802 Competitive Bidding and Formalities Requirements

• Jurisdiction: Arizona

(a) Statutory Provisions

Most contracts for public buildings and improvements are regulated by statute. In particular, bidding requirements are set forth in detail. In their absence there is no requirement for competitive bidding.

(1) Title 34

Title 34 of the Arizona statutes covers public buildings and improvements. It regulates contracts entered into by “agents,” which are defined in A.R.S. § 34-101 to include counties, cities, improvement districts, etc. (See Section 304(a) for definition of “agent” as contained in A.R.S. § 34-101.) Chapter 1 of Title 34 covers employment of architects and engineers. Chapter 2, discussed in this Section, covers employment of contractors.)

A.R.S. § 34-201 sets forth a procedure for awarding contracts. Upon acceptance and approval of working drawings and specifications, the agent publishes a notice to contractors. Contractors may obtain copies of plans and specifications for estimates on request or by appointment. A deposit is required to guarantee return of the plans and specifications. Each proposal must be accompanied by a deposit or surety bond for 10% of the amount of the bid as liquidated damages if the contractor receives the award but does not perform it, otherwise to be returned. The statute obligates the successful but nonperforming contractor to pay the difference between its bid and the bid of the next bidder eligible for the contract, up to the 10% maximum. (See the discussion of Covington v. Basich Bros. Constr. Co., 72 Ariz. 280, 233 P.2d 837 (1951), in Section 102(c), as to the court’s treatment of such penalty provisions with disfavor if it can find even a slight breach or waiver by the state.) The agent reserves the right to reject any or all proposals or to withhold the award for any reason.

The discretion to award a public contract to the lowest “responsible” bidder may not be abused. If the award is not to the lowest bidder, there must be a good reason. Brown v. City of Phoenix, 77 Ariz. 368, 272 P.2d 358 (1954).

A.R.S. § 34-201(B) provides that work can be done at prisons by inmates without advertising for bids.

A.R.S. § 34-201(C) provides that the agent can contract for work to be done by “day work or force account” if the amount of the work does not exceed $5,000. In Secrist v. Diedrich, 6 Ariz. App. 102, 430 P.2d 448 (1967), the court held that work could be divided into separate units, each of less than the maximum of this statute (then $2,500, now $10,500 plus the GNP price deflator since 1986). Separate parts could then be awarded on a nonbid basis, if there is a reasonable basis for the division and it is not to avoid the statute. The court disapproved what the school board had done in that case, as discussed in Section 802(b)(1).

A.R.S. § 34-202 provides procedures for proposals by the contractor. A.R.S. § 34-221 provides that the agent shall enter into a contract “with the lowest responsible bidder whose proposal is satisfactory.”

Municipal charters should also be consulted to determine whether a city has applicable competitive bidding requirements and procedures. An Arizona Attorney General’s Opinion states that statutes requiring competitive bidding for public works contracts apply to professional service contracts. There is authority to the contrary; see 15 A.L.R. 3d 733 (1967). As to architects and engineers, see Section 304(b).

In the absence of some controlling constitutional or statutory provision, municipal ordinance, or other legislative requirement, competitive bidding is not an essential prerequisite to the validity of contracts for public works. Achen-Gardner, Inc. v. Superior Court, 173 Ariz. 48, 839 P.2d 1093 (1992). Hertz Driv-Ur-Self Sys. v. Tucson Airport Auth., 81 Ariz. 80, 299 P.2d 1071 (1956).

Where A.R.S. § 34-201 requires work to be competitively bid, the governmental agency is not permitted to do the work with its own employees. It has the right to reject bids, but then it must call for new bids rather than attempt to do the work with its own work force. Smith v. Graham County Community College Dist., 123 Ariz. 431, 600 P.2d 44 (App. 1979).

On the other hand, in Rollo v. City of Tempe, 120 Ariz. 473, 586 P.2d 1285 (1978), the supreme court held that a City of Tempe charter provision requiring bidding for expenditures in excess of $5,000 referred to work done by contractors, and therefore did not prevent the City from doing work in excess of $5,000 with its own labor forces.

In Achen-Gardner, Inc. v. Superior Court, supra, the court held that street improvements are “structures” under A.R.S. § 34-201, and are therefore subject to competitive bidding statutes. (The legislature added a two-year “moratorium” on the Achen-Gardner result; see A.R.S. § 34-201 (G).)

The court also held that public bidding statutes could not be circumvented by entering into a “development agreement” pursuant to A.R.S. § 9-500.05. That statute authorizes private development agreements, but then the developer becomes an “agent” under the bidding statutes and must follow them in dealing with public funds. (Here, public funds would reimburse the development costs.)

(2) The Arizona Procurement Code

Construction contracts under the APC are to be let by competitive sealed bidding. A.R.S. §§ 41-2532 and -2534. Competitive sealed bidding is covered generally by A.R.S. § 41-2533 and A.A.C. R2-7-312 to -324. The following is a brief, selective summary of these provisions.

1. “The contract shall be awarded to the lowest responsible and responsive bidder whose bid conforms in all material respects to the requirements and criteria set forth in the Invitation for Bids.” A.R.S. § 41-2533(G).

2. Provisions for prospective bidders lists. A.A.C. R2-7-312.

3. Content, publication, issuance of invitation for bids. A.A.C. R2-7-313; A.R.S. § 41-2533(C).

4. Prebid conference no later than seven days prior to bid opening is optional. A.A.C. R2-7-314.

5. Amendment to invitation for bids. A.A.C. R2-7-315.

6. Bidder may modify or withdraw its bid at any time before bid opening requirements. A.A.C. R2-7-316.

7. A late bid, modification, or withdrawal received after the time and date set for bid opening “shall be rejected.” A.A.C. R2-7-317.

8. Receipt, opening, and recording of bids. A.A.C. R2-7-318.

9. After bid opening, a bid mistake based on an error in judgment may not be corrected or withdrawn. Provisions for correcting or withdrawing other bid mistakes. A.A.C. R2-7-319. See Section 802(f).

10. Bid evaluation and award. A.A.C. R2-7-320.

11. Possible actions when only one bid is received: (1) acceptance, (2) rejection and new bids solicited, or (3) rejection and procurement cancelled. A.A.C. R2-7-321.

12. Multi-step bidding provisions of A.A.C. R2-7-322 are not applicable to construction contracts. A.R.S. § 41-2533(H).

13. Prospective contractors may be prequalified for certain types of construction, and those prequalified will be included on solicitation mailing lists. However, a contractor need not be prequalified to be awarded a contract and prequalification does not represent a determination of responsibility. A.R.S. §§ 41-2540 and -2541; A.A.C. R2-7-354 and -355.

14. Public “facility” construction may be performed by employees or force account if the cost does not exceed $10,000. Public “institution” construction may be performed by inmates “if such work is determined to be advantageous to the state.” A.R.S. § 41-2572.

15. A.A.C. R2-7-104 provides that identifying information in a bid shall be confidential. Identifying information shall not be disclosed until the Director makes a written determination.

16. Contract performance and payment bonds under the APC are required and regulated by A.R.S. §§ 41-2574, -2575 and -505. Bond forms must be substantially equivalent to those on file with the Secretary of State.

17. Grounds and procedures for debarment and suspension of contractors are provided in A.R.S. § 41-2613 and A.A.C. R2-7-922 to -933.

18. An invitation for bids may be cancelled or bids rejected as provided in A.R.S. § 41-2539 and A.A.C. R2-7-350 to -353.

(3) School Districts

The regulations for school districts adopted by the State Board of Education are A.A.C. R7-2-1001 to -1195.

A.A.C. R7-2-1002 provides that the regulations apply to all expenditures for construction in excess of $15,000. A.A.C. R7-2-1009 prohibits proprietary specifications except under special circumstances, with a statement permitting an acceptable alternative.

A.A.C. R7-2-1002 provides for notice of competitive sealed bidding. If there are four or less prospective bidders on the bidder’s list, notice shall include publication. A.A.C. R7-2-1023 provides for a prospective bidder’s list...