U.S. Department of Transportation Federal Highway Administration

MEMORANDUM

This is in response to your April 6 memorandum regarding local hiring preference policy issues. The various policy issues that will be addressed below must all be considered in the context of the statutory and regulatory requirements imposed on the bidding of Federal-aid highway projects. Other than a few statutory or regulatory exceptions, the Federal Highway Administration (FHWA) requires that Federal-aid contracts be awarded on the basis of full and open competition.

Legal Constraints

Section 112 of title 23, United States Code requires "competitive bidding" on FHWA's Federal-aid highway projects. Subsection 112(a) requires the utilization of "methods of bidding as shall be effective in securing competition." Subsection 112(b) expressly provides:

"[The] construction of each project shall be performed by competitive bidding, unless the State highway department demonstrates, to the satisfaction of the Secretary, that some other method is more cost effective or that an emergency exists... No requirement or obligation shall be imposed as a condition precedent to the award of a contract to such bidder for a project... unless such requirement is otherwise lawful..." (Emphasis added.)

Additional exceptions to the competitive bidding requirements are:(l) possible set-asides under the Disadvantaged Business Enterprise program pursuant to 49 CFR 23.45(k); (2) Indian preferences, based upon explicit statutory authority at 23 U.S.C. 140(d); and (3) Appalachian resident preferences, based upon explicit statutory authority at 40 U.S.C. App. 201 and its implementing regulation, 23 CFR Part 633.

FHWA cannot allow Federal-aid contracts to specify participation by local workers because such a labor preference would violate the competitive bidding requirements of 23 U.S.C. 112 and its implementing regulation, 23 CFR 635.117(b), which prohibits discrimination against the employment of nonlocal labor. 23 CFR S 635.117(b), states:

"No procedures or requirement shall be imposed by any State which will operate to discriminate against the employment of labor from any other State, possession or territory of the United States, in the construction of a Federal-aid project."

Policy Issues

Question: What is the basis of our current policy as expressed in our regulations at 23 CFR 635.117(b)?

Response: That section prohibits the use of procedures or requirements which would "operate to discriminate against the employment of labor from any other State, possession or territory of the United States, in the construction of a Federal-aid project." The very essence of granting a preference to local or nonlocal contractors who use a local labor force operates to discriminate against other contractors who, for whatever reasons, have a nonlocal labor force. The exclusion of nonlocal labor forces is noncompetitive and may increase the cost of the project.

Question: Has the prohibition against local hiring preferences been applied consistently throughout the Federal-aid highway program?

Response - Local hiring preferences would conflict with at least 40 years of FHWA policy. The above section 112(b) originated 40 years ago in section 17(a) of the Federal-aid Highway Act of 1954. Since that time, FHWA has rarely deviated from the position that State, local, or territorial preference provisions may not be applied in Federal-aid projects. The only local preferences that, we believe, FHWA has allowed, have been based upon explicit statutory authority. These are Indian preferences and Appalachian resident preferences.

Question: Can we justify changing our policy on the basis that local hiring preferences are necessary to stimulate the local economies of communities where a project is being built as part of a regular or an emergency relief project?

Response - The need or desire to bolster the economic viability of communities in which highway projects are built does not overcome the statutory bar against the exclusion of nonresident contractors/laborers. Without the competition from all sources, we would probably be paying higher prices for highway construction services, without any assurance that the quality of work would be equally high. Congress and the public taxpayers expect that FHWA should cause the states to build quality highways, at the lowest price. Excluding nonresident contractors/laborers would not insure that.

Question: Would the economic benefits of allowing local hiring preferences outweigh the adverse reaction that is likely to occur?

Response - While local hiring preferences may provide short term economic stimulus to localities, such as Oakland and the District of Columbia, it would probably not be enough to cure the multiple causes of the economic problems (educational, social, etc.) of those local communities. Further, if local hiring preferences were allowed, there would probably be a constant attempt to increase the percentage of work permitted for the locals. It is also likely there would be a push by states to exclude or limit nonresident contractors/workforces from their Federal-aid projects.

We believe that many individuals and organizations would complain. The Association of Government Contractors would likely immediately challenge any local hiring preference in the courts, as probably would various ethnic group members who would be excluded from the local hiring. If the locals are predominately of one racial/ethnic group, members outside those groups in the neighboring communities would probably raise constitutional challenges to contest their exclusion. Even members of the same racial/ethnic group who live outside the protected community would probably complain (i.e. a preference by D.C. for its inhabitants would probably be met with much opposition by African-Americans in the neighboring suburban communities).

/s/ original signed by
Theodore A. McConnell