There were two new pieces of legislation passed by the Washington State Legislature in 2009 that impact retainage withheld on public works construction contracts.
Summarized briefly, one is a clean-up piece of legislation (HB 1199), and the other will change the order of priority of claims against the retainage (SHB 1555). SHB 1555 is a problematic and technically flawed piece of legislation that will be a challenge for public agencies to implement.The PowerPoint presentation below is an excerpt of some training that I will be doing next week (May 7, 2009) in Spokane at the annual convention of the Washington Association of School Business Officials (WASBO). The PowerPoint contains my quick analysis of these bills.Let me know what your thoughts are about these two new bills.You can view the presentation below.
The Washington State Auditor's Office has been conducting Performance Audits of public agencies in the State over the last couple of years.
Some of the audit reports have made headline news, most notably their audit of the Port of Seattle's construction management program that resulted in a contracting reorganization at the Port, disciplinary actions against employees, and new laws adopted by the State Legislature. The Auditor's Office is continuing to audit additional public agencies.
To hear the experiences of the Port of Seattle and Seattle Public Utilities, come to an evening dinner meeting: Preparing for a State Audit.When: Wednesday, May 20, 2009 (4:45 p.m. to 7:45 p.m.)Where: Rock Salt On Latitude Restaurant, 1232 Westlake Avenue North, Seattle, WACost: $37 per personSponsored by: APWA Washington State Chapter (Management & Public Administration Committee)Registration Deadline: Wednesday, May 13, 2009To register, visit APWA's website
Washington State's largest county is moving forward with plans to streamline its procurement and contracting practices and making award decisions more transparent.
The King County Council unanimously approved a motion to bring more transparency to the County's contracting practices. The Council expressed concern that the County's selection practices, while they may result in better value to the public, often obscure why certain procurement decisions are made, especially when an award is made to a firm not offering the lowest price. In the Council's motion of April 20, 2009, the Council requested the King County Executive "to review county code and procurement practices with the goal of making it clear to bidders and to the public why a particular bidder was selected for a specific contract and streamlining procurement procedures based on the best practices of other governments and large corporations." The motion directs the County Executive to submit a report and proposed legislation, if appropriate, by July 17, 2009.
The initiative apparently stems from an award recently made for an office supply contract in which the successful vendor's price was not the lowest, but they were selected based on other factors as well.
To read the complete motion and a staff report with background information, click here.
Effective January 2012, all government agencies at the federal, state, and local level will be required to withhold 3% from all payments for goods and services as a tool for the federal government to guard against business tax evasion.
This federal law was originally adopted in 2006 as the Tax Increase Prevention & Reconciliation Act 2005 (TIPRA), Sec 511. The effective date of the law was recently pushed out to January 2012 from 2011 with the recent passage of the federal economic stimulus bill, the American Recovery and Reinvestment Act.
There has been significant opposition to the bill from business and state and local governments. There is still hope that this provision may end up being repealed prior to January 2012. The bill would have a significant negative impact on the cash flow of contractors and therefore a negative impact on the prices paid by public agencies for public works projects, and ultimately on the amount paid by the taxpayers.
For more information, including the testimony before Congress on the 3% withholding requirement by the Associated General Contractors, visit the AGC's website.
For construction court cases in Washington State, here's a reminder of two great resources where you can search and find the complete text of key court cases:
The Washington State Department of Labor and Industries has published an eight page report online listing contractors who have violated various state laws including those relating to contractor registration, prevailing wages, and payment of workers compensation premiums.
In these difficult economic times, here are a half-dozen contracting strategies that public agencies may consider pursuing in order to save money:- Consolidate Services. Public agencies in the same geographic area could consolidate services provided by each agency. By consolidating services provided by two or more agencies, there should be savings in either contract or staff costs, or both.
- Piggybacking. Public agencies could take greater advantage of already solicited contracts by other agencies, a practice often known as "piggybacking." Check your state laws on this to ensure you can do this. Often, there is a requirement that the agency whose solicitation and contract you are using went through at least as stringent of a selection process as you would be required to go through.
- Consolidate Purchases. A variation of piggybacking involves various agencies banding together to solicit for goods and services, taking advantage of cost savings that may accrue from larger volume purchases.
- Negotiating. Many public agencies are paying closer attention to negotiating better financial terms with vendors, especially consultants, whose prices are normally subject to negotiations. Hourly rates, overhead and profit, mark-ups are some of the area where cost savings may be obtained.
- Non-Renewal of Contracts. Some public agencies are choosing not to renew multi-year contracts and are going out to bid now in hopes of obtaining lower prices that will last through a new multi-year contract.
- Credit Cards. As contracting and procurement staff become victims of budget cuts in agencies, delegation of purchasing and contracting authority through government issued credit cards (P Cards or Procurement Cards) may become more desirable. There are clearly risks involved with the use of such credit cards, especially if there is not sufficient systems in place to guard against abuse.
These difficult economic times call for creativity in how to manage and do more with less resources.
The U.S. Department of Energy is sponsoring its 10th annual Small Business Conference, Expo, and Matchmaking Forum from August 11-14, 2009 in Long Beach, California. Cost is $275 per attendee. For more information, visit their website.
What constitutes an employee versus an independent contractor?
How one answers this question has an impact on the applicability of many regulations. For example, if a construction worker is an employee, they must be paid prevailing wages. If, on the other hand, a worker is not considered to be an employee, but an independent contractor, they must then be registered as a contractor with the Washington State Department of Labor and Industries.Substitute Senate Bill 5904 was approved by the Washington State Legislature and signed by Governor Christine Gregoire. This bill establishes a seven-fold test to determine when an individual is not considered to be a "laborer, worker, or mechanic" under Washington State prevailing wage laws, but is, in fact, an independent contractor.The thrust behind the law appears to be an attempt to get at what is often termed the "underground economy" of contractors who skirt various government regulations such as contractor registration and payment of various taxes and premiums.In addition, a court in the State of Massachusetts recently ruled on the question of what is an independent contractor versus an employee. To read a brief article on this subject, click here. For more detailed information, the Attorney General for Massachusetts has issued an advisory opinion on the proper classification between employees and independent contractors. Visit their website to read the advisory opinion.There are significant risks involved for both businesses and government agencies for failure to ensure the proper classification between employees and independent contractors.
Part of the negotiation process with consultants, particularly architects and engineers, is to establish a billable hourly rate (also known as a "fully loaded" or fully burdened" rate) for each employee or classification of employee. The billable hourly rate consists of the direct salary rate actually paid to the employee, plus a calculated and agreed upon "multiplier" to cover the consultant's allowable overhead expenses and a reasonable percentage for profit.Not all overhead expenses should be included in the multiplier and the challenge is to determine which ones are appropriate versus which ones are not. The most common standard in use is that from the federal government, as provided in the Federal Acquisition Regulations (FAR). These regulations of allowable versus unallowable overhead expenses may be found in CFR Title 48, Federal Acquisition Regulations System (FARs), Part 31 "Contract Principles and Procedures, Sub-Part 31.2, "Contracts with Commercial Organizations."
Click here to go directly to these FARs and the list and description of allowable vs. unallowable overhead expenses.The percentage of profit that is appropriate will be dependent partially on the project. Higher risk projects generally warrant a higher profit percentage to be earned by the consultant.
Check out The Acquisition Corner, a blog about federal contracting issues.
In particular, there are some good articles about federal stimulus money and President Obama's interest in promoting a more open and transparent contracting environment.
Public Procurement Conference of the AmericasWhen: April 27-29, 2009Where: Washington, D.C.What: A three-day conference with delegates from over 20 countries from North, South, and Central America, that provides a forum for discussing government procurement needs and processes.For more information, visit their website.
The University of Washington offers a nine month evening certificate program in Contract Management. The next program will begin in the fall of 2009.For more information, click on the University of Washington's Extension website.
A reader of this blog recently pointed out to me that counties in the State of Washington may use what amounts to best value procurement combined with design-build-operation for solid waste handling systems, plants, sites, or other facilities.
This process is outlined in RCW 36.58.090 and is separate from the provisions of chapter 39.10 RCW that outlines alternative public works contracting procedures, including design-build. There has been discussion in Washington State of expanding the list of authorized alternative public works contracting procedures to include best value. In 2010 or 2011, the State Legislature may take up consideration of a pilot program for this.
In negotiating consultant contracts, there two primary payment options: lump sum or not-to-exceed, also known as time and materials.
Under lump sum contracting, it is very important to have a clearly defined scope of work. Without clear expectations in the scope of work, a public agency risks having the consultant return and ask for additional compensation for what should have been included in the original lump sum amount. Deliverables should be articulated in the contract.
Likewise, under a lump sum method, the actual contract (or amendment) should not show specific hours and hourly rates for particular tasks. If this level of specificity is included in the contract and the consultant expends hours beyond those mentioned, they may ask the public agency for additional compensation. The documentation of negotiations and how the public agency and consultant agreed upon the lump sum (tasks, hours, hourly rates) should be part of the file maintained by the agency, but not made part of the contract.
Consultants frequently like lump sum since it gives them the motivation to try to be more efficient and thus make an additional profit. Without a clear scope of work and deliverables, however, a consultant may cut corners on performance. From a public agency's payment perspective, lump sum is easier to administer (not having to check detailed invoices showing hours worked), but it may result in a higher payment to the consultant than if a not-to-exceed method is used.
Under the not-to-exceed method of payment, the public agency agrees to pay the consultant for the actual hours worked to perform the scope of work, up to a maximum amount. Thus, if the work takes fewer hours than agreed upon, the public agency ends up paying less.
Whether to use lump sum or not-to-exceed depends on a number of factors including how detailed and clear the scope of work is, the level of sophistication of the agency in its ability to negotiate a contract amount, and the dollar amount of the work. Lump sum may work well for clearly defined work and deliverables where the agency has the ability to estimate and accurately negotiate the amount of work and the dollar amount is not too large. Bigger contracts with more uncertainty about what work is required, or where the agency really doesn't know the dollar value of the work, may be better under a not-to-exceed method.
Position: Senior Contracts AdministratorWhere: Downtown Seattle (available immediately)Duration: Six monthsSalary: OpenMinimum requirements: Work with agency departments and project managers to prepare, negotiate and administer contracts of a complex nature including professional services, information technology, complex equipment bids, small work roster construction bids, etc. The Sr. Contracts Administrator will provide exceptional customer service to agency departments including Human Resources, Finance, Information Technology, Executive, Operations and Maintenance Departments, Facilities, Executive and Capital Projects. The Senior Contracts Administrator will be responsible for the procurement and administration and close-out of various complex contracts for significant capital projects.Desired Qualifications: The successful candidate will have demonstrated knowledge of industry principles and practices as it relates to public sector contracting including a working knowledge of FTA (or similar) regulations and applicable laws and regulations, customer service, partnerships, process improvement and streamlining, the ability to develop and implement creative procurement solutions. Candidates must possess a Bachelor's degree from an accredited college or university with major course work in public administration, business administration, contract management, process of RFPs, negotiations, awarding, modifications, engineering or in a field or discipline related to area of assignment with five years related experience or other similar combinations of education and experience.For more information, contact: Dolores GohndroneHallmark Services (employment agency)Phone: (206) 587-5360Fax: (206) 587-5319E-mail: doloresg@hallmarkservices.com
A new version of LEED, the green building certification program, will be launched on April 27, 2009, according to the U.S. Green Building Council.For a summary of the changes, visit the website of the law firm of Davis Wright Tremaine. For more detailed information about the change, visit the USGBC website.
Check out the PowerPoint presentation below on Best Value Contracting in Public Works. I recently heard David Bergquist from the State of California speak on the pilot program recently authorized by the California Legislature on Best Value Procurement for the University of California at San Francisco.Within Washington State, Best Value procurement for public works is not authorized. Chapter 39.10 RCW provides for only three alternative public works contracting methods to be used instead of the traditional Design-Bid-Build method of procurement. The three methods that are authorized are: General Contractor/Construction Manager (GC/CM), Design-Build, and Job Order Contracting.There is some interest in Washington State to explore Best Value procurement and possibly propose legislation for beginning with some pilot projects.
In bidding and consultant selection, contractors and consultants often submit bids and proposals that contain irregularities or errors in their submissions. To the extent that such irregularities are not material, a public agency may waive the irregularity and still consider the bid or proposal. The general rule of thumb as to whether the irregularity is material or immaterial is whether it gives one company an advantage not enjoyed by others. If it provides one company with an advantage not enjoyed by others, the irregularity would be considered material and the bid or proposal should be rejected. If, on the other hand, the irregularity is immaterial, then the public agency may waive the irregularity as an informality.Frequently, I see language in public agency documents such as the following: "The public agency reserves the right to waive any minor informalities or irregularities contained in any bid." It seems to me that one doesn't waive "informalities," but only "irregularities." Whether something is an informality is a decision made by the public agency, while an irregularity is the error that the bidder or proposer makes. It may be more accurate to state that "The public agency reserves the right to waive as an informality any irregularities contained in any bid." Take a look at the language in your bidding and solicitation documents to see how they describe the rights of public agencies. Are you waiving "informalities" or waiving "as an informality any irregularities"? It's something to think about...
2009 Design-Build Conference and ExpoWhen: November 5 - 7, 2009Where: Washington, D.C.Sponsored by: Design-Build Institute of America (DBIA)
For more information and to register, visit DBIA's Conference websiteClick here to check out the training calendar on this blog or click on the link on the right.
I will be conducting the following two training workshops on May 7, 2009 at the annual conference of the Washington Association of School Business Officials (WASBO) at the Spokane Convention Center: - Ethics in Public Contracting: Integrity, Transparency and Appearances
- Public Works Contract Close-out: Bonding, Retainage, and Claims
Each workshop will be two hours in length. If you would like training on these subjects for your agency, please contact me.
Business Ethics in Project Delivery - All day seminar for Owners, A&E firms, and contractors
When: April 16, 2009 - 8:30 a.m. to 4:30 p.m.
Where: Hilton Hotel at SeaTac Airport
Sponsored by: Northwest Construction Consumer Council (NWCCC) Cost: - $249 (member of NWCCC or AGC)
- $399 (not affiliated with NWCCC or AGC)
Instructors: - Dr. Marianne Jennings, Professor, Arizona State University
- Jeff Van Duzer, Dean of School of Business and Economics, Seattle Pacific University
- Jim Schmid, Grant Thornton LLP
For more information and to register, visit NWCCC's website.
At the April 16, 2009 dinner meeting (5:30 p.m. to 8:00 p.m.) of the Pacific Northwest chapter of the Construction Management Association of America, Dave Dye from the Washington State Department of Transportation (WSDOT) will be speaking about
- How Washington State is benefiting from the stimulus package
- The reauthorization of the Transportation package
- How WSDOT plans to deliver these projects
For more information and to register, visit the CMAA website.
The University of Washington’s Business and Economic Development Center (BEDC) is sponsoring its 14th Annual Report to the Community Luncheon. This is the largest gathering of people committed to business development in economically distressed and emerging communities in Seattle.When: Tuesday, June 16, 2009, 12:00 p.m. to 1:30 p.m.Where: Westin Hotel, Grand Ballroom (1900 5th Avenue, Seattle, Washington)Keynote Speaker: David Allen, Executive Vice President, McKinstryCost: $70For more information visit BEDC’s websiteTo register, click here
The Washington State Auditor's Office is continuing its performance audits of public agencies in the State. Here's an update on their activities related to construction management and capital project audits.
Pending Construction Management Audit Reports: The Auditor's Office is currently drafting performance audit reports in the area of construction management for the following three public agencies: Pending Capital Projects Audit Reports: In addition, they are drafting performance audit reports on capital projects for three public hospital districts: Fieldwork underway: Fieldwork is currently underway for construction management and operations for Public Utilities Districts in Chelan, Douglas, and Grant counties.Future Audits Planned: Future performance audits on construction management practices include the following agencies:
Here's a very brief introductory presentation on Job Order Contracting (JOC). Job Order Contracting is one of three alternative public works contracting methods authorized in the State of Washington for public agencies (RCW 39.10). Other states and the federal government also utilize JOC.
Please contact me if you have any questions about Job Order Contracting or would like training on the subject.
Brian Knight: After nine years at Sound Transit as a Lead Contracts Administrator for A&E / Construction contracts, Brian Knight has accepted a position at the Port of Seattle as the Senior Manager for Service Agreements. The Port position is a newly created job in the Central Procurement Office that was formed in response to the audit of the State Auditor's Office of the Port's construction management practices. Brian's last day at Sound Transit will be on April 8, 2009 and he begins his new position on April 13, 2009. Bill Martin: Bill Martin was hired by the Seattle School District as Senior Manager, Capital Projects and will be responsible for overseeing a nearly $230 million annual capital budget. Since 2003, Bill has been the Deputy Division Director for Capital Projects and Roadway Structures with the City of Seattle's Department of Transportation. Bill began his new duties with the Seattle School District on March 2, 2009.Other: Do you know of others in public contracting and procurement who have recently changed positions or retired? Please contact me and let me know. Thanks!
The State of California has adopted a pilot program authorizing a Best Value procurement process for the selection of contractors on public works projects at the University of California at San Francisco.
Under Best Value procurement, price is not the only factor used in the selection of a contractor. Other evaluation factors include demonstrated management competency, relevant experience, financial condition, labor compliance, and safety record.
I attended a meeting last week at which David Bergquist, from the University of California's Office of General Counsel spoke about this alternative procurement process. His speech was entitled "Public Sector Capital Projects: Is there a better way than Low Bid?" Mr. Bergquist was instrumental in working to get this pilot program adopted by the California Legislature.
To view the California law on Best Value, click here.
If you would like me to e-mail you a copy of David Bergquist's PowerPoint presentation on Best Value, please contact me.
The Washington State Department of Labor and Industries has published a correction to the prevailing wage rate for Power Equipment Operators that will become effective on April 24, 2009.The correction changes the rate for a Screed Man from $47.42 to $47.91 per hour for the following 18 counties: - Chelan
- Clallam
- Douglas
- Grays Harbor
- Island
- Jefferson
- King
- Kitsap
- Kittitas
- Lewis
- Mason
- Pacific
- Pierce
- Skagit
- Snohomish
- Thurston
- Whatcom
- Yakima
Federally funded stimulus construction projects will require the payment of prevailing wages, a requirement that some charge will increase costs and reduce the amount of work that can be accomplished with the money. For a complete story on this issue, click here.
For public works contracts in the State of Washington, there are four options for how retainage is withheld by public agencies, at the option of the contractor.- Held by the public agency. The public agency deducts the 5% from each progress payment and holds the retainage in its own non-interest bearing account.
- Invested by the public agency in an interest bearing account in the public agency's name. The contractor earns interest on this account.
- Placed in escrow with a bank or trust company by the public agency under a three party agreement between the bank or trust company, the public agency, and the contractor. The contractor pays any fees directly to the bank or trust company who agrees not to release the funds until authorized by the public agency.
- Retainage bond submitted by the contractor. Under this option, the public agency pays the contractor 100% of each progress payment. The bonding company promises to pay any valid claim filed against the retainage, thus enabling the public agency to pay the contractor their retainage on an ongoing basis.
Retainage is set at 5% of the amount earned by the contractor (not including sales tax) and is established as a trust fund for the protection of workers, subcontractors, and suppliers, in addition to the State Department of Revenue for payment of taxes.
For more information about these options, refer to RCW 60.28.011.
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