Court weighs in on New Mexico DOT’s employment of prequalification system

This column published as "On Responsibility" in February 2021 issue

Jon Straw / February 03, 2021 / 3 minute read
Jon Straw

The twin pillars of any bid or bid protest are responsiveness and responsibility.

Responsiveness is concerned with whether the bid itself conforms to the requirements of the invitation and applicable statutes. Responsibility is concerned with whether a bidder can and how well it may perform upon award. Simply stated, responsiveness looks at the bid, while responsibility examines the bidder. 

This month’s column reviews a recent decision by the New Mexico Court of Appeals regarding the determination of bidder responsibility—James Hamilton Construction Co. v. New Mexico DOT, et al., Case No. A-1-CA-36816 (Sept. 28, 2020).

In 2014, the New Mexico DOT sought approval from the FHWA to participate in a program encouraging states to “establish innovative contracting practices, intended to reduce life cycle costs of construction projects . . . while maintaining product quality and an acceptable level of contractor profitability.” In evaluating the responsibility of bidders under this program, NMDOT would weigh bidders’ past performance, which advantaged some higher-priced bidders. In 2015, NMDOT implemented its “contractor prequalification system that directly rewards good performers and encourages poor performers to improve.” In 2016, an unsuccessful bidder challenged NMDOT’s prequalification system by seeking a declaration that the system is against statutory authority and that NMDOT applied or exercised the system arbitrarily or capriciously.

Public entities tend to have broad discretion to determine whether a bidder is responsible. Courts will only overturn such determinations if they are arbitrary, capricious, or not rationally supported. In 1959, the Fifth Circuit Court of Appeals (covering Texas, Louisiana, and Mississippi) stated that a public entity can “be wrong, dead wrong, but not unfairly, arbitrarily wrong.” (Housing Authority of City of Opelousas, La. v. Pittman Construction Co., 264 F.2d 695, 703 (5th Cir. 1959). Although decided more than six decades ago, that case is still the law in the Fifth Circuit and the majority of other jurisdictions agree (New Mexico is in the majority). 

A public entity’s decision will not be overturned when the decision is based upon a predetermined set of factors objectively applied. Yet the factors themselves can be subjective, if they are reasonably tailored to accomplish a publicly beneficial purpose. 

The unsuccessful bidder in the New Mexico Appeals Court bore the heavy burden of “showing that the rule is arbitrary or capricious by demonstrating that the rule’s requirements are not reasonably related to the legislative purpose.” New Mexico defines arbitrary and capricious acts as “those that may be considered [willful] and unreasonable, without consideration, and in disregard of the facts and circumstances.” Bid protests are like mountains: steep and often unforgiving.

The New Mexico Appeals Court held that the factors used to evaluate, weigh, and/or grade the bids were authorized under the applicable statutes and that they were objectively reasonable. The Code of New Mexico provided that NMDOT “may adopt rules and regulations providing … for the determination of a responsible bidder.” (NM Procurement Code § 67-3-43.) Responsibility is “an objective determination based on past performance by the [NMDOT] of the contractor’s capability in all respects to perform fully and make satisfactory delivery the requirements of the contract including the integrity and reliability that will assure good faith performance.” (NM Administrative Code § 18.27.5.6.) To make its “objective determination,” NMDOT used a detailed procedure and calculation(s) to assign prequalification factors to each prospective bidder.

The unsuccessful bidder in the New Mexico case artfully argued that any bidder is already “responsible,” because in order to submit a bid, the contractor has already been deemed responsible. The court, however, held that an initial determination of responsibility could later be overturned when compared with other responsible bidders. In other words, the court held that an initially (pre-bid) “responsible” bidder could later (post-bid) be not responsible if the weight of the subjective, but objectively applied, responsibility evaluation factors favored other bidders. This is confusing, to say the least. 

What the court should have said (but perhaps did not have the statutory basis to say) was that even if all bidders are responsible, the more responsible bidders will prevail over those less responsible bidders, and the most responsible bidder will receive the award. Sometimes in a multiple-choice exam, of the available answers, it is not the only correct response but the most correct response that wins. 

About the Author

Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected]

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