CONTRACTING WITH THE SOVEREIGN "A LIBERTY INTEREST"

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1 CONTRACTING WITH THE SOVEREIGN "A LIBERTY INTEREST" MARK F. ENENBACH* During the 1970's, the federal government began investigating and prosecuting contractors who were doing business with federal, state and local procuring agencies.' The investigation centered around allegations of collusion among bidders to allocate or attempt to allocate the winning bidder of a public contract let for competitive bidding. 2 These investigations resulted in a series of criminal convictions and civil antitrust suits. 3 Derived therefrom were and are attempts by federal and state agencies to prohibit these contractors from continuing to do public contract work. This process takes several forms, and is generally referred to as "debarment." This article discusses the debarment process, on both the state and federal level, the constitutional issues within the process, and more particularly, the procedures available and utilized in the State of Nebraska. DISCUSSION Each year hundreds of millions of dollars are expended by the federal, state, and local governments to procure everything from filing cabinets to the financing of large highway construction projects. During the period of 1977 through 1981, the Kansas Department of Transportation awarded 2,665 contracts totalling $815,744, These expenditures of federal and state dollars create jobs for thousands of citizens and have a significant affect on our nation's economy. For many businesses, government contracting is indis- * B.S. 1973, University of Nebraska at Lincoln; J.D. 1976, Creighton University School of Law. Partner, McGrath, North, O'Maley & Kratz, P.C., Omaha, Nebraska. 1. Report of the Attorney General and the Secretary of Transportation to the 1982 Kansas Legislature on Antitrust Investigations and Proceedings Involving the Bidding Process of Public Highway Construction Contracts in the State of Kansas 2 (Mar. 1982) (on file with the Creighton Law Review) [hereinafter cited as Kansas Report]. 2. Id. at 1 (citing Haynes, William, J., Highway Bid Rigging: The Tennessee Experience, Nat'l Ass'n of Attorneys General Antitrust Report, Oct., 1981). Prosecutions have already occurred in Illinois, Virginia, Georgia, North Carolina, South Carolina, Texas, Louisiana, Mississippi, Arkansas, Kansas. Kansas Report, supra note 1, at See Kansas Report, supra note 1, at Kansas Repor supra note 1, at 3.

2 CREIGHTON LAW REVIEW [Vol. 16 pensible to their existence. 5 The federal government, as well as many states, has promulgated regulations which seek, in certain instances, to prohibit businesses from submitting bids for government projects. This prohibiting process has been termed debarment. 6 The question arises whether such prohibitions may be taken by governments on a unilateral basis or whether there is some type of a "right" to do business with the government within the context of the fifth and fourteenth amendments to the United States Constitution which requires protection. FEDERAL DEBARMENT POLICIES AND PROCEDURES Congress, in 1979 created an Office of Federal Procurement Policy (OFPP) whose function was to provide overall direction of procurement policies, regulations, procedures and forms for agencies within the executive branch of the government. 7 Prior to the formulation of this office, there were no government-wide policies or procedures for debarment and suspension of government contractors. Debarment and suspension regulations and procedures were promulgated by each agency without any uniformity or centralized reporting procedures. By virtue of a policy letter issued by the OFPP, such uniform policies and procedures were adopted and became effective on August 30, In addition to adopting uniform policies and procedures, the policy letter also provides for a centralized listing of contractors who have been disbarred or suspended. 9 The newly issued policy letter defines debarment as an "action taken by [an agency head or its designee] to exclude a contractor from government contracting for a reasonable, specified [time] period."' 1 The letter defines suspension as an action taken to "disqualify a contractor temporarily from Government contracting."" The letter mandates that because of the serious nature of debarment and suspension, these sanctions will be imposed only in the public interest, for the government's protection, and not for pur- 5. Id. at Id. at U.S.C (Supp. III 1979). This Act is known as the Office of Federal Procurement Policy Act. 8. Office of Fed. Procurement Policy, Policy Letter- Government-wide Debarmen Suspension, and Ineligibility, Appendix A, 47 Fed. Reg. 28,857 (1982) [hereinafter cited as Appendix A]. 9. Id. 10. Id. 4, at 28, Id.

3 19821 CONTRACTING WITH THE SOVEREIGN poses of punishment. 12 Debarment constitutes disqualification of all divisions or other organizational elements of the contractor and may include affiliates of the contractor if they are: 1. Specifically named; and 2. Given written notice of the proposed debarment and an opportunity to respond and challenge the underlying causes for debarment. 13 "Business concerns or individuals are affiliates if, directly or indirectly; (a) either one controls or can control the other, or (b) a third controls or can control both."' 4 Under the former procurement regulations, an affiliate could challenge only its status as an affiliate, as opposed to the underlying basis for the debarment, which can now be challenged. 1 5 In general, a contractor may be debarred for a conviction of or civil judgment for: (1) Commission of a fraud or criminal offense in connection with the obtainment or performance of a public contract; (2) Violation of federal or state antitrust statutes; (3) Commission of forgery, bribery, or other theft related crimes; or (4) Commission of any other offenses indicating a lack of business integrity or business honesty. 16 Other causes for debarment include a willful failure to perform a contract, a history of failure to perform a contract or unsatisfactory performance of a contract, 17 and any other cause of a so serious or compelling nature that it affects the present responsibility of the contractor. 18 The definition of "conviction" has been expanded to include a conviction entered upon a plea of nolo contendere.19 The inclusion of nolo contendere pleas within the definition of "conviction" is in direct conflict with one of the conclusions of law set forth by the trial judge in Peter Kiewit Sons Co. v. United States Army Corps of Engineers, 20 a decision which will be discussed in greater depth below. 12. Id. 3(b), at 28, Id. 7.1(b), at 28, Id. 4, at 28, Fed. Procurement Reg (c) (Office of Fed. Procurement Policy, Internal Regulations) (on file with Creighton Law Review). 16. Appendix A, supra note 8, 7.2(a), at 28, Id. 7.2(b), at 28, Id. 7.2(c), at 28, Id. 4, at 28, No , slip op. at 32 (D.D.C. Feb. 25, 1982).

4 CREIGHTON LAW REVIEW [Vol. 16 The District Court for the District of Columbia found that a conviction for a violation of the Sherman Anti-Trust Act, based upon a plea of nolo contendere, was not a valid ground for debarment. 2 1 The court's decision was based upon the Federal Rule of Evidence 410 prohibition of the use of a conviction based on a nolo contendere plea as evidence of the facts in question. 22 Interestingly, the task force studying the proposed changes to the debarment regulation shared the concern of the Kiewit court, but chose to reject the finding in Kiewit (albeit the Kiewit decision was subsequent to their discussion) on the theory that in a nolo contendere plea, the defendant has already received notice of the charges against him. 23 Furthermore, the defendant has been given the chance to defend himself against that charge and has waived that opportunity under circumstances potentially more serious than a debarment or suspension action. 24 The United States is currently litigating this aspect of the Kiewit decision, along with others, on appeal. 25 The policy letter requires that agencies establish procedures governing the debarment decision making process that are as informal as practical and consistent with principles of fundamental fairness. 26 The debarment process must be initiated by providing notice to the contractor that debarment is being considered, the reasons for the debarment, the right to submit evidence, the agency's procedures, and the potential effect of the proposed debarment. 27 The procedures implemented must afford the contractor an opportunity to submit, in person, in writing, or through a representative, information and argument in opposition to the proposed debarment. 28 If it is found that the contractor's submission in opposition raises an issue of genuine dispute over facts material to the proposed debarment, then the contractor must be afforded the opportunity to appear with counsel, to submit evidence, to present witnesses, to confront agency witnesses and to make available a transcribed record. 29 The level of proof necessary to establish cause for debarment in an action "in which the proposed debarment is not based upon a 21. Id. at Id. at Fed. Reg. 28,854, 28,856 (1982). 24. Id. 25. Peter Kiewit Sons' Co. v. United States Army Corps of Eng'rs, No (D.D.C. Feb. 25, 1982), appeal docketed, No (D.C. Cir. Apr. 26, 1982). 26. Appendix A, supra note 10, 7.3(b), at 28, Id. 7.3(c), at 28, Id. 7.3(c)(4), at 28, Id. 7.3(b) (2), at 28,859.

5 19821 CONTRACTING WITH THE SOVEREIGN conviction or civil judgment" is by a preponderance of the evidence. 30 The new regulation is silent on what the burden of proof is when the cause for debarment is a conviction or civil judgment. Likewise, if the action is based upon a conviction or judgment, the new procedures do not specifically afford the contractor the right to counsel, to present witnesses and documents, to confront witnesses or to have a record. 31 The period of debarment shall be for a period commensurate with the seriousness of the cause, and generally should not exceed three years. 32 The existence of a cause for debarment, under the new policy letter, does not necessarily require that the contractor be debarred; the seriousness of the contractor's acts or omissions and any mitigating factors should be considered in making any debarment decision. 33 The new policies and procedures governing suspension seem to mirror those for debarment, 34 although the level of proof for which a suspension may be based "is adequate evidence. '3 5 Agencies are required to formulate procedures governing the suspension decision making process, 3 6 and, as in debarment, if it is found that the contractors' submission in opposition raises a genuine dispute over facts material to the suspension, the contractor will be afforded the due process protections cited above. 37 Such protections are not available prior to suspensions, in the event the suspension is based upon an indictment. 38 LIBERTY INTEREST The new government-wide policies and procedures, having just gone into effect on August 30, 1982, 39 have not been judicially challenged, nor have the separate agency procedures governing the decision making process which presumably have been established. However, it is clear that the actions of government procurement agencies (both federal and state) in effectuating debarment and suspension of contractors, must conform with basic principles of due process. Actions on the part of such agencies which do not afford these safeguards may be challenged as deprivation of Con- 30. Id. 7.3(d) (3), at 28, Id. 7.3(d)(1), at 28, Id. 7.4(a), at 28, Id. 7.1(a), at 28, Id. 8.2, at 28, Id. 36. Id. 8.3(b), at 28, Id. 8.3(b) (2), at 28, Id. 8.3(b)(1), at 28, Fed. Reg. 28,854 (1982).

6 CREIGHTON LAW REVIEW [Vol. 16 stitutional rights. 40 The foundation for such a proposition was set forth in Gonzalez v. Freeman,41 a decision written by Chief Justice Warren Burger while he sat as a federal appellate judge. 42 Gonzalez, a corporation which had been doing business with the Commodity Credit Corporation for several years, received notice that it and any concern with which it was affiliated were temporarily debarred from doing business with the Commodity Credit Corporation pending investigation into the possible misuse of official inspection certificates. Gonzalez also received several more letters from Commodity Credit extending their suspension and then, some two and one-half years later finally received a letter from the Commodity Credit Corporation indicating that they were being debarred for a period of five years. 43 Gonzalez filed an action seeking a declaratory judgment alleging, among other things, that the debarment was invalid because it was imposed without rules or regulations specifying grounds for debarment, or without an opportunity to meet and refute the charges, and that the debarment was a denial of due process. 44 The defendant, the Secretary of Agriculture, answered by stating that doing business with the government and/or the Commodity Credit Corporation was not a legally protected right. 45 Chief Justice Burger began his opinion by noting that judicial power may not be exercised unless some "legally protected right" has been invaded, 46 and although it is correct to say that no citizen has a "right," in the sense of a legal right, to do business with the government, 47 the interruption of an existing relationship between the government and a contractor can carry with it "grave economic '48 consequences. Chief Justice Burger then judicially noticed that it is a fact of "economic life" that termination of all rights to bid on government contracts can have significant consequences (i.e., sud- 40. Old Dominion Dairy Prod. Inc. v. Secretary of Defense, 631 F.2d 953, 963 (D.C. Cir. 1980); Gonzalez v. Freeman, 334 F.2d 570, 575 (D.C. Cir. 1964); Peter Kiewit & Sons' Co. v. United States Army Corps. of Eng'rs, No , slip op. at (D.D.C. Feb. 25, 1982); Art-Metal - USA, Inc. v. Solomon, 473 F. Supp. 1, 4 (D.D.C. 1978) F.2d 570 (D.C. Cir. 1964). 42. Id. at Id. at 572. The president of Gonzalez had pled guilty to a misdemeanor charge of misuse of government inspection certificates, although he had been indicted on felony charges. Id. 44. Id. at Id. 46. Id. at Id. (citing Perkins v. Lukens Steel Co., 310 U.S. 113 (1940)) F.2d at 574.

7 19821 CONTRACTING WITH THE SOVEREIGN den contraction of bank credit, adverse impact on market price of shares of stock, critical uneasiness of creditors, etc.), 49 and that the government cannot act arbitrarily, either substantively or procedurally against such a contractor. 50 Such persons are entitled to challenge the processes and the evidence before they are officially ineligible for government contracts. 51 The Court of Appeals for the District of Columbia Circuit reversed and remanded the lower court's affirmation of Gonzalez's debarment, stating that it was imposed without the observance of "procedural requirements. '52 The court noted in a footnote that the need for a full trial is not commanded in all debarment cases; but that the basic elements must appear: "published standards, notice, grounds, opportunity to respond and be heard, and, subject only to essential national security considerations, to cross-examine those whose information is used as a basis for an adverse decision." 53 The newly enacted debarment policies and procedures would seem, on their face, to require procurement agencies to adopt the minimum safeguards referred to by the Gonzalez court. However, such safeguards are apparently conditioned primarily upon the cause for debarment not being for a conviction or judgment, and secondly, upon the contractor meeting its burden of raising a genuine dispute over facts material to the proposed debarment. 54 The right of a contractor to challenge the process and evidence presented against him before he is officially declared ineligible for government contracts was reaffirmed by the same Circuit Court of Appeals in Old Dominion Dairy Products, Inc. v. Secretary of Defense. 5 This 1980 decision also held that the government's conduct in debarring Old Dominion Dairy (ODD) without due process of law injured a "cognizable liberty interest" in violation of the fourteenth amendment. 56 The court noted that a corporation may engage in the common occupations of life, and should be afforded no lesser protections under the Constitution than an individual engaging in such pursuits. 57 ODD was a small manufacturer of dairy products whose busi- 49. Id. 50. Id. 51. Id. 52. Id. at Id. at 580 n See notes 28-29, supra F.2d 953, 962 (D.C. Cir. 1980). 56. Id. at Id. at 964.

8 CREIGHTON LAW REVIEW [Vol. 16 ness was directed almost completely at obtaining government contracts to supply dairy products to United States military bases overseas. 58 In 1979, even though formal debarment proceedings had not been commenced, 5 9 ODD was denied two large government contracts because of a contracting officer's unilateral determination that ODD "lacked integrity. ' 60 The court, in declaring the government's actions to be illegal, held that when the government effectively bars a contractor from virtually all government work because of charges that the contractor lacks honesty or integrity, due process requires that the contractor be given notice of those charges as soon as possible and an opportunity to respond to the charges before adverse action is taken. 61 The actions of the government in Old Dominion Dairy were akin to those which now have been categorized as "defacto debarment" 6 2 and which have arisen only very recently in two federal district court decisions in the District of Columbia 63 and Louisiana." Kiewit and Bertucci both arose out of Sherman Anti-Trust Act indictments. The December, 1978 indictments alleged anticompetitive bidding practices among the defendants in connection with construction contracts for the Army Corps of Engineers on the Mississippi and Missouri river bank stablization projects. 65 Despite the fact that the Corps of Engineers, the procuring agency, had continued to do business with the river bank contractors since the inception of the investigation in 1976,66 on August 19, 1981, the Corps of Engineers issued an internal directive to all of its divisions and district offices holding in abeyance, indefinitely, all contracts where the river bank stablization contractors were the low bidders "pending review of debarment reports. '67 The government 58. Id. at Id. at 955. ODD was served with formal notice of suspension on the same day that its request for a preliminary hearing was served. Id. 60. Id. 61. Id. at See Myers, Inc. v. United States Postal Serv., 527 F.2d 1252, 1258 (2d Cir. 1975) and Art-Metal - USA, Inc. v. Solomon, 473 F. Supp. 1, 5 n.6 (D.C.C. 1978). Although the court in Old Dominion Dairy did not specifically denote a defacto debarment, it noted that the claim of defacto debarment-raised for the first time on appeal-was not frivolous. 631 F.2d at 961 n Peter Kiewit Sons' Co. v. United States Army Corps of Eng'rs, No , slip op. at 29 (D.D.C. Feb. 25, 1982). 64. United States v. Bertucci, No , slip op. at 5 (E.D. La. Feb. 9, 1982). 65. Anthony J. Bertucci Constr. Co. v. United States Army Corps of Eng'rs, No , slip op. at 2 (D.D.C. July 12, 1982); Peter Kiewit Sons' Co. v. United States Army Corps of Eng'rs, No , slip op. at 14 (D.D.C. Feb. 25, 1982). 66. Bertucci, No , slip op. at 2; Kiewit, No , slip op. at Bertucci, No , slip op. at 2; Kiewit, No , slip op. at 9.

9 1982] CONTRACTING WITH THE SOVEREIGN described this directive as a "temporary declaration of ineligibility." None of the contractors in Kiewit received notice of this directive, nor were they given the opportunity for a hearing. 68 On December 10, 1981, formal notices of proposed debarment proceedings were issued to the contractors. 69 The basis for the debarments were the Sherman Act violations mentioned above. Litigation ensued initially as a result of these debarment letters in New Orleans where the criminal and civil antitrust cases had commenced in When it appeared imminent that one of the contracts which had been held in abeyance by the August 19, 1981 directive (referred to as the Barber's Point Contract) would be granted to the second low bidder (Kiewit was the low bidder), Kiewit filed a separate action in the District Court for the District of Columbia. 71 Both courts found that the August 19, 1981 directive constituted a "defacto debarment" 72 for an unspecified and unlimited period of time. In the words of Judge Duplantier, the Federal District Judge for the Eastern District of Louisiana, "that action was unlawful as violative of the due process rights of the individuals and corporations adversely affected.1 73 Judge Duplantier went on to say, in ordering that the contracts which had been held in abeyance be awarded, that the individuals and corporations concerned were still entitled to the protection of the Constitutional laws of the United States, notwithstanding the fact that they had been found guilty, pled guilty or entered nolo contendere pleas and "God forbid we ever reach some contrary result. ' 74 Furthermore, the District of Columbia litigation ended with a finding that the Kiewit Sons' Company could not be properly denied the Barber's Point Contract Kiewit, No , slip op. at Bertucci, No , slip op. at 2-3; Kiewit, No , slip op. at United States v. Anthony J. Bertucci Constr. Co., No (E.D. La. Dec. 10, 1978). 71. Kiewit, No , slip op. at Bertucci, No , slip op. at 8; Kiewit, No , slip op. at United States v. Bertucci, No , slip op. at 5 (E.D. La. Feb. 9, 1982). 74. Id. 75. Kiewit, No , slip op. at 32. The Kiewit court also found that, because of critical congressional intervention into the decisional processes attending the debarment of Kiewit and the other river bank defendants at all levels of the chain of command in the Department of Defense, the integrity of the quasi-judicial aspect of the administrative debarment process had been compromised, thereby making it futile and unnecessary for Kiewit to exhaust its administrative remedies. Id. at 34. See Pillsbury Co. v. YrC, 354 F.2d 952, 963 (5th Cir. 1966) (congressional intervention). The court found that the debarment proceedings were null and void and found Kiewit was a responsible bidder. Kiewit, No , slip op. at 40. The Department of Defense continued with its debarment proceedings against the remain-

10 CREIGHTON LAW REVIEW [Vol. 16 DtBARMENT IN NEBRASKA The rules and regulations of one of Nebraska's primary procuring agencies, the Department of Roads, 7 6 were amended recently to include policies and procedures regarding debarment. 7 7 Rule 13-(13), which pertained formerly only to disqualification of bidders for highway road projects, now gives the Nebraska Director- State Engineer the authority to debar, in its sole discretion, an individual, contractor or its affiliates, from bidding, subcontracting, or supplying materials on Department of Roads contracts for illegal activity involving bidding. 7 8 Evidence of such illegal activity includes an "[i]ndictment or conviction of a bidding crime; any plea of guilty or nolo contendere to a charge of a bidding crime; or any public admission of a bidding crime; any presentation of an unindicted co-conspirator; or any testimony protected by a grant of immunity of any contractor in any jurisdiction indicating involvement in a bidding crime. '79 Also included as causes for debarment are conviction of any offenses indicating the lack of moral or ethical integrity, 80 debarment by any other state or federal agency 81 or any other activities of a serious nature which may relate to their work as a contractor. 82 The contractor shall be given a debarment hearing, if requested, either.before or after debarment. 8 3 However, whether the hearing is before or after debarment is within the sole discretion of the director. 84 Notice that debarment is being considered or that the contractor has been debarred must be accompanied by the general reasons for debarment. 85 The director shall appoint a ing river bank contractors and no less than five of them filed actions in the District of Columbia. The court, in a memorandum opinion dated July 12, 1982, granted the plaintiffs' motions for summary judgment based upon the doctrine of offensive collateral estoppel, and ruled that the contractors could not be debarred for their antitrust offenses. Bertucci, No , slip op. at 20 (other contractors involved in the action were Patton-Tully Transp. Co., McAlister Const. Co., Luhr Bros., Inc. and Souter Constr. Co.). Kiewit is presently under appeal, see note 6 supra, and the defacto debarment determination is not being challenged. Besides the congressional interference issue, the appellant also argues that the case should have been remanded to the agency level to complete the debarment proceedings. Id. 76. See NEB. REV. STAT (2), , (Reissue 1978) (constitutes the enabling legislation). 77. NEB. ADMIn. R. 13-(13) (Dept. of Rds. 1982). 78. Id. at 13-(13)(b)(1). 79. Id. at 13-(13)(b)(1)(i). 80. Id. at 13-(13)(b)(1) (ii). 81. Id. at 13-(13) (b) (1) (iii). 82. Id. at 13- (13) (b) (1) (iv). 83. Id. at 13-(13) (b) (2). 84. Id. 85. Id. at 13-(13) (b) (2) (i)-(ii).

11 1982] CONTRACTING WITH THE SOVEREIGN hearing examiner to conduct all debarment hearings, who will make a recommendation to the director, such recommendation including findings of fact and conclusions of law. 86 Except as modified by the rules and regulations of the Nebraska Department of Roads, 87 debarment hearings before the hearing examiner shall conform to the Nebraska District Court practices and procedures. 88 Since the new regulation provides that debarment shall be for a period of 36 months, neither the director nor the hearing examiner apparently has any discretion in terms of the length of the debarment. 89 The director may, however, suspend a debarment if he believes that it is in the public interest. 90 The director may also, within fifteen (15) days of the debarment's expiration, require the contractor to show cause why the debarment should not continue. 91 If the director, in his sole discretion, determines that the contractor has failed to become a responsible bidder, he may continue the debarment for up to twelve months. 92 This process continues until the director determines that the contractor meets the criteria of a responsible bidder. 9 3 Absent from Nebraska's debarment policy and procedures is any mention similar to that in the new Federal Procedures 94 that the debarment shall not be imposed for purposes of punishment 95 or that the existence of a cause for debarment does not necessarily require the contractor to be debarred. 96 Also lacking is a definition of a "bidding crime." Any procedures, including the Nebraska procedures providing for debarment in the event of a conviction, plea, or nolo contendere plea, 97 should be viewed in light of the findings in Kiewit which profess that debarment or suspension shall not be a vehicle for imposition of a penalty or punishment 98 and that only the federal courts may impose sanctions for violation of the Sherman Act Id. at 13-(13) (b) (3). 87. See NEB. ADMIN. R. 23 (Dept. of Rds. 1982). 88. NEB. ADMIN. R. 13-(13) (b) (4). 89. Id. at 13-(13) (b)(5). 90. Id. at 13-(13) (b) (6). 91. Id. at 13-(13)(b)(7). 92. Id. 93. Id Fed. Reg. 28,854 (1982). 95. Appendix A, supra note 10, 3(b) at 28, Id. 7.1(a) at 28, NEB. ADMIN. R. 13-(13)(b)(1)(i) (Dept. of Rds. 1982). 98. Peter Kiewit Sons' Co. v. United States Army Corps. of Eng'rs, No , slip op. at 31 (D.D.C. Feb. 25, 1982). 99. Id.

12 CREIGHTON LAW REVIEW [Vol. 16 The Kiewit court stated that, in the event the government was basing its debarment on a nolo contendere plea, it must be able to sustain that such a denial of the contractor's liberty interest is based upon the fact that to award the subject contractor government contracts would involve threats to the interest of the government As with the newly enacted federal debarment procedures, the Nebraska procedures for debarment have not been challenged. There has been recently, however, a challenge to the manner in which Nebraska qualifies its highway construction contractors, as such qualification is a prerequisite to submitting bids for state highway contracts. This challenge alleges that such procedures can amount to a form of "defacto debarment.' 10 1 The procedures provide that after the Nebraska State Department of Roads, which is the statutory agency given the power to issue and promulgate regulations in regard to the use, travel, and construction of state highways, 10 2 has advertised for sealed bids, 10 3 and after the proper notice of bid letting has been given and bids are received, 10 4 the Department may let the contract to the "lowest responsible bidders who have been qualified by the Department.' 105 Whether a contractor is qualified depends upon an evaluation of the contractor's experience, equipment, financial resources, and performance record.' 0 6 In order to attain such status and thereby gain permission to bid on highway contracts, the contractor must submit to the Department of Roads a statement showing his qualifications Such application for pre-qualification must be submitted no later than 10 days before the letting of the contract Once a contractor has been qualified, he can lose such status for a number of reasons, including evidence of collusion among bidders Following conclusive evidence of collusion among bidders, future work will not be awarded the bidder until the participant in the collusive bidding has been requalifled." 0 The Department rules do not provide for any hearing prior to the disqualification of 100. Id. (citing Roemer v. Hoffman, 419 F. Supp. 130 (D.D.C. 1976) Brower Constr. Co. v. Coolidge, No. 82-L-294 (D. Neb. filed June 11, 1982) NEB. REV. STAT to (Reissue 1978) Id. at Id. at Id. at Id. at Id. at Id. at NEB. ADMIN. R. 13-(13) (a) (2) (Dept. of Rds. 1982) Id. at 13-(13) (a)(4).

13 19821 CONTRACTING WITH THE SOVEREIGN a contractor." 1 In Brower Construction Co. v. Coolidge, 112 it was alleged that the plaintiff had been disqualified as a bidder. This disqualification notice was received only 5 days before an upcoming bid letting. Prior to that time, Brower had pre-qualification status. The basis for the disqualification notice was the statement by the Director-State Engineer Department of Roads that some of Brower's officers were also officers in a company that had been disqualified previously for collusive bidding. 113 Because of Nebraska's 10-day pre-qualification rule, 114 it would have been impossible for the contractor to re-qualify for the upcoming bid letting. Brower filed suit, alleging that it had been the victim of a "defacto debarment," had not received any notice of the charges against him nor had he been provided with the opportunity to be heard. 115 The plaintiffs motion for a temporary restraining order became moot when the Director-Engineer Department of Roads agreed to acknowledge Brower's bids which had been submitted despite the disqualification notice. To be contrasted with Nebraska's statutory and regulatory procedures in the areas of debarment and disqualification of highway contractors are those of several neighboring states and the judicial scrutiny they have undergone. Of particular interest are the rules for construction bidding which became effective April 1, 1982, in Colorado. 116 These rules, like Nebraska's, have a requirement that those parties interested in bidding on highway construction projects must pre-qualify. 117 Similarly, once qualified, a contractor may have that status revoked;"1 8 however, before such qualification can be revoked, the contractor is entitled to notice and a hearing at which he is entitled to have counsel present and to call witnesses. 119 Litigation was commenced in the State of Iowa when its State Department of Transportation refused to consider bids on a highway construction project which was presented by a member of the Iowa Associated General Contractors. 20 The Department's rules Id. at 13-(13) (a). Brower, No. 82-L-294 (D. Neb. fied June 11, 1982) Id. at NEB. REV. STAT (Reissue 1978) Brower, No at CoLo. REV. STAT to -114 (Supp. 1981) Id. at Id Id Associated Gen. Contractors of Iowa, Inc. v. State Dept. of Transp., No A (S.D. Iowa June 7, 1982).

14 CREIGHTON LAW REVIEW [Vol. 16 and regulations prohibited the state from accepting bids from the instant contractor who had been indicted in the State of Nebraska on allegations of collusive bidding activities. 121 In granting the plaintiff's application for a temporary restraining order, the court noted that there were serious Constitutional questions of due process and equal protection involved and ordered the state to accept the contractor's bid. 122 Likewise, in Texas, 123 a temporary restraining order was issued, prohibiting the state from implementing state highway procedures 124 which suspended a contractor who was named as a defendant in a civil complaint, alleging violations of state and federal antitrust laws. 125 The district court was of the opinion that the mere filing of a civil suit, by the state against the plaintiff-contractor, alleging antitrust violations, was insufficient to justify the suspension of a contractor's bidding privileges under the fourteenth amendment to the Constitution. 126 OTHER NEBRASKA PROCEDURES In addition to disqualification and debarment, the State of Nebraska has other non-exclusive options that it may consider in dealing with contractors who it contends have participated in unauthorized bidding practices. One such option is the commencement of civil proceedings alleging restraint of trade or commerce in violation of Nebraska's Consumer Protection Act. 27 Included within Nebraska's Consumer Protection Act ("Act") is a proviso empowering the State Attorney General, 28 as a method of enforcing the Act, to accept an "assurance of discontinuance" by any person who allegedly has been engaged in prohibited acts. 29 The assurances by the alleged offender may not be considered as an admission of a violation of the Act. 30 Additionally, the assurances must be approved by the district court in the county where the alleged violator resides, does business, or Lancaster 121. Id. at Id. The court also noted that there was at issue a question of the plaintiff's standing. Future action became unnecessary when the contractor's bids, when opened, were not low. Id Western Pavers, Inc. v. State Highway and Pub. Transp. Comm., No. A-82- CA-306 (W.D. Tex. June 11, 1982) Tex. Admin. Reg. 9.7, at Western Pavers, No. A-82-CA-306 (Plaintiffs' memorandum in support of motion for temporary restraining order, Exhibit A) Western Pavers, No. A-82-CA-306, slip op. at NEB. REV. STAT to (Reissue 1978) Id. at Id. Id.

15 19821 CONTRACTING WITH THE SOVEREIGN County, Nebraska. 131 In at least one instance, the State of Nebraska has seen fit, in conjunction with the monetary settlement of a civil suit brought pursuant to the Act, 132 to accept such assurances from a contractor who had been convicted of Sherman Anti-Trust violations regarding highway bidding practices. 33 As part of the agreed upon settlement, the state agreed to recommend to the Director-State Engineer of the Department of Roads that the contractor be reinstated to the list of prequalified bidders of the Nebraska Department of Roads for the next bid letting, presumably to pay for the civil settlement, and that subsequent to that letting, that the contractor again be disqualified for a period of time. 3 4 It is noteworthy that the Nebraska Unicameral in 1982 let "die" in committee 135 a proposed amendment to the Nebraska statute requiring highway construction contractors to prequalify. 136 Nebraska Legislative Bill 969 sought to disqualify contractors from bidding when there was conclusive evidence of participation in collusion among bidders, and such bidders would not be requalified until the bidder made restitution with the state. 137 EFFECT OF DEBARMENT The State of Nebraska has contended that the collusive bidding which has occurred in the state, and which has precipitated this disqualification of certain contractors and the filing of civil suits, has caused the state to pay more for highway and road construction and has denied the state the benefits of free and open competition for its highway projects. 38 It has been submitted, however, that the elimination of a large number of contractors from an industry which is highly specialized may have the opposite effect. Recently, the Chief of the United States Department of Justice Anti-Trust Division sent a letter to state attorney generals asking them to consider the competitive consequences of barring firms convicted of unauthorized bidding practices from competing 131. Id State v. W.A. Biba Eng'g Co., Doc. 361 No. 93 (Dist. Ct. Lancaster County, Neb.) (court file) Id. at Id. at 8. The contractor previously had been disqualified pursuant to NEB. ADMIN. R. 13-(13) (Dept. of Rds. 1982) Neb. Legis. J NEB. REV. STAT (Reissue 1978) L.B (1982). Introduced February 23, 1982, 87th Nebraska Legislature, 2d session (died in committee) State v. W.A. Biba Eng'rs Co., Doc. 361 No. 93 (Dist. Ct. Lancaster County, Neb.) (court file) (Settlement Agreement at 2).

16 CREIGHTON LAW REVIEW [Vol. 16 for additional state contracts.' 39 The Department's position was manifested with regard to the Bertucci defendants wherein the antitrust division stated to the court that if its opinion were sought, it would state unequivocably that the public interest is not served generally by debarment proceedings. 140 Apparently, this perception has also been adopted by the State of Kansas when its Attorney General noted that the more eligible bidders that participate, the lower the ultimate price of the project, 14 1 and thus the state would reap the benefits of a truly competitive market. - SUMMARY As executive and legislative branches of both the federal and state governments respond to the threat of collusive bidding practices by government contractors, it is important that they not overreact. Not only are there the social concerns of possibly extinguishing thousands of jobs and the potential for driving the price of contracts up, there is also the potential that their vigor may violate the substantive and procedural due process rights which are afforded all citizens and corporations by the fifth and fourteenth amendments to the United States Constitution ENGINEERING NEWS RECORD, Aug. 5, 1982, at 59 (comments of assistant Attorney General William F. Baxter) Anthony J. Bertucci Constr. Co. v. United States Army Corps of Eng'rs, No , slip op. at 23 (D.D.C. July 12, 1982) Kansas Repor, supra note 1, at 23.