I was working in our Virginia office this past week and was amazed at the amount of highway construction at and around Tyson’s Corner. What also caught my attention was the progress of the 495 Express Lanes project, which includes the construction of high occupancy toll (HOT) lanes that will operate on the I-495/Capital Beltway.
As the U.S. moves toward the construction of "smart" highways as an integral part of our transportation system, state DOTs and localities will be called upon to broaden the horizons of their normal procurement and contracting systems. Undoubtedly, many legal issues will arise as high-tech companies compete for contracts that offer the likelihood of substantial follow-on business in order to maintain compatibility.
"Improvement" versus "Construction". Presently, a few cities, states, toll road and turnpike authorities are in the process of procuring electronic toll-collection (ETC) systems. Many are procuring those systems under state statutes that call for competitive bidding of all construction contracts. The question has come up, however, whether those government entities are required to award contracts after public bidding. That question was considered in the 1995 decision called In the Matter of AT/Comm, Inc. v. Peter Tufo, 652 N.E.2d 915 (N.Y. 1995), where the New York Court of Appeals made an interesting distinction.
In 1991, the New York State Thruway Authority, together with similar agencies in New Jersey and Pennsylvania, formed an interagency committee (IAG) to evaluate electronic toll-collection systems that would be compatible among the three states. The IAG issued a request for proposals for both "read only" (which scan information from a windshield tag) and "read/write" (which are needed when tolls are determined by entry and exit points) systems. AT/Comm and Amtech Systems, both ETC-system manufacturers, submitted proposals for the contract to install the ETCs at designated sites along the New York State Thruway.
In 1993, without public bidding, the authority entered into a $1.7 million contract with Amtech for the manufacture and installation of an interim read-only ETC-system. This system would be used pending the IAG’s selection of a fully integrated read/write system that would eventually replace it. Upon contract award, AT/Comm filed a petition seeking to stop the contract between Amtech and the authority. It also sought an order stopping the authority from entering any contract for the ETC-system without first conducting competitive bidding in accordance with the appropriate New York statutes.
In the litigation, AT/Comm argued that the ETC-system was an "improvement" of the thruway within the meaning of the New York competitive-bidding statute, which required a public bidding. Amtech and the authority disagreed, arguing that the contract for the installation of the ETC-system was not a contract for "construction, reconstruction or improvement" of the thruway and, as a result, was not subject to the competitive-bidding requirement. The Court of Appeals agreed with Amtech and the authority.
The Court of Appeals noted that the New York statute requires public bidding where the work undertaken is for the construction, reconstruction or improvement of the actual road or passageway used for traffic. The aim of the E-Z Pass system, however, was not to improve the roadway but to improve the flow of the traffic on it.
Lesson Learned. Competitive-bidding statutes were enacted by state legislatures to protect the public against fraud, favoritism, corruption, extravagance and improvidence in the award of public contracts. The idea behind such statutes is to require contract-award decisions to be based on objective criteria. Electronic toll-collection contracts are generally awarded after proposals are technically evaluated by consultants.
Public entities need to make sure they are not drafting specifications aimed at favoring one competitor over another. They should also establish criteria on how proposals will be evaluated and make evaluations of competing proposals fairly. Finally, they should ensure that their consultants are not biased. Given the subjectivity involved in this process, the cost of preparing proposals and the potential economic gain of being considered by several governmental entities who seek to make their systems compatible, there is great likelihood for disputes and litigation in the future.