Legislature Creates New Requirements for Prequalification of Bidders (October 2014)

In the Summer of 2014, the North Carolina Legislature enacted vast changes to the process by which prospective bidders on public construction contracts are prequalified. N.C. Sess. Laws 2014-42, amending N.C. Gen. Stat. § 143-135.8. Prequalification is defined as “[a] process of evaluating and determining whether potential bidders have the skill, judgment, integrity, sufficient financial resources, and ability necessary to the faithful performance of a contract for construction or repair work.”

Prior to this legislation, § 143-138.5 read simply: “Bidders may be prequalified for any public construction project.” With only those words as their guide, public owners have been prequalifying bidders for years. Some have challenged public owners’ prequalification determinations as shrouded in secrecy or too subjective to be of any value. To add some consistency and transparency to the prequalification process, the Legislature established specific requirements and conditions for the continued use of prequalification in the award of public construction projects.

With this legislation, there are now specific criteria, conditions and limitations on prequalification. For contracts awarded on or after October 1, 2014, the public owner may use a prequalification process only if all of the following conditions are met:

1. The public owner is using single-prime, multi-prime or dual bidding under N.C. Gen. Stat. § 143-128(a1). Note: prequalification may not be used for the qualification-based selection of architects or engineers, design-builders, or construction managers at risk.
2. The public owner adopts an “objective prequalification policy” applicable to all construction work prior to the advertisement of the contract for which the owner intends to prequalify bidders.
3. The public owner adopts the assessment tool and criteria for that specific project, which must include the prequalification scoring values and minimum required score for prequalification on that project.

To qualify as an “objective prequalification policy,” the following criteria must be met:

1. Be uniform, consistent, and transparent in its application to all bidders.
2. Allow all bidders who meet the prequalification criteria to be prequalified to bid on the construction project.
3. Be rationally related to construction work.
4. Not require that the bidder to have previously been awarded a construction project by the public owner.
5. Permit bidders to submit history or experience with projects of similar size, scope, or complexity.
6. Clearly state the assessment process of the criteria to be used.
7. Establish a process for a denied bidder to protest to the public owner denial of prequalification. The process must be completed prior to the opening of bids and allow sufficient time for a bidder subsequently prequalified pursuant to a protest to submit a bid on the contract for which the bidder is subsequently prequalified.
8. Outline a process by which the basis for denial of prequalification will be communicated in writing, upon request, to a bidder who is denied prequalification.

If the public owner opts to prequalify bidders for a particular project, all bids submitted by bidders who are not prequalified “shall be deemed nonresponsive.” This rule does not, however, apply to a bidder who was initially denied prequalification and subsequently prequalified following a successful protest to the public owner pursuant to the required protest policy.

There is often confusion as to what it means to be a “prequalified bidder.” On public projects let pursuant to competitive bidding, the award is to be made to the lowest responsive, responsible bidder. Without prequalification, a public owner determines upon opening of the bids which of the bidders are responsible bidders. By utilizing a prequalification procedure, the public owner determines which bidders are responsible prior to receiving and opening the bids. At bid opening, the public owner still must determine which bid is the lowest responsive bid.

Public owners throughout the state have long used prequalification processes on certain construction projects. There was no uniformity of application or interpretation of the criteria and standards by which certain prospective bidders were successfully prequalified and others rejected. More often than not there was no mechanism for one to challenge the rejection.

The intent of this legislation is to legislate into the competitive bidding process greater objectivity and consistency at least with regard to the prequalification of bidders. For without being prequalified where such was a prerequisite to bidding, bidders were being closed out (unfairly according to some) of even the opportunity to submit a bid.