By: Larry Caudle
I am regularly confronted with issues surrounding public bidding and protests on transportation projects. On occasion, those issues involve disadvantaged business enterprise (DBE) subcontractor listings and other required documentation memorializing good-faith efforts. Based upon my recent observations, I have begun to question whether in its genuine effort to provide state highway departments with the maximum flexibility to meet DBE regulations, the U.S. DOT has created a tool for unscrupulous contractors to decide after bids are opened whether they will honor their bids. This is a form of what is often referred to in public procurement parlance as “getting a second bite at the apple.”
In 1999, the U.S. DOT overhauled the DBE regulations. During the rulemaking process that took place between 1992 and 1999, the U.S. DOT considered, among other things, the issue of when bidders should be required to submit information reflecting the amount of DBE participation included in the price and, if applicable, evidence of good-faith efforts (GFEs).
The U.S. DOT considered the matter as being one of either “bid responsiveness” or “bidder responsibility.” If a matter of responsiveness, each bidder would be required to submit all information with its bid, and failure to do so would result in the bid being nonresponsive. If a matter of responsibility, the apparent low bidder would be required to submit such information after the bid and before a decision to award is made. An apparent low bidder that either fails to submit such information or fails to demonstrate GFEs would be deemed not responsible.
During the lengthy public comment period, DBE subcontractors and some state DOTs expressed concern that allowing bidders to submit DBE documentation after the bid opening would lead to postbid price shopping by prime contractors. Prime contractors and other state DOTs, on the other hand, opposed submitting the information with bids because it would be too burdensome, especially if a contractor were bidding on several projects simultaneously.
The U.S. DOT decided to leave to each state DOT the option of using one approach or the other.
Accordingly, as it stands today contractors will face both approaches. Although most states routinely follow one approach or the other, a few state DOTs actually vary their approaches from time to time.
So what happens on a letting involving the responsibility approach when the apparent low bidder, whose bid is 30% lower than the second bid, is asked to submit its DBE compliance documentation? Assume further that the low bidder is having second thoughts about the propriety of its estimate.
If the bidder turns in documentation that shows it will not meet the goal and there is insufficient proof of GFEs, the state DOT has no choice but to declare the bidder not responsible and move on to the second bidder.
Furthermore, the contractor does not forfeit its bid bond because, by virtue of the state DOT’s finding that the bidder is not responsible, there is no award and thus no refusal by the bidder to enter into a contract.
The scenario described above depicts an otherwise honest bidder that avails itself of an opportunity to avoid an obligation after learning of the disparity in bid prices. While this is certainly understandable, the result is an affront on the traditional notions of fairness and honesty inherent in public competitive bidding.
Taken to another level, however, the responsibility approach could become a tool for the unscrupulous contractor to aggressively bid a project knowing all along that it would ultimately have an opportunity after the bid opening to renege on its bid at no cost. This is unfair to all bidders and constitutes an issue state DOTs and the U.S. DOT should consider.
About The Author: Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Caudle can be contacted via e-mail at [email protected].
