As the U.S. moves toward the construction of "smart" highways
as an integral part of our transportation system, state DOTs and localities
will be called upon to broaden the horizons of their normal procurement
and contracting systems. Undoubtedly, many legal issues will arise as high-tech
companies compete for contracts that offer the likelihood of substantial
follow-on business in order to maintain compatibility.

Presently, a few cities, states, toll road and turnpike authorities are
in the process of procuring electronic toll-collection (ETC) systems. Many
are procuring those systems under state statutes that call for competitive
bidding of all construction contracts. The question has come up, however,
whether those government entities are required to award contracts after
public bidding. That question was considered in the case of In the Matter
of AT/Comm, Inc. v. Peter Tufo, 652 N.E.2d 915 (N.Y. 1995), where the New
York Court of Appeals made an interesting distinction.

In 1991, the New York State Thruway Authority, together with similar agencies
in New Jersey and Pennsylvania, formed an interagency committee (IAG) to
evaluate electronic toll-collection systems that would be compatible among
the three states. The IAG issued a request for proposals for both "read
only" (which scan information from a windshield tag) and "read/write"
(which are needed when tolls are determined by entry and exit points) systems.

AT/Comm and Amtech Systems, both ETC-system manufacturers, submitted proposals
for the contract to install the ETCs at designated sites along the New York
State Thruway.

In 1993, without public bidding, the authority entered into a $1.7 million
contract with Amtech for the manufacture and installation of an interim
read-only ETC system. This system would be used pending the IAG's selection
of a fully integrated read/write system that would eventually replace it.

Upon contract award, AT/Comm filed a petition seeking to enjoin enforcement
of the contract between Amtech and the authority, and to preclude the authority
from entering into any contract for the implementation of an ETC system
without first conducting competitive bidding in accordance with the appropriate
New York statutes. When the trial court dismissed the petition, holding
that the contract was not governed by public competitive-bidding requirements,
AT/Comm appealed to the New York Court of Appeals.

In the litigation, AT/Comm contended that the ETC system constituted an
"improvement" of the thruway within the meaning of the New York
competitive-bidding statute, thus mandating public bidding. Amtech and the
authority contended that the contract for the installation of the ETC system
was not a contract for "construction, reconstruction or improvement"
of the thruway and, as a result, was not subject to the competitive-bidding
requirement. The Court of Appeals agreed with Amtech and the authority.

The Court of Appeals noted that the New York statute requires public bidding
where the work undertaken is for the construction, reconstruction or improvement
of the actual road or passageway used for traffic. The aim of the E-Z Pass
system, however, was not to improve the roadway but to improve the flow
of the traffic on it.

The court observed that the technological devices that comprised the E-Z
Pass system were predominately electronic-scanning equipment and computer
hardware and software. As such, the ETC system was readily removable and
served only to enhance speedy toll collection. In this respect, the court
found that the E-Z Pass system was more like a provision of goods and services
than a physical improvement to the thruway.

The court also found there was no reference in the New York highway law
statute or the public authority law statute to structures that are readily
removable. In this instance, the court found that the contract involved
leased equipment and provided for maintenance services and even additional
technical services if requested. The court concluded that the contract contemplated
an ongoing relationship with the vendor for elements involving computer
software, equipment maintenance and technical assistance and thus could
not be construed to fall within the New York competitive-bidding statute
for construction.

Comment: Competitive-bidding statutes were enacted by state legislatures
to protect the public against fraud, favoritism, corruption, extravagance
and improvidence in the award of public contracts. The idea behind such
statutes is to require contract-award decisions to be based on objective
criteria.

Electronic toll-collection contracts are generally awarded after proposals
are technically evaluated by consultants. Public entities need to make sure
they are not drafting specifications aimed at favoring one competitor over
another. They should also establish criteria on how proposals will be evaluated
and make evaluations of competing proposals fairly. Finally, they should
ensure that their consultants are not biased. Given the subjectivity involved
in this process, the cost of preparing proposals and the potential economic
gain of being considered by several governmental entities who seek to make
their systems compatible, there is great likelihood for disputes and litigation
in the future.

Parvin is a shareholder in the law firm of Leonard, Hurt & Parvin,
P.C., which has offices in Dallas, Houston and Austin, Texas; Richmond,
Va.; and Washington, D.C. Leonard, Hurt & Parvin engages in many specialties
affecting the construction industry, including litigation, alternative dispute
resolution, preparation and analysis of contract claims, partnering facilitation,
environmental law, employment law, project financing, and disadvantaged
business enterprise. You may write him in care of the editor.