“Best Value”: A New Alternative For Municipal Contracting

In its 2007 session, the Minnesota Legislature recently made significant amendments to the statutes governing municipal contracting. These amendments give counties, cities, towns and some school districts the alternative of using a “best value” system as an alternative to the traditional “lowest responsible bidder” requirement for municipal contracting. Below is an examination of the changes in the law and how they will impact local government agencies.

The Existing Law

Under the existing Uniform Municipal Contracting Law (Minnesota Statutes, Section 471.345), certain municipal contracts must be awarded to the lowest responsible bidder. With narrow exceptions, the lowest responsible bidder requirement applies to any contract with a value estimated to exceed $50,000. The requirement also applies to a contract valued at more than $10,000 but less than $50,000, if the municipality seeks sealed bids from contractors rather than quotes. If a municipality enters into a contract above this threshold value without following the lowest responsible bidder requirement, the contract may be deemed void and may subject the municipality to a lawsuit for damages. Violation of the Uniform Municipal Contracting Law is also a gross misdemeanor subject to criminal sanction.

If done properly, a municipality may consider factors other than price in making a lowest responsible bidder determination. These factors include the quality of the item to be purchased and its suitability for the use for which it is intended; the reliability, responsibility, availability and competency of prospective bidders; the character of the work done by a bidder on a previous contract; and a bidder’s reputation for customer service, maintenance and repairs. Nonetheless, in practice, municipalities are understandably cautious when making a lowest responsible bidder determination and often contracts are awarded more or less automatically to the lowest bidder.

The New Amendments

Laws 2007, Chapter 148, Article 3, Section 8 amends the law governing state building and construction contracts, Minnesota Statutes, Sections 16C.02 and 16C.28. These amendments provide that, as an alternative to the lowest responsible bidder requirement, the state may award a contract to the vendor offering the “best value” under a request for proposals. The “best value” contracting system is available to counties and cities immediately upon the effective date of the amendments. For school districts,”best value” will become available in phases: immediately for districts with the highest 25% of student enrollment, in two years for districts with the highest 50% of student enrollment, and in three years for the remaining districts. Under Laws 2007, Chapter 148, Article 3, Sections 13 to 34, the new “best value” alternative is also incorporated by reference into the Uniform Municipal Contracting Law and related municipal contracting statutes.

The amended statutes define “best value” as a procurement process that considers the specifications set forth in the request for proposals, price and performance criteria. The performance criteria factored into this determination may include, but are not limited to:

  • The quality of the contractor’s performance on previous projects;
  • The timeliness of the contractor’s performance on previous projects;
  • The level of customer satisfaction with contractor’s performance on previous projects;
  • The contractor’s record of performing previous projects on budget and ability to minimize cost overruns;
  • The contractor’s ability to minimize change orders;
  • The contractor’s ability to prepare appropriate project plans;
  • The contractor’s technical capacities;
  • The individual qualifications of the contractor’s key personnel; or
  • The contractor’s ability to assess and minimize risks.

The “best value” procurement process must include a document soliciting proposals which states the relative weight that will be given to price and to other selection criteria. The contract must be awarded to the contractor offering the best value as determined through application of the weighted selection criteria.

How the New Law Should be Applied

It is important to remember that “best value” contracting is an alternative to traditional bidding. Local government agencies always have the option of using the lowest responsible bidder method if they so choose. If a municipality decides to use “best value” contracting, it cannot solicit or accept sealed bids; rather the procurement process must be through a request for proposals. To avoid any confusion, the solicitation document should state clearly that the municipality is seeking proposals, not bids–otherwise a vendor could argue that there was in fact a request for bids, and that the lowest responsible bidder requirement should apply.

Even though the amended statute includes nine enumerated criteria for making a “best value” determination, the solicitation document need not necessarily include all nine of these factors. The municipality should identify the selection criteria (both price and non-price) that are most appropriate in the context of a given project, and the relative weight to be given to each. The applicable criteria and relative weight must be included in the solicitation document. If an interview of the vendor’s personnel is to be included in determining best value, then the solicitation document must state the relative weight to be given to the interview. Although a contractor’s past performance and demonstrated ability to minimize cost overruns and change orders may be considered generally in determining best value, the municipality may not focus on a contractor’s “exercise or assertion of [its] legal rights”– in other words, a contractor’s proposal may not be rejected because of the contractor’s raw number of change orders on past projects.

The amended statute requires that any personnel administering “best value” contracting, or any consultants retained by a local unit of government to prepare or evaluate solicitation documents, must receive training in the appropriate procurement procedures. The training may be provided by the Department of Administration or by some other provider.

Getting the Best Value Under Existing Bid Law

Keep in mind that the factors listed in the new “best value” legislation can also be made part of a formal bid process; you do not have to wait to be eligible for the new process to take the factors into account. As long as the non-monetary factors are made part of the bid specifications and are objectively and consistently applied, preferably followed by written findings approved by the school board, such factors can be an important part of the process in determining the lowest responsible bidder.

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Joseph Langel

About Joseph Langel

Joseph Langel is a shareholder of Ratwik, Roszak & Maloney, P.A., and primarily represents cities, counties and school districts. Mr. Langel is currently city attorney for ten cities and a number of public school districts. Mr. Langel has extensive experience in public contracting and bid laws, construction, planning and zoning, leasing and condemnation. Mr. Langel has also defended municipalities in a variety of litigation cases, including contract disputes, personal injury, defamation and discrimination. Mr. Langel also practices landlord tenant law, representing large scale private sector landlords. Mr. Langel graduated magna cum laude from Loras College in 1987, and received his M.A. degree from the University of Chicago. He received his J.D. degree, cum laude, from the University of Minnesota Law School in 1994. Mr. Langel was a judicial law clerk for Judge Thomas Kalitowski at the Minnesota Court of Appeals before joining Ratwik, Roszak, & Maloney, P.A.