MUNICIPAL CORPORATIONS ‑- BIDS ‑- FIVE PERCENT PREFERENTIAL FOR LOCAL BIDDERS
A county, public utility district, fire protection district or other municipal corporation may not establish a policy by ordinance or resolution arbitrarily allowing a five percent preferential to local bidders.
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June 26, 1961
Honorable Roger L. Olson
Cite as: AGO 61-62 No. 41
By letter previously acknowledged, you have requested the opinion of this office as to whether or not a county, public utility district, fire protection district, or other municipal corporation may establish a policy of giving local bidders five percent preferential treatment on purchases and/or contracts with such municipal corporations.
For simplification of issues, we will assume that your letter relates only to purchases and/or contracts required by law to be made pursuant to competitive bidding.
We answer your question in the negative, as explained in the analysis.
The first rule of primary importance to bear in mind is that a municipal corporation has only the powers expressly granted to it by statute, and those powers necessarily implied from the powers expressly granted. Any fair or reasonable doubt concerning the existence of a municipal power must be resolved against the municipality. Pacific First Federal Savings and Loan Association v. Pierce County, 27 Wn. (2d) 347, 353, 178 P. (2d) 351 (1947).
On the exact question you have in mind, there appears to be very little authority, either in this or any other jurisdiction. Consequently, resort must be had to general principles and a few closely analagous cases which our research has disclosed.
[[Orig. Op. Page 2]]
The general rule is stated in 10 McQuillin Municipal Corporations, (3rd ed.) § 29.30, as follows:
"The requirement of competitive bidding in the letting of municipal contracts is uniformly contrued [sic] [[construed]]as mandatory and jurisdictional and nonobservance will render the contract void and unenforceable. Under such restriction a fair opportunity must be given for free competition. No scheme or device promotive of favoritism or unfairness or which imposes limitations, not applicable to all bidders alike, will be tolerated. . . ."
The further statement appears in 43 Am.Jur. Public Works and Contracts, § 23, that:
". . . This procedure [the requirement of competitive bidding] involves three vital principles: an offering to the public, an opportunity for competition, and a basis for an exact comparison of bids; and a regulation of the matter which excludes or ignores any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption. As a broad general principle, it may be said that the inclusion in specifications for the construction of a public work of terms or conditions such as to prevent or restrict full and free competition, or to increase the cost of the work for the benefit of a favored class at the expense of the taxpayers, or, when the work is to be paid for by special assessment, of conditions which add an element to the cost of the work which cannot lawfully be met by special assessment, should not be countenanced." (Emphasis supplied.)
We are not unmindful of the fact that at least some statutes in this state requiring competitive bidding on municipal contracts, specify that the award must be made to the "lowest and best" bidder, or some equivalent phrase, rather than the "lowest" bidder. See, for instance, RCW 36.32.250, relating to counties, requiring the award to be let to the "lowest responsible bidder; taking into consideration the quality of the articles or equipment to be purchased."; RCW 36.77.040, county road and bridge construction, using the phrase "lowest and best bidder," and others. Under requirements of this kind, the award must be let not necessarily to the person submitting the lowest bid, but the bidder who is most likely, in regard to skill, ability and integrity to do faithful, conscientious work, and promptly [[Orig. Op. Page 3]] fulfill the contract according to its letter and spirit, in addition to consideration of his financial resources and ability. 10 McQuillin Municipal Corporations, supra, § 29.73; 43 Am.Jur., supra, § 42. However, the permissible limit of discretion to be exercised by the municipal officials in this regard must be based upon facts reasonably tending to support their decision, and the rule does not permit them to act arbitrarily; either by an arbitrary rejection of bids, or arbitrary preference of one bid over another which is lower, or an arbitrary classification of bidders, the reason being that the ultimate duty of the public authorities, all else being equal, is to accept the bid involving the least expenditure of public funds. 10 McQuillin, Municipal Corporations, supra, § 29.73; 43 Am.Jur., supra, § 44.
Thus, while it may be permissible for municipal officers in an individual case to take into consideration locality as one of the factors involved in determining who is the most responsible or "best" bidder, a general practice by ordinance or resolution which establishes a five percent differential favoring local bidders would appear to be in the nature of an arbitrary classification for the benefit of a particular group without regard to the merits of any particular case. To come within the rule permitting consideration of such factors, it would seem only logical that in each case the nature of the contract and other special circumstances must be considered.
It has been held in some jurisdictions that preference may be given to materials produced within the state; however, it has also been said that if the result of the provision had been to restrain competition and enhance the cost of material, it would be void. Pasche v. South St. Joseph Town-Site Co., (Mo.) 190 S.W. 30, (1916), followingAllen v. Labsap, 188 Mo. 692, 698, 87 S.W. 926 (1905). It has also been held that a specification for bids requiring a subcontractor to be a citizen of the state would be valid. Ebbeson v. Board of Public Education in Wilmington, 18 Del. Ch. 37, 156 Atl. 286 (1931). However, in that case it was held as a condition of validity that such a restriction must not be shown to increase the cost of the work.
However, the case we have found which is most closely analagous to the present situation isBohn v. Salt Lake City, 79 Utah 121, 8 P. (2d) 591, 81 A.L.R. 215 (1932). In that case it was held that a city having power to construct sewers could not insist that provisions be inserted in contracts for the construction thereof requiring, among other things, that materials used should be of local manufacture and that preference should be given to citizens of the United States and to heads of families resident in the city; where it was admitted that these restrictions would increase the cost of the work to a large amount, that they were inserted for the purpose of relieving unemployment in the city, and added nothing to the value of the sewers to be constructed, the city having no authority to insist upon such restrictions, even in view of the unemployment conditions.
[[Orig. Op. Page 4]]
Specifically, on the point of preference of local citizens as laborers and employees, the court pointed out that Utah had a statute requiring preference to be given to citizens of the United States or those having declared their intention of becoming citizens. However, the court said:
". . . But the city, in letting the contracts, has imposed conditions that preference be given to residents of Salt Lake City and who are heads of families. It is thus obvious that the city by so doing imposed a preference not embraced nor included in the statutes, and contrary to the statute restricted and limited the preference to heads of families of Salt Lake City. The city was, as we are, bound by the statute and by the policy so declared by the state, and which may not lawfully be enlarged or restricted. This provision of the contract cannot be sustained." (81 A.L.R. p. 223.)
Similarly, in our own state we have a statute expressly providing for a five percent differential allowance in certain cases. See, RCW 39.24.010. However, the language of that statute is restricted to "such materials, supplies, goods, wares, merchandise or produce as are grown, produced, or manufactured in the state of Washington when the price or prices quoted for the same are not more than five percent in excess of the lowest bid or prices quoted for the same commodities or articles grown, produced or manufactured elsewhere, quality and service considered."
Another statute, RCW 39.16.010, requires that on public works contracts the contractor or subcontractor shall employ certain percentages of local (state of Washington) residents, where available. This statute appears to have no direct application to your question, so as to warrant an affirmative conclusion.
It is our conclusion that the legislature has defined the only areas in which, all other things being equal, local (meaning "in the state of Washington") factors may be considered even though the result may be to increase substantially the cost to the municipality. We can only conclude that any attempt by a municipality to enlarge the scope of this statute by an ordinance or resolution arbitrarily allowing a five percent differential to local ("in the county") residents would be contrary to the principle of competitive bidding and beyond the power of the municipality to enact.
[[Orig. Op. Page 5]]
We trust that this information will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
ROBERT F. HAUTH
Assistant Attorney General