      Compatibility of New York City Local Law 19 with
    Federal Highway Act Competitive Bidding Requirements

New York City Local Law 19, which allows bidders who do not make the lowest bid to be
  awarded contracts in cases where the lowest bidder has not signed an anti-apartheid certifi­
  cate, is incom patible with § 112 o f the Federal Aid Highway Act, which requires that
  contracts for federally funded highway projects be awarded on the basis o f competitive
  bidding. The Departm ent of Transportation is therefore obligated to withhold funding for
  such contracts awarded subject to Local Law 19.

When Congress elects to distribute federal funds to states it may attach conditions to their
  distribution and, so long as those conditions are valid and clearly expressed, a state has no
  sovereign right to obtain or retain those federal funds without complying with the stated
  conditions. The Act’s conditioning o f federal highway construction grants on compliance
  with com petitive bidding requirements is valid and clearly expressed.

By imposing disadvantages on a class o f responsible contract bidders, Local Law 19 discourages
  responsible contractors from bidding and undermines the competitive bidding process. This
  departure from competitive bidding procedures was not justified by considerations of cost-
  effectiveness, as required by the Act.

                                                                                       June 30, 1986

                M   em orandum        O p in io n   for t h e   G eneral C oun sel,
                             D   epa rtm en t of     T r a n s p o r t a t io n


                                 I. Introduction and Summary

   This memorandum responds to your request for the opinion of the Attorney
General on the question whether the Secretary of Transportation must withhold
approval for payments under the Federal Aid Highway Act (Act) for any
contract which has been awarded pursuant to a bidding process subject to New
York City Local Law 19 (Local Law 19).' Section 112 of the Federal Aid
Highway Act of 1958, as amended, 23 U.S.C. § 112, requires the Secretary to
withhold approval for contracts for locally administered highway construction
projects funded in whole or in part by the federal government unless the
contracts are awarded through competitive bidding.
  The provisions of Local Law 19 impose certain disadvantages in the bidding
process for city contracts on bidders who fail to sign an anti-apartheid certifi­
cate stating that they have not, within the previous twelve months and for the
  1 The Attorney G eneral has delegated his responsibility for rendering opinions to governm ent agencies to
the Assistant A ttorney General, O ffice o f Legal Counsel. 28 C.F.R. § 0.25.

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term of the impending contract, done business with, and have neither bought
from nor sold goods to certain agencies of the government of the Republic of
South Africa or Namibia. Moreover, in the case of a contract to supply goods,
the City requires the contractor to certify that none of the goods to be supplied
to the City originated in South Africa or Namibia. 13 N. Y.C. Code § 343.11.0(a).2
These certification conditions are not required by any federal law or executive
order.3
   Section 343.11.0(b) provides that if a bidder complying with the anti­
apartheid certification makes a bid no more than five percent higher than a low
bid submitted by a non-complying contractor, both bids are to be passed on to
the New York Board of Estimate which “may determine that it is in the public
interest that the contract shall be awarded to other than the lowest responsible
bidder.”4 New York City has declared that it will apply Local Law 19 to
federally funded projects.

  2 Section 3 4 3 .1 1.0(a) provides:
           W ith respect to contracts described in subdivision b and c o f this section, and in accordance
        w ith such provisions, no city agency shall contract for the supply o f goods or services with any
        p erson w ho does not agree to stipulate to the follow ing as material conditions o f the contract if
        th ere is an o th er p erson w ho will contract to supply goods o r services o f com parable quality at the
        co m p arab le price:
           (1) that the co n tracto r and its substantially ow ned subsidiaries have not within the tw elve
        m onths p rio r to the aw ard of such contact sold o r agreed to sell, and shall not during the term of
        such co n tract sell o r agree to sell, g o o d s o r services other than food o r medical supplies directly
        to the follow ing agencies o f the S outh African governm ent or directly to a corporation owned or
        c o n tro lled by such government and established expressly fo r the purpose o f procuring such goods
        and services fo r such specific agencies: (a) the police, (b) the m ilitary, (c) the prison system, or
        (d) the d epartm ent o f cooperation an d developm ent; and
           (2) in the case o f a contract to su p p ly goods, that none o f the goods to be supplied to the city
        orig in ated in the R epublic of South A frica o r Namibia.
A lthough the term “com parable pnce” in th is section is not defined, § 343.11.0(b) makes clear that an agency
m ust re fe r any contract in w hich a com plying bid is w ithin five percent o f a non-contract bid to the Board of
E stim ate, w hich w ill m ake the final decision as to its award.
   3 E xecutive O rd er No. 12S32 forbids governm ent agencies from providing export aid to corporations doing
busin ess in South A frica unless they certify that they are adhering to certain principles o f nondiscrim ination
w ith respect to their em ployees. The o rd e r also forbids the supply o f com puters to certain South African
agencies but co n tain s no general prohibition against contracting with these agencies. See 21 W eekly Comp.
Pres. D oc. at 10 5 1 -5 4 (Sept. 9, 1985).
  4 Section 3 4 3 .1 1.0(b) provides:
           In the case o f contracts subject to public letting under sealed bids pursuant to section 343 o f the
        ch arter, w henever the lowest responsible bidder has not agreed to stipulate to the conditions set
        fo rth in subdivision a o f this section and another b id d er who has agreed to stipulate to such
        co n d itio n s has subm itted a bid w ithin five percent o f the lowest responsible bid for a contract to
        supply g o o d s o r services of com parable quality, the contracting agency shall refer such bids to
        th e board o f estim ate which, pursuant to such rules as it may adopt, and in accordance with
        su bdivision b o f section 343 of the charter, may determ ine that it is in the public interest that the
        co n tract shall be aw arded to other th a n the lowest responsible bidder.
Section 343 o f the N .Y .C. C harter requires a tw o-thirds vote and the approval o f the corporation counsel and
the c o m p tro ller before any such decision is made. New York C ity observes that § 343 o f the charter applies to
all co n tracts fo r goods and services ex ceed in g $5,000 and thus allow s the Board o f Estim ate to award
contracts to co n tracto rs o th er than the low bidder regardless o f the applicability o f Local Law 19. Therefore,
New Y ork C ity argues. Local Law 19 c an n o t be deem ed to violate § 112, because it does no more than refer
certain co n tracts fo r consideration under a standing procedure to which the Secretary o f Transportation has
not h ereto fo re objected. The short an sw er to this argum ent is that the Secretary is not disabled from
                                                             C ontinued

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   We conclude that application of Local Law 19 to federally funded highway
projects administered by New York City would violate 23 U.S.C. § 112.
Section 112 clearly reflects a congressional judgment that the efficient use of
federal funds afforded by competitive bidding is to be the overriding objective
of all procurement rules for federally funded highway projects, superseding
any local interest in using federal funds to advance a local objective, however
laudable, at the expense of efficiency. By imposing disadvantages on a class of
responsible bidders, Local Law 19 distorts the process of competitive bidding
in order to advance a local objective unrelated to the cost-effective use of
federal funds. Accordingly, the Department of Transportation is obligated to
withhold funding for highway construction contracts subject to Local Law 19.5

                                                 II. Analysis

   Under the Supremacy Clause,6 state or local action must give way to federal
legislation passed pursuant to one of Congress’ enumerated powers where the
“act of Congress fairly interpreted is in actual conflict with the law of the State”
or state subdivision. Florida Lime & Avocado, Inc. v. Paul, 373 U.S. 132, 142-
43 (1963). It is well-settled that Congress, pursuant to its taxing and spending
powers under Article I, § 8 of the Constitution, is authorized to disburse federal
funds to the states for particular programs and to “fix the terms on which it shall
disburse federal money.” Pennhurst State School and Hospital v. Halderman,
451 U.S. 1, 17 (1981). Accordingly, when Congress elects to distribute federal
funds to states, it may attach conditions to their distribution. So long as the
conditions are valid and clearly expressed, id., “[rjequiring States to honor
their obligations voluntarily assumed as a condition of federal funding.. .
simply does not intrude on their sovereignty.” Bell v. New Jersey, 461 U.S.
773, 790 (1983). “If the conditions [are] valid, the State has no sovereign right
to retain [federal] funds without complying with those conditions.” Id. at 791.


   4 ( . . . continued)
challenging the application o f a provision to federal contracts which has not been brought to h e r attention
previously. W hile the issue o f the legality o f § 343, considered by itself, is not d irectly before us, we believe
that its application to federally funded highway projects would raise many o f the same issues as does
application o f Local Law 19. We note, how ever, that Local Law 19 is different from § 343 in that it singles
out a specific group o f contractors and d eclares that, in certain circum stances, their low bids must be referred
to the Board o f Estim ate fo r potential disapproval. Therefore, the Secretary is w holly justified in being more
concerned about Local Law 19 than § 343, because the latter does not single out a particular class o f contracts
for m andatory reference to the Board o f Estimate.
   5 This O ffice has been informed that legislation is being considered by C ongress that w ould direct the
Secretary to approve paym ents under the Federal Aid Highway Act for contracts entered by New York City
before O ctober 1, 1986, regardless o f the application o f Local Law 19. The stated purpose o f this legislation
is to provide time for the Department o f Justice to render an opinion on the issue o f the legality o f the
application o f Local Law 19 to federal program s. O ur opinion, o f course, considers the legality o f Local Law
19 under existing federal law and does not purport to evaluate the effect o f pending legislation on the
S ecretary's obligation or authority to w ithhold approval for New York City highw ay construction projects
using federal funds.
  6 U.S. C onst, art. VI, § 2.

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   The Supreme Court has specifically upheld Congress’ attachment of condi­
tions to the distribution of federal highway funds. In Oklahoma v. United States
Civil Service Comm’n, 330 U.S. 127 (1947), the Court upheld a federal denial
of highway funds to Oklahoma because of the state’s failure to observe the
requirements of the Hatch Act. Congress had conditioned states’ receipt of
federal highway funds on compliance with that Act. The Court stated: “While
the United States is not concerned with, and has no power to regulate, local
political activities of state officials, it does have the power to fix the terms upon
which its .money allotments to states shall be disbursed.” Id. at 143.
   New York City does not dispute that the competitive bidding conditions
imposed by § 112 of the Federal Aid Highway Act are valid exercises of the
congressional spending power and conditions which DOT is therefore obli­
gated to enforce. Careful examination reveals that Local Law 19 is in clear
conflict with these conditions.7
   Section 112 applies to all highway projects using federal funds “where
construction is to be performed by the State highway department or under its
supervision.” 23 U.S.C. § 112(b).8 The first two sentences of § 112(b) provide:
       Construction of each project. . . shall be performed by contract
       awarded by competitive bidding, unless the State highway de­
       partment demonstrates, to the satisfaction of the Secretary, that
       some other method is more cost effective. Contracts for the
       construction of each project shall be awarded only on the basis
       of the lowest responsive bid submitted by a bidder meeting
       established criteria of responsibility.9
A version of this provision has governed the process for awarding highway
contracts since 1954, when the Senate insisted on amending the Federal Aid
  7 B ecause o u r o pinion rests on the actu al conflict betw een Local Law 19 and 23 U .S.C. § 112, w e need not
reach the question w hether application o f Local Law 19 to federally funded projects imperm issibly burdens
foreign com m erce o r intrudes into a fie ld o f foreign affairs which is uniquely the concern o f the federal
governm ent.
  8 Section 112(d) m akes clear that the ph rase “under [the] supervision [o f the State highw ay departm ent]'’ in
§ 112(a) is intended to m ake that section apply to local subdivisions, such as New York City, as well as to
State highw ay departm ents. Section 112(d) provides:
       N o co n tract aw arded by com petitive bidding pursuant to subsection (b) o f this section, and
       subject to the provisions of this sectio n , shall be entered into by any State highw ay departm ent or
       local subdivision o f the State w ith o u t com pliance w ith the provisions o f this section, and w ithout
       the p rio r concurrence o f the Secretary in the aw ard thereof.
(E m phasis added.)
  9 T he last sentence o f § 1 12(b) provides:
       N o requirem ent o r obligation sh all be imposed as a condition precedent to the award o f a contract
       to such bidder fo r a project, or to the Secretary’s concurrence in the award o f a contract to such
       bid d er fo r a project, unless such requirem ent o r obligation is otherw ise law ful and is specifically
       set forth in the advertised specifications.
This sentence was added to the Federal Highway A ct o f 1968, Pub. L. No. 9 0 -495, 82 Stat. 830 (1968), in
ord er to assure that the federal requirem ents o f equal em ploym ent opportunity m andated by Executive Order
No. 11246 be advertised before the bid d in g so that contractors w ould know what w as expected o f them. See S.
Rep. No. 1340, 90th C ong., 2d Sess. 16—18 (1968). The provision is manifestly not a carte blanche for the
state to im pose additional requirements o f its own choosing unrelated to cost-effective use o f federal funds.
By the term s o f this provision, any state requirem ent must be “otherw ise law ful” and therefore cannot
interfere w ith the com petitive bidding requirem ent established by the first two sentences o f the section.

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Highway Act of 1954 to require competitive bidding “unless the Secretary
finds some other method is in the public interest.” Pub. L. No. 83-350, § 17,68
Stat. 71 (1954).10
   The Surface Transportation Assistance Act of 1982, Pub. L. No. 97-424, 96
Stat. 2106 (1983), strengthened the competitive bidding requirement by elimi­
nating the public interest exception and imposing the current requirement that
departures from competitive bidding be justified by a demonstration by the
local highway department that the alternative is more cost-effective. The
legislative report accompanying the amendment reflects the concern of Con­
gress that cost-effectiveness be the only criterion by which to award contracts
to responsible bidders for highway projects funded by the federal government.
See H.R. Rep. No. 555,97th Cong., 2d Sess. 11 (1982). The 1982 amendments
therefore make clear that the efficient use of federal funds is the touchstone by
which the legality of state procurement rules for federally funded highway
projects is to be tested.
   Local Law 19 contravenes the clear requirement of § 112 that all contracts be
awarded through a process of competitive bidding to the responsible bidder
who submits the lowest bid; the local ordinance frustrates the manifest con­
gressional mandate reflected in the statute and its legislative history to make
the most cost-effective use of federal highway funds.11 By imposing disadvan­
tages on a certain class of contractors, New York City discourages responsible
contractors from bidding and undermines the competitive bidding process.12
New York City has failed to justify, as required by the statute, its departure
from competitive bidding procedures by considerations of cost- effectiveness.13
   >0The Senate proposed the amendment requiring com petitive bidding. See S. Rep. No. 1093, 83d Cong , 2d
Sess 14 (1954) (stating that the requirem ent is designed to prevent “collusion or any other action in restraint
of free com petitive bidding”). A fter the House acceded to the Senate amendm ents, one Senator hailed the
bidding provision as one o f the most im portant achievem ents o f the entire bill. 100 Cong. Rec. 5124 (1954)
(remarks o f Sen. Gore).
   11 New York City argues that this congressional mandate is somehow undercut by 23 U.S.C § 145, which states:
        The authorization o f the appropriation o f Federal funds or their availability under this chapter
        w ill in no way infringe on the sovereign rights o f the States to determ ine which projects will be
        financed. The provisions o f this chapter provide for a federally-assisted State program.
A provision perm itting states to choose their own projects obviously has no bearing on the issue of w hether
C ongress has restricted the perm issible procurem ent procedures fo r such projects in the interest o f the cost-
effective use o f federal funds.
   12 There can be no doubt that an otherw ise qualified contractor who fails to furnish an anti-apartheid
certificate is still a “responsible” bidder. Local Law 19 itself acknow ledges that the requirem ents o f the anti-
apartheid statute are not criteria o f responsibility, because § 343.11.0(b) refers to “the low est responsible
bidder w ho has not agreed to [the anti-apartheid certificate].” (Em phasis added.)
   13 Indeed, because the prim ary purpose o f the anti-apartheid certification requirem ent is “to send a message
to the governm ent o f the Republic o f South A frica and to encourage those who do business there to support
change,” see New York C ity Local Law 19, § 2, Local Law 19 is not designed to promote cost efficiency, but
to express a w ell-justified abhorrence o f apartheid. To be sure, the ordinance states that it “ also seeks to
protect the financial interest o f the city by limiting the num ber o f city contracts which may depend for their
satisfaction on the internal security o f South Africa, where relentless oppression has led to increasing civil
disturbances, making sabotage o f business interests and even revolution possible.” Under certain circum ­
stances, such considerations may very well affect the cost-effectiveness o f a given contractual arrangem ent.
New York C ity has not, however, provided the Secretary w ith any evidence for the proposition that a
particular co m p an y 's contractual agreem ent with an agency in South A frica w ill endanger an unrelated
contractual agreem ent to be perform ed in New York City on a highw ay construction project.

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   New York City has attempted to defend the legality of its ordinance by
observing that all contractors that have bid for its contracts have furnished the
anti-apartheid certificate and that there is no evidence that any potential bidder
would not be able to comply with the requirement. Thus, the City argues that its
anti-apartheid certification requirement has not been shown to affect adversely
the efficient use of federal funds. This argument is unavailing, however,
because it attempts to reverse the burden of proof that § 112 requires to justify
departures from competitive bidding. In order to satisfy this burden, New York
City must demonstrate that its procedures lead to a more cost-effective use of
federal funds; it cannot shift the burden to the Secretary of Transportation to
demonstrate that the City’s procedures detract from cost-effectiveness.14
   Second, New York City argues that its ordinance does not violate § 112
because it is not an absolute bar to the award of contracts to contractors who
submit the lowest bid for a project but fail to provide an anti-apartheid certifi­
cate. According to the provisions of Local Law 19, a non-complying bidder is
awarded the contract unless a complying bidder is within five percent of the
low bid. Moreover, New York City emphasizes that even when there is less
than a five percent differential between a complying and non-complying bid­
der, the Board of Estimate must still vote by a two-thirds majority to award the
contract to the complying bidder rather than the non-complying bidder. The
short answer to this argument is that § 112 requires that the contracts be
awarded through a process of competitive bidding, not simply that contracts be
awarded by a process that may lead to the award of the contract to the lowest
bidder. This distinction is important, because the knowledge that a contract will
be awarded through a strict process of competitive bidding in itself contributes
to the cost-effective use of federal funds by encouraging the submission of bids
by contractors who might not otherwise participate. Conversely, a contractor’s
knowledge that he may submit the low bid and yet not win the contract would
deter him from entering the bidding process and incurring bid preparation
costs.15 Only a process which strictly adheres to the competitive bidding
requirement comports with Congress’ overriding objective of cost-effective­

   14 W e do n o t read 28 C .F .R . § 635 108 a s a decision by the Secretary through regulation to shoulder the
burden o f p ro o f on the issue o f cost-effectiveness. Section 635.108 provides:
       N o procedure o r requirement for prequalification o r licensing o f contractors w ill be approved
       w hich, in the ju d g m en t o f the Federal Highway A dm inistration, may operate to restrict com peti­
       tion, to prevent subm ission of a bid b y , o r to prohibit the consideration of a bid submitted by, any
       resp o n sib le co n tracto r whether re sid en t or nonresident o f the state w herein the work is to be
       perform ed.
(E m phasis added.)
   B ecause th e adm inistrator must still disapprove the procedure if the procedure may restrict com petition
(i.e., has the potential to restrict com petition), the burden o f showing that the procedure does not restrict
c om petition still rests w ith th e locality.
   15 The co n tracto r w ho does not sign th e anti-apartheid certificate know s that in the event o f a com plying bid
that is w ith in five percent o f his bid, he w ill have to persuade the B oard o f Estimate to award the contract to
him , n o tw ithstanding h is refusal to com ply. The rational bidder w ould therefore revise his price to reflect the
costs asso ciated w ith lob b y in g the Board o f Estim ate on this issue. Thus, even if the contract is aw arded to the
n on -com plying bidder, it is reasonable to expect that h is bid would be higher than it would be w ithout the
applicatio n o f L ocal Law 19.

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ness by maximizing the number of contractors who will bid for the contract and
increasing the likelihood that the contract will be let for the lowest possible
price.16
   Since the provisions of Local Law 19 conflict with the requirement of
competitive bidding contained in § 112(b), it is clear that 23 U.S.C. § 112(d)
requires the Secretary to withhold approval for contracts let subject to the
provisions of Local Law 19.
   For the foregoing reasons, we believe that the Secretary of Transportation is
obligated to withhold federal funds under the Federal Aid Highway Act for the
payment of contracts whose award is subject to the procurement provisions of
Local Law 19.

                                                               C h a r l e s J. C o o p e r
                                                            Assistant Attorney General
                                                             Office of Legal Counsel




  16 New York C ity ’s argum ent that the Secretary o f Transportation may not disapprove contracts awarded
under Local Law 19 until New York City actually w ithholds a contract from a low bidder under that ordinance
m erits a sim ilar response. The Secretary is obligated to act when New York C ity 's procurement procedures
depart from the process o f com petitive bidding required by federal law, rather than when New York City
declines to accept a low bid.

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