Did the City of University Place Negotiate a Public Works Contract?

The Washington State Auditor's Office has issued a finding that the City of University Place improperly negotiated a public works contract after bid opening but prior to award in order to bring the project in at the budget. The City of University Place disputed the auditor's finding that they violated any law.

The project was a street grading project with an estimate of $670,000. Two bids were received and both were more than double the estimate, in excess of $1.6 million. Prior to award, the City negotiated with the low bidder and awarded a project. The final contract amount was $882,655.

The auditor noted that the City had the authority to negotiate an adjustment to the bid price under RCW 39.04.015 if the low bid did not exceed available funds by five percent, but that the difference between the available funds and the low bid was well in excess of five percent. The auditor was incorrect in citing this law. RCW 39.04.015 only applies to a "state contracting authority," not to municipalities. HB 1200, under consideration by the Legislature now, would expand the authority to municipalities, but they not currently have such authority.

The auditor maintained that the re-negotiated contract resulted in "an entirely different project," that the City could not guarantee that it received the lowest price since the work was negotiated, and that the bidding environment was not equitable as other bidders might have bid on the reduced scope of work.

The City argued that it had authority under the specifications to issue change orders. The auditor responded that the reduction was not done as a change order but through negotiations prior to award. The City also argued that they only deleted certain quantities of work from this unit price bid. The City further argued that the project was materially the same project but just with lower quantities. The auditor was unconvinced by the City's lengthy response to the audit and affirmed the audit finding.

On balance, based on what I read in the audit finding, I think the auditor was correct in their assessment that the work should have been re-bid. The City had no authority to negotiate deletions of quantities and therefore work as part of the award process.

To read the complete audit finding, click here.

Credit Card Documentation Lacking

The Washington State Auditor's Office issued a finding on January 20, 2009 that the King County Fire Protection District No. 13 lacked sufficient controls and documentation in the use of eleven credit cards issued by the District. The Fire District is also known as Vashon Island Fire & Rescue.

There were a number of questionable purchases that lacked documentation demonstrating that the purchases were for legitimate Fire District purposes. These included the following:

• $1,314 of food items such as granola bars, sports drinks, power bars, and water.
• $1,485 for supplies such as batteries and brooms
• $129 for a camera
• $$1,640 for two projectors

The audit criticized the Fire District for their credit card expense form that "does not require the signature of the purchaser or a separate approver or a date the form was completed."

To read the complete audit, click here.

Government credit cards are a great tool to make purchasing of goods and supplies more efficient and cost effective. However, without sufficient internal controls, there are significant risks for abuse by government employees. Audits, which frequently turn into headline news, regularly note that government agencies do not have sufficient internal controls in place that often result in abuse or the potential for abuse and fraud.

Design-Build Training On February 12, 2009

The Design-Build Institute of America will be sponsoring an all day training session on the Fundamentals of Project Delivery in Seattle.

When: February 12, 2009, 8:00 a.m. to 4:00 p.m.

Where: Law offices of Groff Murphy Trachtenberg & Everard PLLC (300 East Pine Street, Seattle, WA 98122)

Cost: $375 for DBIA members; $675 for non-members

Instructor: Darlene Septelka

Click here for more information and to register

Twin Purposes of Competitive Bidding

The primary purpose of competitive bidding requirements on public projects is to protect the public by preventing fraud, collusion, or favoritism in the award of public contracts. The laws are in place to ensure that the work is performed at the lowest price for the public.

The secondary purpose of competitive bidding requirements is to provide a fair, transparent, and open process for bidders to compete for government work.

Pros and Cons of Using Arbitration

For a brief article on the advantages and disadvantages of using alternative dispute resolution methods, primarily arbitration instead of court, visit the website of Lorman Education Services.

Legislation Would Expand Bid Negotiations to Municipalities

For a number of years, state agencies in Washington State have had the ability, under RCW 39.04.015 to negotiate with the low bidder on a public works project based on agreed changes to the plans and specifications under the following conditions:

1. All bids exceed the available funds,
2. The apparent low responsive bid does not exceed the available funds by a) 5% on projects under $1 million, b) the greater of $50,000 or 2.5% for projects between $1 million and $5 million, or c) the greater of $125,000 or 1% for projects over $5 million, AND
3. The negotiated adjustment will bring the bid price within the available funds.
   

House Bill 1200, which will be heard by the House State Government and Tribal Affairs Committee on January 23, 2009 at 1:30 p.m., would expand this authority from only state agencies to include municipalities as well.

Bill Would Modify Alternative Public Works Contracting Procedures

The Capital Projects Advisory Review Board (CPARB) has recommended to the Washington State Legislature approval of proposed legislation affecting Alternative Public Works Contracting procedures. House Bill 1197 would make the following changes to chapter 39.10 RCW:

1. DBOB Guidelines: Requires CPARB to develop guidelines for the review and approval of Design-Build demonstration projects that include operations and maintenance services, also known as Design-Build-Operate-Maintain (DBOM).
   
2. Two DBOM Demonstration Projects: Permits CPARB's Project Review Committee to approve not more than two Design-Build projects that include procurement of operations and maintenance services (DBOM) for a period longer than the three years in chapter 39.10 RCW currently.
   
3. Smaller Design-Build Projects: Permits CPARB's Project Review Committee to approve not more than ten Design-Build projects with a total project cost between $2 and $10 million dollars. The current threshold is that a Design-Build project must be $10 million.
4. Public Agency Certification - Clarification: Clarifies that public agencies seeking certification to use the Design-Build procedure must demonstrate successful management of at least one Design-Build project within the previous five years, and those seeking certification for the GC/CM process must demonstrate successful management of at least one GC/CM project within the previous five years. The current law is ambiguous and implies that a public agency could seek certification for GC/CM based on Design-Build experience or visa versa.
   
5. Design-Build Honorarium: Requires public agencies to pay an honorarium payment to Design-Build finalists submitting "responsive" proposals, rather than "best and final" proposals.
   
6. Public Bid Openings for GC/CM: Requires public bid openings as part of the GC/CM selection process when contractors submit their "percent fee" and fixed amount for Specified General Conditions. Also requires that scores be open for public review at the bid opening.
   
7. Job Order Contracting: Expands the use of Job Order Contracting by other public agencies by allowing the State Department of General Administration (GA), the University of Washington (UW), and Washington State University (WSU) to issue Job Order Contract work orders for regional universities and The Evergreen State College.

The House State Government and Tribal Affairs Committee will hear testimony on HB 1197 at their Friday, January 23, 2009 meeting at 1:30 p.m. Many of the provisions of this bill were included in legislation that was introduced in 2008 but not approved by the Legislature.

Payment of Undisputed Amounts on Public Works Contracts

House Bill 1195 was introduced into the 2009 Washington State Legislature. It would require public agencies to issue a change order to a contract for the full amount of additional work, or portion of additional work not in dispute within 30 days of satisfactory completion of the work by the contractor. After 30 days, interest at the rate of 1% per month would accrue on the dollar amount not in dispute. Additional work is defined as work beyond the scope defined in the original contract.

The legislation came out of discussions at the Capital Projects Advisory Review Board when contractors complained that some public agencies were not issuing change orders until the end of a project, and thus not paying the contractor for change order work performed until the end of the project.

The State Government and Tribal Affairs Committee will hear testimony on this bill at their hearing on Friday, January 23, 2009 at 1:30 p.m.

Personal Services Contracting Manual for Ports Published

The Municipal Research and Services Center (MRSC) has published its Personal Services Contracting Manual for Ports.

In 2008, the Washington State Legislature adopted Chapter 53.19 RCW imposing personal service contracting requirements on all port districts. The legislation requires that ports entering into or amending personal service contracts after January 1, 2010 follow policies adopted by their commission, which must be based on the guidelines included in the Manual.

The Personal Services Contracting Manual for Ports is available by clicking on MRSC's website, or may be ordered as a hard copy from MRSC.

I was one of the editors of the Manual, reviewing and commenting on various drafts before it was finalized.

HB 1198 Would Increase Public Works Bid Limits

House Bill 1198, introduced into the 2009 Legislative session of the Washington State Legislature, would increase the dollar amounts at which various types of public agencies could perform public works construction projects with their own forces, rather than bidding and contracting the work out.

The legislation would affect institutions of higher education, first class cities, second class and code cities, and counties.

The following chart describes the proposed changes:

	Multiple Trades	Single Trade
Higher Education	$55,000 to $90,000	$35,000 to $45,000
First Class Cities	$70,000 to $90,000	$35,000 to $45,000
Second class and code cities	$45,000 to $60,000	$30,000 to $40,000
Counties (more than 1 million population)	$70,000 to $90,000	$25,000 to $45,000
All other Counties	$10,000 to $40,000	$10,000 to $40,000

The House State Government and Tribal Affairs Committee will hear testimony on the bill on Friday, January 23, 2009 at 1:30 p.m.

King County Waives Competitive Bidding Requirements

In response to the January flooding in King County, the King County Council voted on January 12, 2009 to waive competitive bidding requirements on repairs necessary to protect life and property. Click here to view the ordinance passed by the Council.

Legislation Proposed to Increase Small Works Roster Threshold

A bill has been introduced into the Washington State Legislature (House Bill 1196) that would increase the dollar thresholds for use of the Small Works Roster from $200,000 per project to $300,000. The legislation would also increase from $100,000 to $150,000 the amount at which a public agency is required to notify all contractors on the Roster of a bid opportunity. Small Works Rosters are authorized under RCW 39.04.155.

The House Committee on State Government & Tribal Affairs will hold a hearing on Friday, January 23, 2009 at 1:30 p.m. to hear testimony on this bill and others being recommended by the Capital Projects Advisory Review Board.

Proposed Public Works Legislation

The Capital Projects Advisory Review Board (CPARB) has recommended to the State Legislature approval of six pieces of legislation affecting public works contracting.

I've listed the bill numbers and subjects and will provide more details on each in future blog entries.

• HB 1197: Alternative Public Works contracting
  
• HB 1196: Increasing Small Works Roster project dollar limits
• HB 1195: Payment of undisputed amounts
• HB 1198: Public Works bid limits
• HB 1200: Expanding to municipalities the ability to negotiate an adjustment to a bid price on public works
• HB 1199: Repealing outdated provisions of the law related to Retainage

The House State Government and Tribal Affairs Committee will hold a hearing on all six bills on Friday, January 23, 2009 at 1:30 p.m. in House Hearing Room D of the John L. O'Brien Building.

Please contact me if you have any questions about any of these bills.

Selecting a Qualified Contractor

Under the traditional method of selecting a contractor for a public works construction project, a public agency is required to select the responsible bidder submitting the lowest bid. There are five broad tools available to help ensure that the contractor and their subcontractors are qualified and able to successfully perform the work:

1. Pre-Qualification. Pre-qualification is a decision by an owner to determine, prior to submission of bids, what contractors are qualified and allowed to submit a bid for the project. In Washington State, for public works projects, the Legislature has only authorized the State Department of Transporation to pre-qualify contractors (RCW 47.28.070). Most commentators will suggest that other public agencies in the State do not have authority to pre-qualify contractors on public works projects.
   
   
2. Mandatory Bidder Responsibility Criteria. Prior to the award of any public works project in the State of Washington, the public agency must verify that the contractor under consideration for award meets all six of the mandatory bidder responsibility criteria described in RCW 39.04.350.
   
   
3. Supplemental Bidder Responsibility Criteria. Relevant bidder responsibility criteria may be established and included in bidding documents. While pre-qualification occurs prior to bidding, evaluation of whether bidders meet bidder responsibility criteria occurs after bid submittal and prior to award. In Washington State, RCW 39.04.350 permits public agencies to establish supplemental bidder responsibility criteria.
   
   
4. Subcontractor Responsibility. RCW 39.06.020 establishes subcontractor responsibility criteria that every subcontractor on a public works project must meet. It is the responsibility of the contractor to verify that the subcontractor is in compliance with these criteria prior to award of a contract. Likewise, if a subcontractor hires a lower-tier subcontractor, that subcontractor is responsible for verifying that the lower tier subcontractor meets the responsibility criteria.
   
   
5. Qualification Requirements. Qualification requirements are included in bidding documents and describe the experience and certification requirements for various subcontractors and workers. Evaluation of whether the contractor is in compliance with these requirements occurs after award and prior to the contractor beginning the work for which there are qualification requirements.

And, of course, contractor performance evaluation programs may be part of helping determine whether a contractor is responsible. In addition, bonding companies, through their screening of contractors also helps in the process of determining whether a contractor is capable of performing the work.

If you would like additional information or training about these tools, please contact me. I have prepared a training seminar on the subject of bidder responsibility.

Design-Build Conference in March 2009

The Design-Build Institute of America will sponsor a conference for Design-Build for Water/Wastewater from March 4-6, 2009 in Denver, Colorado.

"Taking Integration to a Higher Level" is the title of the conference at the Grand Hyatt Denver.

For more information and registration, visit DBIA's website on the conference.

Training: Construction Administration Practices in a Troubled Economy

Tightening Construction Administration Practices in a Troubled Economy

When: Wednesday, February 25, 2009, 8:30 a.m. to 5:00 p.m.

Where: Washington State Trade and Convention Center, Downtown Seattle

Cost:

• $199 Government Entity (first person); $189 (each additional person)
• $259 Private Firm (each person)
• Add $20 per person after February 13, 2009
  

Instructors:

• Ron Leaders
• Richard Andrews
• Craig D. Jackson, P.E.
  

For more information and registration, visit the website of Contract Solutions Group.

Subcontractor Appeal Process on GC/CM Projects

I think there is a very confusing glitch in RCW 39.10.400 that needs to be fixed by the Washington State Legislature.

The problem relates to the appeal rights of a subcontractor who has not been determined not eligible to bid on a subcontract bid package on a GC/CM project (General Contractor/Construction Manager).

Subsection 1 of the law deals with the hearing process for an owner and GC/CM to establish subcontractor eligibility criteria (essentially a prequalification to bid) when conducting subcontract bidding. It lays out certain time frames (public notice in the newspaper 14 days before the public hearing, protests of establishing criteria must be filed with the court within seven days of the owner's/GC/CM's final determination to establish the criteria).

Subsection 2 deals with the process for determining whether subcontractors meet the eligibility criteria established through the process in subsection 1. It states (in part) the following: "Any potential bidder determined not to meet eligibility criteria must be afforded the opportunity to establish its eligibility. Protests concerning bidder eligibility determinations shall be in accordance with subsection (1) of this section."

What is confusing is the last sentence just quoted above. The law appears to use the phrase "bidder eligibility" to deal with two things: 1) the establishment of the criteria to prequalify, and 2) whether the subcontractor meets the criteria.

If a bidder protests a determination of whether they have met the subcontractor eligibility criteria, what time frames must they do it within? The sentence directs the reader back to subsection 1 for the timing. But subsection 1 only deals with the timing of conducting a public hearing and a protest of whether to establish criteria for prequalification in the first place.

I'm not sure exactly what the intent was in drafting the last sentence of subsection 2, other than the fact that there should be due process afforded to subcontractors who are deemed not to have met the established criteria for being able to bid on a GC/CM project.

My suggestion for clarifying this law is to look back to the concepts of due process in RCW 39.04.350 dealing with an owner declaring that a bidder doesn't meet supplemental bidder responsibility criteria on a public works project. I would delete the last two sentences of subsection 2 of RCW 39.10.400 and replace them with the following:

"If the public body and GC/CM determine that a subcontractor has not met the established bidder eligibility criteria, the public body and GC/CM must provide, in writing, the reasons for the determination. The subcontractor may appeal the determination within 48 hours of receipt of the determination. The public body and GC/CM must consider the appeal and any additional information submitted by the subcontractor before issuing its final determination. If the final determination affirms that the subcontractor did not meet the bidder eligibility criteria, the GC/CM may not execute a subcontract with any other subcontractor until two business days after the subcontractor not meeting the criteria has received the final determination."

Training on Controlling Purchasing Card Risk

Teleconference Training: Controlling Purchasing Card Risk

When: January 29, 2009, 10:00 a.m. to 11:30 a.m. (Pacific Time)

Where: Live Teleconference in your office

Cost: $199

For more information and to register, visit Lorman Education Services

Instructor: Richard J. Palmer, Ph.D., CPA, CMA, CFM, Eastern Illinois University

Purchasing cards represent a value and efficient means for government agencies and businesses to procure goods and services. Unfortunately, without sufficient control mechanisms in place, they can also be abused by employees using them for personal gain. What types of controls should your organization put into place to avoid abuse, fraud, and audits?

See my blog from January 11, 2009 on the audit of the California Avocado Commission and their abuse of government issued credit cards.

Auditor Finds Change Orders Outside Original Scope of Work

Evergreen Healthcare, also known as Evergreen Hospital Medical Center and King County Public Hospital District No. 2, was the subject of an audit finding issued on January 12, 2009, by the Washington State Auditor's Office.

On two public works projects, the auditor found that Evergreen issued change orders that were outside the original scope of the project and which should have been competitively bid.

The $351,008 Duvall Clinic project included four change orders, including one totalling $73,316 for an emergency generator.

The other project was a $68 million contract for the Emergency Department and Patient Facility. The auditor found three change orders totalling over $1.1 million that were all outside the scope of work of the original contract, including a change order for $842,406 for the installation of a computer server room, one for $159,250 for external signage, and the final one for installation of internal signage valued at $100,447.

According to the audit, "none of the change orders were included in the original specifications. They represent separate projects and appropriate bidding procedures should have been followed."

Every public agency should have procedures in place for evaluation of change orders to ensure that they are appropriate and do not represent work that should be bid as a separate project. If you would like training on what are appropriate versus inappropriate change orders, or assistance in evaluating your procedures, please contact me.

Click here to read the complete audit report.

Avocado Audit Airs Abuses

The California Avocado Commission was cited in a recent audit by the state for up to $2 million of questionable expenditures that benefited employees of the Commission, most of it with government issued credit cards.

According to a story in the Los Angeles Times on January 10, 2009, "during the three-year audit period, 18 employees used commission credit cards to run up more than $1.5 million in charges to make 'a significant amount of discretionary expenses that appeared questionable at best,' the report said."

Questionable expenditures included home remodeling projects, sporting event tickets, gym memberships, auto allowances, $850 a night hotel rooms, flowers, gifts, meals, clothes, massages, nail service, facials and body treatments.

Credit card abuses by government agencies is a fairly regular finding by auditors. While credit cards help to streamline the procurement process, without sufficient accountability and controls, they can result in abuses and purchases by government employees of items for personal use.

If your agency issues credit cards to your employees, it's a good time to assess what kind of controls you have in place. Please contact me if you would like assistance in this area.

To read the complete story about the audit, go to the Los Angeles Times website.

GC/CM Training

The AGC Education Foundation, the University of Washington, and the Mechanical Contractors Association (Western Washington) are sponsoring a two day training seminar on using the General Contractor/Construction Manager (GC/CM) project delivery method. The GC/CM method of public works contracting is authorized under chapter 39.10 RCW.

When: January 29 and 30, 2009, 8:00 a.m. to 5:00 p.m.

Where: AGC Building, McCormick & Schmick's Harborside Restaurant (Harborside Room - Level 1), 1200 Westlake Ave. N., Seattle, WA 98109

Cost: $350

Limited capacity: 32 seats still available

For more information and to register, click here.

Washington Legislature to Convene

The Washington State Legislature will convene for a 105 day regular session on Monday, January 12, 2009.

While the Governor's proposed budget will be the major issue for the Legislature, there will also be a number of bills introduced related to public contracting issues.

I will provide information on these bills in the weeks ahead.

Procurement Analysts Still in Demand

According to a list released by Northeastern University's College of Business Administration (Boston), procurement analysts are in high demand - among the top 10 jobs.

As businesses cut costs, they are hiring "more procurement and contracting analysts to review and negotiate the purchase of supplies, equipment and services" as a means of controlling and reducing costs.

To read the article on the subject, click here.

Sales Tax Increase Slated for April 2009

When the voters in King, Snohomish, and Pierce counties approved Sound Transit's Proposition 1 on November 4, 2008, they approved a sales tax increase of a half a cent for each dollar spent.

It is anticipated that the increased sales tax rate to fund the $17.9 billion transit measure will go into effect on April 1, 2009.

Check the Washington State Department of Revenue's website during the next few months for official word on the effective date of the increase.

For the City of Seattle, the sales tax rate will increase from 9.0% to 9.5%.

Revised Prevailing Wage Scope of Work Description Adopted

A revised Washington Administrative Code (WAC) section adopted by the Washington State Department of Labor and Industries went into effect on January 2, 2009.

The WAC revises the scope of work description for the applicability of prevailing wages on public works projects for delivery of materials to a project site.

You can read WAC 296-127-018 by clicking on the link in this sentence.

The revised WAC applies to projects with a bid submittal deadline of January 2, 2009 or later.

Training on Design-Build Contract Revisions

The Northwest Region of the Design-Build Institute of America (DBIA) is sponsoring a breakfast training session on the 2009 revisions to the DBIA Design-Build contracts between owners and contractors.

When: Thursday, January 22, 2009, 7:15 a.m. to 9:00 a.m.

Where: Rainier Club, 820 Fourth Avenue, Seattle, WA 98101

Cost: $50 for members, $55 for non-members

Instructor: Robynne Thaxton Parkinson, President, Northwest Region of DBIA and local attorney (Law Offices of Robynne Thaxton Parkinson, PLLC)

For more information and to register, click here.

City of Vancouver Recruiting a Procurement Specialist

The City of Vancouver (Washington) is recruiting for a Procurement Specialist.

Salary: $2,752 to $4,483 per month

Application Deadline: Friday, January 16, 2009

For more information and to apply, click here.

The individual selected for this position will serve as buyer, contract compliance officer or a combination of both and is expected to provide contract administration for locally funded Professional Service Agreements and Request for Proposals and/or Qualifications.

Job Opening: City of Vancouver, Procurement Manager

The City of Vancouver (Washington) is recruiting for Procurement Manager.

Salary: $6,314 to $7,814 monthly

Filing Deadline: Open until filled

For more information and to apply, visit the City of Vancouver's website.

Annual Meeting of NIGP's Washington State Chapter

Annual Meeting of Washington State Chapter of NIGP

When: Wednesday, January 14, 2009

Where: City of Seattle, City Hall, Bertha Knight Landes Room

Cost: $20.00

Registration Deadline: January 7, 2009

For more information and registration, visit the Chapter's website at www.wanipg.org.

Negotiations Training Class

Get What You Need Through Successful Negotiation Strategies

When: February 9-10, 2009, 8:00 a.m. to 4:30 p.m.

Where: City of Bellevue, City Hall

Sponsored by Washington State Chapter of NIGP

Cost:

• $360 for National NIGP members
• $500 for non-members of NIGP and Washington chapter

Registration Deadline: January 16, 2009

Instructor: Tony Ellis, CPPO

Description: This seminar will introduce students to some of the best principles used in negotiating.

Contracts Job Open at Port of Seattle

Sr. Manager Service Agreements

Salary: Minimum $81,530, Midpoint $101,907

Filing deadline: Friday, January 9, 2009

Purpose: To manage the Service Agreement Section of the newly created Central Procurement Office and to ensure Port compliance with all legal and policy requirements associated with the procurement of professional and personal services.

For a complete job description and minimum requirements, click here.

For information on how to apply, click here.

Reminder on New Minimum Wage Rate

As a reminder, effective January 1, 2009, the minimum wage rate in the State of Washington increased from $8.07 per hour to $8.55 per hour.

Where the prevailing wage rate on existing public works contracts is less than the minimum wage rate, contractors must begin paying the minimum wage rate, effective January 1, 2009.

This is an unusual situation as contractors normally know that when they bid a project they can rely on the rates they must pay to be consistent during the life of the contract. But because the minimum wage law is a separate law from the prevailing wage law, contractors must pay the minimum wage rate where it is higher than the prevailing wage rate.

The analogy would be if the contractor estimated in their bid that materials would cost a certain amount, but during the term of the contract, the supplier increased their cost, the contractor would have to pay the higher materials costs. One of the risks a contractor takes in bidding on a project is that their costs may go up from what they bid, either because of a new law or because of increased prices for materials or labor.