According to the Government Accountability Office (GAO), the U.S. Department of Transportation’s (DOT) Federal Highway Administration (FHWA) set aside $522 million in stimulus for Arizona.  As of September 1, 2009, the federal government disbursed or agreed to disburse $293 million to Arizona.

But, as of September 3, 2009, Arizona had awarded 47 statewide highway contracts totaling only about $135. million.  Arizona has granted only 2  contracts for local highway construction.  Apparently, that is because of a lack of local “shovel-ready projects.”   According to GAO, “the lack of projects was due to some localities not understanding the allocations that they would receive as well as their unfamiliarity with federal highway requirements.”

On February 17, 2009, President Obama signed into law the much anticipated stimulus package known as the American Recovery and Reinvestment Act of 2009. Under the $787 billion Act, $27.5 billion has been allocated for highway restoration, repair, and construction. According to some estimates, Arizona may receive as much as $522 million for highway related projects.

There are strings attached, however, including “use it or lose it” provisions. For example, within 120 days following the date of apportionment of the monies to the States, 50% of the monies awarded to a State for highway projects that are not obligated will be lost and redistributed. Additionally, if a State does not obligate highway funds one year from the date of apportionment, the monies will be redistributed to other states, unless the State can establish that it has encountered “extreme conditions that create an unworkable bidding environment or other extenuating circumstances.”

The new law also contains a special provision with regard to contracts that it funds. It calls for fixed-price contracts garnered through the use of competitive procedures to the “maximum extent possible.”  This provision ratifies and reinforces the central theme of government contracting- contracts should generally be awarded to the  lowest bidder that will provide the most beneficial product and/or service to the government.  For example, Arizona has adopted the Arizona Procurement Code.  A.R.S. § 41-2501 et seq. and associated regulations.  The Code includes numerous provisions governing State contracts, competitive bidding and disputes (including bid protests). 

Although price is important and is sometimes determinative, price is not the only factor the government generally considers in making an award.  The government is also entitled to consider “responsibility.”  “Responsibility” involves evaluating the bidder’s experience, skill, facilities, integrity, prior performance and other factors affecting the bidder’s ability to successfully perform the proposed contract at the specified price within any applicable deadlines.  Some discretion is inherent in determining the responsibility of each bidder.  But, that discretion is not without limit.  As one Arizona court stated, “‘in exercising the power to reject any or all bids, and proceeding anew with the awarding of the contract, the officers cannot act arbitrarily or capriciously, but must observe good faith and accord to all bidders just consideration, thus avoiding favoritism, abuse of discretion, or corruption. Although the courts generally will not disturb an honest exercise of discretion, it has been said that they will intervene to prevent the arbitrary rejection of a bid when its effect is to defeat the object to be attained by competition.’” 

But, Arizona does have a statute that actually permits the State to enter a contract with the higher bidder, a legal preference.  Read more…

It is expected that the Federal False Claims Act (FCA) will be used to combat false and fraudulent activity in stimulus projects.  The current FCA, 31 U.S.C.A. § 3729(a)(1), broadly subjects any person who engages in the following to severe penalties and damages:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);

(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

Violatrors are “liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410 [FN1]), plus 3 times the amount of damages which the Government sustains because of the act of that person.”

Given the huge amounts of money being infused into the economy, the government has recognized the increased potential for fraud.  As a result, there are currently efforts to broaden and clarify the already apparent broad sweep of the FCA.

Federal, state and local governments understandably want to quickly implement stimulus projects to put people back to work, jump start the economy and avoid losing stimulus funding.  The amount of money at stake, the cut backs in government office staffing and focus on speed heighten the risks for abuse and mistakes in the government procurement and bid award process.  As explained by Massachusetts Attorney General Martha Coakley, 

The potential for mistakes is heightened because of the emphasis on speed. The focus of Congress and state governments is on putting people to work, awarding contracts, and placing shovels in the ground quickly. As we do so, we must take pains to balance speed with care. The public has reason to be wary. A recent wave of stories from various states about apparent corruption, fraud, and “pay to play” abuses in the awarding of government contracts and other benefits have shaken confidence in the ability of government to steward public funds wisely. Add to that the lax oversight and accountability at the root of the current economic crisis and it is perfectly understandable why people are so skeptical.

Bid protests provide an important “check and balance”, especially now.  According to Attorney General Coakley, “Speed must be balanced with critical public bidding protections necessary to ensure that contracts are competitively and impartially awarded based on the value and quality of the goods and services to be provided. The procurement laws that currently govern public projects generally strike the right balance. They ensure that contracts are awarded based on value and merit, not because of friendships, campaign contributions, fraud, or simple sloppiness.”  March 25, 2009 testimony.