Prequalification/Disqualification Rules Change

For decades, the only requirements for qualification to bid on Oregon public works contracts have been that the contractor (a) post a statutory performance bond, (b) have the equipment necessary to perform the work, (c) have key personnel available with sufficient experience to perform the contract, and (d) have not "repeatedly breached contractual obligations to public and private contracting agencies". Nothing ever required a construction company as an entity to have done the work before. This enlightened approach allowed new companies to compete. As a result, some of the leading construction companies in the region were started by one or two people who had worked for another company, gathered capital, exercised entrepreneurial skill, and then went into business. Some will argue that, as a result of recent legislation, the era of free competition may have come to an end.

Under the new statutory scheme, the requirements for prequalification before bid and for testing of bidder responsibility after bid are parallel. For each, the contractor must:

1. Not be on the Construction Contractors Board's list of contractors who have failed to pay their subcontractors or suppliers within 60 days of receiving the money which was to form the basis of the payment;
2. Not be on the public agency's list of disqualified contractors;
3. Have substantially complied with all public bidding procedures and requirements for the contract; and,
4. Have:
1. The appropriate financial, material, equipment, facility, and personnel resources and expertise, or ability to obtain the resources and expertise, necessary to indicate the capability of the prospective bidder to meet all contractual responsibilities;
2. A "satisfactory" record of performance;
3. A "satisfactory" record of integrity;
4. The legal qualifications to contract with the public contracting agency; and
5. Supplied all necessary information in connection with the inquiry concerning responsibility.

If a bidder or prospective bidder fails to promptly supply information requested by the public contracting agency the agency shall base the determination upon any available information, or may find the prospective bidder not to be responsible. In this regard, the agency must document any alleged unsatisfactory record of performance or of integrity.

A further, and more far-reaching, level of regulation is found in the statutes governing disqualification of bidders. A public agency may disqualify a contractor for up to three years for:

1. Conviction of a criminal offense in obtaining or attempting to obtain a public or private contract or subcontract, or in the performance of such contract or subcontract;
2. Conviction of embezzlement, theft, forgery, bribery, falsification or destruction of records, receiving stolen property, or any other offense indicating a lack of business integrity or business honesty that currently, seriously and directly affects the person's responsibility as a contractor;
3. Conviction under state or federal antitrust statutes; or,
4. Violation of a contract provision that the agency regards as so serious as to justify disqualification. Such violation may include, but is not limited to, a failure to perform the terms of a contract or an unsatisfactory performance in accordance with the terms of a contract. However, a failure to perform or an unsatisfactory performance caused by acts beyond the control of the contractor may not be considered to be a basis for disqualification.

A disqualification cannot take affect until the contractor is provided with a written decision setting forth the reasons, and given a reasonable opportunity to be heard.

Appeal of adverse findings may be complex. Appeal of a finding of nonresponsibility after bid but before award will likely be subject to the same review standards as any other bid protest — requiring that a lawsuit be filed in circuit court. A judge and/or jury will then determine if the agency's findings were appropriate. Denial of prequalification and disqualification are subject to different rules however.

A prospective bidder who is disqualified or who is denied prequalification has only 3 business days after receipt of the disqualification or the denial to file an appeal. Appeals of findings by the state are to the Director of the Department of Administrative Services. Otherwise the local public agency's contract review board hears the appeal. Appeals are de novo.

Appeal of decisions of the Director or a board must be filed in circuit court within 15 days of the decision. The appeal standards are very limited. The circuit court may reverse or modify the decision only if it finds:

1. The decision was procured by corruption, fraud or undue means;
2. Evident partiality or corruption on the part of the director or board or any of its members; or,
3. An evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the decision. The circuit court may stay the letting of the contract pending the outcome of the hearing, and may award costs and attorney fees to the prevailing party.

In short, the legislature has now set forth a consistent standard for bidder responsibility and prequalification. Unfortunately, that standard has strayed from the objective "bond, equipment, and an employee who has done it before" approach to subjective "appropriate resources", "satisfactory performance", and "integrity" standards. One may now expect to see agencies attempt to deny prequalification or contract awards because the bidder has not done that type of work before — even though it may have employees who have. One may also expect to see agencies attempt to deny prequalification or award solely because of a "bad job" or a "bad relationship" in the past, or for allegations of "lack of integrity" arising out of payment disputes or bid shopping. Because these rules give agencies more power to award to other than the low bidder, they are likely to reduce competition in the future.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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