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Public Contract

Competitive Bidding

For major government expenditures, such as construction of public buildings and highways, government bodies require competitive bidding, which is a well-defined public process of letting a contract. Competitive bidding is a means of preventing political graft and corruption because the public nature of the process discourages favoritism and fraud. The integrity of the process is a central goal of competitive bidding. If a public official or employee is later found to have had an interest in a public contract, the agreement is void and unenforceable, and the interested parties may be subject to criminal prosecution.

To provide bidders with an opportunity to bid competitively on the same work, the appropriate public authorities must adopt plans and specifications that definitely set the extent and type of the work to be done and the materials to be furnished. The public entity itself must prepare these plans and specifications, and it must provide all prospective bidders with the same specifications from which to prepare their bids. The specifications must not be drafted so as to restrict bidding to a single bidder unless it is clearly essential to the public interest to do so.

The plans and specifications cannot be changed once an invitation for bids or the bids themselves have been made unless all bidders are notified so that they have an opportunity to bid under new conditions. In making specifications, the public authority has wide discretion concerning the particular equipment or product that it might require as part of the contract. For example, it might designate a specific product covered by a patent held or manufactured only by one bidder.

Once the plans and specifications are prepared, the public entity must publish a public notice of its intentions to receive bids. This notice does not constitute an offer but is merely a solicitation of offers. An invitation to bid should indicate the deadline for bids to be submitted. It must be explicit in order to facilitate intelligent bidding.

Certain conditions are required of bidders. There might be a requirement that bids be properly signed and accompanied by a financial statement of the bidder. Customary additional requirements are a certificate attesting that the bidder has not colluded with others in the sub-mission of the bid, and a bond or other security, which is conditioned on the making of a contract and the performance of work according to the contract.

A contractor's bond requires the contractor to pay a certain amount of money to the public authority if the obligations in the bond are not fulfilled. The bond contains two obligations: one for the faithful performance of the contract and the other for the protection of the right of laborers and material handlers to be paid.

A bid for the construction of public works must be in substantial and material conformity to the details contained in the bid specifications. All matters concerning the substance of the competitive bid, such as those that might affect price, quantity, quality, or manner of performance, must conform to the details indicated in the specifications. Failure to substantially comply will result in rejection of the bid, and a contract entered into based on such a bid is invalid.

A bid may be accepted if it contains minor or immaterial deviations from the specifications. Whether a deviation is material and substantial is determined by whether the bid limits fair competition by providing the deviating bidder with a substantial advantage or benefit not enjoyed by other bidders, a QUESTION OF FACT decided in light of all the circumstances of the case.

Once the time for filing bids expires, the bidder is bound by the bid as filed, which cannot be altered. A material defect cannot be corrected after the bids have been opened, but a minor defect can. If necessary information is missing from a bid when it is opened, it cannot be supplied then or later by a private understanding between the bidder and the public authority.

In general, an individual who files a bid cannot withdraw it. The benefits that will ACCRUE to a bidder under the public bidding statutes are viewed as adequate consideration to make a bid irrevocable. Some statutes, however, permit a bidder to withdraw a bid at any time prior to its acceptance. Withdrawal is generally allowed if a bidder makes an honest and GOOD FAITH mistake in calculation that has a material effect upon the substance of the contract. A bidder can withdraw a bid only if he was reasonably prompt in providing notice of the error to the public authority or if the public authority will not suffer substantial hardship when the bid is withdrawn.

Once the public authority opens the bids, it must review them within a reasonable period to determine if one should be accepted. A bid must be accepted for the formation of a public contract to occur. An acceptance and award of the contract to a bidder must be on the terms advertised because public policy proscribes granting to a successful bidder or her subcontractor a benefit that was not extended to others who submitted bids. A public body can be granted the right by statute, or it can reserve in the advertisement of bids the right to reject any and all bids, but it cannot do so arbitrarily or without good cause. A typical reason for rejection of all bids is that the bid amounts exceed the public funds allocated for the project.

Ordinarily the award of a public contract under a competitive bidding statute must be to the lowest bidder unless facts establish that another bid, although higher, is the lowest one made by a responsible bidder. The lowest responsible bidder is the contractor whose bid was in substantial conformity to the plans and specifications and who is able to perform the work at the lowest cost. The dollar amount of a contractor's bid is only one factor in determining the lowest responsible bidder. The government unit must also consider a bidder's experience, prior dealings with the government body, reputation for satisfactory work, and intention to employ local labor. The fact that a low bidder has demonstrated delay, lack of cooperation, or poor performance on prior contracts supports a finding that the person is not the lowest responsible bidder.

Since the 1970s public contracts let by competitive bidding have been subject to AFFIRMATIVE ACTION requirements. The federal Public Works Employment Act (42 U.S.C.A. § 6701 et seq.), enacted in 1977, imposed certain conditions on public projects that receive financial assistance from the federal government. The most controversial provision prohibits any local public works project from being granted federal assistance unless at least 10 percent of its work goes to minority business enterprises. A minority business enterprise is a business in which minority group members own at least a 50 percent interest or, in the case of a publicly owned business, 51 percent of the stock is owned by minorities. When a bid is submitted, it must be accompanied by a statement that the bidder has taken steps to include the involvement of minorities in the project. The U.S. Supreme Court, in Fullilove v. Klutznick, 448 U.S. 448, 100 S. Ct. 2758, 65 L. Ed. 2d 902 (1980), upheld the constitutionality of the 10 percent requirement, holding that the set-aside provided a way for groups previously subjected to discrimination to achieve equal economic opportunity. However, in City of Richmond v. J. A. Croson Co., 488 U.S. 469, 109 S. Ct. 706, 102 L. Ed. 2d 854 (1989), the Supreme Court struck down a set-aside program for minority contractors. The Court concluded that these types of affirmative action programs can only be justified to remedy prior government discrimination instead of past societal discrimination. Thus, if it cannot be shown that a city discriminated against minorities in the past, the set-aside program is an unconstitutional preference.

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