Illinois' Public Bidding Statute: The Pitfalls
The Illinois General Assembly in 1988 passed one of the most confusing statutes foreseeably possible to draft and it has created unending confusion for those who have to deal with its provisions. An excellent article discussing this statute was written by G. A. Finch and Paul T. Lively and published in the August, 1990 Illinois Bar Journal. The Journal has graciously given us reprint permission for which we thank them.

I. Introduction
There is a new state statute' for bidding on public construction projects and very few government officials, contractors, and attorneys appear to be aware of its provisions. Their lack of awareness could cause the government officials and contractors to receive jail terms or civil penalties, or both, and could expose attorneys to malpractice claims for failing to provide necessary counsel about this statute (the "Act").

The Act passed August 30, 1988, became effective January 1, 1989, and amended the Illinois Criminal Code of 1961; subsequently, the legislature clarified the Act with amendments on August 11,1989. Given the volume of public construction that is performed in Illinois(2), the provisions of the Act affect thousands of contractors and public officials. To be forewarned is to be forearmed. This article sets out the Act's provisions, highlights the ambiguities and inconsistencies, recommends preventative measures to avoid running afoul of the Act, and suggests certain revisions.

II. Background
Provisions aimed at bid-rigging, kickbacks, rotating bids, and bribery of public officials can be found in the laws of many states and under federal law (3). However, new under the Act are the criminal concepts of 1) interference with contract submission and award by public officials and 2) prohibitions on change orders. The first concept is an obvious response to potential manipulation by public officials of contract bidding or solicitation for contracts procedures. The second concept arises out of the practice by some contractors of low-balling a bid to obtain the contract while intending to seek change orders for alleged delays, changes in scope of work, additional work, or unforeseen circumstances to make a profit; if contractors have a "cozy" relationship with the public official in charge of approving change orders, it is easier for them to perpetrate this scheme for the benefit of the contractor and to the detriment of the public.

These two new prohibitions and the other provisions of the Act aim to close gaps in the law of public construction and originate from prosecutors' frustration (4) with not having a precise statute to address some kinds of culpable conduct in the public construction bidding and contracting process. However, an examination of the Act reveals that it may unintentionally proscribe otherwise legal conduct and that it lacks precision, which could lead to unjustified applications.

III. Analysis of Provisions
Paragraph 33E contains 12 numbered sections that cover the preamble on interference with public contracting, definitions, bid-rigging, bid rotating, acquisition or disclosure of bidding information by a public official, interference with contract, submission and award by public official, kickbacks, bribery of contractor's inspector, change orders, rules of evidence, certification of nondisbarment from bidding, and permissible actions by government officials in the bidding process.

A. Preamble
Section 33E-1 is the preamble and recites the legislative finding that the public sustains losses through collusive and improper bidding practices by contractors, suppliers, and public officials. The legislative purpose is to reduce the cost of construction and increase the quality of goods and services provided under public construction by prohibiting certain kinds of practices by public officials and contractors. In analyzing and interpreting this statute, one must keep in mind the preamble (5) to ascertain the legislative intent, purpose, and scope of its various provisions.

The General Assembly's stated purpose in passing the Act raises this critical question: Where a public works contract is awarded in violation of the Act, what is the effect of the violation on the contract? It would appear to be illegal and consequently void. (6)

B. Definitions
Section 33E-2 sets out definitions in subsections (a) through (1) and includes the following terms: public contract, unit of state or local government, change order, person, state or local government employee, sheltered market, kickback, prime contractor, prime contractor employee, subcontract, subcontractor, and subcontractor employee.

Five of these defined terms — public contract, change order, kickback,

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sheltered market, and subcontractor — merit closer scrutiny.

C. Public Contract
Section 33E-2(a) states that "'[public contract' means any contract for goods, services or construction let to any person with or without bid by any unit of State or local government." Does this definition extend to private recipients of governmental grants to procure goods, services, or construction? Where does the public nature of a contract leave off in a government grantor and private grantee situation; that is, how remote must the private grantee be in order not to come under the rubric of "public contract"? For example, would a recipient of a low to moderate income housing rehabilitation grant from a not-for-profit economic development corporation that receives state or local public funds come under the rubric of public contract? The legislature should amend the language of this provision to make clear whether this definition excludes private grantees or recipients of public funds.

D. Change Orders
Section 33E-9 prohibits a public official from authorizing a change in any governmental contract without a written determination that the circumstances requiring the change in performance were not reasonably foreseeable at the time the contract was signed, were not within the contemplation of the contract as signed, or are in the best interest of the governmental entity and authorized by law.

A violation under this section constitutes a Class 4 felony, which carries a sentence of not less than one year and not more than three years. (7) The written change order determination must be kept in a permanent file accessible to the public. This provision only applies to change orders raising or lowering the contract amount by $10/000 or more or extending the time for completion by 30 days or more.

Section 33E-2(c) states that "change order" means "a change in a contract term other than as specifically provided for in the contract which authorizes or necessitates any increase or decrease in the cost of the contract or the time to completion [emphasis added]." This definition of changes in terms is expressly limited to changes in money and time but not scope of services. Could a public official and contractor collude to drastically reduce the scope of services without changing the amount of contract price and time for performance?

The language italicized above — "other than as specifically provided for in the contract" — suggests that if money and time changes are specified in the original contract, they would not be deemed a change order. For example, does the definition suggest that a change order issued under an express change order mechanism in the original contract would not fall within the statute? This interpretation seems logical, since a change in a specific "contract term" itself could not be provided in the contract. Thus, as long as the governmental body follows the express contract change order procedure, no section 33E-9 "change order justification" determination would seem to be required.

Thus, it is difficult to comprehend the purpose of this provision and the legislative history sheds no light. The legislature should amend the language of this provision to make clear that this Act does not apply to change orders written pursuant to an express change order mechanism of the original contract.

The standard "in the best interest" of the governmental entity is undefined, vague, and subjective. When using this standard to authorize a change order, the public official should articulate clear, substantive rationales in his or her written determination.

E. Kickbacks
Section 33E-7(a) prohibits kickbacks, including attempts and offers to provide kickbacks and solicitations, and acceptance or attempts to accept a kickback. This section also has a set-enter, or specific intent, element. Significantly, section 33E-7(b) has a "whistle blowing" provision which requires a person offered or solicited for a kickback to report it to law enforcement officials. Section 33E-7(c) provides for a Class 3 felony which carries a sentence not less than two years and not more than five years, for violations of section 33E-7(a) and for a Class 4 felony for violations of section 33E-7(b). Section 33E-7(d) provides a governmental entity a civil action to recover a civil penalty of twice the amount of each kickback as well as any cumulative remedies under other laws. This civil right of action has a six-year statute of limitations.

Section 33E-2(g) defines "kickback" as follows:
[A]ny money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract.

Does this prohibit a prime contractor's "buyout" of a subcontractor? In a "buyout," the prime contractor and subcontractor agree to execute a subcontract for less than the amount listed in the prime contractor's bid to the owner. If the prime wins the contract award from the owner, the prime contractor may buy out the subcontractor by persuading it to reduce its original price proposal to win the subcontract. If the subcontractor refuses to reduce its price, the prime contractor will attempt to obtain a lower, acceptable price from the subcontractor's competitors and award the work to the competitor with the best offer.

Clearly, a subcontractor that reduces its original proposal is providing a thing of value to secure the subcontract. However, it is hard to imagine that the public owner is prejudiced by this practice. In fact, the buyout procedure should benefit the public owner because the potential for buyouts enables prime contractors to submit lower bid proposals to owners. This occurs because a prime contractor's profit comes partly from the buyout and not exclusively from the mark-up charged to the public owner. The competitive bid market encourages the prime contractor to reduce the profit margin to increase the chance of being the lowest bidder.

While a buyout appears to fall within the literal definition of a kickback, the practice does not appear to be an evil the statute is designed to eliminate.

In contrast, another prime-subcontractor practice, and one that would deprive the public owner of a lower

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price, is collusion between the prime and the subcontractor on a subcontract price prior to bid opening. Having reached an agreement to receive the subcontract if the prime contractor receives the contract award, the subcontractor then submits higher subcontract prices to other prime contractors who have solicited quotations from the subcontractor for use in their bid proposals to the owner. These other prime contractors then submit a higher priced bid than would otherwise be the case if they had the subcontractor's "true" number.

Under the Act's kickback definition, the subcontractor's agreement with the prime contractor to submit artificially high quotations to the prime contractor's competitors should certainly be construed as a "thing of value...which is provided...to [a] prime contractor...for the purpose of...rewarding favorable treatment...in connection with a subcontract relating to a prime contract." This practice possibly would limit the number of genuine low price bids and should be proscribed by the statute.

Based upon the legislature's articulated purposes and public policy, it would appear that the prohibition of transfer of value for favorable treatment should only apply if the transfer causes an increase to the cost of construction or a decrease in quality. For example, the bid-rigging and bribery-of-a-contractor's-inspector practices clearly contravene the stated public policy of preventing increased cost to the public and decreased quality of construction goods and services. The scope of the kickback section is not clear and leaves to one's imagination which of the myriad contractor practices come within the definition but do not contravene the Act's public policy and purpose.

What precisely does "improperly obtaining or rewarding favorable treatment" mean? Is being a friend of a contractor considered favorable treatment? If a public procurement official accepts a lunch or ticket to a professional sporting event from a contractor, is that a "kickback"? The concepts of "improperly obtaining or rewarding" and "favorable treatment in connection with" are unclear. Unintended consequences could result since virtually any benefit or favor, whether social, financial, or political, can be a "thing of value" that is related to a public works contract.

F. Bid-rigging
Section 33E-3 sets out the offense of bid-rigging. This section prohibits one contractor from acting in concert with a competitor contractor so that the contractors who are designated will definitely receive the bid. Contractors are prohibited from providing material information like price to a competitor or submitting a bogus bid with terms that make it unlikely to be accepted. Section 33E-3 has scienter and specific intent elements in its bid-rigging offense:

[A] person commits the offense of bid-rigging when he knowingly agrees with a person who is, or but for such agreement would be, a competitor of such person or another to a unit of state or local government when with the intent that the bid submitted or not submitted will result in the award of the contract to such person or another...[emphasis added].

Thus, the offender must 1) give confidential material information to a competitor or submit a defective bogus bid and 2) knowingly agree with a competitor with the intent that the bid submittal or non-submittal will result in the award to the competitor.

The bid-rigging offense is a Class 3 felony and a convicted offender under this section or under similar provisions in any other state's law or federal law becomes barred from contracting with any unit of state or local government in Illinois. A Class 3 felony carries a sentence of not less than two years and not more than five years. The disbarment from contracting does not apply to the corporate employer of an offender where the offender is terminated and the corporation is finally adjudicated not guilty, or the corporation demonstrates to the prospective contracting agency its non-authorization of the offense committed by a lower level employee.

G. Bid Rotating
Section 33E-4 sets out the offense of bid rotating. The term "bid rotating" denotes the designation of winning bidders each, by turn, in a pattern over time pursuant to a "collusive scheme or agreement." The scheme or agreement appears to be as simple as saying, "my turn is this year, your turn is next year." "Over time" is defined as three contract bids within 10 years. This section also has a specific intent element as well as a provision for permanent disbarment from contracting with a unit of state or local government. This section has a corporation exculpatory clause like the bid-rigging section. However, legislative drafters omitted a scienter element in this section, unlike in the bid-rigging section.

This section's permanent disbarment provision and Class 2 felony provision (a sentence of not less than three years and not more than seven years) are more severe than the bid-rigging section. The increased severity was perhaps justified by a perception that bid rotating comprises multiple offenses and, correspondingly, requires more severe punishment. Can one commit the offense of bid rotating if he or she intends to rotate bids but only accomplishes it the first time, and no other rotation turn occurs? The language "engages in a pattern over time" suggests there must be more than one "turn" to constitute rotation.

H. Acquisition or Disclosure of Bidding Information by a Public Official
Section 33E-5 prohibits a public official from 1) knowingly opening a sealed bid other than at the time or place specified in the bid invitation or outside the presence of witnesses, or 2) knowingly disclosing to any interested person any information related to the terms of a sealed bid. This section allows disclosure of information where "provided by law or necessary to the performance of such official's or employee's responsibilities relating to the bid" or where such disclosure to any interested person is also made generally available to the public.

Although this section allows some wiggle room for the public official, such official would be prudent to disseminate quickly and thoroughly to all parties interested in the bidding process information about a sealed bid given to one interested party. Lastly, this section explicitly applies only to contracts let by sealed bid. Solicitation for competitive proposals would not come within the scope of this section.

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I. Interference with Contract Submission and Award by Public Official
Section 33E-6(a) prohibits a public official from knowingly conveying either directly or indirectly, outside of the publicly available official invitation to bid, pre-bid conference, solicitation for contracts procedure or such procedure used in any sheltered market procurement adopted pursuant to law or ordinance by that unit of government, to any person, any information concerning the specifications for such contract or the identity of any particular potential subcontractors, when inclusion of such information concerning the specifications or contractors in the bid or offer would influence the likelihood of acceptance of such bid or offer....

This section does permit a public official to clarify plans or specifications on a contract where the official makes the disclosed information "generally available to the public." Offenses under this section constitute a Class 4 felony which could result in a sentence not less than one year and not more than three years. A Class 4 felony is the least serious felony, and its application in this section apparently reflects the legislature's recognition that public contracting officials may inadvertently give pertinent information during the give and take of the bid/proposal process. The section also has a scienter element in the offense.

Section 33E-6(b) prohibits a public official from steering a prospective bidder or offerer to a favored subcontractor as a condition for acceptance or execution of a bid or offer. Section 33E-6(b) suggests that on public projects the owner, which in practice means the owner's architect, will no longer be able to identify either items required for the construction by proprietary designation or other descriptive language which has the effect of limiting procurement to one sole source. The practice of limiting procurement to one source is known in the construction trade as "sole source specing." It can lead to abuse by architects who might be enticed to require a particular source in exchange for kickback consideration. Consequently, it seems that proprietary specifications should only be used as guidelines and not to require use of a sole source.

Section 33E-6(c) excludes a public official's actions from the interference-with-contract provisions of section 36E-6(a) that are pursuant to procedures established by governmental disadvantaged business enterprise programs, otherwise known as sheltered market programs. Thus, a public body's provision of a list of eligible minority and women business enterprises for informational purposes pursuant to a sheltered market program would be permissible as the legislature intended.8

Section 33E-6(d) requires a bidder or offerer who receives information from a public official proscribed by sections 33E-6(a) and (b) to report that communication to the attorney general or the state's attorney. Contractors who fail to do so commit a Class A misdemeanor, which carries a jail sentence of less than a year.

The contractor's duty to report is broad and onerous. This reporting provision forces contractors to police public contracting procedures, which the unit of government, through its own enforcement and compliance agencies, should be doing. This provision should only apply when the public official explicitly informs the contractor that the suspect communication is being given only to that contractor. Otherwise, how is the contractor to know he or she is the only one receiving the prohibited communication? How would he or she know that the public official has not communicated the information to others, and thus that communication is not proscribed by the Act?

Finally, does the "contract recipient" include a contractor who learns of the information inadvertently in a collateral forum, such as during discovery in civil litigation? When in doubt about his or her reporting obligation, the contractor should seek clarification from the local state's attorney or the attorney general.

Section 33E-6(e) prohibits any public official from knowingly awarding a contract based on criteria which were not publicly disseminated either through the invitation to bid where required by law, or through the prebid conference or any solicitation for contracts procedure or disadvantaged enterprise procedure established by law. A public official's violation of this provision is a Class 3 felony. The public official should understand his or her evaluation criteria, disseminate them fully, and adhere to them. This section is designed to prevent unpublished, subjective rationales from being used to award a contract.

Section 33E-6(f) allows a public official to disseminate a transcript of a pre-bid conference so long as it is made generally available to the public. The salutary effect of this provision is to allow prospective bidders/ proposers who were unable to attend the pre-bid conference to be informed of official communications made during the conference.

7. Bribery of Contractor's Inspector
Section 33E-8(a) prohibits bribery of a contractor's or subcontractor's inspector to obtain a wrongful certification or approval of the quality or completion of any goods or services supplied. The crime is a Class 4 felony. Under section 33E-8(b), receiving a bribe is a Class 3 felony; targets of bribery who fail to report it face a Class 4 felony.

K. Permitted Actions by Public Official
Section 33E-12 allows a public official to disclose identities of bidders, persons requesting bidding materials, and contractors awarded contracts. This section allows the official to disclose acceptable alternatives or substitute plans or specifications when they are made generally available to the public and mailed to other bidders or those requesting bidding materials. Presumably, these other bidders and interested persons may then bid on the alternate or substitute plans or specifications. Importantly, this section expressly allows a public official to negotiate a price reduction with the lowest responsible bidder. This frees the public body of any claim from a disgruntled bidder that the scope of the work for which bids were solicited has been changed after the fact. This provision clarifies a frequently contested issue and is consistent with the purpose of the Act as stated in the preamble.

L. Sheltered Market
Section 33E-2(f) defines "sheltered

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market" by reference to the definition in section 2 of the Minority and Female Business Enterprise Act.9 Under that definition, a sheltered market is a "procurement procedure whereby certain contracts are selected and specifically set aside for minority or female owned businesses on a competitive bid or negotiated basis."

One should become familiar with this definition to understand the nature and scope of the sheltered market program and how certain conduct, practices, and procedures could come within, or are excluded from, the Act's prohibitions.

M. Subcontractor
Section 33E-2(k) defines "subcontractor" to mean "(I) any person, other than the prime contractor, who offers to furnish or furnishes any goods or services of any kind under a prime contract or a subcontract entered into in connection with such prime contract; and (2) includes any person who offers to furnish or furnishes goods or services to the prime contractor or a higher tier subcontractor." How remote must a lower tier sub-subcontractor be to fall outside the provision? There certainly appears to be no limit. This absence of limitation is significant in that the legislature in both section 23 of the Mechanics Lien Act"' which provides for mechanics' liens against public funds and the Contractor's Bond Act" appear to have limited the definition of subcontractor to either first or second tier subcontractors.12 This distinction seems reasonable, keeping in mind that the policy underlying the integrity of the public contract procurement process is different than the need to protect subcontractors and suppliers from nonpayment for their labor and materials.

N. Rules on Evidence
Section 33E-10, in the absence of evidence of proscribed practices, establishes a presumption that bidders have submitted their bids independently without obtaining information outside the invitation to bid and in a good faith effort to obtain the contract. Thus, there is an articulated presumption of regularity of bids that the prosecutor has to rebut with contrary evidence.

0. Certification of Eligibility
Section 33E-ll(a) requires a prime contractor bidding on a public contract to certify that he or she has not violated the bid-rigging or bid-rotating provisions of the Illinois Criminal Code. Under section 33E-ll(b), "a contractor who makes a false statement, material to the certification, commits a Class 3 felony."

IV. Conclusion
The public policy and legislative purpose of this Act are to remove the evils in public contracts arising out of collusive, unfair, and corrupt practices by public procurement officials, contractors, and subcontractors, which result in increased costs to the public and lowered quality goods, services, and construction to the detriment of the public. These are laudable legislative ends. Unfortunately, the scope of the legislation is too broad and its provisions too imprecise.

Because the legislation is new, there is no body of case law to guide attorneys and their clients through this legal brier patch. Accordingly, attorneys for contractors and public procurement officials must review their clients' public bidding practices and inform them which practices may be prohibited under the Act. At the same time, these attorneys and their clients should join an effort to amend the Act to clarify its scope and application.

1. Ill Ann Stat ch 38, §§ 33E-1 through 33E-12 (Smith-Hurd, 1989 Supp). See, also, related provision under the Illinois Purchasing Act, Ill Ann Stat ch 127, § 132.10-2 (Smith-Hurd 1989 Supp).
2. Nationally, one-fifth of all construction qualifies as "public."
3. See, generally, Anti-Kickback Act of 1986, 41 USCA § 51-58 (1987); Sherman Anti-Trust Act of 1890,15 USCA § 1-7 (1973).
4. See Transcript of Illinois Senate Discussion and Vote on Senate Bill 2002, on May 20,1988, at 45.
5. See Gen's West, Inc. v Ferrall, 153 111 App 3d 579, 505 NE2d 1348 (2d D 1987); People ex rel Morrison v Sielaff, 58 111 2d 91, 316 NE2d 769 (1974);
Radford v Cosmopolitan National Bank of Chicago, 52 111 App 2d 240, 201 NE2d 622 (1st D 1964).
6. See Ryan c Warren Township High School District No. 121, 155 111 App 3d 203, 510 NE2d 911 (2d D 1987).
7. See, for criminal code sentencing classifications, 111 Rev Stat ch 38, § 1005-8-1 through 1005-8-3 (1987).
8. See Transcript of Illinois Senate Discussion and Vote on House Amendments 1, 2, 3, and 4 to Senate Bill 2002, on June 27,1988, at 97.
9. Ill Rev Stat ch 127, § 132.602(1987).
10. Ill Rev Stat ch 82, §23 (1987).
11. Ill Rev Stat ch 29, §15 (1987).
12. With respect to liens against public funds, see Koenig v McCarthy Const. Co., Inc., 344 111 App 93, 100 NE2d 338 (1951).

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