News Post

By Morgan G. Arrington

There are two procurement laws in Alabama that apply to nearly every purchase made by county commissions and other local governmental entities. Commonly referred to as the Competitive Bid Law and the Public Works Law, these two sets of statutes contain several requirements that must be satisfied in order for local governmental entities to properly expend public funds on certain projects, goods, or services. The result of not complying with these laws is important for attorneys on both sides of the contracting process to understand. Contracts entered into in violation of the Competitive Bid Law “shall be void.”[1] Similarly, contracts let in violation of the Public Works Law “shall be null, void and violative of public policy” and “unenforceable.”[2] Additionally, violations of either law may result in Class C felony charges.

Competitive Bid Law–The Basics

The Competitive Bid Law is codified in Ala. Code §§ 41-16-1 to -144 (1975). County commissions and municipalities, among others, are governed by Article 3 of Chapter 16 when more than $15,000 will be expended on labor, services, and work; the purchase of materials, equipment, supplies, or other personal property; and certain leases. Section 41-16-50(a) further provides that these expenditures “shall be made under contractual agreement entered into by free and open competitive bidding, on sealed bids, to the lowest responsible bidder.” It is important to point out that not all statutes in Chapter 16 of Title 41 apply equally to all entities of government. As an example, because the Competitive Bid Law requires that award be made to the lowest responsible bidder, a county commission may not utilize requests for proposal (RFPs) allowing for negotiation with bidders on specific details of a bid if competitive bidding is required.

There are a small number of purchases that are exempted entirely from the Competitive Bid Law, including the purchase of products where the price is already regulated and established by state law, and purchases for public hospitals operated by the governing boards of instrumentalities of the state, counties, and municipalities. In contrast, there are purchases that are exempted only from the “competitive bidding requirements” of Article 3.[3] Exemptions from only the competitive bidding requirements include the purchase of insurance, contracts for fiscal or financial advice or services, and contractual services and purchases of products related to security plans. County commissions are expressly permitted to purchase dirt, sand, or gravel from in-county property owners in order to supply a county road or bridge project in which the materials will be used without competitively bidding. This section also includes permission to proceed with an alternative to competitive bidding commonly referred to as cooperative purchasing. There are several elements to satisfy when assessing whether a cooperative purchasing program may be used, including approval by the Alabama Department of Examiners of Public Accounts. The department maintains a list of currently-approved purchasing cooperatives on its website for convenience.[4]

Section 41-16-57(a) states that the contract shall be made to the lowest responsible bidder, by taking into consideration the qualities of the commodities proposed to be supplied, their conformity with specifications, the purposes for which required, the terms of delivery, transportation charges, and the dates of delivery. The appellate courts and the Alabama Attorney General’s Office have provided some guidance which helps an awarding authority determine the lowest responsible bidder. A county may take into consideration the bidder’s integrity.[5] Quality is a consideration when determining responsibility of the bidder, and it is appropriate to look at size, experience, lack of equipment, and other resources.[6] In determining who the lowest responsible bidder is, the awarding authority may take into consideration the quality of the materials as well as their adaptability to the particular use required.[7] The use of insider information, as well as the possibility or perception of use of insider information, is a factor that the awarding authority may use in determining the responsibility of a vendor.[8] The Alabama Supreme Court has held that courts will not interfere with the discretion of the awarding authority in determining who was the lowest responsible bidder unless the decision was based upon misconception of the law, was the result of improper influence, was made in violation of the law, or was based upon ignorance through lack of inquiry.[9] A bid accepted in error as the lowest responsible bid is null and void and the awarding authority, upon discovery of the error, may accept the lowest bid and award the contract to that bidder.[10] A conviction and bar by a federal agency are factors which may be considered in determining if a bidder is responsible.[11]

It is not uncommon for county commissions to be surprised by the proposed cost of goods and services when presented with bid proposals. Where the bid proposals exceed the resources available for the procurement, the awarding authority may reject any bid if the price is deemed excessive. Bids may also be rejected if the quality of the proposed product is considered to be inferior. Once a bid is rejected it ceases to exist and the awarding authority cannot accept the rejected bid and award the contract.[12]

In the event only one bidder responds to an invitation to bid, the awarding authority may reject the bid and negotiate the purchase or contract, provided the negotiated price is lower than the bid price.[13] Additionally, the awarding authority may negotiate a lower price with the successful bidder provided there is no change in specifications.[14]

Alabama law limits the term of competitively bid contracts. Contracts for the purchase of personal property or contractual services shall not be for periods greater than three years and contracts for the leasing of motor vehicles shall not be for periods greater than five years. Lease-purchase contracts for capital improvements and repairs to real property shall not exceed periods of 10 years, and all other lease-purchase contracts shall not be greater than 10 years.

Public Works Law–The Basics

Local governmental entities, including county commissions, are governed by Chapter 2 of Title 39 of the Code of Alabama for public works projects in excess of $50,000. Public works is a defined term and applies to the construction, repair, renovation or maintenance of structures such as buildings, roads, and bridges as well as other improvements on public property to be paid, in whole or in part, with public funds. Like the Competitive Bid Law, several persons, entities, or projects are exempted or excluded from some or all of the provisions of the Public Works Law, including professionals, industrial development boards, and employee projects.

The advertising requirements for public works projects are different than the requirements in the Competitive Bid Law. Under the Public Works Law, the awarding authority must advertise for sealed bids once each week for three consecutive weeks in a paper of general circulation in the county. The advertisement must briefly describe the project, state the procedures for obtaining plans and specifications, state the time and place for bids to be received and opened, and state whether prequalification is required and where prequalification information is available. Contracts in excess of $500,000 must also be advertised at least once in three newspapers of general circulation throughout the state. County road and bridge projects may also be advertised pursuant to § 40-17-371(c)(2)(d).[15]

Like other potential procurement efforts, public works proposals often exceed the available resources of a county commission. Under § 39-2-6(b), if no bids are received or if only one bid is received, the awarding authority has a few options. The awarding authority may re-bid the project, direct that the work be done by force account, or negotiate for the work through the receipt of informal bids not subject to the requirements of § 39-2-6. Where only one responsible and responsive bidder has been received, any negotiation for the work shall be for a price lower than that bid. If force account or negotiation is used, the awarding authority shall make available for review by the Department of Examiners of Public Accounts the plans and specifications, an itemized estimate of costs, and any informal bids.

There are several procedures regarding the award of public works contracts detailed in the Public Works Law. For example, written notice must be provided to the successful bidder, and if no award is made within 30 days of the bid opening all bids shall be rejected. Other timelines include 20 days from award to approve bonds and evidence of insurance and complete execution of the contract; 15 days from award for the vendor to enter into a contract, furnish a performance bond, a payment bond, and provide evidence of insurance as required; and 15 days after final execution of the contract for the awarding authority to issue a proceed order.

Likewise, there are also several provisions related to payment procedures. If a county elects to provide partial payments to contractors on public works projects, then retainage must be handled properly. “Retainage” is defined in § 39-2-12(a)(3) as, “[t]hat money belonging to the contractor which has been retained by the awarding authority pending final completion and acceptance of all work in connection with a project or projects by the contractor.” The procedures for retainage may be summarized as follows: (1) Unless otherwise provided in the specifications, partial payments are made at the end of each month as work progresses; (2) No more than five percent of estimated work done and value of materials is retained; (3) No further retainage shall be held after 50 percent of the work is completed; and (4) The retainage (on the first 50 percent) shall be held until final completion and acceptance of all work covered by the contract (unless a statutory alternative is utilized). As an alternative to retainage, the Public Works Law also permits the use of escrow accounts and other security arrangements.

Final payment for projects of $50,000 or more are conditioned on acceptance of the work by the awarding authority and the contractor presenting a duly certified voucher, a release of all claims and claims of liens, and proof of advertisement of project completion. For projects less than $50,000, before final payment may be made, the contractor is required to certify under oath that all bills have been paid in full, publish notice of completion in a newspaper of general circulation, and also post notice of completion at the courthouse for at least one week.

Common Treatment Under Both Laws

Like-Item Purchases

When assessing whether an expenditure will meet or exceed the threshold values of these two laws, thus triggering their application, the concept of “like-item” purchases must be factored into the analysis. The Alabama Attorney General’s Office has concluded that the total amount of the unit price of all items in a group purchase, and not the individual unit price, must be considered when determining if the purchase is subject to the Competitive Bid Law. “If two or more items of the same type or of a similar type are to be purchased, and the total cost of all of the items is $2000.00 (the State Competitive Bid Law threshold amount at the time) or more, the purchase is subject to competitive bidding, although the unit price of each item is less than $2000.00.”[16]

Emergencies

The Competitive Bid Law and the Public Works Law address emergencies in nearly identical ways. In case of an emergency affecting public health, safety, or convenience, contracts may be let without public advertisement to the extent necessary to meet the emergency. The emergency must be declared in writing by the awarding authority and must set forth the nature of the danger involved in a delay. Neither law eliminates the need to competitively bid or follow the other requirements of the respective statutes. Instead, the allowance is to simply put the goods, services, or project out for bid without public advertisement. Under the Competitive Bid Law, the action and reason shall immediately be made public by the awarding authority. The Public Works Law requires the action and reason to be made immediately available upon request.

Conclusion

The Competitive Bid Law and the Public Works Law each present a checklist of requirements to satisfy in order for a local governmental entity to properly expend public funds. While good faith is said to be the single most important requirement for officials charged with carrying out the requirements of the procurement laws,[17] it might also be true that the single most important task for an attorney is to help produce an enforceable and valid contract.

Endnotes
[1] Ala. Code § 41-16-51(d) (1975).
[2] Id. at § 39-2-2(c).
[3] Id. at § 41-16-51(a).
[4] http://www.examiners.alabama.gov/purchase-coop.aspx.
[5] Ala. Att’y Gen. Op. No. 2007-063 (March 28, 2007) and Ala. Att’y Gen. Op. No. 82-00305 (April 29, 1982).
[6] Crest Constr. Corp. v. Shelby Cnty. Bd. of Educ., 612 So. 2d 425 (Ala. 1992).
[7] White v. McDonald Ford Tractor Co., 248 So. 2d 121 (Ala. 1971).
[8] Ala. Att’y Gen. Op. No 2002-030 (October 16, 2001).
[9] Advance Tank and Constr. Co., Inc. v. Arab Works, 910 F. 2d 761 (11^th Cir. 1990) (citing White v. McDonald Ford Tractor Co., 248 So. 2d 121 (Ala. 1971)).
[10] Ala. Att’y Gen. Op. No. 2002-071 (November 28, 2001).
[11] Ala. Att’y Gen. Op. No. 2007-063 (March 28, 2007).
[12] Ala. Att’y Gen. Op. No. 96-00317 (September 17, 1996).
[13] Ala. Code § 41-16-50(a) (1975); See also Ala. Att’y Gen. Op. No. 98-00104 (May 8, 1998).
[14] Ala. Att’y Gen. Op. No. 95-00002 (October 4, 1994); Ala. Att’y Gen. Op. No. 96-00240 (June 14, 1996).
[15] See also Ala. Acts 2021-146.
[16] Ala. Att’y Gen. Op. No. 2003-098 (March 11, 2003).
[17] See White v. McDonald Ford Tractor Co., 248 So. 2d 121 (Ala. 1971).