Any public official will tell you that the rules on ethics in public contracting are very strict these days. As stated by the U.S. Office of Government Ethics, “Public service is a public trust. Each employee has a responsibility to the United States Government and its citizens to place loyalty to the Constitution, laws, and ethical principles above private gain. To ensure that every citizen can have complete confidence in the integrity of the federal government, each employee shall respect and adhere to the principles of ethical conduct.”1 Here is how that broad mandate applies to design-build procurement.
Marketing to Officials. Under U.S. regulations, a federal employee cannot (with few exceptions) solicit or accept “any gift or other item of monetary value” from a contractor seeking to do business with the government. Some public officials will only accept a holiday greeting card from contractors or design professionals and simply refuse or return anything of monetary value, including lunches, tickets to ballgames, golf outings, or other gifts. The type of marketing commonly used in the private sector does not comply with government ethics laws which vary for state, federal, and local agencies. As a result, to avoid putting an owner in an embarrassing situation, learn the applicable rules before sending a gift to a potential public client.
One such rule under Department of Defense regulations prohibits defense contractors from making any gift valued over $250 even to an ex-Department employees who were involved in contract negotiations for up to two years after the employee leaves his or her government job.2 Violation of this law can result in civil penalties up to $500,000 plus liquidated damages of $100,000 per violation. Likewise, the New York State Ethics Commission prohibits state employees from accepting gifts over $75 in value when it could be reasonably inferred that the gift was intended to influence “or could reasonably be expected to influence” the employee’s performance of official duties or was intended as a reward for any official action. Civil penalties up to $10,000 can be imposed, plus criminal charges for a knowing violation. Virginia procurement law bars public employees who have official responsibility for a procurement transaction from soliciting or accepting from a bidder, offeror, contractor, or subcontractor “any payment, loan, subscription, advance, deposit of money, services, or anything of more than nominal or minimal value, present or promised, unless consideration of substantially equal or greater value is exchanged”.3
Rules on marketing to government officials apply even to foreign governments under the Foreign Corrupt Practices Act (FCPA)4, if the gift is made to a foreign official, foreign political party, or someone on their behalf for purposes of influencing any act or decision of such foreign official in order to obtain business for the paying party. Some “gifts” cross the line, as in a 1991 criminal case in which a business executive was convicted for providing airline tickets to a foreign official’s cousin to be used on his honeymoon, in order to help get approval of foreign contracts. The court held that this type of travel expense was unrelated to the “promotion, demonstration, or explanation of products or services” which is permitted by the FCPA.5
Conflicts for Selection Committees. The integrity of the selection process relies on having unbiased persons making decisions. To assure this, some states expressly bar any person from serving on the selection committee if there is a conflict of interest. For example, under Arizona design-build laws, “A person who is a member of a selection committee shall not be a contractor under a contract awarded under the procurement or provide construction, construction services, materials or services under the contract.”6 For Arizona Department of Transportation (DOT) projects, the make-up of the selection committee includes licensed architects or engineers and a senior management employee of a licensed Arizona contractor. By statute neither the contractor nor the A/Es on the committee can be involved in the project (unless the architect or engineer is a department employee).7
Virginia’s procurement laws are typical about conduct prohibited by public employees, including prohibiting a state employee from having official responsibility for a procurement transaction if the employee is also employed by “a bidder, offeror, or contractor” involved in the transaction; or when the employee or any member of the employee’s immediate family holds a position with a bidder such as an officer, director, trustee, partner, or the like; or owns or controls an interest of more than five percent in the bidding entity.8 Even an outside firm that prepares the RFP as owner’s agent may be disqualified from participating on a design-build team. Va. Stat. §2.2-4373 prohibits any person who, for compensation, prepares an RFP for or on behalf of a public body from submitting a bid or proposal for that same procurement The only exception is when the public body determines that the exclusion of such person would limit the number of potential qualified bidders or offerors in a manner contrary to the best interests of the public body.
Conflicts of interest can lead to disqualification of bidders. For example, in one federal case a contractor hired as a consultant a government employee who had been actively involved in the RFP process for a Navy contract. The contractor subsequently reduced its bid by 33 percent, which gave it the lowest cost proposal during the best and final offer stage and the highest overall score under the weighted criteria. The contracting officer rejected the proposal based on a conflict of interest which had the potential for an unfair competitive advantage that tainted the integrity of the procurement process. The court upheld the disqualification saying that, “Whether or not inside information was actually passed from [the employee to the contractor], the appearance of impropriety was certainly enough for the CO to make a rational decision to disqualify [the contractor] . . . The drastic bid reduction followed by award of the contract to a company with whom he accepts employment has a certain aroma that is hard to purify.”9
No Peeking. Most design-build solicitations require a two-part submittal including a technical submission (qualifications and design) plus a cost proposal. Ethical rules prohibit opening cost proposals until the technical submissions are reviewed and evaluated so that the ranking of technical proposals is not influenced by price. If cost was known ahead, this might taint the review of technical proposals. Some states prohibit any early “peeking” at cost proposals. One such law in Maine says that the sealed technical proposal and sealed price proposal are to be submitted simultaneously. The selection panel first opens, evaluates and scores the technical proposals based on the quality criteria contained in the RFP. “During this evaluation process, the price proposals must remain sealed and all technical proposals are confidential.” 5 MRSA §1743. Only after evaluation of the technical proposals may the selection panel publicly open and read each price proposal. Similarly, Arizona law says, “Before opening any price proposal, the selection committee shall open the final technical proposals, evaluate the final technical proposals and score the final technical proposals using the scoring method in the request for proposals. No other factors or criteria may be used in the evaluation and scoring.”10 That last point is equally important, that no subjective factors creep into the selection process which were not identified in the RFP. This prevents different rules being applied among the competing teams.
Keep It Confidential. The integrity of the procurement process depends on each proposal being kept confidential and not leaked to a competing team. Proposals are generally made open to public inspection only after the contract is awarded and the public agency has executed the contract. Virginia’s procurement code bars any consultant who prepares the RFP from disclosing to any bidder or offeror “information concerning the procurement that is not available to the public.”11 One state’s procurement law for design-build work says that, “Until award and execution of a contract by an agent, only the name of each person or firm on the short list . . . shall be available to the public. All other information received by the agent in response to the request for qualifications or contained in the proposals shall be confidential in order to avoid disclosure of the contents that may be prejudicial to competing offerors during the selection process.”12 The law adds that, “To the extent that the offeror designates and the agent concurs, trade secrets and other proprietary data contained in a proposal remain confidential.” Maine procurement laws for state design-build contracts expressly protect, “all financial information, trade secrets, or other information customarily regarded as confidential business information” and declare such information to be confidential.13 South Dakota law says that the procedures for negotiations between the public corporation and those submitting proposals “shall contain safeguards to preserve confidential information and proprietary information supplied by those submitting proposals” until acceptance of a proposal.14 Perhaps the broadest protection is found in the Texas Transportation Code, which says that to encourage private entities to submit proposals, certain information is confidential and not subject to disclosure, inspection, or copying even by a “subpoena, or other means of legal compulsion for its release” until a final contract for a proposed project is entered into.15 This would prevent even a court from requiring disclosure of confidential information prior to contract award and execution.
Discussions With Bidders. On occasion, a public owner desires to interview the short-listed teams to discuss their proposals prior to opening cost proposals and making an award. This raises ethical issues of whether each team has equal access to information given by the owner during interviews so that no team is given an unfair advantage. Arizona law addresses this in A.R.S. 34-603.F.5 which says that if the RFP so provides, “the selection committee shall conduct discussions with all persons or firms that submit preliminary technical proposals. Discussions shall be for the purpose of clarification to assure full understanding of, and responsiveness to, the solicitation requirements. Offerors shall be accorded fair treatment with respect to any opportunity for discussion and for clarification by the owner.” Some owners want to discuss alternatives with proposers, or point out problems that might disqualify a team. One statute in Maine provides that the RFP can provide for a process for the department to review conceptual technical elements of each proposal before full proposal submittal for the purpose of identifying defects that would cause rejection of the proposal as non-responsive.
It is important that in such meetings the ideas from one team are not leaked to a competing team and the Maine statute warns that, “All such conceptual submittals and responses are confidential until award of the contract.”16 A 2005 amendment to Arizona statutes likewise allows these private discussions with teams and says that, “If stated in the Request for Proposals, in order to inform each firm whether the firm’s concept is responsive to the Request for Proposals, the Department may enter into a separate confidential discussion with each firm on the short list to discuss alternative technical concepts that the firm may propose.”17 Can a team revise its proposal in response to questions raised in this interview? Under the Arizona statute, the answer is yes and “Revision of preliminary technical proposals shall be permitted after submission of preliminary technical proposals and before award for the purpose of obtaining best and final proposals.” Confidentiality of the process is protected by the last sentence, which reads, “In conducting any discussions, information derived from proposals submitted by competing offerors shall not be disclosed to other competing offerors.”
Clear the Air. Public owners have duties to the taxpayers and to the competing teams to conduct design-build procurements in a fair, unbiased, and ethical manner. Even when there is no specific statute on point, owners and their agents should avoid conflicts of interest, maintain the confidentiality of submittals, keep cost proposals sealed until technical proposals are evaluated and ranked, not be influenced by gifts from competing teams, and award contracts based on merit. This will, as the court said, avoid “a certain aroma that is hard to purify” in the selection process.
End Notes:
1 5 C.F.R. § 2635.101.
2 10 U.S.C. §§ 2397b and 2397c; See also, DFARS 252.203-7000.
3 Va. Stat. § 2.2-4371
4 15 U.S.C.A. §§78dd-1 and 78dd-2.
5 U.S. v. Liebo, 923 F.2d 1308 (8th Cir. 1991).
6 A.R.S. 34-603.
7 A.R.S. 28-7365.
8 Va. Stat. § 2.2-4369.
9 NKF Engineering, Inc. v. U.S., 805 F.2d 372 (Fed.Cir. 1986).
10 A.R.S. §34-603.F.7. See also A.R.S. §41-2578.F.7.
11 Va. Stat. § 2.2-4373.
12 A.R.S. §34-603.G. See also, A.R.S. § 41-2578.G.
13 23 MRSA §753-A.
14 S. D. Cod. Laws § 5-18-26(f).
15 Texas Transp. Code § 361.3023.
16 23 MRSA §753-A.
17 A.R.S. 28-7365.F; Arizona H.B. 2579 (2005).
G. William Quatman, Esq., FAIA, DBIA, is both an attorney and a licensed architect who practices law with the firm of Shughart Thomson & Kilroy, P.C., in Kansas City, MO. He can be reached at (816) 421-3355 or www.stklaw.com. Mr. Quatman is the 2005 Chairman of DBIA’s Legislative Committee and serves on the Designation Board.