing that the inability or unwillingness of a particular bidder
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 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 Street Steak House, Inc. v. County 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. Bloomberg, 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. 20–22 (citing additional cases).
12
Competitive Bidding Requirements Under the Federal-Aid Highway Program
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 bids thereunder”).8 To be
sure, the Comptroller General bid protests tended to focus on whether bidding
specifications were too rigid in technical respects—e.g., whether specifications
requiring a desk with “sandwich 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
requirements. That focus was partly attributable 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 . . . contem-
plates fair and unrestricted competition” but that the fact that a particular 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 in original); 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 Comm’n, 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 author-
ized the responsible agency head or delegee to disallow state or local procedures 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 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 . . . .”) (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)).
13
Opinions of the Office of Legal Counsel in Volume 37
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 Secre-
tary’s concurrence in the award of a contract to such bidder, unless such require-
ment or obligation 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 “requirement 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 obliga-
tions” 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 require-
ments 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 Congress 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 amendment nor its legislative history supports the conclusion that
by adding this language, Congress intended to inject into the statute a new
10
The 1968 amendment added the following two sentences to what was then subsection (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 responsi-
bility. 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 other-
wise lawful and is specifically set forth in the advertised specifications.
Federal-Aid Highway Act of 1968, Pub. L. No. 90-495, § 22(c), 82 Stat. 815, 827 (1968). The
amendment also added a new section 140 (Equal employment opportunity), which obligated the
Secretary to require that each state “include in the advertised specifications, 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)).
14
Competitive Bidding Requirements Under the Federal-Aid Highway Program
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 suggest that “any requirement
or obligation” must be accepted by FHWA so long as it is “otherwise lawful” and
“specifically set forth in the advertised 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. Rather, the
1968 amendments are better understood to address only one particular axiom of
competitive bidding—that a requirement or obligation 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 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 September 24, 1965, 3 C.F.R. 167 (1965
Supp.), by negotiating such requirements 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
because 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
11
According to congressional committee reports, the Department of Labor was evaluating individ-
ual 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), reprinted in 1968 U.S.C.C.A.N. 3482,
3497; 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 affirmative action program” for the employment of
members of minority groups, but the advertised 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.
15
Opinions of the Office of Legal Counsel in Volume 37
highway projects.” S. Rep. No. 90-1340, at 16 (1968), reprinted in 1968
U.S.C.C.A.N. 3482, 3497; 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 “specifically 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 require-
ments” of a contract in the invitation to bid.12
As both the statute’s text and history show, Congress adopted the 1968
amendments to require that the Secretary comply with what Congress 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 requirements set forth in advance in the advertised specifica-
tions. 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
12
Representative William Cramer asked the Comptroller General if the Department of Labor’s
approach violated the competitive bidding requirements of the federal-aid highway 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 bidder meeting established criteria of responsibility, including any additional specific and definite
requirements set forth in the invitation, and that award will not thereafter 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), reprinted in 1968
U.S.C.C.A.N. at 3498. 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), reprinted in 1968 U.S.C.C.A.N. 3531, 3540.
16
Competitive Bidding Requirements Under the Federal-Aid Highway Program
competition” and comply with the requirements of “competitive bidding,” 23
U.S.C. § 112(a) & (b)(1).
*****
For these reasons, and consistent with our 1986 opinion, we believe that sec-
tion 112(b)(1)’s requirement of “competitive bidding” for federally 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 restrictions 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 requirements 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 administra-
tion.”). 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 competi-
tive bidding. Accordingly, FHWA may reasonably conclude that a state or local
bidding requirement that constricts the pool of potential bidders is nonetheless
consistent with section 112 because the requirement advances the purposes of
competitive bidding and thus does not unduly limit competition. In making that
judgment, FHWA may permissibly weigh whether the bidding requirement
promotes the efficient and effective use of federal funds in the short or long run, or
otherwise safeguards the integrity of the competitive bidding process. It is for
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.
17
Opinions of the Office of Legal Counsel in Volume 37
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 specifica-
tions 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 central pur-
pose of the competitive bidding requirement in section 112. Consequently, state or
local bidding requirements that foster the efficient and 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 require-
14
Section 112 authorizes the Secretary to approve federally assisted highway contracts 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”) (emphasis in original).
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
18
Competitive Bidding Requirements Under the Federal-Aid Highway Program
ments 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 requirement 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 require-
ments of 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 supplies 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 responsible 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 competitive bidding
mandate of 23 U.S.C. § 112 (and, indeed, courts in different jurisdictions often
have reached different conclusions regarding the validity of similar bidding
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.
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 needed
by public bodies, to protect the public from collusive contracts, to prevent favoritism,
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).
19
Opinions of the Office of Legal Counsel in Volume 37
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 back-
ground understanding of “competitive 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 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 obtain-
ing 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 safeguard public funds, even though the
restrictions may serve other desirable public policy goals. See, e.g., Associated Gen.
Contractors of Cal., Inc. v. City & Cnty. of San Francisco, 813 F.2d 922, 926 (9th
Cir. 1987) (competitive 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 & Contractors, Inc. v. City of Rochester, 492
N.E.2d 781, 782–83 (N.Y. 1986) (holding city ordinance granting preference to
contractors with apprenticeship 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 competition” and thereby furnish the state
with “the best product at the lowest price practicable,” and thus “conserve the
taxpayers’ money”; this purpose “could easily be neutralized if any group of
responsible bidders is wrongfully eliminated”); Clarkie’s, Inc. v. City of Philadelph-
ia, 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 with seating capacity of
at least 10,000, for Veterans’ Stadium janitorial and maintenance services contract,
as an “arbitrary” and “undue restriction on competitive bidding”).
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Competitive Bidding Requirements Under the Federal-Aid Highway Program
On the other hand, where state or local bidding restrictions or contract condi-
tions 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 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 competitive 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 was “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 that city sought “to obtain the lowest price
for its work that the competition 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”) (citations and internal
quotation marks omitted); see also State ex rel. Associated Builders & Contractors
v. Jefferson Cnty. 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”
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.
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Opinions of the Office of Legal Counsel in Volume 37
of state’s public-bidding laws to foster “unfettered 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 authorities 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
requirement 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 subcontractors.” 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 (upholding FHWA decision to withhold concurrence in highway contract
award because the agency could have found that the state transportation depart-
ment’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 designed 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 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 reasona-
bly have concluded that the program will assist the City in securing the best work
at the lowest price practicable”) (internal quotation marks and citation omitted).
And, relevant to the validity of state or local restrictions on political contributions
by potential 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 executive order
directing city agencies not to do business with a list of contractors (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); accord 10 McQuillin § 29:76, at 620 (3d rev.
ed. 2009) (same).18
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
22
Competitive Bidding Requirements Under the Federal-Aid Highway Program
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 authorizes 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
competition and need not satisfy one of the exceptions under section 112(b)(1)
(although the contract awards remain subject to FHWA’s prior concurrence under
section 112(d)). In light of the limits on the agency’s discretion, however, we
believe that FHWA will rarely, if ever, be in a position 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 requirements 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 rulemak-
ing 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 assess-
ments.
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
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).
23
Opinions of the Office of Legal Counsel in Volume 37
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 whether particular state or local bidding restrictions, whether considered
as a class or case by case, satisfy the competitive bidding requirements of section
112.
VIRGINIA A. SEITZ
Assistant Attorney General
Office of Legal Counsel
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