Monday, August 31, 2009

New Requirements for Release of Retainage

Under legislation approved this spring by the Washington State Legislature, three state agencies leapfrogged over the rights of subcontractors and suppliers to tap into retainage funds on public works projects when contractors fail to pay taxes and various premiums.

Retainage refers to the 5% of each progress payment that is held back as a trust fund for certain parties by state and local agencies on public works projects.

te House Bill (SHB) 1555, which became effective on July 26, 2009, addresses three areas related to retainage:
  1. Expands the list of state agencies that must be notified of final acceptance of a public works project.
  2. Requires public agencies to obtain an approval from additional state agencies prior to releasing retainage to the contractor.
  3. Changes the priority order of claims filed against retainage, in the event there are insufficient funds to cover all claims filed.

Notification of State Agencies:
Under the previous law, public agencies were only required to notify the Department of Revenue of the completion of a public works project. Under SHB 1555, public agencies are now required to notify Revenue, Employment Security, and Labor and Industries (L&I) for all public works projects over $35,000. The process for notifying Revenue has been in place for years, and Revenue has informally forwarded public agency notices to Employment Security. However, no process is in place for notifying L&I.

On July 24, 2009, L&I issued an e-mail informing public agencies they would not be ready to implement the notification provisions of SHB 1555 until at least October 1, 2009. Thus, without instructions from Labor and Industries, public agencies are left with no choice but to wait for L&I to provide instructions for how to implement the new notification requirement.

Approval from State Agencies: Likewise, prior to the adoption of SHB 1555, public agencies were only required by chapter 60.28 RCW to obtain an approval from the Department of Revenue for payment of state excise taxes by the contractor. Most agencies made it a practice to also obtain a release from the Employment Security Department for payment of unemployment compensation premiums, and many agencies also verified from the Department of Labor and Industries’ website that the contractor and subcontractors were current on paying workers compensation premiums.

Under the provisions of SHB 1555, public agencies are now required to obtain the releases of these three agencies for all public works projects over $35,000. In practice, with Labor and Industries’ notification that they are not prepared to issue releases until October 1, 2009 or later, public agencies should ensure they receive releases from Revenue and Employment Security now, and from L&I once they have developed implementation procedures.

Priority of Claims Against Retainage: Under the provisions of SHB 1555, subcontractors and suppliers lost crucial rights to tap into the retainage, falling behind state agencies. The priority order of claims is important for when there are insufficient funds remaining in the retainage account, and helps determine who gets paid first or at all. The following chart illustrates the changes in the priority order of claims:
Implementation: With the addition of Employment Security and Labor and Industries as beneficiaries of the retainage trust fund, subcontractors and suppliers may find little or no money left in the retainage for a project after state agencies have made their claims. Unlike subcontractors and suppliers, state agencies do not need to obtain a court order before requiring public agencies to disburse retainage funds to them.

The new legislation may discourage subcontractors and suppliers from pursuing foreclosure of their claims against the retainage if there is a lower likelihood of recovering funds from retainage.

Another impact of the new legislation, once fully implemented with notification and approval required from Labor and Industries, is that the process for releasing retainage to contractors may take longer.

I will continue to monitor the impacts and new processes of SHB 1555 and will post information on this Blog as it becomes known.

I am hoping to offer a four hour training workshop on "Public Works Contract Close-out: Bonding, Retainage, and Claims" sometime this fall that will address the impacts of the new legislation as well as other important issues. If you are interested in being notified of this upcoming training opportunity, please contact me, and I will let you know more about where and when this low cost training will be held.

Wednesday, August 26, 2009

Evaluating and Awarding Alternate and Additive Bids

Frequently, on public works projects, a public agency will request bids for alternates or additives.

While actual usage of these terms varies between agencies, I would characterize an alternate as an alternate material or method of construction different from what is included in the base bid. An additive, on the other hand, is an additional body of work that the owner may award if there is sufficient funding for it. It's a body of work that isn't critical for the project, but which allows the owner to bring the bid amounts within budget without having to re-advertise the project.

How should a public agency evaluate who is the low bidder? That decision should be based on what bidder is the low bidder on the base bid and the combination of alternates or additives that the owner chooses to exercise. Doing so ensures that the owner receives the lowest price for the work performed and is consistent with most laws that require award to the low bidder.

Depending on which alternates or additives are selected, the order of the bidders could change.
This is a cause of concern for some contractors who fear that public agencies may use alternates and additives to manipulate who the low bidder is and to purposely exclude a bidder from receiving the award. A reputable owner should base their decision on award based on what funding is available for the project and what is in the best interest of the project.

Thus, if the owner decides not to award any alternates or additives, the award evaluation would be based on just the base bid and that is all that would be awarded. If, on the other hand, the owner had funding for additive bids 1, 3, and 5, the owner would add up the prices for the base bid and additives 1, 3, and 5 for all of the bidders to determine which bidder was low on this combination.

Some owners prioritize the alternates and additives in order to ensure that it is not possible to pick their favorite bidder. The downside to such prioritization is that it can limit options for what may be best for the project and the funding available.

After making an evaluation and award, it is inappropriate for an owner to later change order an alternative or additive bid into the project, if in so doing it would change the order of who the low bidder was. Such an action would likely result in an audit finding.

Tuesday, August 25, 2009

5 Keys to Making Ethical Contracting Decisions

There are five key issues that should drive public agency officials in making ethical contracting decisions:
  1. Facts: What are the particular and unique facts of a situation?

  2. Law: How do applicable laws and policies impact a decision?

  3. Appearances: It is critical to evaluate how a particular action will appear and be perceived by others even if it is legal. This is often known as the "front page of the newspaper" test. Will your action likely be good material for a front page story?

  4. Judgment: In making contracting decisions, use your judgment and that of your supervisors and managers.

  5. Trust: Will your decision help or hinder in instilling public confidence in the integrity of the public contracting process?
All five of these factors are important to consider in making ethical decisions. For more information about ethical contracting situations, visit the section of my blog addressing ethics.

Monday, August 24, 2009

Task Force on Integrated Project Delivery (IPD) and Best Value

The Washington State Capital Projects Advisory Review Board (CPARB) has formed a task force of design and construction industry representatives to evaluate the potential use of Integrated Project Delivery and Best Value Procurement in the state.

Click here to read the minutes of their July 1, 2009 meeting.

The next meeting will be held on October 8, 2009 from 9:00 a.m. to noon at the Northwest Carpenters Facility, 25120 Pacific Highway South, Kent, Washington.

Sunday, August 23, 2009

Florida County Tables Local Preference Ordinance

The Pinellas County (Florida) Board of County Commissioners voted on July 21, 2009 to table a motion that would have provided up to 10% local preference points in the County's procurement of consultants, architects and engineers. The matter was referred back to County staff for additional study and to obtain input from a regional committee.

To view the staff report and the proposed ordinance, click here.

For more information,
refer to my previous blog entry on the matter.

Free Public Works Contract Training

Training: Public Works Contracting - Beginning to End

Cost: FREE

When and Where (10:00 a.m. to 2:30 p.m.):
  • September 8, 2009 (Renton)
  • September 16, 2009 (Camas)
  • September 24, 2009 (Everett)
  • September 29, 2009 (Yakima)
Description: This training will cover the basics of public works contract management for the duration of a project. We will review the role of a contract administrator through roster management, spec development, bidding process, bonding, insurance, prevailing wage, limited public works process, and much more.

Sponsored by: APWA and MRSC

Click here for more information and to register.

Thursday, August 20, 2009

Training Conference & Vendor Trade Show

The Washington State Department of General Administration is sponsoring a Training Conference & Trade Show on October 28 and 29, 2009 at the Greater Tacoma (WA) Convention and Trade Center.

Vendors will have the opportunity to meet face to face with over 600 public purchasing managers, supply officers, public works contracting officers, facilities managers, fleet managers and fiscal officers. The trade show is focusing on Sustainability this year.

Register by September 14, 2009 or earlier as the trade show does fill up.

For more information, click here.

Design-Build Contract Award Processes

I've developed the following presentation to outline the requirements of chapter 39.10 RCW for the contract award process for using Design-Build as a project delivery method in Washington State.

Wednesday, August 19, 2009

Retraction of Previously Published Prevailing Wage Rates

The Washington State Department of Labor and Industries announced major changes in the new prevailing wage rates that will become effective on September 2, 2009, and that were published earlier this month.

L&I previously published revised wages on August 3, 2009, with an effective date of September 2, 2009. Since the original publication, L&I has published two corrections (for residential sprinkler fitters in Douglas County, effective on September 4, 2009, and for metal fabrication-in shop in Jefferson County, effective on September 5, 2009).

Approximately one third of the wage updates in the August 3, 2009 publication (or 22 crafts) were based on data from prevailing wage rate surveys conducted by L&I. Other changes were based on changes in collective bargaining (union) agreements.

A number of industry stakeholders contacted L&I with concerns about the accuracy of some of the survey data. As a result, L&I will be publishing new prevailing wage rates on August 24, 2009, which will still be effective on September 2, 2009. The new wage rates will delete all of the changes previously published on August 3, 2009 based on survey data.

The survey data will be reviewed over the next six months, and appropriate changes will be published in February 2010.

In keeping the effective date of the wages to be published on August 24, 2009 as September 2, 2009 (less than the required 30 days after publication), L&I is exercising their emergency authority under WAC 297-126-011, in order to prevent questionable prevailing wage rates based on the surveys from going into effect.

Tuesday, August 18, 2009

Should the Engineer's Estimate be Published?

The question of whether the engineer's estimate for a public works project should be published in either the advertisement and/or the bidding documents is a question that many contracting professionals ask.

If your state laws require that the public agency publish the estimate, then it is obvious what needs to be done. It is less clear when your state law doesn't require it. For example, in Washington State, there is no requirement for publishing the engineer's estimate. However, RCW 39.04.020 does require that there be an estimate and that it be disclosed upon request.

What are the arguments as to why to publish or not publish the estimate?

Some people suggest that by publishing the estimate, it invites bidders to submit bids very close to the estimate amount, even if the cost of the work is less. That may be a more persuasive argument in a booming economy where contractors can more or less pick and choose what projects they will bid, and may inflate their prices. In our down economy, my experience recently has been that bids are coming in at significantly below the estimate, whether published or not. Even in a booming economy, however, there will always be bidders who want to remain competitive and will bid their actual costs. However, to mitigate against this concern, some public agencies will only publish a range of the estimate amount.

Those who suggest that the engineer's estimate should be always published in the advertisement and bidding documents point toward using the estimate as a marketing tool. It helps contractors understand whether it is a project within their price range and whether it is worth while for them to bid the project. In addition, publishing the estimate can help bidder understand the magnitude of the project and not overlook major key elements of the project.

Generally, I lean on the side of transparency and disclosing the engineer's estimate. I think the benefits far outweigh the potential risks. Besides, under the public disclosure laws of most states, even if the estimate is not published in the advertisement and/or bidding documents, it is public information and must be disclosed upon a formal request. So it's better in the first place just to make it available in the advertisement.

Training: Effective Management of Construction Contracts

Effective Management of Construction Contracts

When: Wednesday, October 7, 2009

Times: 8:00 a.m. to 5:00 p.m.

Where: Police Department - First Floor, 211 West 6th Avenue, Kennewick, Washington

Sponsored by: NIGP (National Institute of Governmental Purchasing)

Instructor: Darin Matthews, CPPO, C.P.M.

  • National NIGP members: $160
  • WA State NIGP Chapter members: $225
  • Nonmembers: $225
For more information and to register, visit the website of the Washington State Chapter of NIGP

Monday, August 17, 2009

Responsive Bids and Responsible Bidders

Check the language of your bidding documents for public works projects. Does it distinguish, as it should, between responsiveness and responsibility?

Often, I see language that states the public agency will award to the "lowest responsive and responsible bidder." Technically, this is not correct. Bids are low, not bidders. It's important to understand the difference between the two concepts of responsiveness and responsibility, and how each are evaluated differently.

Responsiveness is always in relationship to a bid received. Is the bid responsive? In other words, does the bid respond to the requirements of the bidding documents? Is the bid signed, was it received on time, and was a bid guaranty submitted are some of the issues surrounding bid responsiveness.

Responsibility, on the other hand, always relates to the bidder. Is the bidder a responsible bidder, or are they capable and qualified to perform the project? Depending on what state you're in, there may be requirements that govern what type of responsibility criteria can be included in the bidding documents. In Washington State, for instance, RCW 39.04.350, governs this issue.

Instead of language that states the public agency will award to the "lowest responsive and responsible bidder," consider something different such the following: award will be made to the "responsible bidder submitting the lowest responsive bid."

Training: Basics of Public Works Contract Administration

Basics of Public Works Contract Administration

When: Tuesday, November 17, 2009 (8:30 a.m. to 4:30 p.m.)

Where: City of Bellingham (2221 Pacific Street, Bellingham, Washington)

Sponsored by: Washington State Chapter of NIGP (National Institute of Governmental Purchasing)

Instructor: Charlotte Walther, Procurement and Contracts Administrator, Port of Everett, Washington)

  • $150 (national NIGP member)
  • $150 (Washington State NIGP chapter member)
  • $180 (non NIGP member)
For more information and to register, visit the website of the Washington Chapter of NIGP.

Sunday, August 16, 2009

Reducing Change Orders with Third Party Review of Construction Documents

Errors in construction documents developed for public works projects are often a cause for change orders. While architects and engineers strive for accuracy, projects are complex, and it can be difficult for the designer to always catch all of the potential problems in the drawings and specifications.

One tool that a number of owners use to mitigate against errors is to hire an independent, third party to review the construction documents prior to bidding the project. The third party can identify inconsistencies in the documents that can be corrected prior to bidding. To the extent that the bidding documents are clear, there is less likelihood that there will be as many change orders.

Phillip Foreman, the president and CEO of Foreman Architects Engineers and the Foreman Group of Companies , has written a helpful article on third party review of construction documents. Entitled "Cost Control: Preventing Change Orders is Key for Reducing School Construction Costs During Tough Economic Times," the article appeared in the July 2009 edition of American School & University Magazine.

Wednesday, August 12, 2009

Washington Minority Small Business Survey

Not unexpectedly, small business confidence has declined sharply over the past year. However, the confidence of most types of small businesses surveyed either held steady or showed a small increase between October/November 2008 and April 2009 - even as the average Recent Performance Index declined by nearly six points.

With details on these trends and more, the recently released "Washington Minority Small Business Survey" from University of Washington Foster School of Business professor William D. Bradford (Endowed Professor of Business and Economic Development, Professor of Finance) details the situation and outlook of 420 small business with between one and 100 employees.

The report presents survey results from small business owners dealing with the current economic situation, including an examination of the Small Business Confidence Index, the Recent Performance Index and the factors affecting it, access to credit, and employment numbers.

To read the entire report, visit the website of the University of Washington Foster School of Business.

Training: The Art of Contract Formation

Training: The Art of Contract Formation

When: Monday, September 28, 2009

Times: 8:00 a.m. to 5:00 p.m.

Where: Chinook Building, Third Floor, Procurement Offices (401 5th Ave, Seattle, WA 98101)

Sponsored by: NIGP (National Institute of Governmental Purchasing)

Instructor: Karen Fitzthum, CPPO, CPPB

  • National NIGP members: $150
  • WA State NIGP Chapter members: $150
  • Nonmembers: $180
Content: This course provides an in depth look into the various elements used to create valid contracts:
  • Elements and formation of a Contract
  • Understanding what laws impact your contract
  • Role of Contracting Parties
  • Contract Terms - What terms are most frequently negotiated and why?
  • Understand the Law of Agency and Parole Evidence Rule
  • How contract formation affects contractor performance
For more information and to register, visit the web site of the Washington State Chapter of NIGP.

Monday, August 10, 2009

How to Win and Grow Government Contracts

The Greater Pierce County (Washington) Purchasing Forum

When: September 18, 2009 (8:00 a.m. to Noon)

Where: Environmental Services Building (9850 64th St. W., University Place, WA 98467)

Sponsored by: Pierce County Economic Development Division

Cost: Free

If you are a public agency, you may want to attend and learn how to sponsor your own event for your agency.

Content: The Forum will offer businesses a chance to:
  • Learn first-hand how to register and complete for contracts with government, schools, and public entities in Pierce County
  • Hear a panel of local business owners/managers that have been successful in winning government contracts share their experieinces and offer first-hand advice on how to win contracts
  • Speak one-on-one with purchasing agents
  • Meet and interact with Pierce County business owners and managers.
To register, visit or call Hans Kueck at (253) 798-2335

For more information, click here.

Sunday, August 9, 2009

2009 Construction Industry Strategy Survey

FMI Corporation - Management Consulting has conducted a very interesting survey of 230 general contractors, construction managers, large specialty trade and heavy civil contractors.

Entitled "Strategy in the Eye of the Storm" the survey was designed "to gauge exactly how executives of the industry's leading firms were preparing for a rapidly changing landscape...and how they were positioning their businesses for both the short and long-term."

Click here to view the 21 page survey report.

Thursday, August 6, 2009

Federal Prevailing Wage Training

Prevailing Wage Law - An Understanding of the Davis-Bacon Act

  • September 22, 2009 (10:00 a.m. to 11:30 a.m. - Pacific Time) OR
  • September 30, 2009 (10:00 a.m. to 11:30 a.m. - Pacific Time)
Where: Live Teleconference - your office

Instructor: Van A. Goodwin, Littler Mendelson, P.C.

Cost: $199 (for registrations by August 18, 2009. After that price increases to $219)

Sponsored by: Lorman Education Services

For more information and to register, click here.

Are Owners Exempt from Prevailing Wages?

Under Washington state laws, owners who meet certain criteria are exempt from being required to be paid prevailing wages, but must nevertheless comply with other reporting requirements.

According to the Washington Administrative Code (WAC 296-126-026), the prevailing wage requirements of state law (chapter 39.12 RCW) do not apply to:
  1. Sole owners and their spouses
  2. Any partner who owns at least 30% of a partnership
  3. The president, vice-president and treasurer of a corporation if each one owns at least 30% of the corporation.
The purpose of this exemption is to not require the owner of a construction business to pay themselves prevailing wages on public projects. There are other provisions of chapter 39.12 RCW that deal with issues other than what wages must be paid to individuals.

For example, even owners who are exempt from paying themselves the prevailing wage rates must still file a "Statement of Intent to Pay Prevailing Wages" (before the public agency makes the first payment) and an "Affidavit of Wages Paid" (prior to release of retainage by the public agency). This is often not clearly understood by public agencies and contractors.

In addition to company owners being exempt from paying themselves the prevailing wage, the prevailing wage requirements of chapter 39.12 RCW do not apply to workers employed by public agencies in the State of Washington.

Wednesday, August 5, 2009

Preserving the Owner's Options in GC/CM Negotiations

Public agencies using the General Contractor/Construction Manager (GC/CM) method of public works construction contracting should ensure that they preserve their options in the event that negotiations with the GC/CM for the Maximum Allowable Construction Cost (MACC) are not successful.

Owners often have language in the Request for Proposals to the effect that the owner may cancel negotiations and begin negotiations with the next highest ranked contractor if the parties are unable to successfully negotiate a MACC. However, negotiation with the next highest ranked contractor may not be in the owner's best interest given the status of the project, and the owner should preserve its right to take other actions.

I suggest that wording similar to the following be included in the Request for Proposals: "Should the Contractor and Owner not agree on a MACC, the Owner may cancel the negotiations and begin negotiations with the next highest ranked proposer, or pursue other options for completing the work as may be in the Owner's best interests."

This additional language gives the owner the right to put the work out for competitive bids if that would be most advantageous to the owner and the project.

Tuesday, August 4, 2009

New State Prevailing Wages Effective September 2, 2009

The Washington State Department of Labor and Industries has published revised prevailing wage rates that will become effective on September 2, 2009.

The rates are applicable for all public works projects with a bid submittal deadline of September 2, 2009 or later. Public agencies may need to issue an addendum for projects out to bid in order to include the new prevailing wage rates.

According to Washington State law, the actual prevailing wage rates must be included in all bidding documents and contracts issued by public agencies in the State. Simply referencing L&I's website with the wage rates is not sufficient.

Visit L&I's website to view the new prevailing wage rates by county.

Monday, August 3, 2009

Training: Emergency Management for Purchasing Professionals

Emergency Management for Purchasing Professionals: The Four Rs and the Tale of Two Boxes

When: Tuesday, November 10, 2009 (8:30 a.m. to 4:30 p.m.)

Where: City of Renton - Maintenance Shop (3555 NE 2nd Street, Renton, Washington)

Sponsored by: Washington State Chapter of NIGP (National Institute of Government Purchasing)

Instructor: Bruce Brady, Senior Buyer, Mt. San Jacinto Community College District

  • $150 (national NIGP member)
  • $150 (Washington State NIGP chapter member)
  • $180 (non-NIGP member)
For more information and to register, visit the NIGP website for Washington State.