Happy New Year!

Best wishes for a wonderful new year! May it be a year of great personal and professional satisfaction for you.

During 2008, this blog received more than 4,700 visits from 62 countries around the world.

In 2009, I will continue to provide timely and relevant information to help government agencies and businesses in the area of contracting.

Michael E. Purdy Associates
Strategies - Solutions - Training

New 2009 IRS Mileage Reimbursement Rates

The IRS announced that the optional standard mileage rates for 2009 will decrease from 58.5 cents per mile (applicable to the last six months of 2008) to 55 cents per mile, effective January 1, 2009.

The reduction is in recognition of decreases in the price of gas over the last number of months. In the middle of 2008, the IRS took the unusual step of increasing the mileage reimbursement rate from 50.5 cents per mile to 58.5 cents per mile in recognition of spiking gas prices. The 2009 rate announced reflects the declining price of gas.

The IRS announcement on the new mileage reimbursement rate may be found on the IRS website.

Force Majeure and Winter Storms

With the severe winter snow storm that has engulfed much of Washington state, and for that matter the northern part of the nation, it's a good time to think about "Force Majeure" and how that impacts public works construction projects.

"Force Majeure" is a French term, literally meaning "superior force" and is often referred to as "Acts of God." Depending on your contract provisions, Force Majeure may include the following:

• Acts of God or the public enemy
• Acts of omissions of any government entity
• Fire, earthquake, or other casualty for which the contractor is not responsible
• Quarantine or epidemic
• Strike, embargo, or defensive lockout
• Unusually severe weather conditions, such as storm, flood, or hurrican which could not have been reasonably anticipated
• Unusual delay in receipt of supplies or products which were ordered and expedited and for which no substitute reasonably acceptable to the owner was available
• Acts of terrorism
• Riots, wars, invasions, acts of foreign enemies, civil war

It is the item about "severe weather conditions" that is particularly relevant now. The cold temperatures, and the accompanying snow and ice are clearly beyond what the area normally anticipates, as witnessed by the fact that the weather conditions are viewed by many as the worst in at least a dozen years.

Again, depending on the terms of your contract provisions, a contractor is generally entitled to an extension of time for performance delays directly attributable to Force Majeure, but not entitled to an adjustment in the contract amount. Be sure to read the terms of your contract carefully in evaluating contractor claims for either additional time or money based on Force Majeure.

Please contact me if you have any questions about how to apply the terms of your contract to delays resulting from Force Majeure.

Merry Christmas!

Best wishes to you and yours for a wonderful holiday celebration!

Training on Problem Construction Projects

Recognizing a Problem Project Before it Becomes One & What to Do if you Have one

When: January 9, 2009

• 6:45 a.m. to 9:30 a.m. - breakfast seminar
• 9:45 a.m. to 4:30 p.m. - all day workshop

Where: Seattle Airport Marriott (Sea-Tac) - 3201 South 176th Street, Seattle, WA 98188

Cost:

• Breakfast Seminar: $78
• All Day Workshop: $248

Sponsored by: Construction Seminars Northwest

For more information and to register, click here

Public Works Emergencies

If you have an event that requires the declaration of an emergency and waiver of competitive bidding requirements (see RCW 39.04.020), it's a good idea for the emergency declaration to also waive the competitive selection process for obtaining the services of the disciplines covered under chapter 39.80 RCW (architects, engineers, landscape architects, and land surveyors). It may be necessary as part of the emergency to have some design work performed and waiving the selection procedures under chapter 39.80 RCW can help facilitate the project.

Port of Seattle Changes Estimate on Project

Port of Seattle staff changed their internal estimate on a project to build a new cruise ship terminal near the Magnolia Bridge after the bids came in 30% over the Port's estimate. By changing the estimate after bids were submitted, Port staff avoided having to notify the Port Commission of the higher bid. The Port's policy requires that any bid that is more than 10% higher than the estimate must be submitted to the Commission for review.

Read the Seattle Times article from December 18, 2008 for more details.

RCW 39.04.020 is the state law that requires public agencies to develop estimates on public works projects. In summary, it requires the following for any public works project:

• Develop plans and specifications
• Develop an estimate of the cost of the work
• Have the plans, specifications, and estimate filed in the office of the individual or body authorized to require the work
  
• Have the plans, specifications, and estimate approved by the authorized individual or body

The law doesn't address the issue of modifying the estimate after bids have been submitted. Such a practice does appear to circumvent the public's interest, and in the case of the Port, appears to be at variance with the Port's internal policies that requires Commission approval of contract awards where the low bid is 10% or more of the estimate.

What practices does your public agency use with respect to development of estimates?

Residential Prevailing Wages

In Washington State, the Department of Labor and Industries establishes separate prevailing wages for residential public works construction projects. Housing authorities, a separate type of governmental entity, along with other types of jurisdictions, frequently construct residential projects.

Residential prevailing wage rates are often significantly lower than prevailing wages for commercial prevailing wage rates. For example, the commercial prevailing wage rate for a carpenter in King County (as of August 31, 2008) is $46.16 per hour, while the residential carpenter rate is $23.47 per hour. The difference in wage rates is primarily due to the fact that residential construction as a whole is not as unionized as commercial construction. In conducting surveys to establish the rates therefore, lower rates end up prevailing for residential construction.

In order to qualify for the residential construction wage rates for various trade classifications, the project must meet certain criteria that are outlined in WAC 296-127-010 (9):

• Type of Work: The definition of residential construction establishes that the work must be "construction, alteration, repair, improvement, or maintenance."
  

• Type of Building: The definition of residential construction establishes that the work must be performed on "single family dwelllings, duplexes, apartments, condominiums, and other residential structures."
  

• Height of Building: The residential structure must "not exceed four stories in height, including basement." An apartment building with four stories of structure above grade and with a basement would not meet the definition for residential construction.
  

• Purpose of Building: The residential structures must be "used solely as permanent residences." Thus, a weekly or monthly apartment or hotel type arrangement would not qualify for residential construction prevailing wage rates. Neither would a single family home that was used on a rotating basis by different individuals to be housed in a location based on business needs.
  

Port of Seattle Disciplines Employees over Contracting Fraud

On Tuesday, December 9, 2008, two Port of Seattle employees resigned and CEO Tay Yoshitani disciplined seven additional Port employees for their role in fraudulent contracting activity.

The actions come after a critical audit of the Port's construction contracting management practices and a recent report that identified ten instances of fraud committed by Port employees.

Resigned:

• John Rothnie, project manager for the third runway project
• Larry McFadden, general manager of Port Construction Services

Suspended without pay:

• Ray Rawe, chief engineer (3 week suspension)
• David Soike, deputy director of aviation (1 week suspension)
• Paul Powell, contract services manager (1 week suspension)
• Robert Riley, director of airport capital improvement (1 week suspension)

Reprimanded:

• Linda Stout, deputy CEO
• Craig Watson, general counsel
• Mark Reis, airport director

The summary of the Port's actions may be found by clicking here.

More information may be found in the Seattle Times story, or by visiting the Port of Seattle's website.

Public Works Bidding Laws Violated by Okanogan County

The Washington State Auditor's Office issued a finding that Okanogan County failed to comply with state competitive bidding laws in the remodeling of a gun range operated by the Sheriff's Department.

Here's an excerpt from the finding:

"The Department started remodeling the range in early 2007. The remodeling project was developed and managed by the Department and consistend of the renovation of the interior and exterior of the range building, grounds, and the purchase and installation of advanced targeting equipment, including electrical work. Total project expenditures were more than $100,000, not including labor costs. County employees and volunteers were used to perform the work. Our review of the project found the County:

• Did not prepare plans or specifications for the project and no official estimate of total costs for the project was determined to correctly apply bid limits.
  

• Did not use its approved small works roster to obtain quotes from contractors nor did it publish a notice of bid for the project to ensure it competitively bid the project."

It is important that public agencies provide appropriate training for their staff on public works contracting requirements and that there be clear policies and procedures governing such activity. Please contact me if you would like to discuss how I can help provide these services for your agency.

CPARB Seeks Members for Project Review Committee

The Capital Projects Advisory Review Board (CPARB) is seeking letters of interest from individuals knowledgeable in the use of alternative public works contracting practices (GC/CM and Design-Build) to serve 1-3 year terms on its Project Review Committee. Current vacancies include:

• 1 to represent Owner - Ports
• 1 to represent Owner - School Districts
• 1 to represent Construction Trades Labor
  

Interested parties may e-mail their letter of interest to Nancy Deakins, Deputy Assistant Director, E&A Services, Washington State Department of General Administration at deakink@dshs.wa.gov by Noon on December 10, 2008. Questions may be directed to Nancy via e-mail or by phone at (360) 902-8161.

Port of Seattle to Announce Disciplinary Measures

Port of Seattle CEO Tay Yoshitani is expected to announce on Tuesday, December 9, 2008, disciplinary measures against Port employees involved in instances of fraud.

An independent investigation recently released reported ten instances of fraud by Port employees, most related to the Port's construction contracting management practices. The investigation was ordered by the Port after the Washington State Auditor's Office performance audit in December 2007 disclosed that the Port wasted almost $100 million due to poor contracting practices.

A Seattle Times article on December 7, 2008 discusses the difficulties of pinpointing which employees were involved in doctoring a critical memo that is at the heart of one of the fraud allegations.

Port of Seattle Fraud Report Issued

After ten months and $1.39 million, former U.S. Attorney Mike McKay issued his report on ten instances of fraud that he discovered at the Port of Seattle.

The report follows a scathing performance audit of the Port of Seattle's contracting practices issued almost a year ago.

McKay found that one Port employee leaked the Port's internal cost estimate to a contractor who later bid on the third runway project and ended up making a 30% profit on the project. Other findings of fraud included:

• Negotiating price with a contractor prior to award
• Breaking projects into smaller projects to avoid competitive bidding thresholds
• Not notifying certain contractors of bidding opportunities
• Steering contracts to favorite contractors
• Issuing an emergency contract for $25,000 that was later amended to more than $1 million for non-emergency work

The complete 76 page fraud report, issued on December 3, 2008, may be found by clicking here. An executive summary of the report may be found by clicking here.

You can also read the December 4, 2008 Seattle Times article on the subject.

Sample Letter Releasing Bid Bond Obligation

When a contractor submits a bid bond on a public works project, the bond becomes a matter of public record and should not be returned to the contractor, even if the contractor requests it.

Instead, if you receive such a request, you may send a letter to the contractor notifying them that you are releasing them from the obligations of the bid bond.

Such a letter should only be sent after you have executed a contract with another bidder. If you release the bid bond prior to contract execution, there is the possibility that the low bidder may, for some reason, not enter into a contract. In such an event, you may end up awarding the project to the bidder who requested the release of their bid bond. If they then fail to enter into a contract, and you have released their bid bond, you would not have any recourse against the bidder for failing to enter into a contract.

The following is sample language that could be used in a letter to a bidder requesting release of their bid bond:

Dear Contractor:

On ________, your firm submitted a Bid Bond along with your bid for the above-referenced project. The contract has since been awarded to another contractor and a contract has been executed. Per your request, this letter is your notice that we hereby release your firm and your bonding company from the obligations and liabilities of the Bid Bond. Because the Bid Bond is a matter of public record, as a matter of policy, we do not return Bid Bonds to contractors. Please let me know if you have any questions.

You may contact me at ( ) ______.

Sincerely,


Name
Title
Public Agency Name

Audit Finding on Competitive Bidding and Prevailing Wage Violations

The Washington State Auditor's Office issued a finding on December 1, 2008 noting that the Shoreline Fire Department (King County Fire District No. 4) did not comply with competitive bid and prevailing wage laws on two public works contracts issued in 2007.

On both projects, the District failed to obtain a Statement of Intent to Pay Prevailing Wages, approved by the Department of Labor and Industries, from the contractor and all subcontractors, prior to issuing the first payment to the contractors as required by RCW 39.12.040.

In addition, one of the projects, an almost $18,000 public works project for installing lightning protection at one of their fire stations, the District did not formally bid the project or use the Small Works Roster authorized by RCW 39.04.155. Instead, a contractor with a history of performing satisfactory work for the District was selected without any competition.

To read the complete audit finding from the State Auditor's Office and the Fire District's response, click here.

If you are concerned about the compliance of your agency with competitive bidding and prevailing wage regulations, please contact me for a comprehensive assessment of your agency's practices, or to discuss training to help educate your agency's personnel.

Training this Week

Last minute reminder on two training opportunities this week. I will be teaching at both of them.

Training: Improving Construction Planning & Bidding Practices in a Troubled Economy

When: Wednesday, December 3, 2008 (8:30 a.m. to 4:30 p.m.)

Where: Washington State Convention and Trade Center

Cost: $219 (Government agencies); $279 (Private firms)

To register and for more information, click on the sponsor's name here: Contract Solutions Group



Training: Prevailing Wage Law in Washington

When: Thursday, December 4, 2008 (8:30 a.m. to 4:30 p.m.)

Where: La Quinta Inn and Suites, Tacoma

Cost: $359

To register and for more information, click on the sponsor's name here: Lorman Education Services

Releasing Retainage Prior to Final Completion of Work

How do you handle a public works project where there is a small amount of work remaining that won't be completed for a period of time? Do you continue to hold the contractor's retainage on all of the contract, or are there alternatives?

There is a provision in Washington State law that provides a process for a public agency to accept the completed work, release the retainage associated with the completed work, and then enter into a new contract with the contractor for the remaining work without advertising or bidding. The new contract, often called a "Supplemental Contract" would then be closed out in the same manner as the main contract.

RCW 60.28.011 (7) states the following: "If the public body administering a contract, after a substantial portion of the work has been completed, finds that an unreasonable delay will occur in the completion of the remaining portion of the contract for any reason not the result of a breach thereof, it may, if the contractor agrees, delete from the contract the remaining work and accept as final the improvement at the stage of completion then attained and make payment in proportion to the amount of the work accomplished and in this case any amounts retained and accumulated under this section shall be held for a period of sixty days following the completion. In the event that the work is terminated before final completion as provided in this section, the public body may thereafter enter into a new contract with the same contractor to perform the remaining work or improvement for an amount equal to or less than the cost of the remaining work as was provided for in the original contract without advertisement or bid. The provisions of this chapter are exclusive and shall supersede all provisions and regulations in conflict herewith."

If you would like a copy of a sample Supplemental Contract for use in situations as described above, please contact me.

New Prevailing Wage Scopes of Work Adopted

The Washington State Department of Labor and Industries has adopted new scope of work descriptions for three classifications of labor that are subject to payment of prevailing wages. The new scope of work descriptions will appear along with other scope of work descriptions in the Washington Administrative Code (WAC).

The new scope of work descriptions will become effective on January 1, 2009.

The following are the three newly adopted scope of work descriptions, along with the WAC number:

• Diver and Diver Tender (WAC 296-127-01316)
• Industrial Power Vacuum Cleaner (WAC 296-127-01334)
• Construction Site Surveyor (WAC 296-127-01396).
  

The actual scope of work descriptions are not yet available online under the WACs. If you would like a copy of the adopted scope of work descriptions, please contact me.

Training: AIA and ConsensusDOCS

AIA and ConsensusDOCS Contract Documents: Comparison and Contrast

Where: Teleconference Training

When: January 12, 2009 (10:00 a.m. - 11:30 a.m. Pacific)

Cost: $199 for registrations by December 8, 2008

Sponsored by Lorman Education Services Agenda:

• 2007 AIA Documents - What is New and Different from prior 1997 Editions
• 2007 ConsensusDOCS - Why and How They Developed, and What They Are
• Comparison and Contrasting of the Principal AIA and ConsensusDOCS Contract Forms
• Subcontract Documents (AIA A-401-2007 and ConsensusDOCS Document 750-2007)
• Functional Comparison of the AIA and ConsensusDOCS
  

Faculty:

• David R. Hendrick
• Stephen M. Phillips

L&I Corrects Elevator Constructor Prevailing Wage Rates

On November 14, 2008, the Washington State Department of Labor and Industries published corrections to the prevailing wage rates for elevator constructors. The wages modify wages that were published on August 31, 2008, and affect a number of counties. In publishing the corrections, L&I noted that the revised wage rates would not become effective until December 14, 2008, consistent with the provisions of WAC 296-127-011.

This thirty day delay in the effective date of the corrections marks an improvement in how L&I administers corrections to prevailing wage rates. Yet to be seen is whether L&I will change the title of the prevailing wage document online on December 14th to reflect that the document includes corrections. Such a change would make inclusion of the correct prevailing wage rates in bidding documents much easier for public agencies.

State Auditor Cites Redmond for Change Orders

The Washington State Auditor's Office issued a finding recently that the City of Redmond did not comply with competitive bidding laws when they issued change orders to two projects that should have been competitively bid.

One project was a $1.7 million sidewalk improvement project. Redmond issued one change order for $140,000 that added two sidewalks in different locations and that were not within the original scope of the project. They issued another change order for $404,000 that also added two sidewalks not in the original scope of work.

On the second project, a $1.8 million contract for the Sammamish River Habitat Enhancement Phase 4 project, the city approved a $146,463.60 change order to landscaping and irrigation that the auditor deemed to be a separate project.

In each case, the auditor asserted that the projects should have been competitively bid as separate projects. In essence, although they didn't use the term, these changes constituted "cardinal changes" to the contract. A cardinal change is a major change in the scope of a project that deviates from the intent of the original concept and general scope of work as approved.

The auditor's criticism was that the city wasn't guaranteed that they received the lowest price on the negotiated change order work (actually an issue with all change orders), and that other contractors weren't enabled to bid on the work as a separate project.

The City of Redmond responded that they issued the change orders for convenience of using the original contractor on-site when additional funding became available.

One tool that the City of Redmond could have used would have been to bid additional segments of the sidewalk project as additive bids. They would have received competitive prices and when funding became available, they could have awarded the additive work (as long as it wouldn't have changed the order of the who the low bidder was).

For a copy of the three page audit report from the State Auditor's Office, click here.

I have prepared a training session on what are appropriate versus inappropriate change orders and issues to be aware of when issuing change orders. Please contact me if you would like to discuss having me provide the training for your agency on this subject.

Bridge Collapse Due to Design Miscalculation

The Minneapolis bridge that collapsed on August 1, 2007 killing thirteen people and injuring 145 others failed due to an error by the firm that designed the bridge, according to the National Transportation Safety Board's final report issued on November 14, 2008. The firm, Sverdrup & Parcel, not in business any more, miscalculated the size of supporting steel plates. For more information on the accident and the report, click here for an article from the Chicago Tribute.

Free Prevailing Wage Training for Contractors

The City of Bellevue is sponsoring a free training session on Washington State Prevailing Wage Law for contractors on Thursday, November 20, 2008. The training will feature staff from the State Department of Labor and Industries and will be held from 9:30 a.m. to 11:00 a.m. at Bellevue City Hall. Contact Mayvis Schwab at the City of Bellevue for reservations: MSchwab@bellevuewa.gov.

Veterans Day

It was on November 11, 1918, at 11:00 a.m. (the eleventh day of the eleventh month at the eleventh hour) that the armistice or peace treaty went into effect that ended what we now know as World War I - what President Woodrow Wilson termed "the war to end all wars."

Since that time, the commemoration of the day has been broadened as a time for us to honor the many men and women among us who have served in our nation's military.

Asking for Competitive Unit Prices with the Bid

Often, a public agency will want to request that bidders submit unit prices to be used in the event of change order work during a project.

If, however, the agency only asks for unit prices that are in addition to the base bid and that have no relationship to whether the bidder is the low bidder, there is little motivation for the bidder to provide competitive unit prices. In fact, the owner could end up paying significantly more for change order work if the bidder includes high unit prices.

If establishing unit prices for potential change order work is important for the agency, unit prices should be competitive. The following sample bid form layout is one way to accomplish that.

					Base Bid $
Item #	Unit Price Description	Estimated Quantities	Unit of Measure	Unit Price	Unit Price Extension
1					$
2					$
3					$
		Total Bid for Award Evaluation Purposes: (Base Bid plus all Unit Price Extensions)			$

Here's how it would work. For bid evaluation purposes, the low bid is determined based on the combination of the base bid amount and the Unit Price Extension amount (which is based on the bidder's Unit Price multiplied by the owner's estimated quantities). However, the owner would only award the project for the amount of the base bid.

Under this scenario, the owner needs to have clear language in the bidding documents describing how the award will be made. I have developed language for bidding documents that can be adapted for any agency to address this type of situation. Please contact me if you are interested in a copy of the language.

Minimum vs. Prevailing Wages

Effective January 1, 2009, the minimum wage in Washington State will increase from $8.07 per hour to $8.55 per hour.

While most prevailing wage rates for most classification and for most counties are above the $8.55 new minimum wage rate, there are some classifications in some counties where the prevailing wage rate will end up being lower than the minimum wage rate.

Generally, public works contracts include a provision that the contractor must comply with all applicable federal, state, and local laws and regulations. Thus, contractors and subcontractors are obligated to pay their workers at least the minimum State wage rate in cases where it is higher than the prevailing wage rate.

Preventing Contractor-Subcontractor Payment Disputes

Subcontractors will frequently ask public agencies what they can do to get paid by a contractor. While this is a contractual relationship between the subcontractor and contractor that the public agency can't directly impact, there are a number of fairly basic steps that a subcontractor can take that may help in getting paid. The following suggestions may be helpful for public agencies in advising subcontractors of how to approach a payment dispute.

1. Research the contractor. To the extent that a subcontractor of any tier chooses to work for a contractor with a poor reputation and history of paying subcontractors, this may negatively impact the subcontractor's financial viability. Therefore, subcontractors should research contractors before choosing to work for them. In addition to checking references of the contractor (talking with other subcontractors who have worked for them), a subcontractor could research the whether the contractor meets the bidder responsibility criteria that public agencies are required to research prior to awarding a public works project. I have set up a webpage on the Resources link of my website that lists the websites of different agencies that have information about contractors (the mandatory bidder responsibility criteria required by RCW 39.04.350).
   
   
2. Written Contract. A subcontractor should ensure they have a clear, written contract or agreement with the contractor about the scope of work, the schedule, and what the contractor will pay.
   
   
3. Invoice. A subcontractor should provide a timely, clear, and written invoice to the contractor when services or a portion of services are complete and the subcontractor is due for payment.
   
   
4. Talk. A subcontractor and contractor should attempt to resolve any payment or performance dispute by talking opening about the issues. It is best when there is open communication early on in the progress of the work and that such communication continues on a regular basis.
   
   
5. Joint Check. Some public agencies will, upon request of a subcontractor and with the written concurrence of the contractor, issue a joint check payable to the contractor and subcontractor. This is sometimes a helpful step, especially when the subcontractor does not trust the contractor.
   

Employees vs. Independent Contractors

In hiring consultants, it's important to make sure they are really independent contractors and not merely consultants that act more like employees of the public agency.

Washington State law [RCW 49.44.170 (1)] addresses this subject and defines what is considered to constitute unfair practices with respect to this issue and payment of employment-based benefits.

There are also federal standards addressing this subject.

Retainage Release Checklist

Before a public agency releases retainage to the contractor on a public works project, certain dates must have passed and certain documents must be on file with the public agency.

I've developed a Release of Retainage Checklist to help track these dates and documents. Keep in mind that some of the items noted on the Checklist may not specifically be required by State law (releases from Employment Security Department and Employer Liability Certificate from Labor and Industries), but, as a matter of policy, it's a good idea to obtain these releases in order to limit the public agency's potential risk exposure.

If you'd like a copy of the Release of Retainage Checklist, please contact me, and I'll be glad to e-mail you a copy.

I also provide training on the release of retainage process and how to handle claims filed against the retainage and payment bond.

What is Bid Shopping?

What is "bid shopping"?

It's a common practice in the construction industry in which a general contractor attempts to convince a subcontractor to lower their bid price to a figure below what the contractor says is the current low bid they have received from another subcontractor. If the subcontractor really wants the project, they may lower their bid price, even to the point of making it financially detrimental for their business.

The Washington State Legislature has gone on record opposing the practice of bid shopping. In 2002, by amending RCW 39.30.060, the Legislature stated the legislation was "intended to discourage bid shopping and bid peddling on Washington state public building and works projects."

RCW 39.30.060 (2) includes a prohibition on the practice: "Substitution of a listed subcontractor in furtherance of bid shopping or bid peddling before or after the award of the prime contract is prohibited."

The purpose of RCW 39.30.060, also known as the Subcontractors List statute, is to reduce the number of bid shopping occurrences on public works projects. It requires contractors to list the names of the subcontractors (or the prime contractor) who will be peforming work in the following three trades: Electrical, Plumbing, HVAC. The law applies to public works projects with an estimated cost of $1 million or more. Failure by the contractor bidding the public works project to provide the Subcontractors List in a timely manner as specified in the bidding documents (either with the bid or up to one hour after bid submittal deadline) renders the bid non-responsive. The Legislature has gone on record to state that failure to submit the Subcontractors List is a material irregularity in the bid that may not be waived by a public agency, and the bid of a contractor not submitting the Subcontractors List must be declared non-responsive.

There is a common misperception among some subcontractors that a contractor is required by law to award a subcontract to them if they were the low bidder. I've had conversations with subcontractors not required to be listed on the Subcontractors List who thought the contractor had to award to them. One subcontractor was the second low bidder to the contractor. When the subcontractor with the low bid went out of business, the contractor approached the second low bidder and asked them to lower their price by a substantial sum (bid shopping). They asked for a meeting to discuss the scope. No meeting ever occurred and it is likely that the contractor awarded a subcontract to the third low bidder who may have lowered their price. The subcontractor wondered if they had any recourse against the contractor. Because the subcontractor was not named on the Subcontractors List and because it was not a protected trade, the subcontractor didn't have any recourse against the contractor.

It is only with the use of the alternative public works contracting method of General Contractor/Construction Manager (GC/CM) where the contractor is required to award to the low subcontract bid. On traditional "design-bid-build" projects, the contractor may award to any subcontractor at any price. However, if they have listed the subcontractor on the Subcontractors List as a firm they intend to use (whether they were the low bidder or not) and then attempt to substitutee that named subcontractor later for a reason not listed in RCW 39.30.060, then the substituted subcontractor "is entitled to recover monetary damages from the prime contract bidder...but not from the public entity." The burden of proof rests with the substituted subcontractor to demonstrate that bid shopping occurred.

Acceptable reasons for substitution of a subcontractor named on the Subcontractors List include the following:

• Refusal of the listed subcontractor to sign a contract with the prime contractor
• Bankruptcy or insolvency of the listed subcontractor
• Inability of the listed subcontractor to perform the requirements of the proposed contract or the project
• Inability of the listed subcontractor to obtain the necessary license, bonding, insurance, or other statutory requirements to perform the work detailed in the contract
• The listed subcontractor is barred from participating in the project as a result of a court order or summary judgment.

Audit Finding on Federal Prevailing Wage Requirements

The Washington State Auditor's Office issued an audit finding on October 27, 2008 against the City of Everett for failure to comply with federal prevailing wage requirements. On a $1.1 million federally funded transit project, neither the City nor the engineering consultant they hired collected weekly certified payroll reports from the contractor. Under the federal Davis-Bacon Act, submission and review of payrolls is required in order for the public agency to monitor whether workers on the project are being paid federal prevailing wages. The City indicated they were unaware of the requirement for payroll submission on the project.

Click here to read the three page audit finding.

Is a Release from Employment Security Dept. Required Before Releasing Retainage?

Is a Release from the Employment Security Department (ESD) required before releasing retainage? This is a question that often causes confusion because the law on retainage doesn't mention ESD.

The retainage laws (chapter 60.28 RCW) state that retainage is a trust fund for the Department of Revenue. However, ESD is not specifically mentioned in chapter 60.28 RCW, and the purpose of retainage is not to protect ESD. A public agency could therefore choose to release the retainage if all other required releases were on file except for the ESD release.

However, ESD does have statutory authority in RCW 50.24.110 for making claims on funds held by a government agency for unpaid unemployment compensation taxes. RCW 50.24.110 basically states that if a government agency is holding money that is due to any company owing money to ESD, that ESD can issue a "Notice and Order to Withhold and Deliver Property" to the government agency who is required to pay ESD the funds they are holding within 20 days.

Here's what the law states:

"The commissioner is hereby authorized to issue to any...political subdivision...a notice and order to withhold and deliver property of any kind whatsoever when the commissioner has reason to believe that there is in the possession of such...political subdivision...property which is due, owing, or belonging to any person, firm, or corporation upon whom the department has served a benefit overpayment assessment or a notice and order of assessment for unemployment compensation contributions, interest, or penalties. The effect of a notice to withhold and deliver shall be continuous from the date such notice and order to withhold and deliver is first made until the liability is satisfied or becomes unenforceable because of a lapse of time."

A public agency receiving such a Notice from ESD would be obligated to follow chapter 60.28 RCW which regulates release of retainage. In reading chapter 60.28 RCW as a while, the order of priority, in the event there are more claims than funds retained, is as follows:

1. Workers for payment of prevailing wages
2. State Department of Revenue for unpaid taxes
3. Subcontractors, suppliers, and materialmen
4. Other taxes due
5. The public Owner

A Notice and Order to Withhold and Deliver from ESD, assuming the retainage had not yet been released, would fall under item 4 above, other taxes due.

However, once the public agency releases retainage (upon receipt of all statutory releases - Revenue, and prevailing wage froms, etc., except for the ESD release), they would no longer have funds of the contractor in their possession should ESD file with the public agency a Notice and Order to Withhold and Deliver. And unlike the Department of Revenue which has statutory authority for requiring public agencies not to release retainage until their release is received, there is no such requirement to obtain the ESD release prior to release of retainage.

While I have generally advised public agencies to obtain the ESD release as a matter of policy prior to releasing retainage, I think it is really up to each agency to decide how to proceed in this area, perhaps on a case-by-case basis.

Please contact me know if you have any questions about this subject, or if you would like to schedule me for providing training on the close-out process for public works projects, release of retainage, and managing claims filed against the Payment Bond and retainage.

Sustainable Design and Construction - Training

Integrating Sustainability into Design and Construction of Capital Projects - Training Workshops

When: October 30, 2008 (8:30 a.m. to 5:00 p.m.)

Where: Hilton Hotel & Conference Center at SeaTac Airport

Cost: $699 ($449 for members of NWCCC)

Sponsored by: Northwest Construction Consumer Council

Topics include:

• The Future of Architecture: The Living Building Challenge, Sustainable Design, and the Direction of the Industry
• Sustainable Healthcare Facilities
• Sustainable Communities: Density and Sustainability
• Waste into Glass: the Hanford Waste Project
• Sustainability Policy in Washington State
• Sustainable Design and Construction for Industrial Construction
• Life Cycle Assessment in Sustainable Buildings
• Sustainability Integration the Smart Way: Case Studies and Lessons Learned
• Leading Change toward a Sustainable Future

For more information call: (206) 281-4201

Register online at www.nwccc.org

Training: Construction Planning & Bidding Practices in a Troubled Economy

Construction Planning & Bidding Practices in a Troubled Economy - Training

When: December 3, 2008 (8:30 a.m. to 4:30 p.m.)

Where: Washington State Convention and Trade Center (800 Convention Place, Seattle)

Cost per individual: $199 for government entity; $259 for private firm

Sponsored by: Contract Solutions Group

To register and to view the course brochure: Go to the website of Contract Solutions Group

For more information, contact Jeri Jennings at (206) 463-7487 or by e-mail at jjenings@contractsolutionsgroup.com

Instructors include:

• Ron Leaders
• Peter De Bolt
• Bill Ott
• Michael E. Purdy

I will be teaching in the morning on two subjects:

• Implementing Bidder Responsibility Criteria
• Using Alternative Project Delivery Methods (with a focus on Job Order Contracting)
  

When Should Bids Be Opened When Subcontractors List is Required?

Under Washington State law, RCW 39.30.060, bidders must submit a subcontractors list as part of the bidding process for any project where the public agency has estimated the cost of the project at $1 million or more. The subcontractors list must include the names of the subcontractors who will perform the HVAC, plumbing, and electrical work, or for the bidder to name themselves if they will perform this work. By choice of the public agency and as described in the bidding documents, the subcontractors list may be submitted either with the bid or up to one hour after the bid submittal deadline.

Let's look at a potential scenario. If the public agency requires bids to be submitted by 2:00 p.m. on a certain day and the subcontractors list by 3:00 p.m. on the same day, the question comes up as to when the bids should be opened and read. The better practice is to receive the bids by 2:00 p.m., receive the subcontractors lists by 3:00 p.m., and then open the bids and subcontractors list at 3:00 p.m.

The problem with opening the bids at 2:00 p.m. is that it invites bidders to bid low on a project, knowing that if they believe their bid is too low they can choose to simply not submit the subcontractors list by 3:00 p.m. thus automatically rendering their bid non-responsive. State law is very clear that failure to submit the subcontractors list by the deadline results in a non-responsive bid.

Thus, to prevent bidders from potentially manipulating the bidding process and obtaining an unfair advantage over other bidders by having the choice of whether to accept the bid or not, it is better to open all bids and the subcontractors list at 3:00 p.m. (or whatever time the public agency sets - this is just the time noted in this example).

29 Years in Public Contracting!

On October 23, 1979, I started working for the City of Seattle, Board of Public Works, in a position that was eventually titled Assistant Executive Director. It was the start of what marks 29 years for me in public contracting in the Seattle area.

A lot has changed in the last 29 years, especially my looks! From a 25 year-old recent MBA graduate with black frame glasses and a healthy crop of black hair, I am now 54 years-old with a mainly white beard and a head of hair that has thinned and grown lighter in color! How the times change!

I worked for the City of Seattle for 21 years, managing construction and consulting contracting and was the City's Contracting Manager when I left at the end of 2000. I then spent five years as Contracting and Procurement Manager at the Seattle Housing Authority. For the last three years, I have been the Contracts Manager at the University of Washington's Capital Projects Office.

In the spring of 2005, I started Michael E. Purdy Associates, a consultant business offering strategies, solutions, and training to government agencies and businesses in the area of public contracting. Please contact me if you'd like to talk about how I might assist you.

Asking for the Right Price for Alternate Bid Work

If you include an Alternate Bid on the bid form for a public works construction project, it is important to make sure you are clear in your instructions to bidders for what price to include on the bid form.

There are potentially two different kinds of Alternate Bids. In one case you may be simply asking for the price for a body of work above and beyond the work described in the base bid. Technically, this should be called an Additive Bid, but some public agencies call them Alternate Bids. In a situation where the work is above and beyond the base bid work, it's okay to just ask for the price of the Alternate Bid.

If, however, the Alternate Bid is a request for pricing to provide a different material or method in lieu of what is described in the base bid, it is important to specify that what you what bidders to note on the bid form is the differential price between the cost included in the base bid and the cost to provide the Alternate Bid work.

If you don't specify that you want the differential price, you may get bidders submitting bids on an unequal basis. Some will interpret that you want the differential price, while others may include the complete price of the Alternate Bid, thereby double charging for the work (some cost in the base bid and all costs in the Alternate Bid).

90 Minute Web Conference on Design-Build

5 Principles for Successful Design-Build Projects - A 90 minute Web Conference

When: December 9, 2008 (10:00 a.m. to 11:30 a.m. Pacific Time)

Where: Your office with your computer

Cost: $219

Sponsored by: Lorman Education Services

For more information and to register, click here.

Outline of Class:

• What is Design-Build?
• Potential Advantages of Design-Build
• Organization of the Design-Build Entity
• Potential Risks
• Situations Where Design-Build May or May Not Be the Best Choice
• Design-Build in the Public Sector
• Contract Provisions
• Available Standard Design-Build Contract Forms
  

Faculty: W. Samuel Niece (Thelen Reid Brown Raysman & Steiner LLP)

Note: Design-Build in Washington State is governed by chapter 39.10 RCW. The training noted above appears to be a general introduction to some of the main concepts of Design-Build, but Washington State law may vary from some of the concepts presented.

Additional Design-Build Resources:

• Design-Build Institute of America
• Design-Build Institute of America - Northwest Region
• Training on Design-Build in Washington State by Michael E. Purdy Associates

Claim, Renewal, and Release Forms Available

I have developed the following standard forms that subcontractors, suppliers, and workers may use in filing the following with public agencies:

• Claim of Lien against the Payment Bond and Retainage
• Renewal of Claim of Lien against the Payment Bond and Retainage
• Release of Claim of Lien against the Payment Bond and Retainage
• Pre-Claim Notice for suppliers

Public agencies often get questions from subcontractors, suppliers, and workers about how to file a claim against the Payment Bond and Retainage, and these forms provide a structure for doing so. If you would like a copy of the forms, please contact me and I will e-mail them to you

I have also developed a training class on contract close-out, release of retainage, and the filing deadlines and processes for claims against the Payment Bond and Retainage - all things that both public agencies and subcontractors and suppliers need to be aware of. Please contact me if you are interested in discussing having me provide this training for you.

Note: The forms do not represent legal advice and claimants and others are advised to consult with appropriate legal advisors.

Managing Infrastructure - Training

Managing Infrastructure: Planning, Development and Maintenance in Washington

When: November 14, 2008 (9:00 a.m. to 4:30 p.m.)

Where: Washington State Convention & Trade Center (800 Convention Place, Seattle)

Sponsored by: Lorman Education Services

Cost: $379 per person

For more information and to register, click here.

Outline of Training and Faculty:

• Developing Infrastructure Under Washington's New Alternative Procurement Statutes (W. Gregory Guedel)
• Infrastructure Funding - Maintenance and Repair (Peter McMillin)
• Key Elements of an Effective Asset Management Program (Elizabeth S. Kelly, P.E.)
• Business Case Fundamentals: Theory and Practice (Tim Skeel)
• Risk Management at Seattle Public Utilities (Terry Martin, P.E.)
• Reliability-Centered Maintenance (Neil Thibert, P.E.)
• Control Cost and Duration to Build Project Control System (Edward Claxton)
• Infrastructure and Climate Change (Eric S. Laschever)
  

Availability of Bidding Documents

There are three major ways that public agencies use to make bidding documents available to the contracting community: hard copy, online, plan centers. Each has advantages and disadvantages and some options are more beneficial to contractors and others for subcontractors.

Hard Copy: Generally, prime or general contractors prefer obtaining a hard copy of the bidding documents so they can have in front of them all of the requirements for bidding the project.

Online: There are a variety of online services, some of which charge public agencies and others which charge the user, to access the bidding documents. One of the most popular is Builders Exchange which public agencies pay to post their documents. Builders Exchanges has a contract with the Office of State Procurement (OSP) that local public agencies can piggyback on if they are members of the cooperative with OSP. Online access to bidding documents is generally preferred by subcontractors since they only need to access certain portions of the specifications and drawings that are applicable to their portion of the work. Builders Exchange also has an online take-off estimating tool available. Other online services include www.PlanWell.com and www.PlanCenter.com.

Plan Centers: These are membership based organizations in which contractors and subcontractors pay to belong and to review bidding documents. Plan centers are valuable for both contractors and subcontractors to review hard copies of many projects to determine if they are interested in bidding the project. Plan centers in the Puget Sound area include the following: Valley Plan Center (Kent), McGraw-Hill Construction (Seattle, Tacoma), Builders Exchange (Everett), Contractor's Resource Center (Seattle).

I think it's important for public agencies to make their bidding documents available through all three methods (hard copy, online, and plan centers) in order to reach the broadest market and ensure competitive bids. While some agencies have moved toward just usining one method (typically gravitating toward online access), I think this is doesn't serve all of the contracting community well, and ultimately doesn't serve the public well.

Payment and Performance Bonds on GC/CM Projects

Typically, on a public works project, a public agency will obtain from the contractor a Payment and Performance Bond for the full contract award amount, including sales tax (RCW 39.08.030).

However, for a GC/CM (General Contractor/Construction Manager) project, the Payment and Performance Bond should be only for an amount equal to what is termed the Total Contract Cost, which does not include sales tax. GC/CM is, of course, one of three alternative public works contracting procedures authorized by the Washington State Legislature (chapter 39.10 RCW).

RCW 39.10.370 (1) states that "The maximum allowable construction cost shall be used to establish a total contract cost for which the general contractor/construction manager shall provide a performance and payment bond."

RCW 39.10.010 (4) defines what composes the Total Contract Cost: "The total contract cost includes the fixed amount for the detailed specified general conditions work, the negotiated maximum allowable construction cost, the negotiated support services, and the percent fee on the negotiated maximum allowable construction cost."

Prior to July 1, 2007 when the Legislature amended the GC/CM law (SSHB 1506), the definition of what was then called the Guaranteed Contract Cost (instead of Total Contract Cost) included sales tax as a component. That has now changed so that a public agency managing a GC/CM project should obtain a Payment and Performance Bond for the Total Contract Cost - not including sales tax.

From the perspective of protecting a public agency, it seems to me that the amount of the Payment and Performance Bond should include sales tax, and perhaps the GC/CM law should be amended accordingly. We do know there are various inconsistencies in the law that need to be corrected and perhaps this is one of those areas.

Prevailing Wage Underpayments

One of the ways that contractors and subcontractors on public works projects make it look like they are paying prevailing wages, when in fact they're not, is to report fewer workers and/or fewer hours on weekly certified payrolls. The payroll reports (required on all federally funded public works construction projects) reflect the correct prevailing wage rate for the classification used, but do not reflect all of the hours worked. Unreported hours and workers is a difficult problem to enforce. It requires that the public agency have sufficient field staff to monitor what workers are present and for how long. There are a number of union sponsored prevailing wage monitoring organizations such as REBOUND that often provide resources in monitoring and investigating prevailing wage violations.

Many of the contractors and subcontractors who do not pay prevailing wages have not actually been debarred by the Washington State Department of Labor and Industries. If you suspect that prevailing wages are not being paid or you have received a complaint about wages, it is best to immediately contact the Department of Labor and Industries who will assign an investigator to help.

If the project is federally funded, make sure you are collecting the weekly certified payrolls from the contractor and all subcontractors and that you are interviewing a sufficient number of workers on-site each week about their wages. You should take this interview information and compare it with the information on the payrolls. There are standard interview and payroll forms that should be used.

Please contact me if you'd like assistance in investigating prevailing wage underpayments or to discuss strategy for how to approach prevailing wage issues.

GC/CM Training in January 2009

GC/CM: General Contractor/Construction Manager - training

When: January 29-30, 2009 (8:00 a.m. to 5:00 p.m)

Where: AGC Building - 1200 Westlake Avenue North, Seattle

Cost: $350 per person (lunch included for both days)

Sponsored by: AGC Education Foundation, University of Washington, Mechanical Contractors Association - Western Washington

Online registration at www.constructionfoundation.org, or contact me and I'll e-mail you the one page flyer describing the class in more detail.

Questions: E-mail: jodland@agcwa.com or call (206) 284-4500

Outline:

• Day 1: "The New Law" & What Does It Mean to You?
• Day 2: Instruction & Team Activities

L&I Continues to Violate Their Own Regulations

The Washington State Department of Labor and Industries is still in violation of their own regulations that requires that any corrections to prevailing wage rates be published, but not effective until 30 days after publication.

On October 10, 2008, L&I announced corrections to the prevailing wage rates for truck drivers for the following counties: Adams, Asotin, Benton, Columbia, Ferry, Franklin, Garfield, Lincoln, Pend Oreille, Spokane, Stevens, and Whitman. The announcement noted that the wages were corrected as of October 10, 2008 and that the changes were effective August 31, 2008.

Making such changes effective retroactively not only is inconsistent with L&I's regulations in WAC 296-127-011, but it also creates an administrative and enforcement quagmire for both public agencies and contractors. For any public works project with a bid submittal deadline from August 31, 2008 through October 9, 2008, the public agency would have published wage rates effective as of August 31, 2008. By their "correction" L&I is now stating that the wage rates they originally published on August 1, 2008 and made effective on August 31, 2008, and that everyone relied upon, are not, in fact, the actual prevailing wage rates. The actual prevailing wage rates are those published on October 10, 2008 - rates that no one bidding from August 31st through October 9th would have had any idea existed.

L&I has recently added a note to their website that states the following: "During the period between August 1st, 2008 and August 31st, 2008 the wage rates for 8/31/08 are subject to correction and are valid on August 31st. If you have printed, viewed or relied upon the rates for 8/31/08 prior to the 31st, please reprint and review those rates."

While it's somewhat helpful for L&I to add this note, the practice of correcting wage rates even during August and still maintaining an August 31st effective date is inconsistent with WAC 296-127-011. In addition, what the note on their website doesn't say is that they plan to continue to correct wage rates even after August 31st but will still make those corrected wages effective as of August 31st.

From an administrative and enforcement effort, L&I's failure to follow their own regulations has made practical compliance with corrected prevailing wage rates next to impossible. In addition to being more careful in the future with publishing the correct prevailing wage rates in the first place, L&I should change their correction practice to be consistent with WAC 296-127-011.