Federal/State Law Construction Bidding Issues

By Jeff Wagner, Shareholder
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.

Publicly-owned airports in Mississippi are subject to Mississippi law when soliciting bids for construction work. In addition, those airports may also be subject to requirements imposed by one or more funding sources such as those that apply to grant funds made available by the Federal Aviation Administration (FAA) under the Airport Improvement Program (AIP). Unfortunately, these requirements are not mutually exclusive, so the airport must comply with the more stringent of each requirement. For example, the threshold for requiring a formal solicitation for bids under the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards is $150,000 (referred to as the Simplified Acquisition Threshold) under 2 CFR §200.320(b), while the threshold for advertisements for bids under Miss. Code Ann. §31-7-13(c) is $50,000. Therefore, a Mississippi airport must advertise for bids for any construction project utilizing federal funds if the budget for the work is more than $50,000. Other issues that often arise are discussed below.

In-state Preference. Miss. Code Ann. §31-3-21(3) provides a preference to Mississippi contractors bidding on a project over out-of-state contractors in the same amount that the out-of-state contractor’s state would provide to in-state bidders. Each out-of-state bidder is required to submit a copy of its state’s bid preference law with its bid. Since federal funds are drawn from all states, federal law prohibits in-state preferences except in certain specific circumstances delineated in 2 CFR §200.319(b). These exceptions will rarely, if ever, apply to airport projects.

Failure to Comply with Bid Requirements. Sometimes bidders fail to strictly follow bid procedures and requirements. The Mississippi Attorney General has repeatedly opined that an awarding agency may waive any bid irregularity as long as:

(1) mandatory statutory provisions are not violated; (2) the irregularity does not in any way destroy the competitive character of the bid; (3) the irregularity has no effect as to the amount of the bid; and (4) the irregularity does not give one bidder an advantage or benefit over the other bidders.

See, e.g., Mississippi Attorney General Opinion No. 2003-0411 addressed to Joseph L. Adams. Some irregularities clearly fit within one or more of the categories. Failure to include the bidder’s COR Number on the bid package would be a problem under criteria 1. Likewise, failure to deliver the bid on time would violate criteria 4 and, likely, criteria 2. More difficult questions arise when a bidder, for example, fails to acknowledge receipt of one or more addenda. That could be a problem under criteria 2, 3 or 4. On the other hand, if it is clear that the bidder took the changes made by any addenda into account in preparing its bid (such as basing its bid on revised quantities provided by addendum or submitting its bid in accordance with a revised bid deadline set by addendum), none of the criteria are violated, and the airport may waive the irregularity. Federal rules do not address bid irregularities. However, under the Uniform Administrative Requirements, the bid process must be open and fair to all potential bidders.

Retainage. Miss. Code Ann. §31-5-33 requires that an airport retain 5% of each progress payment pending completion of the project. On projects of $250,000 or more, the contractor may reduce this amount to 2-½% once the project is 50% complete, on budget and on schedule. Federal law does not require retainage. FAA Advisory Circular No. 150/5370-10H (Standard Specifications for Construction of Airports) provides multiple options for retainage from 0 to 10%. One of the options an airport may employ under 49 CFR §26.29 to ensure that prime contractors do not unfairly withhold retainage from subcontractors is to not withhold retainage on the prime contract and prohibit the prime contractor from withholding retainage. Since Mississippi law specifies retainage of 5% (subject to authorized reductions to 2-½%), the amount of retainage that must be withheld on an AIP-funded project in Mississippi is 5%.

Licensing. Miss. Code Ann. §31-3-15 requires that a contractor have an appropriate Certificate of Responsibility (COR) for the work to be performed at the time of submission of its bid, and Miss. Code Ann. §31-3-21(2) requires that the bidder’s COR Number be shown on the exterior of the bid package. If the bid package does not contain the bidder’s COR Number or statement that the bid is exempt from the requirement, the bid may not be opened. This is a mandatory provision of Mississippi law that cannot be waived by the airport. Federal law does not contain any similar requirement. However, sometimes contractors who are accustomed to performing federally-funded highway work will bid airport work. A special provision of federal law applying to funding provided through the Federal Highway Administration (FHWA) prohibits any state-licensing requirement as a condition to bidding on or performing an FHWA-assisted contract. That provision does not apply to FAA-funded work notwithstanding arguments by some road contractors to the contrary.

Jeff Wagner is a shareholder in the Jackson, Mississippi, office of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., and may be reached at 601-973-3610 or by email at [email protected]