Can rejected bidders sue a municipal government for failure to abide by published standards? Can a government agency require that materials come from local suppliers? As attorneys involved in public works, we know that contractors, suppliers and public works agencies may need answers to these questions.

We decided to write partly because some suppliers choose not to meet quality, performance and safety standards and then threaten a lawsuit or otherwise attempt to level the playing field. What can public works officials do to prevent this from happening in their next competitive bid?

Most importantly, they are not required to sacrifice quality and safety concerns in order to expand the universe of potential suppliers. Municipalities and other governmental units enjoy broad discretion in establishing specifications for all aspects of public works projects, including the nature and quality of the materials. Most jurisdictions have statutes governing the competitive bidding process and courts generally will not second-guess the decisions of any authorized agency that sets materials specifications and complies with the statute for competitive bidding.

To begin this two-part series, we answered eight of the most frequently asked questions about the bidding and specification process. Following is the rest of our discussion of bidding and the broad discretion enjoyed by public works agencies.  

Can rejected bidders sue a municipal government or other contracting agency for failure to abide by the published standards?

Yes. Generally speaking, if a government agency awards a contract to a supplier who failed to meet bid specifications, then rejected bidders may bring suit against the government to nullify the contract. Additionally, rejected bidders may be able to recover monetary damages from the government. Though the court may not have the authority to award the contract to a rejected bidder, it may invalidate the government's contract with the substandard supplier and order the government agency to re-bid.

Disregarding published material specifications may result in lawsuits brought against municipalities by taxpayers. Individual taxpayers may sue a government agency to prevent it from awarding a contract in violation of its published specifications. This legal remedy is designed to prevent government agencies from wasting taxpayer money and engaging in favoritism and sham competitive bidding.

Can a municipal government require, for example, that castings for drainage and storm sewer systems display permanent anti-dumping messages?

Yes. Government agencies are empowered to specify construction materials that meet specific requirements. These requirements may include regulatory demands of the federal government. Under the Phase II regulations of the National Pollutant Discharge Elimination System (NPDES), the U.S. Environmental Protection Agency (EPA) requires municipal governments to educate the public regarding illegal dumping into storm-sewer systems. As part of this educational outreach, the EPA recommends stenciling anti-dumping messages on storm drains. However, stenciling is easily defaced or otherwise made unreadable. Permanently cast anti-dumping messages may be the best way to educate the public for as long as the casting is in place.

Can a municipal government require the use of materials made in the United States?

Generally, yes. Many state and local governments have enacted laws promoting the use of products manufactured in the United States. While these laws may raise questions regarding the constitutional division of power between state and federal governments, several federal appellate courts and state supreme courts have held that the U.S. Constitution does permit state and local governments to prefer the use of American-made products in public works. While the U.S. Supreme Court has not conclusively determined that these statutes are constitutional, it has so far declined opportunities to invalidate them.

Can a municipal government prefer local products or suppliers?

Generally, yes. Most states have enacted laws giving some form of preference for in-state or local vendors when procuring goods and services. While the Constitution does place some limits on a state's ability to favor its own citizens, a number of federal and state courts have upheld these statutes.

Must imported products display the country of manufacture?

Yes. U.S. customs laws require that every item imported into this country be legibly and indelibly marked in a conspicuous place with the English name of the country of origin where the product was manufactured or produced. And Congress has enacted special marking requirements for manhole rings, frames or covers, iron and steel pipe and pipe fittings. These items must be marked on the top surface by one of four methods: die stamping, cast-in-mold lettering, etching (acid or electrolytic) or engraving. Federal law also prohibits any marking that gives the false impression that the imported article was manufactured in the United States when it was not. If the name of any city, state, or other locality appears on the product, then the product must also bear the country of origin, preceded by a phrase such as "made in" or "produced in."

For example, if the City of Chicago purchases an storm drain imported from China bearing the name "Chicago," then the drain must clearly state “made in China” in close proximity to the word "Chicago." Municipalities need not impose these requirements; any imported goods used in government works projects should already be clearly marked in accordance with federal customs law.

Are there penalties for violating customs laws requiring imports to be marked with the country of origin?

Yes. Under federal law, any person who removes, defaces or alters any mark required by U.S. customs laws may be fined up to $100,000 and imprisoned for up to one year. It is important to note that these penalties are specifically targeted at those who alter the country of origin marking in order to deceive purchasers after the item passes through customs.

Can a government agency be held liable if it uses defective or substandard products in a public works project?

Yes. A governmental entity may be held liable for defective products that it approves through the procurement process or owns. Municipal governments are often sued when they buy or approve construction materials that turn out to be faulty or defective. Even if the government agency is not held liable, it may have to spend millions of dollars defending lawsuits. For example, in Maryland, the Washington Suburban Sanitary Commission (WSSC) specified building codes that had "approved" products. One of these products was thin-wall copper pipe that was used to plumb residences in the late 1970s and early 1980s. This pipe was more fragile than regular pipe and, after a number of failures, many homeowners sued the WSSC. Even though the litigation did not result in a finding of liability, the litigation was very expensive for the agency.

In order to protect yourself against liability for defective products, municipal governments should carefully investigate and document all representations by the manufacturer, and should keep careful records of any performance problems with construction materials.

Stephen C. Waterbury and Daniel C. Persinger are attorneys in Grand Rapids, Mich. Office of the the law firm of Warner, Norcross & Judd. Waterbury can be reached by calling 616-752-2137 and Persinger by calling 616-752-2353.

This article is not legal advice and laws and practices vary around the country and in different jurisdictions. It was prepared to help municipalities deal with specifications and supplier issues.