Compliance with Public Bidding Rules Requires Planning
Contractors bidding on public works projects must be aware of specific bid requirements with respect to the federally mandated Disadvantaged Business Enterprise (DBE) program or the minority-owned, women-owned and emerging small business (MWESB) program implemented by state and local agencies for projects meeting certain dollar thresholds.
Both programs have a similar mission of achieving nondiscrimination in public contracting. These missions are manifested as various programs administered by state and local contracting agencies. For example, the Oregon Department of Transportation has developed a mission statement summarizing its DBE program: ODOT "is committed to a Civil Rights Program to encourage the participation of (DBEs) in contracting opportunities. ODOT's policy is not to discriminate on the basis of race, color, sex and/or national origin when awarding and administering those contracts."
The first step toward compliance with DBE or MWESB programs is determining which one is applicable to the target project. The government agency requesting bids will be the easiest source to answer that question. For example, any project for which ODOT has accepted funds from the U.S. Department of Transportation is subject to DBE program requirements. Other state and local agencies accept federal funding less frequently and are more likely to be subject to the state MWESB program.
If federal DBE program requirements apply, a bidding contractor must complete the DBE Commitment Certification and Utilization form. It requires the contractor to disclose which DBE firms it contacted for bids. Failure to submit such a form results in a nonresponsive bid. A firm's DBE status can be confirmed on the Oregon Office of Minority, Women and Emerging Small Business website.
The contracting agency will determine how many DBE firms the bidding contractor must contact. The agency will assess how many DBE and non-DBE firms are available, willing and able to perform on a specific project in conjunction with how well specific categories of DBE firms are represented historically. Based on that historical representation and proportionate availability, the agency will set the requirements that a bidder must satisfy with respect to the rate of DBE inclusion.
Similarly, the MWESB program requires contacts with qualifying firms subject to the contractor's good faith effort. Bids on projects subject to the MWESB program will be rejected as nonresponsive if they are not accompanied by a Good Faith Effort form and State of Oregon First Tier Subcontractor Disclosure form.
Before a public contract subject to the MWESB program can be awarded, the apparent low bidder must prove compliance with the program. Compliance is established by submitting a record of contacts with qualifying MWESB entities that demonstrates a contractor's good faith efforts to comply with the program. For city of Portland projects, for example, the city will provide a list of eligible MWESB firms.
A contractor satisfies the good faith requirement by making contact with at least five of the listed firms. If there are fewer than five firms on the list, a contractor must contact all of the listed firms. But the Good Faith Effort form does not require a contractor to contact the listed MWESB firms if there are no subcontracting opportunities.
Under Oregon law, a contractor must disclose certain subcontractors within two hours of the deadline for submitting bids to the contracting agency. A bidder may substitute a subcontractor only for one that was disclosed at the time of bidding and by notifying the agency and having a reason that is authorized by statute. A contractor that fails to notify the agency that it replaced a disclosed subcontractor is subject to penalties.
That mandatory disclosure of subcontractors can limit the criticized practice of bid shopping. In Oregon, a subcontractor will be bound by a bid it submits to a contractor if the contractor uses the subcontractor's bid as part of its own bid. The contractor, however, could shop around after its bid is accepted to see if any subcontractors would be willing to undercut the first subcontractor's bid.
Most businesses consider bid shopping to be unethical and complain loudly if it occurs (or even if it is perceived to have occurred). A self-interested contractor will not violate that rule of business ethics against bid shopping because it will limit the contractor's future opportunities. In addition to business ethics, if a contractor goes bid shopping and replaces a subcontractor that was disclosed to the contracting agency, the contractor must give notice of that change. That notice requirement can make it difficult to conceal bid shopping requirements.
Another requirement following acceptance relates to proof of compliance with the DBE and MWESB objectives. For both programs, the contractor must provide payment utilization reports to establish actual use of the qualifying firms. In other words, the contractor must prove that it actually included qualifying DBE or MWESB firms. Both programs stipulate that the reports must be submitted; for the DBE program, the contractor must also maintain the reports for three years following performance on the project.
A contractor's responsibility to comply with DBE and MWESB programs and other requirements when bidding on public works projects is a real challenge. Even the experienced contractor must stay on top of procedural changes that occur each year. Before submitting a bid, a contractor should be sure that any issues are addressed and potential legal ramifications are understood.
David Anderson is an associate attorney in the Portland office of Schwabe, Williamson & Wyatt. He focuses his practice on construction law and commercial litigation. Contact him at 503-796-2456 or at email@example.com.
As published, Daily Journal of Commerce, March 29, 2013.