Public Bodies’ Discretion in Public Contracting: Is “Responsibility” in the Eye of the Beholder?

01/22/2018 / Paul Meyer

Statutes in virtually all states, including Minnesota and North Dakota, require that competitively bid construction projects over a certain dollar amount be awarded to the lowest “responsible” bidder through a sealed competitive bidding process. But “responsibility” is often determined at the discretion of public officials. The purpose of sealed competitive bidding is to give all qualified contractors the opportunity to compete for government contracts, to avoid favoritism (as well as collusion, or fraud) and to obtain for the government the benefit of competition. 

Avoiding favoritism in letting of public contracts – surely a proper goal – can best be accomplished by limiting the discretion of public officials who award contracts. The Minnesota Supreme Court agrees. In the Coller  case, the Minnesota Supreme Court held that: 

The very purpose of requiring competitive bidding is to divest the official having the power to let contracts of discretion in some respect and to limit its exercise in others. The area of discretion is precisely where such abuses as fraud, favoritism, and improvidence in the letting of contracts are prevalent ...

The ABA Model Procurement Code for State and Local Governments, along with state statutes, however, expand the discretion of public officials, rather than limit it. This discretion can lead to improper determinations or allegations of non-responsibility which can be prejudicial to a contractor bidding on other projects. The ABA Model Code defines a “responsible bidder” as:

A person who has the capability in all respects to perform fully the contract requirements, and the integrity and reliability which will assure good faith performance.

This requires a public official to subjectively determine whether a contractor has the “capability . . . to perform fully the contract requirements,” and whether the contractor has “integrity and reliability.” Under the ABA Model Code, discretion and subjectivity form the bases for a responsibility determination. 

In Minnesota, the “responsible contractor” statute requires the prime contractor and subcontractors on certain public projects to certify that they have complied with various laws and rules in order to qualify as a “responsible contractor.” Despite the seemingly objective nature of this determination, the statute also states that “[n]othing in this section shall restrict the discretion of a contracting authority to establish additional factors or criteria for defining contractor responsibility.” Consequently, discretion is expanded, not limited, by Minnesota’s statute. 

The disparity between case law aimed at limiting discretion, and competitive bidding statutes that expand officials’ discretion, is also evident in North Dakota. The North Dakota Century Code requires that the governing body award a contract to the “lowest responsible bidder”; “the lowest best bidder for the project considering past experience, financial condition, past work with the governing body, and other pertinent attributes that may be identified in the advertisement for bids.” The statute does not define “lowest best bidder.” 

These two statutes illustrate the subjective determinations at the discretion of a public official letting a public contract. Taken to an extreme, could contract documents strip the process of competition altogether by including “additional factors or criteria,” or “other pertinent attributes” that effectively exclude all competent contractors from bidding the work besides a selected, targeted, few? 

While Minnesota and North Dakota statutes do establish criteria for awarding public contracts, they also provide public bodies with significant discretion regarding subjective “responsibility” criteria. Discretion, combined with subjective criteria, arguably allows a public body to select the contractor of choice, not necessarily the “lowest responsible bidder” as intended by the respective legislatures. 

This is especially true when a court uses “abuse of discretion” as its judicial standard of review. For example, if the public body articulates any not arbitrary, non-capricious reason for its “lowest responsible bidder” selection, a court will generally uphold the public body’s determination. 

Selection of the “lowest responsible bidder” appears to be left to the judgment of a given public official. The most effective way to further limit the discretion of public officials would be through amendment of the competitive bidding statutes through state legislative action. On an individual level, however, processes sometimes exist to contest an alleged non-responsibility determination or to reverse such a determination after it is made. Contractors concerned with responsibility determinations should retain legal counsel to evaluate the statutory and contractual determination criteria and coach them through available processes for contesting or reversing adverse responsibility determinations.