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(A revised version of this article appears in The
Construction Lawyer, Volume 21, No. 1, January 2001,
published by the American Bar Association's Forum on the
Construction Industry.)
By John W. Ralls
Howrey LLP
Under
Oregon Revised Statutes §279.015 (6), a public agency
may exempt a contract from competitive bidding by finding
"[i]t is unlikely that such exemption will encourage
favoritism in the awarding of public contracts or substantially
diminish competition for public contracts" and "[t]he
awarding of public contracts pursuant to the exemption will
result in substantial cost savings to the public contracting
agency."
The
Tri-County Metropolitan Transportation District issued a
decision exempting from competitive bidding a contract to
design and construct a light rail extension to Portland
International Airport. Tri-Met then proceeded to award the
work to Bechtel Infrastructure. Under the contract, Bechtel
not only would design and build the new line but also would
provide significant project funding. In return, Bechtel
would receive a lump sum of $125 million as well as development
rights along one segment of the line.
Associated
Builders and Contractors, a trade association for non-union
contractors, filed a petition challenging the exemption
and the award. The trial court denied the petition. The
Oregon Court of Appeal affirmed. Associated Builders
and Constructors, Inc. v. Tri-County Metropolitan Transportation
District of Oregon, 2000 WL 1470135, 2000 Ore. App.
Lexis 1679 (Ore. App. 2000).
On
appeal, ABC argued that a contracting agency cannot both
exempt a public contract from all competitive requirements
and find, as the statute requires, that doing so will not
reduce competition for that contract. According to ABC,
a public agency may exempt a contract from competitive bidding
only if it employs an "alternative contracting method"
such as design-build. ABC argued that if the public agency
desires to use such a method of contracting, it still must
engage in a competitive procurement process of some kind.
The
court rejected the argument that an agency cannot both exempt
the contract and make the finding that the statute requires.
The court held Tri-Met's findings to be sufficient because
those findings made it clear that no contractor other than
Bechtel could have performed the unique terms of the contract.
The board found that because of the unique terms of the
contract, "Bechtel is necessarily a sole source entity
for this contract."
ABC
also argued that even if Tri-Met could exempt the general
contract from all competitive requirements, it could do
so only if it considered the effect that the exemption would
have on the subcontractors who would want to work on the
project. Before the award, Bechtel advised Tri-Met it would
comply with the Heavy and Highway National Agreement between
a contractor's association and the AFL-CIO. This national
agreement requires that all subcontractors sign the agreement
or an appropriate local collective bargaining agreement.
ABC argued that award to Bechtel effectively would prevent
non-union subcontractors from competing for work on the
project. ABC argued that by eliminating non-union contractors,
competition for public contracts would be substantially
diminished, in violation of the statute. The court rejected
this argument on the ground that subcontracts are not "public
contracts." Although Bechtel will pay its subcontractors
out of funds it receives from Tri-Met, the distinguishing
characteristic of a public contract is that the public agency
is responsible for paying the contractor.
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2000 Howrey LLP
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