Headquarters earn top dollar

March 16, 2004

As good luck would have it

In Walsh Construction Co. of Illinois v. City of Detroit, 257 F. Supp. 2d 935, 2003 U.S. Dist. LEXIS 5704 (E.D. Mich.), a federal court considered whether the local preference credits in Detroit’s bidding process violated the equal protection clause of the 14th Amendment to the U.S. Constitution.

As good luck would have it

In Walsh Construction Co. of Illinois v. City of Detroit, 257 F. Supp. 2d 935, 2003 U.S. Dist. LEXIS 5704 (E.D. Mich.), a federal court considered whether the local preference credits in Detroit’s bidding process violated the equal protection clause of the 14th Amendment to the U.S. Constitution.

The equal protection clause of the 14th Amendment provides that “[n]o State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

The equal protection clause does not require that all people be treated the same. It requires only that similarly situated people be treated the same.

In Walsh, after losing the bid on a city contract a disappointed bidder protested that Detroit’s bidding process was unconstitutional. The disappointed bidder was a Detroit-based contractor who lost the bid to a Detroit-based and headquartered bidder. The disappointed bidder complained that the city’s ordinance treated similarly situated bidders differently by giving equalization credits to locally owned and operated businesses.

Detroit’s ordinance gave additional preference credits to bidders who were not only based in Detroit but who were also headquartered in Detroit. The city designed the ordinance to give Detroit-based businesses an advantage in the bidding process.

Although the disappointed bidder received additional credits for being based in Detroit, it did not get additional credits for being headquartered in Detroit.

After the disappointed bidder lost the bid to a contractor that was based and headquartered in Detroit, it argued that Detroit’s ordinance treated similarly situated bidders unequally and was not reasonably related to a legitimate state interest.

The court disagreed and found that the ordinance did not violate the protestor’s constitutional rights for two reasons.

First, the court found that the disappointed bidder belonged to the group that it claimed was receiving favorable treatment. The court held that the disappointed bidder could not complain about the unequal treatment or competitive edge that Detroit-based businesses received under the ordinance, when the disappointed bidder itself (a Detroit-based business) belonged to the group who actually benefited from the ordinance.

The court reasoned that the ordinance helped the disappointed bidder in all but one situation—when a Detroit-based and headquartered business participated in the bidding process. The court commented that the ordinance served the disappointed bidder’s interests in other situations by giving it a competitive advantage over non-Detroit-based companies. Therefore, the ordinance did not violate the disappointed bidder’s equal protection rights solely because it did not benefit the disappointed bidder in all situations.

Second, the city’s application of an equalization percentage credited to Detroit-based and headquartered businesses, in bids where non-Detroit bidders participated, was rationally related to the legitimate state interest of promoting local businesses.

Therefore, Detroit’s ordinance was not unconstitutional. The court found that the disappointed bidder failed to state a claim upon which relief could be granted and denied its motion for a temporary restraining order.

What’s wrong with this picture?

I see two problems with the outcome of this case. First, the disappointed bidder was prejudiced by the ordinance, because it was not headquartered there. Second, I question whether the public is best served by local preferences.

A city can offer other forms of incentives to locally owned and operated contractors, such as municipal tax savings or other tax incentives, which would encourage contractors to operate out of the city. These incentives would promote locally owned and operated contractors, while still awarding work (and taxpayer dollars) to the contractor who can do the best work for the best price.