Summary: When federal funds are involved on a local project, the local municipality needs to be very cautious when attempting to institute local hiring preferences. Courts will most likely side with the decision made by the federal agency provided that decision is not arbitrary or capricious.
Case: The issue before the Court was whether a city can mandate a certain percentage of city residents as workers on a road improvement project that is partially funded by federal money. The answer is “yes,” provided the city’s ordinance does not violate federal law or regulations.
In preparing a bid package for a local project, the City of Cleveland included reference to its Lewis Law, a city ordinance that requires 20% of the work on the project to be performed by city residents. Upon reviewing the bid package, Ohio Department of Transportation advised the City that failure to remove the Lewis Law language would lead to the withdrawal of federal funds, as the City’s local hiring preference requirement violated certain federal laws. The City altered the bid package by removing reference to the Lewis Law. However, subsequently, the City’s contractual agreement with contractor incorporated the Lewis Law’s requirements. As a result, the applicable federal agencies withdrew their federal support.
The City filed suit seeking a declaration that the application of the Lewis Law did not violate federal laws. Although the Court of Appeals agreed with the City that the substance of the Lewis Law itself did not violate federal law, the Court ultimately denied the City’s request reasonably that the withdrawal of funds was authorized under the discretion conferred by the federal agencies involved and by 23 U.S.C. §112(b), which prohibits contract requirements that are not expressly set forth in the advertised bid specification.