Chapter 11

Procurement, Contracting, and Disposal of Property

by Crista M. Cuccaro

Obtaining the goods and services for the operation of counties and municipalities is a major administrative responsibility.¹ In a legal sense, this responsibility involves questions of proper authority, adequate authorization for expending funds, and entering into contracts in accordance with statutory requirements. Administratively, the organizational arrangements should be both efficient and legally sufficient. Contracting procedures must also be designed to avoid violation of state and federal conflict-of-interest laws, promote fairness and objectivity, and avoid the appearance of impropriety in contracting decisions.

Similar legal and administrative considerations apply when disposing of surplus property, which must be done according to statutory requirements intended to recoup taxpayer dollars expended to purchase the property.

This chapter outlines the state law requirements applicable to procurement, contracting, and property disposal. Additionally, the Uniform Guidance requirements are incorporated throughout this chapter. The Uniform Guidance is the comprehensive set of requirements applicable to federal award recipients, including local governments. The Uniform Guidance dictates federal grants administration, from pre-award to audit, and is codified in the Code of Federal Regulations (C.F.R.).² Local governments, as non-federal entities (NFEs),³ must have and use written procurement policies and procedures that comply with state law, local policies, and the Uniform Guidance.⁴ This means that local governments must follow the “most restrictive” requirements of federal, state, and local regulations.⁵

General Public Contract Requirements

Contracting Authority and Authorized Purposes

The statutes that delegate to counties and municipalities broad corporate powers necessary to govern and to conduct basic activities include a delegation of authority to contract.⁶ Other statutes authorize counties and municipalities to perform particular functions and contain specific contracting powers.⁷ These specific authorizations do not limit the general authority to contract. Indeed, parallel statutes for counties and municipalities authorize each to contract with a private entity to perform any activity in which the county or municipality has authority to engage.⁸

An important legal requirement for local government contracts is that the person or persons who make the contract must have authority to contract on behalf of the entity that will be bound by the contract. A local government is not bound by a contract entered into by an individual who does not have authority to contract on its behalf. North Carolina law provides that the governing board of a county or municipality is the body that has authority to act for the local government, and this includes the authority to contract.⁹ The governing board may delegate its authority to others within the organization, unless a statute specifically requires action to be taken by the governing board or by another named official. For example, the state competitive bidding laws require the governing board to award construction or repair contracts that are subject to formal bidding requirements¹⁰ and to approve a contract under certain exceptions to the bidding requirements,¹¹ so the board is not permitted to delegate authority to award these contracts. Similarly, most methods of surplus property disposal require governing board action.¹² For contracts that are not subject to these types of limitations, however, the county or municipality governing board has discretion to delegate its contracting authority under state law. As a general matter, the Uniform Guidance does not require governing board approval for any specific procurement or disposal actions.

A delegation of authority to contract may be either explicit or implicit. An example of explicit delegation might be found in a municipal charter, a local act of the General Assembly, or a county or municipal policy adopted by a unit’s governing board delegating to its manager or some other official the authority to enter into contracts on behalf of the local government. A governing board might also adopt a resolution explicitly delegating authority for awarding purchase contracts, as permitted under the formal bidding statute, or in other circumstances, including awarding informal contracts where the statutes do not require the governing board to award these contracts. In addition, a job description or personnel policy could constitute an explicit delegation of contracting authority if it has been approved by the governing board. Thus, a purchasing agent or department head may have authority to contract if doing so is part of his or her job responsibilities as defined by the board. Implicit authority might be found in cases where employees regularly make contracts with the knowledge and tacit approval of the board but without a formalized policy. Many local government contracts are made by local employees with implicit authority based on historical patterns of activity and consistent with assigned job responsibilities.

The extent to which contracting is delegated within a county or municipality is a function of local policy, management philosophy, and administrative organization. Responsibility for contracting should be allocated in a manner that best balances the need for efficiency and flexibility with the need to comply with legal contracting and fiscal internal control requirements. Centralization of contracting for items that require bidding or that involve commonly used items helps to ensure compliance with legal requirements and can provide better value through economies of scale and consistency in administration.

Multi-Year Contracts

Counties and municipalities have specific authority to enter into contracts that extend beyond the current fiscal year.¹³ The statutes allow a unit to enter into continuing contracts and require the unit’s board to appropriate the amount due in each subsequent year for the duration of that contract.

Contracts generally continue to bind the unit despite changes in board membership or philosophy. Courts have held that this rule does not apply, however, to any contract that limits essential governmental discretion, such as a contract that promises not to annex property or a contract in which the unit promises not to raise taxes.¹⁴ Most county and municipal contracts, however, involve basic commercial transactions and, assuming all other requirements for a valid contract are met, will be enforceable against the unit for the duration of the contract.

Because a multi-year contract imposes an ongoing fiscal obligation on a unit for the duration of the contract, the unit may include a non-appropriation clause that makes continuation of the contract in subsequent years contingent on the governing board’s appropriation of funds for that contract. A non-appropriation clause is required for all installment financings.¹⁵ It also may be required on any other contract, agreement, or lease that could be construed as a borrowing by the unit. Whether a non-appropriation clause should be included in a contract is a matter of policy and is subject to negotiation with, and agreement by, the contractor or vendor that is a party to the contract.

Expenditures Supported by Appropriations and Preaudit Certifications

State laws governing local government finance require counties and municipalities to establish internal procedures designed to ensure that sufficient appropriated funds are available to pay contractual obligations. Contracts involving the expenditure of funds that are included in a unit’s budget ordinance must be “preaudited” to ensure that they are being spent in accordance with a budget appropriation and that sufficient funds remain available in the appropriation to pay the obligation created by the contract. All written contracts must contain a certification by a unit’s finance officer, as specified in Chapter 159, Section 28(a1) of the North Carolina General Statutes (hereinafter G.S.), stating that the instrument has been “preaudited in the manner required by the Local Government Budget and Fiscal Control Act.”¹⁶ Under that statute, a person who incurs an obligation or pays out funds in violation of the statute is personally liable for the funds committed or disbursed.¹⁷ Obligations incurred in violation of this requirement are void and are not enforceable against the unit.¹⁸

Most local governments use computerized financial systems that automatically conduct the preaudit procedure. These programs keep track of appropriated funds by category or account and encumber obligations as they are created by removing them from the pool of available funds. In 2021, the preaudit statute was amended to explicitly allow local governments to use an automated system for the preaudit process if the system meets certain statutory requirements.¹⁹ Additionally, in order to use the automated preaudit system, a local government, through its finance officer(s), must also file an annual certification with the Secretary of the Local Government Commission.

For more information on preaudit and disbursement requirements, see “Obligating and Disbursing Public Funds” in Chapter 8, “Managing and Disbursing Public Funds.”

Contract Execution

As noted above, counties and municipalities have broad authority in allocating responsibility for contract approval. It is very important to distinguish, however, between the authority to approve a contract and the authority to execute (sign) a contract. Execution of the contract is a formality that is used to prove assent. Contracts are sometimes executed at the same time they are approved. In other cases, the contract is executed after approval, such as when a unit’s governing board approves a contract that is later executed by the unit’s manager. Even if a contract is properly executed, it is not enforceable against the unit if it was not approved or authorized by someone with authority to contract on behalf of the unit. The fact that someone has authority to execute a contract does not necessarily mean that he or she also has authority to approve a contract, though it may constitute evidence of implicit authority if there is no explicit delegation. Except for the preaudit certification by the finance officer of a unit, state laws do not dictate who must sign county and municipal contracts, so this is left to local discretion. As with the authority to award, the authority to execute is best delegated through a written policy, job description, or resolution approved by the governing board. Ensuring compliance with legal requirements does not end once a contract is executed, though. Local governments must monitor performance pursuant to the contract, and, in fact, the Uniform Guidance states that NFEs “must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.”²⁰

Form of Contracts and Electronic Contracts

In addition to the specific rules that apply to public contracts, all contracts must be enforceable under general common law and state statutory requirements. Most importantly, contracts must be supported by adequate consideration,²¹ and there must be evidence to support any claim that the county or municipality, as a party to a contract, actually agreed to be bound by the terms of an alleged contractual commitment.

Whether a contract must be in writing depends on the type of contract and the unit of government entering into that contract. A state statute requires that all contracts made by or on behalf of municipalities must be in writing.²² A municipal contract that is not in writing is void, but the governing board of the municipality can cure this defect by expressly ratifying the written contract. The North Carolina Supreme Court has held that the board’s actions as recorded in its minutes do not satisfy the statutory requirement that a contract be in writing.²³ There is no parallel statute that requires county contracts to be in writing. The formal bidding statute, G.S. 143-129, however, requires all local government contracts that are within its scope to be in writing. (See , “Dollar Thresholds in North Carolina Public Contracting Statutes,” for information on which contracts are subject to formal bidding.)

Another important writing requirement is contained in the Uniform Commercial Code (UCC). The UCC was developed to modernize and standardize the law governing commercial transactions, eliminating variations from state to state and removing many of the technicalities in the common law of contracts. In North Carolina, the UCC has been adopted as G.S. Chapter 25. The provisions governing contracts for the sale of goods are contained in Article 2, beginning at G.S. 25-2-101. Article 2 requires that all contracts (not just local government contracts) for the sale of goods exceeding $500 must be in writing.²⁴ In addition, while the common law requires that a contract specify all the essential terms of the agreement, the UCC modifies common law contract requirements relating to the contents of a writing and the formalities for a valid signature.²⁵

Other writing requirements are found in G.S. Chapter 22. Of greatest significance to local governments is the requirement of a writing for any contract or deed evidencing the sale of land or for any interest in land, including an easement; for any sale or lease of mining rights; and for any other lease of more than three years in length.²⁶

Even when it is not required by statute or when the agreement at issue does not involve the expenditure of public funds (such as a lease of government property for a term of less than three years), a writing serves important purposes, the most significant being the clear expression of the agreement between the parties. In addition, for local governments the written document, usually a purchase order, incorporates the fiscal and departmental approvals required by statute and by local policy, and it provides documentation for the annual audit.

State and federal laws address the acceptability of electronic contracts, providing broad authority for the use of electronic transactions in general and in governmental contracting.²⁷ These laws generally provide that a contract may not be denied legal effect or enforceability solely because it has been created as an electronic document or has been affixed with an electronic signature. It is up to each county or municipality to determine whether it wishes to use or accept electronic contracts and to develop systems for assuring their authenticity and enforceability.

Contract Limitations and Required Clauses

State law and federal regulations place a number of limitations and requirements on certain categories of public contracts, including the following:

State Law Restrictions

• Construction indemnity agreements—prohibits a party from insulating itself from its own negligence. (G.S. 22B-1)

• Real property improvement dispute venue—prohibits making a contract subject to the laws of another state or setting exclusive venue in other state. (G.S. 22B-2)

• Forum selection—prohibits requiring prosecution of an action or arbitration of a dispute in another state. (G.S. 22B-3)

• Jury trial waiver—prohibits requiring a party to waive its right to a jury trial (does not prohibit mutually agreed-to mediation, arbitration, or other alternative dispute resolution processes). (G.S. 22B-10)

• Incurring third-party debt—violates constitutional limitations on local government indemnifying obligations of other parties, which is a form of incurring debt. (N.C. Const. art. V, § 4)

• Organized labor restrictions—prohibits discriminating against a bidder or contractor for adhering or not adhering to an organized labor agreement. (G.S. 143-133.5)

• Employment-related and public accommodation requirements—prohibits cities and counties from imposing employment-related requirements on bidders and contractors as a condition of bidding on a contract. (G.S. 153A-449(a) for counties; 160A-20.1(a) for cities)

• E-Verify—prohibits local governments from contracting with contractors and subcontractors who are not compliant with the state’s E-Verify hiring requirement. (G.S. 143-133.3)

• Iran Divestment Act—prohibits local governments from contracting with an entity that has been identified by the office of the N.C. State Treasurer as engaging in Iranian investment activities. (G.S. 147-86.60)

• Israel boycott contracting prohibition—prohibits local governments from contracting with a company that has been identified by the office of the N.C. State Treasurer as boycotting Israel. (G.S. 147-86.82)

Federal Restrictions and Required Clauses

The Uniform Guidance requires that NFEs include certain applicable provisions in their contracts.²⁸ These required contract clauses can be found in Appendix II to Part 200 of the Uniform Guidance (“Contract Provisions for Non-Federal Entity Contracts Under Federal Award”) and include the following:²⁹

• Remedies for contract breach—contracts above the Simplified Acquisition Threshold must address administrative, contractual, or legal remedies for violations of the contract. (Appendix II to Part 200 (A))

• Termination for cause and for convenience—contracts of $10,000 or more must explain the trigger and process for termination of the contract. (Appendix II to Part 200 (B))

• Equal employment opportunity—federally assisted construction contracts must include a specific equal opportunity clause. (Appendix II to Part 200 (C))

• Davis-Bacon and Copeland Anti-Kickback Acts—prime construction contracts of $2,000 or more must include provisions for compliance with the Davis-Bacon Act, when required by federal program legislation, and with the Copeland Anti-Kickback Act. (Appendix II to Part 200 (D))

• Contract work hours and safety standards—contracts of $100,000 or more that involve employment of mechanics or laborers must include provisions that involve computation of wages based on a forty-hour work week and impose health and safety standards for applicable work. (Appendix II to Part 200 (E))

• Rights to inventions—contracts for the performance of experimental, developmental, or research work funded in whole or in part by the federal government must include the standard patent clause found in 37 C.F.R. 401.14. (Appendix II to Part 200 (F))

• Clean Air and Federal Water Pollution Control Acts—contracts and subgrants of amounts in excess of $150,000 must contain a provision that requires compliance with these regulations. (Appendix II to Part 200 (G))

• Byrd anti-lobbying amendment—contractors that apply or bid for an award exceeding $100,000 must file a certification about lobbying related to the contract. (Appendix II to Part 200 (I))

• Procurement of recovered materials—for purchases by state or local governments of specific items designated by the U.S. Environmental Protection Agency and costing $10,000 or more, such items must be made from recovered materials consistent with maintaining a satisfactory level of competition.³⁰ (Appendix II to Part 200 (J))

• Telecommunications and video surveillance services or equipment—NFEs are prohibited from procuring, obtaining, or contracting for equipment, services, or systems that use certain covered telecommunications equipment, primarily affiliated with two identified companies. (Appendix II to Part 200(K))

• Domestic preferences—NFEs should provide a preference for the purchase, acquisition, or use of goods, products, or materials produced in the United States, to the greatest extent practicable, and must include this requirement in all contracts.³¹ (Appendix II to Part 200 (L))

In addition to the federally mandated procurement and contracting clauses noted above, NFEs are prohibited from contracting with certain entities. Specifically, federal fund recipients and subrecipients, and the contractors of each, must not enter into federal-grant-funded contracts with entities that have been “debarred, suspended, or otherwise excluded” from receiving benefits from the federal government.³² Federal regulations provide that an entity’s exclusion status can be verified in one of three ways: (1) searching for government-wide exclusions in the System for Award Management (SAM) and documenting the search, (2) collecting a certification about exclusion status from the contracting entity, or (3) adding a contract clause or condition about exclusion status to the covered transaction with the entity.³³ Practically speaking, many governmental units use more than one method to verify an entity’s exclusion status.

Furthermore, the Uniform Guidance discourages the use of time-and-materials contracts. A time-and-materials contract specifies the cost of materials and labor hours at fixed hourly rates rather than a fixed price for an entire project. If an NFE desires to use a time-and-materials contract, it must determine that no other contract type is suitable, and the contract must include a ceiling price that the contractor exceeds at its own risk.³⁴ Additionally, the Uniform Guidance prohibits the use of a cost plus a percentage of cost contract and a percentage of construction cost methods contract.³⁵

General Competitive Bidding Requirements

Contracts Covered by Bidding Laws

State and federal laws require local governments to obtain competitive bids before awarding certain types of contracts. The competitive bidding process is designed to prevent collusion and favoritism in the awarding of contracts and to generate favorable pricing to conserve public funds. As discussed in this section, the law does not always require that contracts be awarded to the lowest-cost bidder, and the bidding requirements themselves are best viewed as requiring prudent investment of public dollars. This means that quality and value can be as important as initial price in evaluating competitively bid contracts.

Under state law, the two key bidding statutes, G.S. 143-129 (formal bidding) and -131 (informal bidding), apply to two categories of contracts: (1) contracts for the purchase or lease-purchase of “apparatus, supplies, materials, or equipment” (hereinafter purchase contracts) and (2) contracts for construction or repair work. As discussed in the next section, many contracts do not fall within either of these categories and thus are not subject to any mandatory competitive bidding requirements. Bidding requirements are triggered when expenditures of public funds for the two specified categories of contracts occur at the dollar thresholds specified in the statutes. These dollar amounts correspond to the cost of the contract itself as opposed to the cost of individual items under the contract or the budgeted amount available for the expenditure. Current North Carolina dollar thresholds are set forth in .

The Uniform Guidance classifies procurements differently than state law and divides procurements into the following three methods: informal procurement, formal procurement, and noncompetitive procurement.³⁶ Within these three categories, competitive procurement processes are required for what the Uniform Guidance labels as small purchases, sealed bids, and proposals.

Small purchase procedures are used for the acquisition of property or services when the aggregate dollar amount is higher than the micro-purchase threshold but lower than the simplified acquisition threshold.³⁷ At the time of publication of this edition of Introduction to Local Government Finance, the micro-purchase threshold is $10,000. However, through an annual self-certification process, governmental units can increase the micro-purchase threshold up to $50,000 depending on state law thresholds.³⁸ Sealed bids and competitive proposals are used when the value of property or services being procured exceeds either the simplified acquisition threshold or a lower threshold established by a non-federal entity (NFE). Note that where state law imposes competitive requirements at a lower threshold than the simplified acquisition threshold, an NFE must apply the Uniform Guidance requirements—along with state law requirements—at that lower threshold.³⁹ Sealed bids are intended to be used for firm fixed-price contracts and are the preferred method for procuring construction services. Competitive proposals are intended for use when conditions are not appropriate for a sealed bid.

North Carolina competitive bidding requirements apply to counties, municipalities, local school units, and other local government agencies. With respect to purchase contracts, state agencies, including universities and community colleges, are governed by Article 3 of G.S. Chapter 143 and by the rules and policies of the State Department of Administration, Division of Purchase and Contract. With respect to contracts for construction or repair work, state agencies, including universities and community colleges, are governed by the statutes described here, along with rules and policies of the State Construction Office.

Private entities, whether nonprofit or for-profit, that contract with counties or municipalities are generally not required to comply with North Carolina bidding statutes, even when they are spending funds awarded to them by counties or municipalities. The funds are no longer considered public once they are received by the private entity under a contract or grant of local funds from a public agency. A local government contracting with a private entity may, however, require compliance with bidding requirements as a condition of receipt of the funds. On the other hand, federal or state agencies administering grant programs often require as a condition of a grant that private subrecipients use competitive bidding procedures when expending grant funds. Determining whether a private party needs to comply with the competitive bidding procedures in the Uniform Guidance requires evaluating whether the private party is a subrecipient or contractor.⁴⁰ In most cases, subrecipients must follow the procurement standards of the Uniform Guidance, whereas contractors are not required to comply with the Uniform Guidance and instead an NFE applies the procurement standards when selecting the contractor.

Contracts Not Covered by Bidding Requirements and Optional Procedures

Under North Carolina law, contracts for services, such as janitorial, grounds maintenance, and solid waste collection, fall outside the scope of the competitive bidding statutes. In comparison, contracts for services are subject to the competitive procurement requirements of the Uniform Guidance when the cost exceeds the micro-purchase threshold. As discussed later, special rules apply to contracts for architectural, engineering, and land surveying services (sometimes referred to as professional services) and alternative construction delivery services.

Contracts for the purchase of real property and contracts for the lease (rental) of real or personal property also fall outside the scope of North Carolina laws that require competitive bidding. However, it is important to note that contracts for the lease-purchase of personal property, the installment-purchase of personal property, or the lease with option to purchase of personal property are subject to competitive bidding under North Carolina law.⁴¹ Under the Uniform Guidance, rental costs of real property and equipment are not subject to competitive procurement, but the rental costs must be reasonable and are subject to other limitations, such as those addressing maximum price and specific conflicts of interest.⁴²

Finally, under North Carolina law, purchase contracts and contracts for construction or repair work that fall below the informal bidding threshold are not subject to competitive bidding, though many local policies require bidding even at these lower levels. Likewise, purchase and service contracts that fall below the micro-purchase threshold set forth in the Uniform Guidance are not subject to competitive bidding.

It is also common for counties and municipalities to seek competitive bids on contracts even when laws do not require it, such as by issuing a request for proposals for solid waste services. This is a good practice to ensure fair pricing whenever there is competition for a particular service or product. Counties and municipalities often use the statutory procedures when seeking competition voluntarily, but this is not required under state law. It is important for a unit to specify what procedures and standards it will use for awarding contracts in solicitations that are not subject to state statutes, especially if the procedures will be different from those set forth in the statutes. The unit is legally bound to adhere to the procedures it opts to use when bidding is not required by statute, or it may terminate the procedure and contract using some other procedure if it deems this to be in its best interest. The decision to competitively bid a contract when it is not statutorily required does not obligate the unit to use bidding in the future for that contract or for that type of contract.

Exceptions to Bidding Requirements

State and federal bidding laws contain a number of exceptions. County and municipal officials should be cautious when contracting without bidding to make sure that the contract falls within an exception. Courts have recognized the importance of the public policy underlying the bidding requirements and have strictly scrutinized local government justifications for claiming an exemption from bidding. Except as identified below, no specific procedures apply to contracts made under these exceptions.

The exceptions to the competitive bidding requirements pursuant to state law are as follows:⁴³

• Purchases from other governments—G.S. 143-129(e)(1). Local governments may purchase items directly from any other unit of government or from a government agency (federal, state, or local) and may purchase at government surplus sales. This exception applies to purchase contracts only.

• Emergencies—G.S. 143-129(e)(2). An exception applies in “cases of special emergency involving the health and safety of the people or their property.” The only North Carolina case interpreting the emergency exception indicates that it is very limited, applicable only when the emergency is immediate, unforeseeable, and cannot be resolved within the minimum time required to comply with the bidding procedures.⁴⁴ This exception applies to both purchase and construction or repair contracts.

• Competitive group-purchasing programs—G.S. 143-129(e)(3). A group-purchasing program is created by a separate organization on behalf of public agencies, or by one or more public agencies, in order to take advantage of economies of scale for commonly purchased items. Local governments may purchase without bidding items available under contracts that have been established using a competitive process undertaken as part of a group-purchasing program. This exception applies to purchase contracts only.⁴⁵

• Change-order work—G.S. 143-129(e)(4). For construction or repair work, competitive bidding is not required for work undertaken “during the progress” of a construction or repair project initially begun pursuant to the formal bidding statute if the additional work was unforeseen at the time the contract was awarded. Change-order work that is not within the scope of the original project could be challenged as an unlawful evasion of the bidding requirements.

• Gasoline, fuel, or oil—G.S. 143-129(e)(5). Purchases of gasoline, diesel fuel, alcohol fuel, motor oil, fuel oil, or natural gas are exempt from the formal bidding procedures but must be carried out using the informal procedures under G.S. 143-131.

• Sole source—G.S. 143-129(e)(6). This exception applies to purchase contracts only, when performance or price competition is not available, when a needed product is available from only one source of supply, or when standardization or compatibility is the overriding consideration. Note that this exception applies when there is only one source for the item; simply being available from one manufacturer does not necessarily qualify the purchase under this exception if that item is available from more than one vendor or retailer. The governing board of a unit must approve each contract entered into under this exception, even if the board has delegated authority to award purchase contracts under G.S. 143-129(a).

• State and federal contract purchases—G.S. 143-129(e)(9), (9a). Local governments may purchase items from contracts awarded by any North Carolina state agency or federal agency if the contractor is willing to extend to the local unit the same or more favorable prices, terms, and conditions established in the state or federal contract.⁴⁶ This includes purchases of information technology from contracts established by the State Office of Information Technology Services (G.S. 143-129(e)(7)).

• Used apparatus, supplies, materials, or equipment—G.S. 143-129(e)(10). Competitive bidding is not required for the purchase of used items. The exception does not define what constitutes a used item, but it specifically excludes items that are remanufactured, refabricated, or “demo” (demonstration) items.

• Previously bid contracts (“piggybacking”)—G.S. 143-129(g). Local governments may purchase from a contractor who has entered into a competitively bid contract with any other unit of government or with a government agency (federal, state, or local), anywhere in the country, within the past twelve months. The contractor must be willing to extend to the local government the same or more favorable prices and terms as contained in the previously bid contract. This exception applies to purchase contracts in the formal bidding range only. A North Carolina local government’s governing board must approve each contract entered into under this exception at a regular board meeting on ten days’ public notice, even if the board has delegated authority to award purchase contracts under G.S. 143-129(a).

• Force-account work—G.S. 143-135. For construction or repair work, bidding is not required for projects to be completed using the local government’s own employees. This exception actually operates as a limitation on the amount of work that may be done by local government employees. The exception limits such work to projects estimated to cost no more than $500,000, including the cost of labor and materials, or to projects on which the cost of labor does not exceed $200,000. The competitive bidding statutes still apply to materials to be used on such force-account projects. Some have argued that the exception to the bidding requirements does not limit the use of the unit’s own forces as long as the local unit itself submits a bid. There does not appear to be any authority in the statutes for a local government to submit a bid to itself as a way of complying with bidding requirements and avoiding application of the force-account limits.

• School food services and publications—G.S. 115C-264 (food services); 115C-522(a) (publications). Local boards of education may purchase without competitive bidding supplies and food for school food services programs and published books, manuscripts, pamphlets, and periodicals used by public schools.

• Voting systems—G.S. 163-165.8. Counties may purchase without competitive bidding voting systems that have been approved by the State Board of Elections.

• Alternative procedures—Requests for Proposals (RFP). Several types of contracts that involve a combination of goods and services may be entered into using alternative—usually more flexible—competitive procedures. A more flexible RFP procedure is authorized for contracts for information technology goods and services, including computer software, hardware, and related services (G.S. 143-129.8); guaranteed energy-savings contracts (G.S. 143-129(e)(8)); and contracts involving solid waste and sludge management facilities (G.S. 143-129.2). Unless specifically authorized under an exception, local governments do not have authority to use an RFP procedure for contracts that are subject to the competitive bidding statutes.

Unlike state law, which allows for exceptions to competitive bidding procedures based largely on the subject matter or context of the contract or the place from which an item is purchased, the Uniform Guidance permits non-competitive procurement in only five instances: (1) procurement under the micro-purchase threshold, (2) single source (which is synonymous with sole source), (3) public emergency, (4) express permission from the federal awarding agency or pass-through entity, or (5) when competition is deemed inadequate after solicitation of a number of sources.⁴⁷ Micro-purchases may be awarded without soliciting any competitive quotations if an NFE considers the costs to be reasonable, but these purchases must be distributed equitably among qualified suppliers, to the extent practicable.⁴⁸ The Uniform Guidance does not elaborate on the definitions or processes for the remainder of the non-competitive procurements, and NFEs should look to the federal awarding agency for further guidance.

Specifications

Specifications describe the performance requirements, criteria, and characteristics of the item, construction project, or service being procured. While competitive specifications are an essential element of the bidding process, no statutory procedures govern the preparation of specifications for purchases. Local officials may develop specifications that are most appropriate for their respective units. Specifications cannot, however, intentionally or unjustifiably eliminate competition by using overly restrictive specifications.⁴⁹ The Uniform Guidance requires that solicitations include a clear description of the technical requirements for the material, product, or service to be procured; how proposers can meet the requirements of the solicitation; and how proposers will be evaluated.⁵⁰ Federal rules further explain and prohibit situations that are considered restrictive of competition, such as requiring unnecessary experience and excessive bonding or noncompetitive contracts to consultants that are on retainer contract.⁵¹

Under state law, if only one brand of product is suitable, the specification can be limited to that brand; however, specifications for materials included in construction projects must be described in terms of performance characteristics and brands can be specified only when performance specification is not possible. In such cases, at least three brands must be specified, unless it is impossible to do so, in which case the specifications must include as many brands as possible. A unit must specifically approve in advance of the bid opening preferred products that are to be listed as alternates in specifications for construction projects. A brand-specific specification is not necessarily a sole-source purchase since there may be more than one supplier of a particular brand. Similarly, the Uniform Guidance characterizes specifying brand names as restrictive of competition and prompts NFEs to allow for an equal product to be offered and to describe the performance or other relevant requirements of the procurement.⁵² However, the Uniform Guidance notes that if describing the technical requirements of a product is impractical or uneconomical, a “brand name or equivalent” description may be used.⁵³

In order to promote full and open competition, some individuals are prohibited from participating in the procurement process. Under North Carolina law, architects and engineers providing design services on public projects are prohibited from specifying any materials, equipment, or other items in which the designer has a financial interest.⁵⁴ Similarly, manufacturers cannot be involved in drawing plans or specifications for public construction projects.⁵⁵ The Uniform Guidance prohibits contractors that develop or draft specifications, requirements, statements of work, or invitations for bids or requests for proposals from competing for such procurements.⁵⁶

Contracts for the construction or repair of buildings are subject to additional statutory requirements for specifications. Depending on the cost, some project specifications must be drawn by a licensed architect or engineer.⁵⁷ If the building project is estimated to cost $300,000 or more, separate specifications must be prepared for heating, plumbing, and electrical work as well as general construction work.⁵⁸

Trade-Ins

G.S. 143-129.7 authorizes local governments to include in bid specifications for a purchase an allowance for the trade-in of surplus property and to consider the price offered, including the trade-in allowance, when awarding a contract for the purchase. This statute effects an exemption from otherwise applicable procedures for disposing of surplus property. (See the section below titled “Property Disposal” for a full description of procedures for disposing of property.)

Summary of Bidding Procedures

Informal Bidding

For North Carolina local governments, informal bidding under G.S. 143-131 is required for contracts for construction or repair work and for the purchase of apparatus, supplies, materials, or equipment costing between the minimum informal bid threshold and the formal bidding limit (see for current threshold amounts). No specific method of advertisement is required, and the statute does not specify a minimum number of bids that must be received. Informal bids can take the form of telephone quotes, faxed bids, or other electronic or written bids. The statute does require a county or municipality to maintain a record of informal bids received and specifies that such records are subject to public inspection after the contract is awarded. This prevents bidders from having access to bids already submitted when preparing their bids, a situation not present in formal bidding because bids are sealed until the bid opening. The standard for awarding contracts in the informal range is the same as the standard for formal bids—the lowest responsive responsible bidder—and is discussed later in this chapter. As noted below, for building construction or repair contracts in the informal range, the informal bidding statute requires counties and municipalities to solicit bids from minority firms and to report to the state Department of Administration on bids solicited and obtained for contracts in this dollar range.

Under the Uniform Guidance, informal bidding procedures apply to “small purchases,” which involve the acquisition of property or services when the aggregate dollar amount is higher than the micro-purchase threshold but lower than the simplified acquisition threshold. At its upper limits and due to the interplay with state law, small-purchase procedures currently apply when federal funds are used for procuring goods up to $90,000, construction or repair up to $250,000, and services up to $250,000. Procurement of professional services, which are procured using qualifications-based selection, is covered later in this chapter. Procedurally, the Uniform Guidance requires that an NFE obtain price or rate quotations from an adequate number of qualified sources. This language gives an NFE discretion to determine the “adequate” number of qualified sources but implies that the number must be greater than one. Moreover, the methods of obtaining the price or rate quotations are left up to the NFE. The quote could be obtained in writing, orally, from a vendor price list on a website, or generated via online search engine, but these quotes and the basis for the contractor selection and contract price must be documented.⁵⁹ Similar to state law, the Uniform Guidance also imposes requirements for contracting with small and minority businesses, women’s business enterprises, and labor-surplus-area firms; these requirements, known as affirmative steps, are discussed later in this chapter.⁶⁰

Formal Bidding

The requirements for formal bidding are more rigorous than informal bidding procedures. When local governments are spending public funds at the formal bidding thresholds established by state and federal law, the formal bidding procedures are designed to ensure fairness and transparency in the expenditure of public funds and make available opportunities for contractors. This section describes the elements of state and federal formal bidding processes, including advertisement, the format of the bid, and bonding requirements.

Under state law, formal bidding is synonymous with sealed bidding. The Uniform Guidance, however, classifies two types of procurement methods as formal bidding methods: sealed bids and proposals, referred to in this chapter as “competitive proposals.” Sealed bids must be used for solicitations that exceed the simplified acquisition threshold and are the preferred method for procuring construction. When federal funds are being used and due to the interplay with state law, sealed bids are required for purchases of goods starting at $90,000 and for construction or repair starting at $250,000. Competitive proposals can be used at a dollar amount deemed appropriate by an NFE. This means that soliciting for services could be accomplished by a competitive proposal starting at $250,000, although an NFE could opt for a lower threshold. Additionally, when federal funds are being used, solicitations for architectural or engineering services by competitive proposal must also comply with the North Carolina Mini-Brooks Act, which is discussed later in this chapter.

Advertisement

The North Carolina formal bidding statute, G.S. 143-129, requires counties and municipalities to advertise opportunities to bid on contracts for construction or repair, or for the purchase of apparatus, supplies, materials, and equipment, within the formal bid thresholds as described in . The minimum time period for advertisement under the statute requires that a full seven days pass between the day of the advertisement and the day of the bid opening. It is common practice to place the advertisement more than once or for a longer period of time prior to the bid opening in order to provide sufficient opportunity for response. The advertisement must list the date, time, and location of the bid opening; identify where specifications may be obtained; and contain a statement that the unit’s governing board reserves the right to reject any or all bids. For construction projects, the advertisement may also contain information about contractor licensing requirements that apply to the project. The formal bidding statute requires the advertisement to be published in a newspaper of general circulation within the given county or municipality. The statute also authorizes the governing board to approve the use of electronic advertising of bidding opportunities instead of published notice.⁶¹ On the other hand, the Uniform Guidance does not require anything more than “public advertising” that provides a sufficient time for responses to a sealed bid procurement. Likewise, competitive proposals must be “publicized” under the Uniform Guidance.

Sealed Bids

Bids must be sealed and submitted prior to the time of the bid opening. Both state law and federal rules require sealed bids to be opened in public. State law allows sealed bids to be opened before the advertised time with the permission of the bidder. Under the “dual-bidding” method of construction contracting authorized under state law (discussed later), separate-prime bids must be received (but not opened) one hour before single-prime bids. Unit staff generally conduct bid openings, but contracts must be awarded by the governing board, except for purchase contracts in jurisdictions where the board has delegated the authority to award these contracts as authorized in G.S. 143-129(a).

Once formal bids are opened, they become public records and are subject to public inspection under North Carolina’s public records laws. The only exception to this rule is contained in G.S. 132-1.2, which allows a bidder to identify trade secrets that are contained in a bid and protects that information from public disclosure.⁶²

Competitive Proposals

The Uniform Guidance identifies competitive proposals as an additional formal procurement method, generally used when conditions are not appropriate for the use of sealed bids. The Uniform Guidance does not elaborate on circumstances where sealed bids are not appropriate, but a competitive proposal is beneficial where price is not the primary factor for selecting a bidder. There are two ways in which competitive proposals can be used. First, a competitive proposal can be designed as a Request for Proposals (RFP), whereby proposers are evaluated based on evaluation factors, including price, and an award is made to the most advantageous proposal. Second, competitive proposals can be used for procuring architectural and engineering services, whereby price is not used as a selection factor and the award is made to the “most qualified offeror.” This second option is similar to the qualifications-based selection required for procuring architectural, engineering, and land surveying services under North Carolina’s Mini-Brooks Act. When an NFE is using an RFP, the Uniform Guidance imposes a few additional requirements. The RFP must identify all of the factors that will be used for evaluation and their relative importance.⁶³ Additionally, an NFE must have a written method for conducting its evaluations of proposals. Finally, proposals must be solicited from an adequate number of qualified offerors.

Electronic Bids

Counties and municipalities have several alternatives to receiving paper, sealed bids for purchase contracts in the formal bidding range. This option is not available for contracts for construction or repair in the formal range. Under G.S. 143-129.9, formal bids for purchase contracts may be received electronically⁶⁴ or through the use of a “reverse-auction” process.⁶⁵ An electronic bidding system must be designed to ensure the security, authenticity, and confidentiality of bids at least to the same extent as with sealed paper bids. Under a reverse-auction procedure, bidders compete to provide goods at the lowest selling price in an open and interactive electronic auction process. An electronic bid or reverse-auction process can be conducted by a unit itself or by a third party under contract with the unit. The statute does not allow the use of reverse auctions for the purchase of construction aggregates, including crushed stone, sand, and gravel, nor does it authorize the use of electronic bids or reverse auctions for construction contracts in the formal bidding range.

Number of Bids

According to G.S. 143-132, three bids are required for construction or repair contracts subject to formal bidding procedures. If three bids are not received after the first advertisement, the project must be re-advertised for at least the minimum time period listed under the formal bidding statute (seven days, not including the day of advertisement and the day of the bid opening) before the next bid opening. Following the second advertisement, a contract can be awarded even if fewer than three bids are received.

Note that the three-bid minimum requirement applies only to contracts for construction or repair work in the formal bidding range. This means that three bids are not required for purchase contracts in the formal range or for any contracts in the informal range. Some local governments have local policies that require a minimum of three bids for all contracts, but this is not required by state law.

In comparison, the Uniform Guidance requires that, for sealed-bid procurement, at least two bids be received, but the Uniform Guidance does not impose a minimum number of proposals for competitive proposals. Determining the required number of bids is an instance where local governments may need to apply the “most restrictive rule.” For example, if only two bids are received for a federally funded construction project that is above the North Carolina threshold for formal bidding, the procurement process cannot proceed because the three-bid minimum under state law has not been met, even though two bids are sufficient under the Uniform Guidance.

Bid, Performance, and Payment Bonds

Bonds or statutorily authorized bond substitutes are required for construction or repair contracts in the formal bid range. A bid for construction or repair work submitted in response to a formal bidding procurement—whether under state law or federal rules—must be accompanied by a bid deposit or bid bond of at least 5 percent of the bid amount. The bid bond or deposit guarantees that the bidder to whom a contract is awarded will execute the contract and provide performance and payment bonds prior to the commencement of work on the project. North Carolina law specifies the forms in which the bid security may be submitted: a bid bond, a bid deposit in cash, a cashier’s check, or a certified check. No other form of security, such as a letter of credit, is authorized under state law. The Uniform Guidance contemplates the bid security in the form of a bid bond or cashier’s check but also allows for other negotiable instruments.

Specific procedures are set forth in G.S. 143-129.1 for the withdrawal of a bid. A bid may be withdrawn under those procedures without forfeiting the bid bond only if the bidder can demonstrate that he or she has made an unintentional and substantial error, as opposed to an error in judgment. The law does not allow a bidder to correct a mistake, only to withdraw a bid if proof of an unintentional error is shown. If the bidder can demonstrate that the error was substantial and unintentional, the bid may be withdrawn without the bid bond being forfeited so long as the request for withdrawal is made within seventy-two hours of the bid opening.⁶⁶

State law requires that counties and municipalities obtain performance and payment bonds from the successful bidder on major construction or repair projects exceeding the formal bidding threshold, and the Uniform Guidance requires the same for construction or facility improvements contracts above the simplified acquisition threshold. A performance bond guarantees the contractor’s performance under the contract and provides the county or municipality with security in the event the contractor defaults and cannot complete the project. The payment bond protects the subcontractors who supply labor or materials to the project and provides a source of payment to those subcontractors in the event they are not paid by the general contractor. North Carolina law authorizes counties and municipalities to accept deposits of cash, certified checks, or government securities in lieu of bonds.⁶⁷

Evaluation of Bids and Responsiveness

Once received, bids must be evaluated to determine whether they meet the specifications and are eligible for award—that is, whether they are responsive bids. The bid evaluation process is important to maintaining the integrity of the bidding process as a whole. If a county or municipality accepts bids that contain significant deviations from the specifications, other bidders may object. Indeed, courts have recognized that a governmental unit receiving bids does not have unlimited discretion in waiving deviations from specifications. North Carolina courts have held that a unit must reject a bid that contains a “material variance” from specifications, defined as a variance that gives the bidder “an advantage or benefit which is not enjoyed by other bidders.” ⁶⁸ Even though specifications may reserve to a unit the ability to “waive minor irregularities,” the unit’s assessment of what constitutes a minor irregularity must be based upon the legal standard established by the courts. Thus, if the low bid omits a required feature that the unit feels it cannot live without, the unit must reject the defective bid. Similarly, if waiving the irregularity would give that bidder an unfair competitive advantage over other bidders (such as saving that bidder time or money in compiling the bid proposal), the unit must reject the bid. When the low bid is rejected, the unit then has the option of accepting the next-lowest responsive, responsible bid or rejecting all the bids, revising or clarifying the specifications, if necessary, and rebidding the contract.

A bid must also be rejected as nonresponsive if it fails to satisfy a statutory requirement applicable to the particular contract. For example, a bid in the formal range that is submitted after the advertised bid deadline, or a formal bid for a construction project that is submitted without the required bid bond, must be rejected. While a unit has the discretion to waive minor irregularities, it does not have the authority to waive statutory requirements.

Cost and Price Analysis

When using federal funds, a non-federal entity (NFE) must perform a cost or price analysis before awarding a contract for every procurement action exceeding the simplified acquisition threshold.⁶⁹ The independent cost estimate serves as a tool for evaluating the reasonableness of a contractor’s proposed costs or prices. Price analysis is essentially price comparison. It is the evaluation of a proposed price without analyzing any of the separate cost elements. Conversely, cost analysis is the evaluation of the separate elements (e.g., materials) that make up a contractor’s total cost proposal to determine if the costs are reasonable. A cost analysis is used when price competition does not exist—for example, when negotiating a sole-source contract, or after soliciting competitive bids, only one bid is received. The method and degree of analysis required for each procurement situation varies, and federal agencies usually issue specific guidance on conducting the appropriate analysis.

Standard for Awarding Contracts

Under state law, both the formal and informal bid statutes require that contracts be awarded to the “lowest responsible bidder or bidders, taking into consideration quality, performance and the time specified in the proposals for the performance of the contract.” ⁷⁰ Similarly, the Uniform Guidance dictates that NFEs award contracts only to “responsible contractors possessing the ability to perform successfully under the terms and conditions of a proposed procurement,” and NFEs can consider matters such as contractor integrity, public policy, past performance, and financial and technical resources.⁷¹ Pursuant to federal rules, small purchases can be awarded to a contractor so long as the price is fair and reasonable.

Although the “lowest responsible, responsive bidder” standard probably creates a presumption in favor of the bidder who submits the lowest dollar bid, it clearly does not require an award to the lowest bidder in all cases. The North Carolina Court of Appeals has held that the formal bid statute authorizes a local government to request information from bidders about their experience and financial strength and to consider this information in determining whether the low bidder is responsible.⁷² The court found that the term “responsibility” refers to the bidder’s capacity to perform the contract and that the statute authorizes the board to evaluate the bidder’s experience, training and quality of personnel, financial strength, and any other factors that bear on the bidder’s ability to perform the work.

A local government must carefully document the factual basis for any award to a bidder who did not submit the lowest bid and be diligent in investigating the facts to make sure that the information it relies upon is accurate and reliable. The county or municipality does not necessarily have to demonstrate that a contractor is not responsible generally, only that the contractor does not have the skills, experience, or financial capacity for the contract in question.

Additionally, under state law, construction or repair contracts that are subject to the formal bidding requirements must be awarded by a unit’s governing body. For purchase contracts in the formal range, G.S. 143-129(a) authorizes the board to delegate to the unit’s manager, chief purchasing official, or another employee the authority to award contracts or to reject bids and re-advertise the contract and opportunity to bid. The informal bidding statute does not dictate who must award contracts. This responsibility is usually delegated to the unit’s purchasing agent or to other employees responsible for handling informal contracts.

Local governments also have broad authority under state law to reject any or all bids for any reason that is not inconsistent with the purposes of the bidding laws.⁷³ Likewise, the Uniform Guidance states that any or all sealed bids may be rejected if there is a “sound documented reason.”⁷⁴

Local Preferences

Local governments in North Carolina do not have specific statutory authority to establish preferences in awarding contracts, such as preferences for local or minority contractors.⁷⁵ A local preference would conflict with the legal requirement in both the formal and informal bidding range that contracts be awarded to the lowest responsive, responsible bidder. Although some may think it economically or politically desirable, it is not legal to assume that a local contractor is more responsible than others under this standard for awarding contracts.⁷⁶ The Uniform Guidance explicitly prohibits the use of geographical preferences unless federal statutes mandate or encourage the preference.⁷⁷

Under state law, preferences or targeted contracting efforts may be permissible, however, for contracts that are not subject to the competitive bidding requirements, such as service contracts or contracts below the minimum bid threshold (see ). Counties and municipalities can also establish procedures to identify local and minority contractors and notify them of contracting opportunities.

Special Rules for Building Contracts

Bidding and Construction Methods

In addition to the bidding requirements for contracts involving construction or repair work described above, there are several special requirements under state law for construction and repair contracts involving buildings. First, state law limits the bidding and construction methods counties and municipalities may use for major building construction. For building construction projects that are above the dollar threshold contained in G.S. 143-128 (see ), local governments may use any of the following contracting methods: separate prime,⁷⁸ single prime,⁷⁹ construction management at risk,⁸⁰ design-build,⁸¹ design-build bridging,⁸² or public-private partnership.⁸³

Under traditional construction delivery methods, the prime contract is the contract directly between the owner—the unit of government—and the contractor. These contracts are customarily arranged as either single-prime or separate-prime contracts. In a single-prime contract, the general contractor has the prime contract with the owner and all other contracts are subcontracts with the general contractor. Under the separate-prime (also called multiple-prime) system, contractors in the major trades⁸⁴ submit separate bids to and contract directly with the public owner. Bids also may be received on a “dual-bidding” basis, under which both separate-prime and single-prime bids are solicited. Under dual bidding, the unit may consider the cost of construction oversight, time for completion, and other factors it deems appropriate in determining whether to award a contract on a single-prime or separate-prime basis, and it may award to the lowest responsive, responsible bidder under either category.

The procurement process for alternative construction-delivery methods—construction management at risk, design-build, design-build bridging, and public-private partnership—is substantially different from that for traditional construction-delivery methods.⁸⁵ Generally, contracts for alternative construction-delivery methods are procured pursuant to state law using the qualification-based process that applies to design and surveying services (described below) and may be used only after the local government has determined that using an alternative construction delivery method over a traditional delivery method is in the best interest of the project.

The alternative construction-delivery methods vary in the applicable procurement and contracting processes.⁸⁶ Under the construction management at risk method, the construction manager contracts to oversee and manage construction and to deliver the completed project at a negotiated guaranteed maximum price. The construction manager is required to solicit bids and award contracts for all of the actual construction work (including general contracting work) to prequalified subcontractors. Under the design-build method, the unit enters into one contract with a team comprised of design professionals and contractors (design-build team) to both design and build the project. The design-build bridging method involves a two-contract process under which the unit first contracts with a design professional to design 35 percent of the project and then contracts with a design-build team to complete the design and perform the construction. While the contract with the design professional is procured using the qualification-based selection method, the contract with the design-build team is awarded under the lowest responsive, responsible bidder standard. A public-private partnership contract involves one contract between the unit and a private developer in which the developer finances at least 50 percent of the project and where the roles and responsibilities of the unit and the developer are delineated in a negotiated development contract.

The use of alternative construction-delivery methods in compliance with the Uniform Guidance is challenging, at best, because a conflict exists between selection processes under North Carolina law and the federal procurement standards. In selecting a construction manager at risk or design-builder, a unit must employ a qualifications-based selection process in compliance with the North Carolina Mini-Brooks Act. However, the federal procurement standards contained in the Uniform Guidance specifically limit an NFE’s use of qualifications-based selection to the procurement of “architectural/engineering (A/E) professional services” and note that qualifications-based selection “cannot be used to purchase other types of services through A/E firms that are a potential source to perform the proposed effort.”⁸⁷ Because units must abide by this Uniform Guidance provision when using federal funds, this restriction likely prohibits a unit of local government from employing the state-mandated qualifications-based selection process required to choose a construction manager at risk or design-builder.⁸⁸

Historically Underutilized Business and Minority and Women-Owned Business Enterprise (MWBE) Participation

Public agencies, including counties and municipalities, are required under G.S. 143-128.2 to establish a percentage goal for participation by historically underutilized business (HUB) contractors in major building construction or repair projects, to make efforts to include these contractors in these projects, and to require prime contractors to either meet or make good-faith efforts to attain the established HUB participation goal.⁸⁹ The law does not establish or authorize a quota or set-aside of particular contracts for HUB contractors or a preference for HUB contractors in awarding contracts. Failure to make the statutorily mandated minimum good-faith efforts is grounds for rejection of a bid.⁹⁰ The statute specifically states, however, that contracts must be awarded to the lowest responsible, responsive bidder and prohibits consideration of race, sex, religion, national origin, or handicapping condition in awarding contracts. Counties and municipalities are required to establish a minority business participation outreach plan and to report data regarding minority outreach and participation on specific projects to the State Department of Administration. Counties and municipalities also have authority under G.S. 160A-17.1 to comply with minority/women business enterprise program requirements that may be imposed as a condition of receiving federal or state grants and loans.

The Uniform Guidance requires that NFEs take all necessary affirmative steps to assure that minority businesses, women’s business enterprises, and labor-surplus-area firms are used when possible.⁹¹ This requirement applies regardless of contract type and dollar amount. The required affirmative steps can be found in 2 C.F.R. § 200.321 and are similar to the good-faith efforts required of local governments under North Carolina state law. Generally speaking, NFEs are not required to meet any federal MWBE goals when using federal funds. However, some federal agencies, such as the Department of Transportation, impose Disadvantaged Enterprise (DBE) goals, and in North Carolina, the North Carolina Department of Transportation administers the DBE program.

Requirements for Design and Surveying Services

State law specifies when plans and specifications for public building projects must be prepared by a registered or licensed architect or engineer.⁹² The statutory thresholds (set forth in ), vary depending on whether the project involves new construction or renovation that calls for foundation or structural work or that affects life safety systems. This requirement applies even if the work is to be done by a unit’s own forces, subject to the force-account limits discussed earlier.

When selecting architects, engineers, surveyors, and alternative construction-delivery methods (construction manager at risk, design-build, design-build bridging, and public-private partnership), G.S. 143-64.31 requires public agencies to do so based on qualifications instead of bid prices. The statute prohibits public agencies from asking for pricing information, other than unit prices (understood to mean hourly rates), until after the best-qualified person or firm is identified. Fees are then negotiated to develop a final contract. Local government units that do not wish to use the qualification-based process required under the statute have the ability under G.S. 143-64.32 to approve an exemption for any particular project where the fee is less than $50,000. While approval by a unit’s governing board is not required, the statute does require the unit to exempt itself in writing. Once exempt, the unit can either negotiate a contract or conduct a competitive bidding or other process under which it solicits fee pricing to select the design professional for services in these categories.

Similarly, under the Uniform Guidance, an NFE may use competitive proposal procedures for qualifications-based procurement of architectural/engineering (A/E) professional services. Using this method, price is not a selection factor and an offeror’s qualifications are evaluated, and the most-qualified offeror is selected, subject to the negotiation of fair and reasonable compensation.

Protests and Legal Challenges

Unlike the laws governing state contracting, North Carolina laws governing local government contracting do not require local governments to establish bid protest procedures. North Carolina courts have held that if a contract is subject to the statutory competitive bidding procedures and those procedures are not followed, the contract is void.⁹³ If a bidder is dissatisfied with a decision of a county or municipality—for example, to award a contract to the second-lowest bidder or to accept a bid that does not meet specifications—the bidder can attempt to resolve these concerns by registering a complaint with the local official responsible for the contract or directly with the unit’s governing board. As a practical matter, it is best for the unit to attempt to resolve the matter, but there is no legal requirement for a hearing or other formal disposition of the complaint. If the matter is not resolved administratively, the only legal option is for the aggrieved party to sue the unit of government, typically for an injunction to prevent the unit from going forward with an alleged illegal contract.⁹⁴ It is not unusual for protests to be lodged with local government officials or with governing boards, though legal challenges are rare.

If an issue arises under a contract supported with federal funds, the Uniform Guidance places the sole burden on the NFE to manage the issue.⁹⁵ Moreover, because NFEs must have written procedures regarding procurement transactions that address all applicable law, NFEs necessarily must have written procedures to address procurement and contracting disputes, such as source evaluation, protests, and claims. However, the Uniform Guidance does not require any specific procedures for resolution of procurement or contracting issues, and the federal government will not substitute its judgment unless the matter is primarily a federal concern.

Property Disposal

Under state law, county and municipal governments generally dispose of both real and personal property in accordance with the procedures set forth in G.S. Chapter 160A, Article 12, though there are a few other disposition procedures set out in other statutes applicable to special situations.⁹⁶ These various statutes authorize several methods for selling or disposing of property and set forth the procedures for each one. This section discusses state law property-disposal methods and includes a separate section that briefly examines the disposition of property that was acquired with federal funds. However, before examining property-disposal methods and rules, it is useful to discuss one introductory matter: the need for consideration when disposing of local government property.

Consideration

Under the North Carolina Constitution, it is generally unconstitutional for a local government to dispose of property for less than its fair market value.⁹⁷ A gift of property or a sale at well below market value constitutes the granting of an “exclusive privilege or emolument” to the person receiving the property, which is prohibited by Article I, Section 32, of the state constitution. Most of the procedures by which a local government is permitted to sell or otherwise dispose of property are competitive, and the North Carolina Supreme Court has indicated that the price resulting from an open and competitive procedure will be accepted as the market value.⁹⁸ If a sale is privately negotiated, the price will normally be considered appropriate unless strong evidence indicates that it is so significantly below market value as to show an abuse of discretion.⁹⁹

It is not always constitutionally necessary that a local government receive monetary consideration when it conveys property. If the party receiving the property agrees to put it to some public use, that promise constitutes sufficient consideration for the conveyance.¹⁰⁰ (The recipient in this case is often, but not always, another government unit.) The General Statutes expressly permit the following such conveyances: those made to the state and to local governments within North Carolina (G.S. 160A-274); to volunteer fire departments and rescue squads (G.S. 160A-277); to nonprofit preservation or conservation organizations (G.S. 160A-266(b)); to nonprofit agencies to which the county or municipality is authorized to appropriate money (G.S. 160A-279); and to governmental units within the United States, nonprofits, charter schools, and sister cities (G.S. 160A-280).

Disposal Methods under North Carolina State Law

G.S. Chapter 160A, Article 12 sets out three competitive methods of sale, each of which is appropriate in any circumstance for disposing of both real and personal property of any value: sealed bid, negotiated offer and upset bid, and public auction. Article 12 also permits privately negotiated exchanges of property in any circumstance (so long as equal value changes hands) and privately negotiated sales or other dispositions of property in a number of limited circumstances. In addition, a few other statutes permit privately negotiated sales or other dispositions of property, again in limited circumstances. These various methods of disposition are summarized in the following sections. In undertaking any of them a local government must remember that the statutory procedure must be followed exactly or the transaction may be invalidated by a court.¹⁰¹

Sealed Bids

A local government may sell any real or personal property by sealed bid (G.S. 160A-268). The procedure is based on that set forth in G.S. 143-129 for entering into purchase contracts in the formal bidding range, with one modification for real property. An advertisement for sealed bids must be published in a newspaper that has general circulation in the county (for a county government) or in the county in which the municipality is located (for a municipal government). When selling personal property, publication must occur seven full days (not counting the day of publication or the day of bid opening) before the bids are opened; when selling real property, publication must occur thirty days before the bids are opened. The advertisement should generally describe the property; tell where it can be examined and when and where the bids will be opened; state whether a bid deposit is required and, if so, how much it is and the circumstances under which it will be retained; and reserve the governing board’s right to reject any and all bids. Bids must be opened in public, and the award is made to the highest responsible bidder.

The sealed-bid procedure appears to be designed to obtain wide competition by providing public notice and good opportunity for bidders to examine the property being sold. In addition to formal advertising, invitations to bid may be mailed directly to prospective buyers, just as they are typically sent to prospective bidders in the formal purchasing procedures for personal property.

Negotiated Offer and Upset Bids

A local government may sell any real or personal property by negotiated offer and upset bid (G.S. 160A-269). The procedure begins when the local government receives and proposes to accept an offer to purchase specified government property. The offer may either be solicited by the local government or made directly by a prospective buyer on his or her own initiative. The governing board then requires the offeror to deposit a 5 percent bid deposit with its clerk and publishes a notice of the offer. The notice must describe the property; specify the amount and terms of the offer; and give notice that the bid may be raised by not less than 10 percent of the first $1,000 originally bid, plus 5 percent of any amount above $1,000 of the original bid. Upset bids must also be accompanied by a 5 percent bid deposit. Prospective bidders have ten days from the date on which the notice is published to offer an upset bid. This procedure is repeated until ten days have elapsed without the local government receiving a qualifying upset bid. After that time the board may sell the property to the final offeror. At any time in the process, it may reject any and all offers and decide not to sell the property.

Public Auctions

A local government may sell any real or personal property by public auction under G.S. 160A-270. The statute sets out separate procedures for the auctioning of real and personal property and authorizes electronic auctions. For real property, the unit’s governing board must adopt a resolution that authorizes the sale; describes the property; specifies the date, time, place, and terms of the sale; and states that the board must accept and confirm the successful bid. The board may require a bid deposit. A notice containing the information set out in the resolution must be published at least once and not less than thirty days before the auction. The highest bid is reported to the governing board, which then has thirty days to accept or reject it.

For personal property, the same procedure is followed except that (1) the governing board may in the resolution authorize an appropriate official to complete the sale at the auction and (2) the notice must be published not less than ten days before the auction.

G.S. 160A-270(c) permits a local government to sell either real or personal property by electronic auction. The governing board must follow the same procedures as set out above, but in addition the notice must specify the electronic address where information about the property to be sold can be found and the electronic address at which electronic bids may be posted. In recent years, electronic auctions through such sites as GovDeals.com¹⁰² have largely replaced live public auctions and have become the most common method of competitive sale disposal for personal property.

Exchange of Property

Under state law, a local government may exchange any real or personal property for other real or personal property if it receives full and fair consideration for the property.¹⁰³ After the terms of the exchange agreement are developed by private negotiations, the governing board will authorize the exchange by resolution adopted at a regular meeting. A notice of intent to make the exchange must be published at least ten days before the board meeting at which the resolution will be adopted. The notice must describe the properties involved; give the value of each, as well as the value of other consideration changing hands; and cite the date of the regular meeting at which the board proposes to confirm the exchange.

Trade-In

A local government may convey surplus property as a “trade-in” as part of a purchase contract (G.S. 143-129.7). The local government must include a description of the surplus property in its bid specifications, and the amount offered by bidders for the surplus property is taken into account when evaluating bids. The unit awards one contract to the winning bidder for both the sale of the surplus property and the purchase of the new property. While the purchase contract must comply with the applicable competitive bidding requirements, the transaction need not comply with the disposal procedures of G.S. 160A-271 (exchange of property).

Private Negotiation and Sale: Personal Property

A local government may use private negotiation and sale to dispose of personal property valued at less than $30,000 for any one item or any group of similar items (G.S. 160A-266, -267). Note that this procedure may not be used to dispose of real property. Under G.S. 160A-266(b) and -267, the unit’s governing board, by resolution adopted at a regular meeting, may authorize an appropriate official to dispose of identified property by private sale. The board may set a minimum price but is not required to do so. The resolution must be published at least ten days before the sale.

Alternatively, G.S. 160A-266(c) authorizes a governing board to establish procedures under which county or municipal officials may dispose of personal property valued at less than $30,000 for any one item or any group of similar items without further board action and without published notice. The procedures must be designed to secure fair market value for the property disposed of and to accomplish the disposal efficiently and economically. The procedures may permit one or more officials of a unit to declare qualifying property to be surplus, to set its market value, and to sell it by public or private sale. The board may require the official to use one of the statutory methods, including an electronic auction, or may permit other sorts of procedures, such as a consignment agent or a surplus property warehouse. The statute requires the selling official to maintain a record of property sold under any such procedures. It is important to note that this delegated authority only applies to personal property valued at less than $30,000. If the property is to be sold for an amount of $30,000 or more, one of the competitive disposal procedures described above must be used, unless another statutorily authorized disposal method applies.

Private Negotiation and Conveyance to Other Governments

G.S. 160A-274 authorizes any governmental unit in the state, on terms and conditions it “deems wise,” to sell to, purchase from, exchange with, lease to, or lease from any other governmental unit in North Carolina any interest in real or personal property that one or the other unit may own. “Governmental unit” is defined to include municipalities, counties, the state, school units, and other state and local agencies. The only limitations on this broad authority is that before a local board of education may lease real property that it owns, it must determine that the property is unnecessary or undesirable for school purposes, and it may not lease the property for less than $1 per year.¹⁰⁴ While governing board approval is required, bids and published notices are not. Thus, when reaching agreements on conveying property to another governmental unit, a unit’s governing board has full discretion concerning the procedure for and the terms and conditions of the conveyance.

Other Negotiated Conveyances: Real and Personal Property

A municipality or county may, in limited circumstances, convey real and personal property by private negotiation and sale, sometimes without monetary consideration.

Economic Development

G.S. 158-7.1(d) permits a county or municipality (but no other form of local government) to convey interests in property suitable for economic development by private sale. Before making such a conveyance, a unit’s governing board must hold a public hearing with at least ten days’ published notice of the hearing. The notice must describe the interest to be conveyed, the value of the interest, the proposed consideration the government will receive, and the board’s intention to approve the conveyance. In addition, before making the conveyance the board must determine the probable average wage that will be paid to workers at the business to be located on the property.

The statute requires the governing board to determine the fair market value of the property and prohibits the board from conveying the property for less than that value. The county or municipality, in arriving at the amount of consideration it will receive, may count prospective tax revenues for the next ten years from improvements added to the property after the conveyance, prospective sales tax revenues generated by the business located on the property during that period, and any other income coming to the government during the ten years as a result of the conveyance.

Community Development

G.S. 160D-1312 permits a municipality (but not a county or any other unit of local government) to convey interests in property by private sale when such property is within a community-development project area. The property must be sold subject to covenants that restrict its eventual use to those consistent with the community-development plan for the project area. The statute requires that the property be appraised before it is sold and prohibits the municipality from selling it for less than the appraised value.

Once a municipality has reached agreement on a conveyance pursuant to this statute, it must publish notice of a public hearing on the transaction for the two weeks running up to the hearing. The notice should describe the property, disclose the terms of the transaction, and give notice of the municipality’s intention to convey the property. At the hearing itself, the municipality must disclose the appraised value of the property.

Nonprofit Agencies

G.S. 160A-279 permits a county or municipality to convey real or personal property to any nonprofit agency to which it is authorized by law to appropriate funds, although property acquired through condemnation may not be so conveyed. The same procedures must be followed as are required by G.S. 160A-267 for other private sales. In making a conveyance under this statute, a county or municipality may accept as consideration the nonprofit agency’s promise to put the property to some public use. In such instances, the county or municipality must put a covenant or condition on the conveyance guaranteeing that the nonprofit will put the property to public use.

Property for Affordable Housing

Both counties and municipalities may convey property by private sale in order to provide affordable housing (i.e., housing for persons of low or moderate income) pursuant to G.S. 160D-1316. This statute allows local government to make two sorts of conveyances. First, a local government may convey residential property directly to persons of low or moderate income and if it does so, it must follow the same procedures as are required by G.S. 160A-267 for other private sales. Second, a local government may convey property to a public or private entity that provides affordable housing for others, so long as the local government imposes conditions or covenants to ensure that the property will be used as affordable housing.

A complicated series of statutes permits municipalities to convey property specifically to nonprofit entities that will construct affordable housing. First, G.S. 160D-1311 permits a city council to exercise any power granted by law to a housing authority. Second, G.S. 157-9 authorizes a housing authority to provide “housing projects,” a term defined in G.S. 157-3 to include programs that assist developers and owners of affordable housing. Third, G.S. 160A-20.1 permits a municipality to appropriate money to a private organization to do anything a municipality is authorized to do, including providing affordable housing. And fourth, G.S. 160A-279, summarized in the subsection on nonprofits above, authorizes a municipality to convey property to any nonprofit agency to which it may appropriate money.

Fire or Rescue Services

G.S. 160A-277 permits counties and municipalities to lease or convey to volunteer fire departments or rescue squads serving their jurisdictions land to be used for constructing or expanding fire or rescue facilities. The governing board of a unit must approve the transaction by adopting a resolution at a regular meeting after ten days’ published notice. The notice should describe the property, state its value, set out the proposed monetary consideration or the lack thereof, and declare the board’s intention to approve the transaction. (Almost all fire or rescue organizations are nonprofit in nature, so a local government may also use G.S. 160A-279 to convey property to them, including personal property; G.S. 160A-280 also provides authority for conveying personal property to these nonprofit organizations.)

Architectural and Cultural Property

G.S. 160A-266(b) permits a county or municipality to convey, after private negotiation, real or personal property that is significant for archaeological, architectural, artistic, cultural, or historic reasons; for its association with these types of properties; or for its natural, scenic, or open condition. The conveyance must be to a nonprofit corporation or trust whose purposes include the preservation or the conservation of such property, and the deed must include covenants and other restrictions securing and promoting the property’s protection.¹⁰⁵ A local government making a conveyance under this provision must follow the same procedures as described earlier for the private sale of real or personal property under G.S. 160A-267.

Open Space

G.S. 160D-1303 permits a local government to conserve open space by acquiring title to property and then conveying it back to the original owner or to a new owner, in either case subject to covenants requiring that the property be maintained as open space. If the conveyance is back to the original owner, the statute permits it to be made by private sale pursuant to G.S. 160A-267. Otherwise, however, the government must use one of the competitive sale methods.

Other Private Conveyances

A number of other statutes permit private sales of property in narrow circumstances; only one of these statutes sets out required procedures.

1. G.S. 160A-321 permits the private sale of any entire municipal enterprise. Unless the enterprise is conveyed to another government, however, the statute requires voters of the municipality to approve the conveyance for the following kinds of enterprises: electric power distribution; natural gas distribution; public transportation; cable television; and stormwater management.

2. G.S. 105-376(c) permits a government that has acquired property through a tax foreclosure to convey the property back to the original owner or to any other person or entity that had an interest in the property (such as a deed of trust).

3. G.S. 153A-163 permits a government that has acquired property through a loan foreclosure to sell the property by private sale, so long as it receives at least as much as it paid for the property.

4. G.S. 153A-177 permits a government that has been given property for a specified purpose to give the property back to the donor if it will not use the property for the specified purpose.

5. G.S. 40A-70 permits a government that has acquired property through eminent domain which it no longer needs to convey the property back to the condemnee, so long as the government receives in return its original purchase price, the cost of any improvements, and interest.

6. G.S. 160A-342 permits a municipality that operates a cemetery to convey it to a private operator of cemeteries upon the condition that the property will continue to be used as a cemetery.

7. G.S. 20-187.2 permits a unit’s governing board to convey a law enforcement officer’s badge and service side arm to a retiring law enforcement officer or to the family of an officer killed in the line of duty.

8. G.S. 20-187.4 authorizes government agencies to convey a retiring law enforcement service animal to the animal’s handler or to an organization that provides services for retired service animals at a price and under terms and conditions set by the local government.

Lease of Property

A county or municipality may lease any real or personal property it owns that its governing board finds will not be needed during the term of the lease—in essence, the county or municipality is permitted to make a temporary disposal of the property since the lease agreement gives exclusive use of the property to the lessee (G.S. 160A-272). The procedure to be followed depends on the length of the lease. The board may, by resolution at any meeting, make leases for one year or less. It may also authorize the unit’s manager or some other administrative officer to take similar action concerning a lease of government property for the same period.

The governing board may lease government-owned property for periods longer than one year and up to ten years by a resolution adopted at a regular meeting after thirty days’ published notice of its intention to do so. The notice must describe the property to be leased, specify the annual lease payment, and give the date of the meeting at which the board proposes to approve the action.

A lease for longer than ten years must be treated, for procedural purposes, as if it were a sale of property. It may be executed by following any procedure authorized for selling real property.¹⁰⁶

Grant of Easements

A county or municipality may grant easements over, through, under, or across any of its property (G.S. 160A-273). The authorization should be by resolution of the unit’s governing board at a regular meeting. No special published notice is required, nor is the grant subject to competition.

Sale of Stocks, Bonds, and Other Securities

A county or municipality that owns stocks, bonds, or other securities that are traded on the national stock exchanges or over the counter by brokers and securities dealers may sell them in the same way and under the same conditions as a private owner would (G.S. 160A-276).

Property Disposal Under the Uniform Guidance

Disposition by a non-federal entity (NFE) of federally funded property must follow the rules found in the Property Standards section within Subpart D of the Uniform Guidance. The Property Standards classify four major categories of property: real property, equipment, supplies, and intangible property. ¹⁰⁷ If federal funds have been used to purchase property, title to the property typically vests in the NFE. However, the Uniform Guidance establishes a “property trust relationship” for real property, equipment, and intangible property acquired or improved using federal funds. This means that for those specific property types, the property is held in trust by the NFE as trustee for the beneficiaries of the program under which the property was acquired or improved.¹⁰⁸ This section focuses on the disposition rules for real property and equipment and supplies. In any instance, disposition of federally funded property must also comply with disposition rules in North Carolina state law, meaning, for example, that even if a federal awarding agency allows an NFE to sell real property, a unit of local government must still follow the procedures required for the sale of real property under Article 12 of Chapter 160A of the General Statutes, discussed earlier in this chapter.

Real Property

When real property is no longer needed by an NFE for its original federally funded purpose, the Uniform Guidance provides NFEs with three disposition options: paying the federal awarding agency and retaining title to the property, selling the property and compensating the federal awarding agency, or transferring title of the property to the federal awarding agency.¹⁰⁹ The formula for calculating the actual amount to be paid to the federal awarding agency varies depending on the option but generally involves paying the awarding agency an amount proportional to the agency’s contribution toward the property acquisition or improvement.

Equipment and Supplies

Disposition of federally funded equipment is required when it is no longer needed for the original project or for activities funded by the federal award.¹¹⁰ An NFE will need to request disposition instructions from the federal awarding agency unless such instructions are identified in the federal award’s terms and conditions. If the federal awarding agency fails to provide disposition instructions within 120 days of the request, or if the items of equipment have a current per-unit fair market value of $5,000 or more, an NFE may either retain or sell the federally funded equipment.¹¹¹ Proper sales procedures must be established to ensure the highest possible return. The federal awarding agency is entitled to an amount calculated by multiplying the current market value or proceeds from the sale by the federal percentage of participation in the cost of the original purchase.¹¹² Items of equipment with a current per-unit fair market value of $5,000 or less may be retained, sold, or otherwise disposed of with no further obligation to the federal awarding agency, but an NFE must still request disposition instructions from that agency.¹¹³

Once supplies that were purchased with federal funds are no longer needed for any federal award and the aggregate value of the unused supplies exceeds $5,000, an NFE must retain or sell the supplies and must compensate the federal awarding agency for its share.¹¹⁴ The compensation due to the awarding agency is calculated in the same manner as equipment under 2 C.F.R. § 200.313(e)(2).

Additional Resources

Bluestein, Frayda S. A Legal Guide to Purchasing and Contracting for North Carolina Local Governments. 2nd ed. Chapel Hill: UNC Institute of Government, 2004.

Houston, Norma R. A Legal Guide to Construction Contracting for North Carolina Local Governments. 5th ed. Chapel Hill: UNC School of Government, 2015.

Houston, Norma R. North Carolina Local Government Contracting: Quick Reference and Related Statutes. Chapel Hill: UNC School of Government, 2014.

Lawrence, David M. Local Government Property Transactions in North Carolina. 2nd ed. Chapel Hill: UNC Institute of Government, 2000.

The School of Government’s Local Government Purchasing and Contracting microsite, under the headings “REFERENCE MATERIALS” and “RESOURCES,” offers materials on purchasing, construction contracting, and property disposal. www.sog.unc.edu/resources/microsites/local-government-purchasing-and-contracting.

Appendix 11.1 Dollar Thresholds in North Carolina Public Contracting Statutes

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