ARRA Legal Column

Is the Federal Economic Stimulus Package a Recipe for More Bid Protests?

By Kent S. Berk, Esq. and Frank W. Moskowitz, Esq.

Careful examination of the ARRA bill will help contractors weigh the pros and cons of bidding on stimulus work.

The much-anticipated American Recovery and Reinvestment Act of 2009 came with strings attached.

In addition to the use-it-or-lose-it provisions detailed elsewhere in this publication, the new law contains a special provision calling for fixed-price contracts garnered through the use of competitive procedures to the “maximum extent possible.” This provision ratifies and reinforces the central theme of government contracting: contracts should generally be awarded to the lowest bidder that will provide the most beneficial product and/or service to the government. For example, Arizona has adopted the Arizona Procurement Code which includes numerous provisions governing State contracts, competitive bidding and disputes (including bid protests).

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Although price is important and sometimes determinative, it is not the only factor the government generally considers in making an award. The government is also entitled to consider ‘responsibility’ -- evaluating the bidder's experience, skill, facilities, integrity, prior performance and other factors affecting the ability to successfully perform the proposed contract at the specified price within any applicable deadlines. Some discretion is inherent, but that discretion is not without limit. As one Arizona court stated, “ ‘in exercising the power to reject any or all bids, and proceeding anew with the awarding of the contract, the officers cannot act arbitrarily or capriciously, but must observe good faith and accord to all bidders just consideration, thus avoiding favoritism, abuse of discretion, or corruption. Although the courts generally will not disturb an honest exercise of discretion, it has been said that they will intervene to prevent the arbitrary rejection of a bid when its effect is to defeat the object to be attained by competition.’ ”

But, Arizona does have a statute that actually permits the State to enter a contract with the higher bidder, a legal preference. For example, licensed Arizona contractors who have paid taxes in Arizona for at least two years are entitled to a preference over non-Arizona companies where the non-Arizona company bid is less than 5% lower than the Arizona company's bid. So, if the Arizona company's bid is less than 5% more than the non-Arizona company's bid, the Arizona company's bid “shall be deemed a better bid.” It remains to be seen whether these legal preferences are allowed under the stimulus Act.

There is also a Buy American provision within Section 1605(a) of the Act which provides that “none of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance or repair of a public building or public work unless all of the iron, steel and manufactured goods used in the project are produced in the U.S.” However, there are broad exceptions where the Buy American restriction “(1) would be inconsistent with the public interest; (2) iron, steel and the relevant manufactured goods are not produced in the U.S. in sufficient and reasonably available quantities and of a satisfactory quality; or (3) inclusion of iron, steel, and manufactured goods produced in the U.S. will increase the cost of the overall project by more than 25%.” Finally and perhaps most importantly, if there is other law prohibiting a trade restriction, the other law would govern, as in those establishing thresholds for foreign trade.

At the same time that many state and local governments are dealing with being understaffed and over budget, the new stimulus package may very well present them with the added pressure of quickly having to conduct competitive bid processes. This may lead to mistakes and shortcuts in a process that is supposed to be free of even the appearance of impropriety.

Contractors who are looking to sustain or revive their businesses should consider the many government projects and business opportunities that will likely result from the new law. Contractors should also consider the possibility that more bid protests may result due to the amount of money at stake and time pressures created by the new law and the overall state of our economy.

Bid protests provide a beneficial check and balance in government contracting, helping to ensure that the process is truly competitive and in the best interests of the government. Interestingly, according to federal bid protest statistics, bid protests are surprisingly successful. According to the U.S. Government Accountability Office, there were 1,652 protests filed in 2008, an increase of 17%, and protesters received “some form of relief from the agency” in 42% of the cases.

Messrs. Berk and Moskowitz are partners at the Scottsdale, Arizona law firm, Berk & Moskowitz, P.C., which has started a blog, www.BidProtestAZ.com, devoted exclusively to government procurement law and bid protests in Arizona. They can be reached at 480-607-7900 or firm@berkmoskowitz.com

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