Legal Aspects of Public Procurement

Michael Flynn, Kirk Buffington, Richard Pennington

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000066920
• Edition: 3
• Topic: Law
• Subtopic: Contract Law
• Index: Law

Legal Aspects of Public Procurement, Third Edition provides a glimpse into the relationships between the legal, ethical, and professional standards of public procurement, outlining not only the interconnections of federal, state, and local law but also best practice under comprehensive judicial standards. The book addresses the ever-changing legal structures that work in conjunction and define the public procurement profession, providing recommended guidance for how practitioners can engage in the function while staying ethically aligned. Instead of trying to address every issue at the heart of public procurement, however, the book seeks to establish the history and spirit of the law, outlining how practitioners can engage proactively and willingly to not only perform their function, but to also become advocates for procurement law modernization.

This third edition features new chapters on competitive sealed proposals and contract administration, as well as a thoroughly revised and updated chapter on procurement of information technology to better relate to an increasingly digital world. Promoting a start-to-finish guidance of the procurement process, Legal Aspects of Public Procurement explores the relationships between solicitation, proposals, contract administration, and the cutting-edge aspects of technology procurements, providing a theoretical and case-study driven foundation for novice and veteran practitioners alike.

Chapter 1

The Essential Principles and Structure of the United States Legal System

The center of every public procurement professional’s responsibility is a contract—that document that creates a legally binding obligation for the seller to deliver the goods or services and for the buyer to pay for them. Whether you call this agreement a purchase order, a letter agreement, a procurement contract, or any other name, the contract is the core of the procurement professional’s responsibility.

Within this area of responsibility, the public procurement professional must know and understand the law of contracts within the context of public procurement. Though not expected to be a lawyer, it is imperative that the procurement official has a sense about the principles of contract law and the legal consequences of their actions. Additionally, being able to talk intelligently with legal counsel regarding strategy, methodology, and legal justifications will go a long way in giving the public procurement professional greater credibility. There may be times that the public procurement professional finds a specific court case regarding a procurement issue that legal counsel was not previously aware of.

Contracts operate within a broad context of law and regulations. This chapter focuses on the essential principles and structure of the United States legal system. The discussion introduces statutes broadly applicable to commercial practices in the market economy, the Sherman and Clayton Anti-Trust Acts, as well as their impact on the protection of market competition. The chapter includes two other statutory schemes broadly applicable to both public procurement and other government and commercial operations: open records statutes and intellectual property rights. The chapter concludes with an overview of the United States judicial structure and suggested guidelines for performing legal research.

The Foundation: Sources and Types of Law

The American legal system is founded upon English tradition with a singularly American twist. The American legal system looks to statutory law, administrative law, and common law for its guidance.

Statutory Law

Statutory law includes the Constitution of the United States in addition to the constitutions of the various states and the charters of local government entities. The United States Constitution is the primary source of law in our country. Among other things, it establishes the relationship between the federal government and the states. The Constitution authorizes the U.S. Congress to enact laws within the powers granted by the Constitution. The authority not specifically granted to Congress or other parts of the federal government are then reserved for the states. As the predominant source of law, public entity legislation, administrative rules, and contract provisions can be invalidated if they violate constitutional protections. For example, the United States Supreme Court has invalidated government contract provisions establishing submission of offers and participation preferences based on the ethnic status of company owners where not supported by adequate factual evidence of past discrimination.

Statutory law also includes the legislative enactments by the U.S. Congress, the various states’ legislative bodies, and the legislative actions of local government entities. The primary source of law and authority for public procurement professionals is legislatively enacted statutes and ordinances. This legislation not only grants contracting authority to a government official or entity, but also may set out the specific policies and procedures for purchasing goods and services. For example, most state statutes contain a specific section concerning public works projects that include the requirements for the construction of public buildings and facilities.

Once legislation is signed into law by the president of the United States at the federal level, or the governor of a state at the state level, it is called a “public law.” Public laws are organized by subject matter in both the United States Code and the corresponding state statutory codes.

Administrative Law

Administrative law includes the rules and regulations formally promulgated by federal, state, and local government entities. Administrative law divides into two different but connected kinds of processes: rule making and rule enforcement. The rule-making function of administrative law refers to the process of government entities at the federal, state, and local level enacting rules for the implementation of legislative policy. This is a formal process in which government entities, armed with the authority granted by a legislative act, craft rules and regulations that reflect the intent of the legislative body in enacting a law. For example, a state or local government entity may choose to enact a law that requires a contractor to obtain a particular kind of license to engage in a specific type of business activity.

As part of legislative enactment, the government entity may delegate and task an entity to set up the procedure to obtain a license, including the qualifications and fee for such a license. The government entity must then create a licensing scheme within the parameters of the delegation of authority given to it by the legislative enactment. This rule-making function permits the governmental entity to interpret the legislative enactment and effectively carry out the intent of legislative enactment. Once the entity crafts the rules and regulations, these proposed rules and regulations are then announced, signaling the ability of the public to provide written comments concerning the proposed rules and regulations. In addition, in most cases, the entity will be required to hold public hearings to accept comments from the public. This process of written comments and public hearings ensures all parties have adequate notice and an opportunity to be heard before the rules and regulations are formally adopted and implemented. This is due process in action.

In addition to the rule-making function, and perhaps even as part of the rule-making function, administrative law may also include a quasi-judicial process in which the entity can now enforce the rules and regulations. These “administrative” hearings are usually less formal than a court proceeding but still afford basic due process rights for the participants. These due process rights are both procedural, a full and fair opportunity to be heard in a public hearing, and substantive, the right to fair and reasonable determination of the contested issue. For example, when a contractor is denied a license based on the application of administrative rules and regulations, the contractor will be afforded due process rights—they will have a right to appeal that decision to a hearing officer or panel to review the denial. Many states have administrative law processes and hearing officers for resolving challenges to awards of contracts and claims arising during contract performance.

Common Law

In contrast to statutory law, common law is created by judicial decisions through the court systems. The collection of judicial opinions from both the federal court system and the various state court systems makes up the common law, which is the body of courts’ opinions interpreting the statutory law and the rights of the parties to a lawsuit. As such, the judicial opinions represent the case law that is aggregated into the common law. This case law has value because it sets a precedent for what a public procurement professional should and should not do in particular circumstances.

When lawyers, judges, and others refer to the common law, they are citing the collection of court decisions regarding a particular legal subject. It is from this collection that a legal rule of general application can be extracted. Once extracted, this rule would then apply as precedent in similar situations. For example, the concept that a person who acts in bad faith—lies—when entering into a contract will not be entitled to receive the benefit of that contract is a legal principle based on the common law. With the exception of the State of Louisiana, which follows the French “civil code” model rather than the English “common law” model, judicial decisions that make up the common law establish legal parameters for public procurement professionals. The Canadian province of Quebec is likewise a civil law jurisdiction that does not follow the English common law tradition and relies more on statutory and administrative law.

Hierarchy of the Sources of Law

It is important to understand the interrelationship of all three sources of law. Simply stated, no statute can go beyond what the federal or state constitution permits, no administrative rule or regulation can go beyond the grant of authority provided in a statute, and no common law or case law can go beyond what is allowed by federal or state constitution or statute. That being said, a federal or state court is empowered to determine the meaning and coverage of a constitutional provision, a statutory directive, or an administrative rule or regulation. The court’s function in this regard is to determine if a statute or administrative rule falls within the grant of authority provided by a constitution or a statute. In this regard, the courts make sure that a statute or administrative rule or regulation is valid; falls within the specific grant of authority; and in this process will interpret the language of a constitutional provision, a statutory provision, and an administrative rule or regulation. This means that the court, where a statute or administrative rule is silent on a particular topic, will look to the common law for guidance in determining the validity and breath of a statutory or administrative rule or regulation provision. While this can be a complex balance for the courts, it is an essential part of the separation of powers built into the governing structure of the United States.

A Note About International Law

Although most public procurement professionals may never read a treaty, international law can affect procurement practice in both the United States and Canada. Canada’s procurement laws and practices are largely informed by the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Public Procurement, originally adopted in 1994 and modernized in 2011. The procurement practices in the United States had already evolved over two centuries of legislation in public works and contracting support for the military—then extended to state and local governments with laws similar to those in the federal sector—accounting for different terminology but largely synonymous concepts in the UN Model Law. One example is the use of the term “bid” in U.S. procurement law and practice; Canada and UNCITRAL, on the other hand, use the equivalent term “tender.” Still, while the Model Law may use different terminology, the procurement principles are essentially the same as those in the American Bar Association Model Procurement Code for State and Local Government, discussed in Chapter 2.

Model laws aside, both countries are parties to binding treaties affecting state and local government procurement. The World Trade Organization Agreement on Government Procurement was negotiated at the federal level in both countries and has procurement requirements for large acquisitions when companies in other WTO-covered countries submit an offer. Canadian provinces and some U.S. states (as well as a handful of large municipalities) are bound by its provisions. Minimum solicitation publication times for large acquisitions are among the rules in the WTO agreement; the topic is discussed in some detail in Chapter 6.

Other treaties like the WTO often include advertisement, competition, offer award review, and other requirements for large procurements as defined in the agreements. Failure to satisfy the requirements by covered public entities can be a basis for legal challenges of awards. Ideally, entities covered by treaties have laws and policies that conform their procurement practices to those requirements. Public procurement professionals need to know which international agreements apply to their practice.

History of Statutory Law Affecting Public Procurement

The first purchasing-related action for the new American nation occurred in 1778, when the Continental Congress approved the appointment of purchasing commissaries. They were paid two percent of the value of their disbursements in support of the Continental Army. It was not until 1792, however, that the U.S. Congress passed its first statute addressing purchasing. That statute authorized the Departments of War and Treasury to contract on the nation’s behalf. The first large acquisition was six frigates for the Navy. The Department of War, under political pressure, awarded contracts for the ships to six different contractors in six different states. Congress later canceled three of the contracts because of delays and cost overruns, yet two of the ships were still built—the U.S.S. Constellation and the U.S.S. Constitution.

The Purveyor of Public Supplies Act, which Congress passed in 1795, was the first comprehensive legislation dealing with procurement. Procurement abuses (such as contracting with friends and relatives) led Congress to pass the Procurement Act in 1809, which established a general requirement to conduct purchases through the use of formal advertising. It also permitted other procurement options, such as open purchases and advertising for proposals.

The Civil Sundry Appropriations Act, passed in 1861, was the first law to create a statutory preference for formal advertising, now more commonly kn...