Prevailing Wages on GC/CM Projects

What is the effective date for determining the applicable prevailing wages on a GC/CM project (General Contractor/Construction Manager)?

The Washington Administrative Code (WAC) adopted by the Department of Labor and Industries does not address GC/CM projects in this regard and so public agencies are left to figure out what is most appropriate.

WAC 296-127-011 (3)(a) states that "for all public works contracts...the applicable prevailing wage rates shall be the rates that are in effect on the date when bids by prime contractors are due for submission to contract awarding agencies. These rates shall remain in effect for the duration of the contract."

The difficulty with this approach is that under a GC/CM contract, the prime contractor does not submit a bid to the public agency, at least not for the full construction amount. Contractors do submit a bid for the percent fee and specified general conditions costs, but this bidding occurs months and often years before construction actually begins, and the contractor's pricing of these items has nothing to do with prevailing wages.

WAC 296-127-011 (4) further states that "if a contract for public work is not awarded pursuant to bids, the applicable prevailing wage rates shall be those that are in effect on the date when the contract is executed. These rates shall remain in effect for the duration of the contract."

GC/CM contracts are not awarded pursuant to bids, but the contractor is selected partially based on qualifications and partially based on the price for the percent fee and specified general conditions work. But to establish the effective date for prevailing wages for a GC/CM contract on the date when the contract is executed doesn't make sense since the contractor may not actually conduct the subcontract bidding until sometime after execution of the contract.

It seems to me that the Department of Labor and Industries should establish a separate WAC to address the effective date of prevailing wages for a GC/CM project. I've had discussions with L&I on this subject in the past, but the issue ended up getting dropped when a key staff member retired.

In the interim, my advice is to establish the prevailing wages as of the bid opening date for each separate subcontract bid package that the GC/CM bids. This most closely parallels the intent of the prevailing wage law. But it's probably also a good idea to include the current prevailing wage rates in the RFP for selecting the GC/CM in order to technically comply with the law, and to describe that the applicable wages will be those in effect on the bid opening date for each subcontract bid package.

Members Needed for CPARB's Project Review Committee

The Capital Projects Advisory Review Board's (CPARB) Project Review Committee is seeking four new members, one from each of the following four groups: counties, cities, construction trades labor, minority/women businesses. The Project Review Committee meets monthly and is charged with reviewing applications from public agencies for use of the Design-Build or GC/CM project delivery system, either on a project-by-project basis or to approve an owner as an experienced public owner.

For more information or to apply, interested parties may contact Nancy Deakins with the Department of General Administration/DSHS , at (360) 902-8181 or by e-mail at deakink@dshs.wa.gov.

Trench Excavation Bill Buried this Session

HB 2009 was introduced in the 2007 legislative session when it passed the House but died in the Senate. It was reintroduced in the 2008 session and has not received much traction and will not move forward this session. This is unfortunate as most industry stakeholders saw the value in eliminating the requirement for contractors to list on the bid for public works projects a separate line item cost for providing shoring for trench excavation. They may be some in the industry who still object to the requirement.

It will probably be introduced again in the 2009 session and hopefully will pass. Until then, public agencies much include a place on the bid form for the bidders to list the cost for providing trench excavation if the trench is more than four feet deep. The requirement is found in RCW 39.04.180.

GC/CM Resources and Training

During the 2007 legislative session, the Washington State Legislature modified the law relating to the use of the General Contractor/Construction Manager (GC/CM) project delivery method for public agencies.

Public agencies interested in learning more about GC/CM can avail themselves of a number of resources:

• RCW 39.10.
  

• I have developed a PowerPoint training presentation summarizing the GC/CM process. Contact me and I'll be glad to send you a copy.
  

• Various GC/CM solicitation and contract documents are available online. The University of Washington's documents may be found on the website of the Capital Projects Office.
  

• I would be glad to provide individualized training and consultation on the GC/CM process.

Determining the Low Bidder

On a public works construction project, frequently a public agency will request bids for not only the base bid, but for additive work that may be awarded in the event that the bids come in below the estimate and budget for the project. The question then arises as to how to evaluate which bidder is the low bidder. Should it be based on the base bid only, or the base bid plus the additive bids the owner intends to award?

While some agencies will base the award decision only on the base bid amounts, I think that probably violates the competitive bidding laws that requires award to the low bidder. Another bidder could very easily argue that if the owner is awarding additives that may actually change the order of who is the low bidder.

For example, see the following scenario, in which the low bidder on the base bid is at $100,000. If the owner bases the award decision only on the base bid and only the base bid is awarded, Bidder 1 is the appropriate low bidder. But if the owner awards Additive 1 also, Bidder 2 becomes the low bidder. If Additive 2 is the only additive awarded, Bidder 1 would be the low bidder. If Additive 1 and 2 are both awarded, Bidder 3 would be the low bidder. Thus, to determine the low bidder only based on the base bid when other additives are awarded is not consistent with competitive bidding requirements.

	Bidder 1	Bidder 2	Bidder 3
Base Bid	$100,000	$102,000	$105,000
Additive 1	$20,000	$15,000	$13,000
Additive 2	$6,000	$5,000	$3,000
Total:	$126,000	$122,000	$121,000

My advice is to evaluate the bids based on the base bid plus any additive bids to be awarded to determine which bidder actually has the low bid. The potential negative of this approach is that an agency may be tempted to manipulate what bidder is the low bidder and actually award the project based on which additive bids are accepted and awarded.

One way to mitigate against this is to prioritize the additive bids in the bidding documents and award the additive bids in that order. This, of course, limits some flexibility of the agency, but does help to preserve the integrity of the bidding process and the perceptions of treating bidders fairly.

Even without prioritized additive bids, awarding just based on the base bid isn't fair or consistent with the intent, if not the letter, of the law that requires award of public works construction projects to the low bid submitted by a responsible bidder.

ESSB 6235 Passes Senate

Engrossed Substitute Senate Bill 6235 passed the Senate on February 19th with a vote of 33 yeas, 15 nays, 1 absent. In the House, it has been referred to the State Government and Tribal Affairs Committee, where, hopefully, it will not see the light of day.

As I've written before, this legislation is in response to the audit conducted by the State Auditor's Office of the Port of Seattle. If approved, it would prohibit government agencies from using cost as a selection criterion in selecting consultants for project management, construction management, and construction supervision related to a public works project. This is not in the public's best interest as no competitive prices are received. Agencies would be required to select the most qualified consultants and then negotiate a price, rather than having a competitive price submitted as part of the selection process. It is not an appropriate means to address concerns about the Port of Seattle's selection of consultants.

Subcontractors List

Washington State law requires that for any public works project estimated to cost $1 million or more, each bidder must submit either with their bid or within one hour after the bid submittal deadline as list of subcontractors who will perform work in any of the following three trades: HVAC, plumbing, electrical. But the requirement in RCW 39.30.060 doesn’t just require listing of subcontractors in these trades. If the bidder intends to perform work in any of these trades, they must list themselves.

Failure of a bidder to submit the subcontractors list as required automatically renders that bid non-responsive and the public agency is required to reject the bid. This is considered as a material irregularity in the bid that the public agency may not waive. RCW 39.30.060 states the following: “Failure of the prime contract bidder to submit as part of the bid the names of such subcontractors or to name itself to perform such work or the naming of two or more subcontractors to perform the same work shall render the prime contract bidder’s bid non-responsive and, therefore, void.”

The law is specifically an anti-bid shopping law, designed to prevent bidders from attempting to get lower bids from subcontractors based on other bids received. If a subcontractor who is listed is later substituted by the contractor without just cause as defined in the law, the substituted subcontractor may have a legal cause of action against the contractor, but not against the public owner.

A couple of things to remember about the law:

• It only applies for projects estimated to cost $1 million or more. If the project is estimated to cost $1 million or more and a bid comes in less than $1 million, the bidder must still submit the subcontractors list. Likewise, if the project is estimated to cost less than $1 million, but bids come in higher than $1 million, the subcontractors list is not required to be submitted.

• It only applies to three trades: HVAC, plumbing, and electrical. It’s not a good idea to add other trades to the list because if a bidder failed to name subcontractors for one of the other trades, the public agency would be faced with a responsiveness issue on the bid.

• The list may be submitted either with the bid or within one hour of the bid submittal deadline, at the option of the public agency. The public agency, however, must state in the bidding documents when the list must be submitted. Providing for the submission of the list one hour after the bid submittal deadline allows the bidder the chance to focus developing its bid price and then submitting the list later.

Best Value Procurement

I attended a four day conference on Best Value procurement near Phoenix from February 11^th through 14^th. While the concept of selecting a contractor based on best value rather than purely low bid has significant public benefits to the taxpayers on public works construction projects, if designed and managed appropriately, I came away from the conference very skeptical about the particular slant on best value that was promoted by the presenters, notwithstanding the strong support that Best Value has generated with many in the construction field.

The conference was part pep rally, part testimonials by owner converts, and part explanation of a fairly rigid contracting process that has a strong bias against owners and strongly tilts towards and favors contractors. In fact, it is contractors and vendors who have funded millions of dollars in research and support of Arizona State University’s Performance Based Studies Research Group (PBSRG), the sponsors of the conference. The conference was also long on self-promotion of PBSRB by Dr. Dean Kashiwagi, its director.

Frequently repeated and unsupported statements were zealously preached to the some 60 organizations (owners, contractors, suppliers) with representatives at the conference. The “client [owner] is the source of all risk” was a major theme as Dr. Kashiwagi urged owners to “give up control [of the contractor] because you actually have no control.” PBSRG’s black and white philosophy argues that the contractor is the expert and knows best how to do the project. Under Best Value procurement, as articulated by Dr. Kashiwagi, neither management or decision making by the owner is necessary or desirable. “Decision making is not a good thing,” Dr. Kashiwagi asserted. Instead, once having picked the right contractor, the contractor should take control of the project, including writing the actual contract. In fact, according to Dr. Kashiwagi, the “contract must protect the contractor, not the owner.” Furthermore, the owner shouldn’t manage risk but delegate technical risk to the contractor.

The conference was heavy on promoting a simplistic, unrealistic, and underlying philosophy that views people mechanistically, asserting that people are always predictable and that for any event there is just one possible outcome because people are always predictable. “All event outcomes can be predicted with ‘all information,’” a questionable assumption even if we lived in a perfect world where all information was available. Thus, if these assertions are true, so goes the argument, contractors will always do the right thing if they’re just given the responsibility to manage risks instead of having the owner attempting to control a project and mitigate risks. All of this, of course, appears to be predicated on the false assumption that all contractors are competent, take pride in their work, and have the owner’s best interest at heart. Nothing in the philosophy supports an owner’s role in managing a project. Instead, the contractor, as the expert, should make the decisions and be accountable, while all efforts should be made to minimize the owner’s “management, inspection, and decision making.”

Furthermore, I found Dr. Kashiwagi’s presentation style to be condescending and derogatory of owners, procurement officers, and those who, in his words are “blind” (possess technical knowledge and experience that they try to use in managing), but are not “visionaries.” He continually repeated that his best value system was “simple” and based totally on logic, even though he made multiple unsupported and non-logical claims for his positions. I often wondered if the system is really so simple why it took a four day conference that included marketing pitches to hire PBSRG as consultants to run the procurement and project for owners. Dr. Kashiwagi repeatedly urged the attendees to make no changes to the system or it wouldn’t work.

According to PBSRG, the success of Best Value is boiled down to whether the contractor is on-time, on-budget, and “making everyone happy.” Conspicuously missing from the equation is the concept of quality. But under PBSRG’s model, the contractor will take care of the quality and the owner won’t have to even inspect the project as much because if the contractor is a high performer, they’ll manage all of this, permitting the owner to minimize decision making and managing the project.

Beyond its heavy and negative bias against owners in favor of protecting contractors, the core of the Best Value procurement system, does offer some potential tools for owners that may be able to be used even in a low bid environment. However, PBSRG’s Best Value procurement is designed to work outside of a low bid environment where non-price factors are used as part of the selection process.

While the generic concept of Best Value makes good sense, as promoted by PBSRG, it does not seem to me to be within an owner’s best interests, notwithstanding the glowing testimonies from various owners who have used it under PBSRG’s guidance.

Port Hires Mike McKay to Investigate Potential Fraud

The Port of Seattle, at its Tuesday meeting of the Board of Commissioners, hired former U.S. Attorney Mike McKay to conduct an internal review in response to the December 20, 2007 report of the State Auditor's Office that found that "the Port lacks sufficient policies and procedures to safeguard public assets from misuse, abuse and fraud." While the audit didn't specifically identify any instances of fraud or abuse, the auditor asserted that the Port's practices left "the Port's construction management vulnerable." McKay will be tasked with determining whether there were any instances of fraud or abuse. The U.S. Department of Justice has also launched its own probe into potential fraud in the Port's construction management practices. whether of the Port's construction practices.

SSB 6235 Expands Qualifications Based Selection

Substitute SB 6235, as it passed out of the Senate Government Operations and Elections Committee, is now online at http://apps.leg.wa.gov/billinfo/summary.aspx?bill=6235&year=2007. The bill has been sent to the Rules Committee.

The version that was approved adds the following three disciplines to the list in RCW 39.80 that may only be selected based on qualifications (not including price): project management, construction supervision, and construction management. Deleted from the earlier version of the bill that was considered by the committee are environmental services, technical testing, and inspection.

My understanding is that the bill is being pushed by the engineering industry group (ACEC - American Council of Engineering Companies).

As I've written previously, this bill is not in the public's best interest in that it would put public agencies at a disadvantage in having to negotiate prices for additional types of consultant work (in addition to what RCW 39.80 already requires for architectural, engineering, landscape architectural, and land surveying).

There has been a request for the Capital Projects Advisory Review Board (CPARB) to consider, and hopefully take a position opposed to the bill, at their meeting next Thursday.

Regional Contracting Forum

2008 Regional Contracting Forum will be held on Tuesday, March 11, 2008 from 8:00 a.m. to 3:30 p.m. at Sound Transit Union Station (401 South Jackson Street, Seattle).

This annual event is sponsored by a number of local government agencies and provides the opportunities for consultants, contractors, and suppliers to meet with representatives of the various agencies and find out about business opportunities. In addition to the sponsors (Washington State Department of Transportation, Office of Minority and Women's Business Enterprises, Sound Transit, Port of Seattle, King County, and the City of Seattle), there will be representatives from many other agencies and organizations.

To learn more details and register online visit: www.omwbe.wa.gov/rcf.

Substitute SB 6235 - Poor Public Policy

SB 6235 was introduced in response to the recent audit of the Port of Seattle conducted by the State Auditor’s Office. In fact, the recommendations in SB 6235 exactly match the recommendations that the auditors made to the Legislature. On Thursday, January 31, 2008, there was a public hearing on the bill – actually, according to my information – on a substitute bill. As of this writing, however, the substitute bill has not been posted to the Legislature’s website. However, I have reviewed a copy of it, and will be glad to e-mail it to you upon request.

One of the most problematic sections of SB 6235 was an attempt to redefine “public work” to include consultant services and architectural and engineering services, something that doesn’t make much sense. If approved in that format, it would require these consultant services to be bid based on price, a direct contradiction of RCW 39.80 requiring that four disciplines be selected based on qualifications and then negotiating the price with the most qualified firm. The four affected disciplines are architectural, engineering, landscape architectural, and land surveying. The current practice under RCW 39.80 is known as Qualifications Based Selection.

Under the substitute bill for SB 6235, the redefinition portion of public works is eliminated. However, it is replaced with an equally problematic structure, and one that doesn’t make a lot of sense in light of the Port of Seattle audit, and goes in the opposite direction of the original bill that would require more types of work to be bid. Part of the substitute bill would change and add definitions to RCW 39.80, the A&E Qualifications Based Selection statute, so that fewer types of contracts would actually be bid.

In the substitute bill, a new definition of “other construction-related services” would be added as follows: “’Other construction-related services’ means other consultant services provided by any person, other than as an employee of the agency, in connection with and furtherance of any public work, including project management, construction supervision, construction management, land surveying, environmental services, technical testing, and inspection services. Other construction-related services do not, however, include legal services, accounting or auditing services, claims consultant services, or other similar services that may be required in connection with any public work.”

Another new definition of “Public work consultant services” is also added in the substitute bill meaning “architectural, engineering, and other construction-related services provided by a consultant.”

The impact of these new definitions is to add new categories to a Qualifications Based Selection process (project management, construction supervision, construction management, land surveying, environmental services, technical testing, and inspection services). This flies in the face of the Port of Seattle audit in which the Port was criticized for not selecting consultants in a competitive manner. Under this proposal, an agency could no longer use price as one of the factors in selection. In other words, none of the work of “other construction-related services” could be bid, nor could price even be one factor in the evaluation process. Instead, agencies would be forced to select the most qualified firm, and then negotiate with the firm, a practice that puts the agency at a disadvantage in obtaining the best possible price.

Furthermore, the substitute SB 6235 is flawed in that it defines “land surveying” twice. Under the current statute, land surveying is part of what is already covered by RCW 39.80 as it is within the professional practice defined in chapter 18.43 RCW and referenced in RCW 39.80. In the proposed definition of “other construction-related services” land surveying is also added to that list.

One of the critical distinctions between the current four disciplines covered under Qualifications Based Selection (architectural, engineering, landscape architectural, land surveying) and the proposed additional disciplines is that the current disciplines each require registration or licensing in the State in order to practice that discipline. None of the proposed additional disciplines meets that test of being a licensed profession.

Clearly the intent of substitute SB 6235 is directed at port districts. Notice that in Section 9 of the substitute bill, it specifically indicates that port districts must comply with chapter 39.80 RCW “in the procurement of all architectural, engineering, and other construction-related services.”

The problem with the substitute version of SB 6235 is that it is not good public policy for it removes from the competitive bidding arena a number of types of work that have been traditionally selected based on both qualifications and price. The proposed legislation would require selection only based on qualifications. I’m not sure that the drafters of the legislation understand the negative public policy impacts of attempting to tinker with the law in order to control port districts. Or maybe they do understand better than I think and this is an attempt by business to gain an upper hand in contract pricing with public agencies. Instead of having to live with their bid, firms in the disciplines to be added would negotiate with the public agency – a practice that puts the agency at a clear disadvantage.

Different sections of Washington state law are highly interconnected and without a clear understanding of those sections, attempting to make changes often results in negative unintended consequences.

There are other important technical flaws to the legislation. It proposes adding “consulting, architectural, engineering, or other services” to RCW 39.30.020 where it is stated that violations by an agency official of any law or regulation “requiring competitive bidding” subjects the official to civil penalties. The problem is that “consulting, architectural, engineering, or other services” do not require competitive bidding, especially if the other provisions of the substitute bill are adopted that would remove from competitive bidding the disciplines noted under the proposed definition of “other construction-related services.”

The proposed legislation also deals with other issues as well.

Bottom line: the substitute SB 6235 is a poorly thought-through piece of legislation that would have negative impacts on the public’s ability to obtain services at competitive prices – just the opposite of what the State Auditor argued for in their audit of the Port of Seattle. It should be opposed vigorously by public agencies. The views in this blog represent my personal opinions alone.