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Prequalification in Government Construction Contracts: How It Works, How Disputes Are Resolved
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July 28, 2008
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By W. Samuel Niece
Howrey LLP
Relationship Between Prequalification and Responsibility
A.
| Responsibility Requirement
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A basic tenet of government contracting at the federal, state or local level is that a contract can be awarded only to a responsible bidder. For example, Federal Acquisition Regulation (FAR) §9.103(a) provides: “Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only.” The Model Procurement Code for State and Local Governments §3-202(7) (2000) provides: “The contract shall be awarded with reasonable promptness by written notice to the lowest responsible and responsive bidder....” California Public Contract Code §20128 provides: “The board shall award the contract to the lowest responsible bidder.…”
The responsibility requirement has been described in a variety of ways. For example, FAR §9.104-1 provides:
To be determined responsible, a prospective contractor must–
| (a) | Have adequate financial resources to perform the contract, or the ability to obtain them (see 9.104-3(a));
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| (b) | Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments;
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| (c) | Have a satisfactory performance record (see 48 CFR 9.104-3(b) and part 42, subpart 42.15). A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history, except as provided in 9.104-2;
| | (d) | Have a satisfactory record of integrity and business ethics;
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| (e) | Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors) (see 9.104-3(a));
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| (f) | Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them (see 9.104-3(a)); and
| | (g) | Be otherwise qualified and eligible to receive an award under applicable laws and regulations.
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Responsible Bidder or Offeror means a person who has the capability in all respects to perform fully the contract requirements, and the integrity and reliability which will assure good faith performance. 1/
California Public Contract Code §1103 provides:
“Responsible bidder,” as used in this part, means a bidder who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity, and experience to satisfactorily perform the public works contract. 2/
While the language varies, the common thread is that to be responsible a bidder must possess technical capability, financial resources and integrity.
A contracting officer or awarding official must make an affirmative determination that the prospective contractor is responsible with respect to the instant contract before awarding the contract. See, e.g., FAR §9.105-2, Model Procurement Code §3-401.
B.
| Distinctions Between Responsiveness and Responsibility
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Bidders are responsible (or not). Bids are responsive (or not). The general rule is that the contract must be awarded to the responsible bidder that submits the lowest responsive bid. See, e.g., FAR §14.408-1(a)(3); California Public Contract Code §20128.
Responsiveness generally is determined from the face of the of the bid, i.e., without considering extrinsic evidence. The responsibility determination, on the other hand, can be, and often is, based on extrinsic information such as references, Dunn & Bradstreet reports, and public records of OSHA violations, prevailing wage violations or litigation. See, e.g., Gardner Zemke Co., B-238,334, 90-1 CPD ¶372 (GAO 1990); Taylor Bus Service, Inc. v. San Diego Board of Education, 195 Cal.App.3d 1331, 1341-1342 (1987).
C.
| Traditional Post-Bid Opening Responsibility Determination
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The traditional practice is:
| 1. | Issue an Invitation for Bids (IFB).
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| 2. | Receive bids from anyone wishing to bid.
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| 3. | Open bids and determine the apparent low bidder.
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| 4. | Evaluate the low bid for responsiveness.
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| 5. | Make a responsibility determination as to the bidder submitting the low responsive bid.
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| 6. | Award.
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Sometimes the responsibility determination is straightforward because the low bidder is a well-known firm with that has recently completed similar projects in the area to the satisfaction of the owners.
However, if the low bidder is a company the agency has never heard of (or worse, has had previous bad experiences with) or that has never built a similar project, then problems may arise. At this point, the low bidder has invested considerable time in putting together a bid and will have a sense of entitlement to the contract. It is not likely to accept a finding of non-responsibility and simply walk away. On a federal procurement, the rejected bidder can file a protest with the General Accountability Office, which automatically stays award until the protest is resolved. 31 USC §3553(c). Many state and local governments require notice and an opportunity to be heard before a low bidder can be rejected as non-responsible. See, e.g., Houghton Elevator Division v. State of Louisiana, 367 So.2d 1161, 1166 (La. 1979); City of Inglewood-Los Angeles County Civic Center Authority v. Superior Court, 7 Cal.3d 861, 871 (1972).
At the same time, the ultimate user of the facility wants the contract awarded as soon as possible; financiers want the project funds obligated; and elected officials want to have a groundbreaking ceremony.
D.
| Prequalification as Pre-Bid Opening Responsibility Determination
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A solution to the problems associated with the traditional procedure is to move the responsibility determination from after bid opening to before bid opening – by prequalifying bidders. Prequalification has several advantages, including:
| 1. | The prequalification process can occur concurrently with completing the construction documents, thus saving time. Agencies get to bid opening just as fast with prequalification and lose no time after bidding with responsibility determinations.
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| 2. | An over-all saving in bidding costs. Prospective subcontractors only need to submit bids to pre-qualified primes, and only pre-qualified primes need to assemble bids. Over time, this should reduce everyone’s overhead and lead to lower bids.
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| 3. | Contractors that fail to pre-qualify find this out before they have become invested in the project. Thus, having no investment in the project, they may be less likely to protest than if they are found to be non-responsible after collecting sub-bids and submitting a bid. Under the traditional procedure, there is a certain amount of stigma attached to being found non-responsible after being identified as the low bidder at a public bid opening. On the other hand, a contractor who is not pre-qualified does not have to reveal that fact to anyone.
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E.
| Relationship to Debarment
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Rejection of a request for prequalification is significantly different from debarment. Debarment pertains to any contract. Non-prequalification pertains to only a single contract (or sometimes a class of contracts.) A contractor that is not prequalified on large, complex Project A still is eligible to submit his qualifications for smaller, simpler Project B.
Prequalification for Federal Contracts
The Government Accountability Office has approved the use of prequalification on construction contracts. Santa Fe Engineers, B-218268, 85-1 CPD ¶631 (1985). See also, American International Contractors (Special Projects), Inc., B-252859, 93-2 CPD ¶62 (1993).
A.
| Distinctions Between Prequalification and Competitive Range Determinations
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Prequalification is primarily (but not exclusively) used on what the FAR now calls “Sealed Bidding” under Part 14. Sealed Bidding formerly was referred to as “Formal Advertising.” The other contracting method covered by the FAR is “Contracting by Negotiation” under Part 15. In negotiated procurements, the agency may establish a competitive range consisting of a manageable number of highly rated proposals and conduct negotiations with only those firms in the competitive range. FAR §15.306(c).
B.
| Prequalification Procedures
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FAR does not include procedures for prequalification of construction contractors but the Defense FAR Supplement (DFARS) provides in §236.272:
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Prequalification procedures may be used when necessary to ensure timely and efficient performance of critical construction projects. Prequalification–
| (1) | Results in a list of sources determined to be qualified to perform a specific construction contract; and
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| (2) | Limits offerors to those with proven competence to perform in the required manner.
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| (b) | The head of the contracting activity must–
| (1) | Authorize the use of prequalification by determining, in writing, that a construction project is of an urgency or complexity that requires prequalification; and
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| (2) | Approve the prequalification procedures.
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| (c) | For small businesses, the prequalification procedures must require the qualifying authority to–
| (1) | Request a preliminary recommendation from the appropriate Small Business Administration regional office, if the qualifying authority believes a small business is not responsible;
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| (2) | Permit the small business to submit a bid or proposal if the preliminary recommendation is that the small business is responsible; and
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| (3) | Follow the procedures in FAR 19.6, if the small business is in line for award and is found nonresponsible.
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Thus, on DoD construction contracts the head of agency must make a project-specific written determination to use prequalification. Even then, the agency does not have authority to reject a small business on its own; it must involve the Small Business Administration under the Certificate of Competency program. FAR §19.601(b) provides:
The COC program empowers the Small Business Administration (SBA) to certify to Government contracting officers as to all elements of responsibility of any small business concern to receive and perform a specific Government contract.
C.
| Protesting Denial of Prequalification
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A prospective bidder has three forums to protest the use of a prequalification procedure or denial of prequalification under the procedure: the agency itself, the Government Accountability Office or the U.S. Court of Federal Claims.
An agency protest is optional; potential bidders can go directly to GAO or to the Court of Federal Claims.
The procedures for submitting a protest to the contracting agency are set forth at FAR §33.103. A key requirement is that the protest must be filed no later than 10 days after the basis of the protest is “known or should have been know, whichever is earlier.” Protests over the use of prequalification or the prequalification criteria must be filed before the date for submission of completed prequalification questionnaires. Santa Fe Engineers, B-218268, 85-1 CPD ¶631 (1985). The solicitation may provide a specific number of days before the date for submission of questionnaires. It is important to note that an agency determination regarding a prequalification or bid protest is not binding on that agency; it merely serves as a “recommendation” for how the agency’s contracting officer should resolve or remedy the prequalification or award decision.
The procedures for submitting a protest to the GAO are set forth at 4 CFR Part 21. Once again, a key requirement is timing.
If the bidder goes to GAO, protests based on “improprieties in the solicitation” (e.g., the use of prequalification or the prequalification criteria) must be filed before the time set for receipt of “initial proposals” (i.e., prequalification questionnaires). Protests based on denial of prequalification must be filed within 10 days after “the basis of the protest is known or should have been known” (i.e., denial of prequalification when the potential bidder submitted a prequalification questionnaire).
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| U.S. Court of Federal Claims
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The court, pursuant to 28 USC §1491(b), has jurisdiction over “an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with an procurement or proposed procurement.” The court may “award any relief that the court considers proper, including declaratory and injunctive relief.” Thus, the court has both pre-award and post-award jurisdiction. The court’s procedures are set out on its Web site at www.uscfc.uscourts.gov. There is no strict time limit for bringing a protest suit in the court. Thus, protests sometimes end up in the court because the prospective contractor missed the window for an agency or GAO protest.
D.
| Relationship to State Contractor Licensing Requirements
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Prequalification and licensing seek to assure contractor qualification. However, assuring the qualification (responsibility) of a contractor on a federal project is the federal government’s business. Accordingly, the U.S. Supreme Court has held that a state cannot require a contractor on a federal project to hold a state contractor’s license because this would interfere with the federal government’s management of its contracts. Leslie Miller, Inc. v. Arkansas, 352 U.S. 187 (1956). See also, Gartrell Construction. v. Aubry, 940 F.2d 437 (9th Cir. 1991).
Prequalification in State and Local Government Procurements
Because there are thousands of state and local governments, this discussion necessarily will be general.
The Model Procurement Code has been adopted by 15 states, Guam and many local governments since its publication in 1979. See, Board of County Commissioners, Wabaunsee County v. UmBehr, 518 U.S. 668, 693 (1996).
The current edition is “The 2000 Model Procurement Code for State and Local Governments” published by the American Bar Association. It provides in §3-402:
Prospective suppliers may be prequalified for particular types of supplies, services, and construction. The method of submitting prequalification information and the information required in order to be prequalified shall be determined by the [Policy Office] [Chief Procurement Officer].
COMMENTARY:
| (1) | Prequalification is not a conclusive determination of responsibility, and a prequalified bidder or offeror may be rejected as nonresponsible on the basis of subsequently discovered information. Similarly, a prior failure to prequalify will not bar a subsequent determination that a bidder or offeror is responsible with respect to any given procurement.
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| (2) | Prequalification is only of limited utility if a procurement cannot be limited to prequalified suppliers. Regulations should establish that unless an emergency exists or the contract is for a small purchase, a competition may not be limited to pre-qualified offerors unless public notice of the procurement was given in sufficient time for any interested firms to prepare necessary submissions and become prequalified.
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Prospective contractors may be prequalified for bidder lists, but distribution of the solicitation shall not be limited to prequalified contractors nor may a prospective contractor be denied award of a contract simply because such contractor was not prequalified. The fact that a prospective contractor has been prequalified does not necessarily represent a finding of responsibility….
This Section is not applicable to qualified products lists which are treated in Section R4-202.02.2 (Procedures for the Development of Specifications, Special Additional Procedures) of Chapter 4 (Specifications) of these regulations.
The Model Procurement Code contemplates advance prequalification for a type of project rather than on a project-specific basis and allows non-prequalified firms to bid. This is the worst of both worlds. The agency and some contractors incur the administrative burden of the prequalification process, but the agency still may be faced with a post-bid opening responsibility determination, and the contract may go to a contractor that did not participate in the prequalification process.
B.
| Representative State Statutes and Court Decisions
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California’s prequalification statutes are codified at Public Contract Code §20101 (applicable to local public entities) and §§10160, 10163, 10165 and 10166 (applicable to state agencies). These statutes are permissive; they provide that a local entity or state agency may require that prospective bidders submit prequalification questionnaires, but they do not mandate prequalification on all projects.
In enacting §20101 the Legislature specified that:
The Department of Industrial Relations, in collaboration with affected agencies and interested parties, shall develop model guidelines for rating bidders, and draft the standardized questionnaire, that may be used by public entities for the purposes of this part. The Department of Industrial Relations, in developing the standardized questionnaire, shall consult with affected public agencies, cities and counties, the construction industry, the surety industry, and other interested parties.
DIR took this task seriously, consulted with industry and produced a useful product, which is available at www.dir.ca.gov/od_pub/prequal/PubWksPreQualModel.doc.
There are several interesting aspects of the California procedure.
The prequalification statements must be “verified under oath by the bidder in the manner in which pleadings in civil actions are verified.” What this means is that they must be made under penalty of perjury, so a prospective bidder theoretically can be prosecuted criminally for making a false statement in a prequalification questionnaire. In addition, a false statement on a prequalification questionnaire could form the basis for an action under California’s False Claims Act (Government Code §§12650, et seq., which is modeled after the federal False Claims Act, 31 USC §§3729, et seq.).
On the bright side, prequalification questionnaires and financial statements are not “public records” and are thus not open for inspection under California’s Public Records Act (Government Code §§6250, et seq., modeled after the federal Freedom of Information Act (5 USC §552).
Prequalification has been upheld even in the absence of statutory authorization. Massachusetts had a statute (General Laws Chapter 29, §8B) authorizing the Metropolitan District Commission and the Department of Public Works to use prequalification. In Sciaba Construction Corp. v. Massachusetts Turnpike Authority, 591 N.E.2d 190 (Mass. 1992), a company denied prequalification challenged the Turnpike Authority’s power to prequalify bidders. The court rejected the contractor’s argument. The statute applicable to the Turnpike Authority (General Law Chapter 30, §39M) provided that construction contracts be awarded “to the lowest responsible and eligible bidder.) The court observed: “there is no suggestion that the authority is precluded from prequalifying bidders, as opposed to determining whether such bidders are ‘responsible and eligible’ postbid.” That is, the Turnpike Authority could make the responsibility determination either pre-bid (prequalification) or post-bid.
C.
| Relationship Between Licensing and Prequalification
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Prospective bidders will argue that if they have the appropriate state contractor’s license for the work, a public entity cannot refuse to prequalify them or reject their bid. This argument generally fails. Local agencies in most states are pre-empted from imposing licensing requirements for private and public projects that are stricter than state law. However, a local public entity can define the terms on which it will contract for its own work and can establish experience or capability requirements over and above those required to obtain a state contractor’s license. See, e.g., M & B Construction v. Yuba County Water Agency, 68 Cal.App.4th 1353, 1361-1362 (1999); Stacey & Witbeck, Inc. v. City and County of San Francisco, 36 Cal.App.4th 1074, 1096 (1995).
D.
| Re-Evaluating Responsibility After Bid Opening
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Prequalification does not necessarily preclude a post-bid opening inquiry into responsibility – even in states that have not adopted the Model Code. In Crest Construction Corp. v. Shelby County Board of Education, 612 So.2d 425, 428 (Alabama 1992), a board of education asked for prequalification statements for construction of a new school building (on AIA Form A305). Crest Construction filled out and submitted the form and was prequalified. Crest then submitted the lowest bid, the board awarded the contract to the second lowest bidder by deeming it the lowest responsible bidder. The Alabama Supreme Court affirmed the award, making a distinction between “prequalification” and “responsibility”:
The fact that a contractor has been prequalified does not necessarily represent a finding of responsibility.... Prequalification is a voluntary process, but determining responsibility is not. Prequalification saves time, money, and effort by eliminating obviously unqualified bidders, and it is generally based on tangible and objective criteria, such as work experience, size, net worth, equipment, etc. Determining responsibility is different, because it involves more qualitative and less quantitative considerations, such as determining which bidders “in point of skill, ability and integrity would be most likely to do faithful, conscientious work, and to fulfill the terms of the contract.
Crest Construction is at odds with the California Supreme Court’s holding in Inglewood-Los Angeles County Civic Center Authority v. Superior Court, 7 Cal.3d 861, 867 (1972):
[T]he contract for a public construction project must be awarded to the lowest monetary bidder as commanded by section 25454 unless it is found that the lowest bidder is not responsible, in the sense defined above. There is no basis for the application of a relative superiority concept under that section, and if petitioners applied such standard in selecting Swinerton [second low] rather than Argo [low] as the contractor the award cannot stand. 3/
In addition, the Alabama Supreme Court’s decision in Crest Construction that there is a difference between qualification and responsibility is inconsistent with the Massachusetts court’s analysis in Sciaba Construction that “there is no suggestion that the authority is precluded from prequalifying bidders, as opposed to determining whether such bidders are ‘responsible and eligible’ postbid.” That is, the Massachusetts court saw little or no difference between qualification and responsibility.
It is not clear how courts in other states would decide this issue.
E.
| Contracts Awarded by State and Local Entities Under Federal Grant Programs
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So far, we have talked about federal contracts and state and local contracts, but there is a third (hybrid) area: Contracts awarded by states and local entities but funded with federal grant money.
The terminology is that the federal agency is the grantor and the state or local entity receiving the money is the grantee.
Generally, federal laws (e.g., Competition in Contracting Act, Federal Acquisition Regulations and Government Accountability Office bid protest regulations) do not follow the money; grantees form and administer contracts under their own state and local public contracting laws. See, e.g., 40 CFR §31.36(a) [EPA grants]; 49 CFR §18.36(a) [DOT grants]: “When procuring property and services under a grant, a State will follow the same policies and procedures it uses for procurements from its non-Federal funds.” So, if a state or local entity can use prequalification when spending its own money, it can use prequalification when spending federal money.
But, the federal government provides additional guidance in 40 CFR §31.36 and 49 CFR §18.36:
Grantees and subgrantees will make awards only to responsible contractors possessing the ability to perform successfully under the terms and conditions of a proposed procurement. Consideration will be given to such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources….
Grantees and subgrantees will ensure that all prequalified lists of persons, firms, or products which are used in acquiring goods and services are current and include enough qualified sources to ensure maximum open and free competition. Also, grantees and subgrantees will not preclude potential bidders from qualifying during the solicitation period.
And, EPA has expressed a preference for prequalification of equipment suppliers as opposed to brand name “or equal” specifications:
Because prequalification allows multiple communications between the contracting authority and potential equipment suppliers, information critical to judgmental decisions on responsibility and responsiveness to the project needs may be solicited and fully considered before the prime contract is solicited. Moreover, because it yields a final decision on acceptability of particular subcontractors before bid submission, prequalification eliminates or reduces the prime contract bidders’ risk that products on which their bids are based will be rejected by the contracting authority during contract performance. Properly used, prequalification may enhance competition, reduce contract costs, and avoid administrative disputes on equipment substitution.
Chelan, Washington, Protest of Marley Pump Co., EPA Region X (June 24, 1986).
Bidders’ Due Process Rights
In most jurisdictions, an agency seeking to use prequalification must provide an appellate process that affords an aggrieved prospective contractor the opportunity to appeal an adverse finding on its qualifications/responsibility.
A.
| State and Local Governments
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In Sciaba Construction Corp. v. Massachusetts Turnpike Authority, 591 N.E.2d 190 (Mass. 1992), the Supreme Judicial Court noted:
[A]n awarding authority seeking to take advantage of prequalification must provide a meaningful appellate process which provides the same or analogous procedural safeguards as are delineated in G.L. c. 29, §8B.
General Law Chapter 29, §8B provided:
Any prospective bidder who is aggrieved by any decision or determination of the prequalification committee or the commissioner which affects his right to bid may file a new application for qualification at any time, or within fifteen days after receiving notice of such decision the applicant may request in writing a hearing before an appeal board to reconsider his application or qualifications. The appeal board in the department of public works shall consist of the commissioner, the associate commissioners and the chief engineer of public works, or their designees, and the appeal board in the metropolitan district commission shall consist of the commissioner, the associate commissioners, and the director or chief engineer of the division involved, or their designees.
Any bidder or prospective bidder who so requests shall be granted a hearing by such appeal board at which he may submit any and all additional information or evidence bearing upon his finances, experience or other qualifications which may be relevant thereto. Such hearing shall be held without delay and the board shall promptly render its decision after taking into consideration all relevant information or evidence submitted relating to the bidder's qualifications. The appeal board may modify, amend or reverse any previous decision of the prequalification committee or the commissioner with respect to the qualification of the applicant or may sustain such previous decision. Such hearing shall be deemed to be an adjudicatory proceeding, and any bidder or prospective bidder who is aggrieved by the decision of the appeal board shall have a right to judicial review under the applicable provisions of said chapter thirty A.
In California, Public Contract Code §20101(d) provides:
Any public entity requiring prospective bidders on a public works project to prequalify pursuant to this section shall establish a process that will allow prospective bidders to dispute their proposed prequalification rating prior to the closing time for receipt of bids. The appeal process shall include the following:
| (1) | Upon request of the prospective bidder, the public entity shall provide notification to the prospective bidder in writing of the basis for the prospective bidder's disqualification and any supporting evidence that has been received from others or adduced as a result of an investigation by the public entity.
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| (2) | The prospective bidder shall be given the opportunity to rebut any evidence used as a basis for disqualification and to present evidence to the public entity as to why the prospective bidder should be found qualified.
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| (3) | If the prospective bidder chooses not to avail itself of this process, the proposed prequalification rating may be adopted without further proceedings. 4/
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We hold that prior to awarding a public works contract to other than the lowest bidder, a public body must notify the low monetary bidder of any evidence reflecting upon his responsibility received from others or adduced as a result of independent investigation, afford him an opportunity to rebut such adverse evidence, and permit him to present evidence that he is qualified to perform the contract.
The Model Rules do not specifically address prequalification protests, but the general provision at §9-101 appears to encompass protest of prequalification denials:
| (1) | Right to Protest. Any actual or prospective bidder, offeror, or contractor who is aggrieved in connection with the solicitation or award of a contract may protest to the Chief Procurement Officer or the head of a Purchasing Agency. The protest shall be submitted in writing within [14 days] after such aggrieved person knows or should have known of the facts giving rise thereto.
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| (2) | Authority to Resolve Protests. The Chief Procurement Officer, the head of a Purchasing Agency, or a designee of either officer shall have the authority, prior to the commencement of an action in court concerning the controversy, to settle and resolve a protest of an aggrieved bidder, offeror, or contractor, actual or prospective, concerning the solicitation or award of a contract. This authority shall be exercised in accordance with regulations promulgated by the [Policy Office] [Chief Procurement Officer].
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| (3) | Decision. If the protest is not resolved by mutual agreement, the Chief Procurement Officer, the head of a Purchasing Agency, or a designee of either officer shall promptly issue a decision in writing. The decision shall,
| (a) | state the reasons for the action taken; and
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| (b) | inform the protestant of its right to judicial * or administrative * review as provided in this Article.
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Some states severely limit a prospective contractor’s right to challenge a public procurement action. For example, in Grand Canyon Pipelines, Inc. v. City of Tempe, 816 P.2d 247 (Ariz. Ct. App. 1991), the court held that Arizona’s competitive bidding statute is intended only to protect the public and does not confer any rights on prospective contractors. Grand Canyon Pipelines was the low bidder on a city public works contract. The city determined that Grand Canyon was not responsible and awarded the contract to the second low bidder – without any form of hearing. The court held that Grand Canyon had no right to a hearing because bidders have no property interest in being awarded a public contract. Grand Canyon Pipelines has been followed by Hinesburg Sand and Gravel Co., Inc. v. State of Vermont, 693 A.2d 1045 (Vt. 1997) and Interior Contractors, Inc. v. Board of Trustees of Newman Memorial County Hospital, 185 F.Supp.2d 1216 (D. Kan. 2002) [applying Kansas law].
Pursuant to authority granted by 28 USC §§3551 to 3556 and regulations at 4 CFR Part 21, the Government Accountability Office hears and decides prequalification protests. In Santa Fe Engineers, Inc., B-218268, 85-1 CPD ¶631 (1985), Santa Fe protested the use of prequalification on a project, but GAO upheld the propriety of prequalification procedures on construction contracts. In International Line Builders, 87 Comp.Gen. 8, B-227811, 87-2 CPD ¶345 (1987), GAO considered (and denied) International Line Builders’ protest about being found not qualified to bid on a Bonneville Power Administration contract.
In American International Contractors (Special Projects), Inc., B-252352, B-252859, 93-2 CPD ¶62 (1993), GAO considered (and denied) a protest of the State Department’s determination that AICSPI did not prequalify for a contract to design and construct a new U.S. Embassy in Kuwait.
Then, in 2005 AICSPI submitted another prequalification package to the State Department, was prequalified and was awarded a contract to design and construct a new embassy in Djibouti. AICSPI’s competitor, Caddell Construction Co., Inc., protested, arguing that AICSPI did not meet a statutory (28 USC §4852(c)(2)(E)) requirement that to be eligible for award, an offeror must have “achieved total business volume equal to or greater than the project being bid in three years of the five-year period before the solicitation issuance date.” The State Department had interpreted this statute as allowing cumulating three years of business volume and comparing the total to the project at issue and on that basis determined that AICSPI met the test. GAO disagreed, construing the statute as “eligible offerors will have achieved a business volume equal to or greater than the value of the project in each of 3 years within the 5-year period,” which AICSPI did not meet. GAO sustained Caddell Construction’s protest. Caddell Construction Co., Inc., B-298949.2, 2007 CPD ¶119 (June 15, 2007).
Meanwhile, Grunley Walsh International, LLC also was in the embassy design/build business and had been prequalified by the State Department for the 2007 program under the State Department’s three-year cumulation interpretation. However, when GAO issued its June 15, 2007, opinion in Caddell Construction (disapproving the State Department’s cumulation interpretation), the State Department promptly issued a letter withdrawing Grunley Walsh’s prequalification status because Grunley Walsh did not have sufficient business volume under the GAO’s each year interpretation. Grunley Walsh then filed suit in the Court of Federal Claims pursuant to 28 USC §1491(b)(4), AICSPI intervened, and both Grunley Walsh and the United States moved for summary judgment. The court rejected GAO’s each year interpretation:
Because the GAO failed to properly read the business volume requirement contained in section 4852(c)(2)(E), its recommendation to the DOS was not in accordance with the law and lacked a rational basis. Therefore, the DOS's reliance on the GAO's decision and withdrawal of plaintiff's and intervener's pre-qualification for the FY 2007 NEC Program was arbitrary, capricious, and not in accordance with the law. Based on the foregoing, the following is hereby ordered:
Plaintiff's Motion for Summary Judgment on the Administrative Record is ALLOWED. Defendant's Cross-Motion for Judgment on the Administrative Record is DENIED. In addition, the DOS shall reinstate plaintiff's and intervener’s pre-qualifications for the FY 2007 NEC Program to allow them to compete for contract awards thereunder.
Grunley Walsh International, LLC v. United States, 78 Fed. Cl. 35, 44 (2007).
Protests of state and local prequalification decisions under federal grant programs are made initially to the state or local contracting agency (“grantee”). Then, if the protestor is not satisfied with the grantee’s decision, it may seek review by the grantor agency (e.g., EPA or DOT).
The federal regulations require grantees to have procedures for handling protests. See, e.g., 49 CFR §18.36(b)(12); 40 CFR §31.36(b)(12). And a prospective bidder must exhaust its remedies with the grantee before seeking review by the grantor agency. But if the grantee agency decides against the protestor, then the protestor may appeal to the grantor agency. Reviews at the grantor agency will be limited to:
| (i) | Violations of Federal law or regulations and the standards of this section (violations of State or local law will be under the jurisdiction of State or local authorities) and
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| (ii) | Violations of the grantee’s or subgrantee’s protest procedures for failing to review a complaint or protest. Protests receive by the Federal agency other than those specified above will be referred to the grantee or subgrantee. |
49 CFR §18.36(b)(12); 40 CFR §31.36(b)(12).
The time frames for grantor agency protests generally are even shorter than for GAO protests, e.g., as short as seven calendar days for the grantee protest and then seven calendar days to appeal a grantee denial to the grantor agency. (But these time frames vary, so particular agency regulations must be checked.)
Conclusion
Prequalification offers potential advantages for both owners and bidders. It allows owners to accomplish due diligence regarding contractor responsibility in an unhurried manner before bid opening rather than in the post-bid opening rush to contract award. It allows prospective bidders to determine whether or not they will be found responsible for a given project before they expend effort and good will bidding a project.
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ENDNOTES
| 1/ | Adopted in Alaska, Arizona, Arkansas, Colorado, Guam, Hawaii, Indiana, Kentucky, Louisiana, Maryland, Montana, New Mexico, Rhode Island, South Carolina, Utah and Virginia.
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| 2/ | Codifying the California Supreme Court’s decision in City of Inglewood-Los Angeles County Civic Center Authority v. Superior Court, 7 Cal.3d 861, 867 (1972): “It bears emphasis that the word ‘responsible’ in the context of the statute is not necessarily employed in the sense of a bidder who is trustworthy so that a finding of nonresponsibility connotes untrustworthiness. Rather, while that term includes the attribute of trustworthiness, it also has reference to the quality, fitness and capacity of the low bidder to satisfactorily perform the proposed work.”
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| 3/ | Former Government Code §25454; now Public Contract Code §20128.
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| 4/ | Following is an example of a §20101 prequalification appeal process:
Establishment of a Prequalification Appeals Board
The City has developed a procedure for prequalifying bidders for selected public works projects. This process of qualifying bidders for City public works projects is applied on a case-by-case basis. The responsibility determination is made based on a review of each bidder/prospective bidder’s qualifications by a submittal review team made up of City staff or staff and City consultants. The responsibility determination is based on a review of a bidder’s qualifications submittal made at one of two possible times, either: 1) in advance of the date when the bid package is made available in response to a Preliminary Statement of Qualifications questionnaire (“Prequalification Process”) or, 2) immediately after bids on the project are submitted to the City in response a qualification questionnaire included in the City’s bid package (“Post Bid Qualification Process”).
If, after the City’s submittal review team has reviewed the bidder’s qualifications and has determined the bidder is not responsible for the purpose of bidding on the public works project in question, such bidders are either: 1) denied the right to submit bids on the public works project, if the bidder is participating in a Prequalification Process, or 2) denied the opportunity to have its bid considered, if the bidder is participating in a Post Bid Qualification Process. The City may use either the Prequalification Process or the Post Bid Qualification Process at its sole discretion.
An integral part of the overall qualification process is the opportunity for a bidder to appeal the responsibility determination made by the City’s submittal review team. The appeal process is intended to guarantee due process, by providing bidders an opportunity to be heard if the submittal review team has determined the bidder to be “non responsible” for purposes of bidding on a particular public works project, i.e.: the bidder has failed to meet the minimum standards of responsibility for that particular project. In evaluating each bidder’s qualifications, the City submittal review team must apply objective standards in evaluating the prospective bidder’s financial capabilities, experience working on similar jobs, safety record, litigation record, equipment, and key employees experience, as well as verify the existence of required contractor’s licenses and the bidder’s ability to secure the appropriate bonds and insurance.
The present state of the law mandates that any prospective bidder who is deemed to be non responsible be given an adequate opportunity to appeal the findings of the City submittal review team. To accomplish this goal, the City Manager hereby designates the individuals on the City staff who will comprise the prequalification appeals board, which can be mustered on relatively short notice, be made up of individuals who are not on the submittal review team which made the responsibility determination and who have some familiarity with the public works bidding and prequalification process at the City.
Based on these requirements, the City Manager hereby appoints the following positions to comprise and serve as the City’s Prequalification Appeals Board:
Assistant City Manager or Deputy City Manager
Director of Public Works or Assistant Director of Public Works
Director of Electric Utility or Assistant Director of Electric Utility
Director of Finance or Assistant Director of Finance
Director of Water and Sewer Utility or Assistant Director of Water & Sewer Utility
The Prequalification Appeals Board shall be made up of any combination of no fewer than three of the persons who hold the City management positions described above. An effort should be made to try to draw no more than one individual from any department to serve on an individual appeals board hearing. However, this is not a mandatory requirement.
Appeals hearings shall be conducted on an informal basis. No formal procedural or evidentiary rules shall apply during the hearings and the testimony given at the hearings need not be transcribed. The appeal hearings shall be set during normal City business hours and be held at a time when the bidder appealing the responsibility determination can reasonably attend. The structure and process of the hearings and shall be as follows:
| 1) | Representative(s) of the City submittal review team shall open the hearing by stating their findings which support the determination of non responsibility and present the background and rational for their decision. (Estimated time allowed: 0-30 minutes);
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| 2) | Appellant shall be given an opportunity to rebut the grounds for rejection, as set forth in the City’s letter notifying the appellant of its rejection. (Estimated time allowed: 0-45 minutes). Appellant should not be permitted to re-present its affirmative case for prequalification, but only to respond the grounds set forth by staff in the rejection letter.
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| 3) | City’s PSOQ review panel shall be allowed a respond to the Appellant bidder position statement (Estimated time allowed: 0-15 minutes).
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After hearing the position of the respective parties, the Prequalification Appeals Board shall render its decision in writing, either immediately after deliberating, or it may take a matter under submission. However, the Board shall and make its decision with two (2) working days. The Board may recommend that the City either maintain its current position or rule that the prospective bidder be deemed responsible and direct that the prospective bidder be added to the bidders list.
The decision of the Board of Appeal shall be final and binding on the City. |
©2008 Howrey LLP
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