This. The contract is that the bowl gets to pick 3rd or 4th, etc. They can pick whoever they want, if they have the 2nd pick and want to pick the team that finished 10th in the standings, they can do that.Not quite. Bowls have contracts with conferences that let's them get pick teams in a certain order, they don't have to pick the best team available from that conference
But I don't think they can/will go outside their conference tie ins unless the conference doesn't enough bowl eligible teams.
If CU is sitting at 7-5 and 7th in the pac 12, I could see the San Antonio or Holiday bowl using their pick on CU instead of an 11-1, 10-2, or 9-3, UU, OSU, WSU, UCLA, etc.