When the Tri-County Metropolitan Transportation District in Portland ("Tri-Met")
decided to exempt from competition the contract to construct a light-rail extension
to the airport, the Associated Builders and Contractors (ABC) filed suit, challenging
Tri-Met's decision. The trial court granted summary judgment in favor of Tri-Met,
finding that Tri-Met's decision to forego competition was supported by findings
that were based on substantial evidence satisfying the statutory requirements
for waiving the competitive bidding requirements.
This decision was affirmed on appeal, with the appellate court providing
a detailed explanation of the statutory scheme and basis for upholding the Tri-Met
decision. The decision may offer useful instruction for other jurisdictions
and design-builders interested in proposing innovative projects that might not
otherwise be possible under traditional public procurement methods.
Under Oregon law, public contracts must ordinarily be awarded on the basis
of competitive bids. Section 279.015 of the Oregon Statute authorizes public
agencies to exempt contracts from competitive bidding if local contract review
boards make findings that certain conditions have been met. In this case, Bechtel
Infrastructure Corporation proposed that Tri-Met and two other agencies form
a partnership to construct a rail extension to the airport. Bechtel agreed to
take responsibility for the design and construction and also to provide project
funding in exchange for a fee plus real estate development rights along one
segment of the line. Tri-Met evaluated the proposed contract and determined
that it met the statutory standard for an exemption. The findings were submitted
to a contract review board ("Board") for review and approval, and the Board
approved the decision.
In arguing against the exemption, the ABC submitted evidence that Bechtel
intended to perform the contract under a national agreement with unions, with
the result that nonunion subcontractors would be effectively prevented from
competing for work on the project. In response, Tri-Met stated that it was not
its policy to dictate terms of the labor relationship between a general contractor
and its subcontractors. In addition, it set forth findings that the project
could only be built via the means proposed by Bechtel.
Under the statute, a contract could only be exempted from competitive bidding
requirements if the public agency finds:
- It is unlikely that such exemption will encourage favoritism in the
awarding of public contracts or substantially diminish competition for public
- The awarding of public contracts pursuant to the exemption will result
in substantial cost savings to the public contracting agency. In making
such finding, the director or board may consider the type, cost, amount
of the contract, number of persons available to bid and such other factors
as may be deemed appropriate.
The Appellate Court's Ruling
On appeal, the ABC offered three arguments against the Board's decision to
approve the exemption. It argued that even if an agency may exempt a contract
from competitive procurement, it must nevertheless assure that some other form
of competitive procurement occurs. Second, it argued that before exempting a
contract, the agency must consider the effect it would have on subcontractors
that want to work on the project. Finally, it argued that there were insufficient
findings of fact to support the decision. In rejecting each of these arguments,
the court's holding clarifies the Oregon law and could provide guidance for
design-build projects in other jurisdictions as well.
With regard to using some alternative method of assuring competition, the
court held that the statute did not require this. It only required the use of
alternative contracting methods "when appropriate" in the opinion of the Board.
Since the Board in this case determined that the only way to award this contract
was by sole source to Bechtel because "the Board findings make clear that no
one else could have done the job," the court was satisfied that the Board did
not err by declining to direct an alternative contracting method that would
have included some form of competition.
Concerning the ABC's argument that the Board should have considered how Bechtel's
participation in the national labor agreement would effectively preclude nonunion
subcontractors from competing for work on the project and reduce competition
among subcontractors, the court held that the subcontracts were not considered
"public contracts" under the statute, and that "the Board did not need to consider
the effect that awarding the contract to Bechtel would have on competition among
In rejecting the ABC's argument that the Board's findings were not presented
in sufficient detail and form, the court held that no particular form of decision
is necessary, and that the findings themselves were more than adequate to support
The Contract Review Board Findings
Specific Board findings included the following:
- The terms and conditions of the design/build contract will be the result
of arm's-length contract negotiations between Tri-Met and Bechtel, and will
be reviewed and approved by the Tri-Met Board, thus discouraging any favoritism
in the awarding of the contract.
- Under the unique circumstances presented, it is unlikely that an exemption
authorizing Tri-Met to negotiate a design/build contract with Bechtel for
the Airport Max Project will encourage favoritism in the awarding of public
contracts or substantially diminish competition for public contracts.
- This negotiated contract will have no negative impact on the contracting
or subcontracting market in the Portland area. A sufficient number of qualified
firms are available to ensure adequate competition and any subcontracted
work will be competitively bid. This is a unique opportunity to enhance
the local economy because it is unlikely the Project would be built in the
near future without this public-private cooperation.
- Although the contract with Bechtel will be awarded without direct competition,
a substantial part of the construction work will be performed by subcontractors
who will be selected through a competitive process. Because of the magnitude
of the private investment required and private economic risks associated
with the project, the project is unique and it is highly unlikely that this
procurement will have any effect or substantially diminish competition for
future public contracts.
Based on its review of the record, the court concluded that substantial evidence
supported the Board's findings. The decisions of the Board and trial court were,
This decision should be encouraging to public agencies that may be looking
at the potential for using public-private partnerships to obtain necessary private
financing for projects directly benefiting the public. Design-build contracting
scenarios that include private investment, and even ownership interests, by
the design-builder may offer public agencies the opportunity to construct projects
that, as in this case, otherwise would be unlikely to "be built in the near
future without this public-private cooperation."
In the current economy, such project financing scenarios that include the
design-builder's participation may become increasingly significant. It is important,
therefore, that this decision recognized this as a legitimate consideration
Another aspect of this decision that might have significance beyond the specific
facts of this case is the conclusion that "the fact that the public agency supplies
funds to general contractors, who use them to pay subcontractors, is not sufficient
to convert subcontracts between private parties into public contracts." This
seems to have the potential to give greater leeway and flexibility to the general
contractor in how it goes about awarding and administering subcontracts.