Fraud in Chicago's Minority Contracting Program

The City of Chicago's Office of the Inspector General has issued an 80 page report on problems that have riddled the City's minority contracting program, where actual utilization of minority owned businesses is less than what has been reported.

The findings in the Office of the Inspector General's May 2010 report include the following:

• Investigations uncovered pervasive fraud and abuse of the program.  Fraudulent activity has included the participation of "front companies" that assert to be MWBE firms, but which are actually controlled by non-minority males, and the use of "pass-throughs" in which MWBE firms are awarded contracts, but the work is actually subcontracted out to non-MWBEs to perform.

• Actual payments to MWBEs are likely significantly lower than publicly reported statistics.  This is due to reports being based on awarded contracts and not on actual payments made to MWBEs.

• Problems with program administration.  The audit report claims that "the MWBE program is poorly administered and the administration cannot determine whether or not it is achieving its goals."

Recommendations:  The audit report recommends the following seven action steps to improve the MWBE program:

1. Track and report actual payments to MWBEs.
2. Increase cooperation between City departments to properly administer the program.
3. Require more detailed documentation of payments to MWBEs.
4. Consider directly paying subcontractors.
5. Clearly define and consistently apply MWBE regulations.
6. Increase resources for program administration.
7. Increase enforcement of penalties for non-compliance with MWBE commitments.

Revised Prevailing Wage Rules Proposed by Washington State

The Washington State Department of Labor and Industries (L&I) has published a notice of Proposed Rule Making to amend and update its prevailing wage regulations in chapter 296-127 of the Washington Administrative Code (WAC). 

L&I has scheduled public hearings to consider comments on the proposed changes.  The hearings will be held at L&I's offices in the cities noted below:

• June 28, 2010, Tumwater, 1:00 p.m.
• June 29, 2010, Tukwila, 10:00 a.m.
• July 1, 2010, Spokane, 10:00 a.m.

The following is a high level summary of just some of the many proposed changes.  Click here to review a track changes version of the proposed changes to the WAC.

• Public Works Definition:  Clarifies that the definition of public works is only "for the purposes of chapter 39.12 RCW."  This is a significant change.  Its impact would be to acknowledge that the definition of public work in the WAC only applies with respect to prevailing wage requirements, and not with respect to solicitation or other public works requirements.  This proposed change would recognize that there is a difference between what is a public work and what is subject to prevailing wages.

• Ordinary Maintenance Definition:  Deletes the frequency and type of activity that is the basis of ordinary maintenance, and limits the definition of ordinary maintenance to maintenance work performed by public agency employees.

• Wage Increases for Certain Work:  Requires that maintenance, service, and building service maintenance (janitorial) contracts covering more than one year include language providing for an update of the prevailing wages after the first year, with the costs of any increases being borne by the public agency.

• Journey-level Wage Rates Only:  Clarifies that only journey-level (not apprentice) wage rates must be included in bidding and contract documents.

• Supervisory Exemption from Prevailing Wages:  Changes the standard of when supervisors must be paid prevailing wages.  One of the current standards requires payment of prevailing wages to supervisory personnel who perform physical labor for more than 20% but less than 50% of the hours in any week.  The proposed revision would require payment of prevailing wages to any supervisory personnel who perform physical labor for more than 10% of their hours on any day.

• Owner Exemptions from Prevailing Wages:  In addition to the existing standards relating to sole owners, partnerships, and corporations, the proposed revisions add "limited liability companies,"  (LLC) requiring that any member of an LLC who owns at least 30% is exempt from payment of prevailing wages.

• Requirements for Exempt Owners:  Formalizes existing L&I policy that exempt owners are only exempt from payment of prevailing wages, but must comply with other prevailing wage requirements, including the requirement to file a Statement of Intent to Pay Prevailing Wages and an Affidavit of Wages Paid.

I will be reviewing and commenting on the proposed revisions, and hope to attend the public hearing on June 28, 2010 as well.

Let me know if you have any questions or concerns about the revisions proposed by L&I.ww.lni.wa.gov/LawRule/WhatsNew/Proposed/default.asp?RuleID=283553.

Training: Risk Management for Complex U.S. Government Contracts and Projects

Training:  Risk Management for Complex U.S. Government Contracts and Projects

When:  Tuesday, June 8, 2010 (8:00 a.m. to 5:00 p.m.)

Where:  University Place, Washington (near Tacoma) - Pierce County - Chambers Creek, 9850 64th St. W.)

Cost: $425

Sponsored by:  National Contract Management Association (NCMA) - South Sound and Puget Sound Chapters

Speakers:

• Charles Rumbaugh
• Janice Smets

For more information and to register, visit NCMA's website.

School Districts Fail to Conduct Federal Debarment Checks

If you receive any federal funding for projects for your agency, remember that you are required to verify that the party you are contracting with has not been debarred or suspended by the Federal government.  This requirement applies for any contract exceeding $25,000.

Three school districts in Washington State were the subject of recent audit findings by the State Auditor's Office for failing to either obtain a debarment and suspension certification from vendors, or to check and maintain documentation in the contract file that they had checked the government's online debarment database: www.epls.gov.

Click on the links below to read the audit findings:

• Pomeroy School District No. 110
• Sunnyside School District No. 201
• Lake Quinault School District No. 97

Completed Training on Construction Bonds

I was in Everett, Washington on Tuesday, May 25, 2010 and in Yakima, Washington on Wednesday, May 26, 2010 teaching on Construction Bonds.

Here's the agenda of what I covered in this two hour class sponsored by APWA-MRSC:

• How Do Bonds Work?
• How Are Bonds Different From Insurance?
• Definitions
• What is a Power of Attorney
• Bid Bonds
• Performance Bonds
• Payment Bonds
• Retainage Bonds
• Warranty Bonds
• Contractor Registration Bonds

How the Contracting/Purchasing Function Should Add Value

A major purpose of  the public contracting and purchasing function should be to add value by providing strategic assistance to customers in a manner that helps them meet their business objectives through a fair and legal competitive process.  

Agency Perceptions:  This can be a challenge in some public agencies where the contracting/purchasing function is not held in high regard by project managers and end users, who often view procurement professionals as a roadblock to accomplishing work.   

Business Objectives and Procurement Strategy:  The key to turning these perceptions around is to actively build a partnership with project managers, and add value to the procurement process by providing advice to project managers that promotes the project's objectives, all within the framework of complying with procurement and contracting regulations.  Contracting/purchasing staff should take the initiative to reach out to the end users and project managers, and encourage them to seek out the contracting/purchasing staff early on as part of planning a procurement strategy.

Tip:  One of the strategies I used when I was a public contracting manager was to set aside an hour each week for an "open contracting forum" to which I invited project managers to drop by with their questions about procurement and contracting issues on projects.  I told them if the issue would take more than 15 minutes to discuss they should schedule a separate appointment.  It was a very valuable time of brainstorming and working together in developing the best solutions.  It was also beneficial for project managers to listen to the issues that others were dealing with, and they would often chime in with their experiences in response to questions raised.

$15,000 Fraudulent Use of Federal Credit Card

An employee of the U.S. Bureau of Prisons pleaded guilty on May 14, 2010 to fraud charges filed against her for her purchase of more than $15,000 of personal items with her employer's credit card.  Personal expenses charged against the credit card included iPods, TVs, DVD players, and $6,000 of gas for her personal car.

Michelle Dunmeyer will be sentenced on July 13, 2010 and could face up to ten years in prison in addition to a fine of a half million dollars.  She will also be required to pay restitution to the federal government.

For more information: Visit the website of the Georgia Tech Procurement Assistance Center.

Caution:  Government issued credit cards are a great tool for streamlined procurement.  However, they must be managed carefully by public agencies.  Without sufficient management controls, reporting, and accountability systems in place, abuses may occur.  If you would like to discuss having me conduct an audit of your credit card program for risk factors, please contact me.

Upcoming Training Opportunities and Conferences

Here are some upcoming training and conference opportunities:

• Construction Bonds and Insurance - FREE (Everett, WA, May 25, 2010, 10:00 a.m. to 3:00 p.m., Sponsored by APWA-MRSC) - I'll be teaching the segment on bonds.
  
• Construction Bonds and Insurance - FREE (Yakima, WA, May 26, 2010, 10:00 a.m. to 3:00 p.m., Sponsored by APWA-MRSC) - I'll be teaching the segment on bonds.
  
• Integrated Project Delivery Under ConsensusDOCS and AIA - $79 (Webinar on May 27, 2010, 8:00 a.m. to 9:30 a.m. Pacific Time)
  
• Top Construction Law Cases Every Contractor Should Know - $30 (Seattle, Washington, 8:00 a.m. to 10:00 a.m., Sponsored by Utility Contractors Association of Washington)
  
• Managing Construction Projects - $359 (Seattle, WA, July 20, 2010, all day, Sponsored by Lorman Education Services)
  
• Public Contracts and Procurement Regulations - $359 (Tacoma,WA, July 27, 2010, all day, Sponsored by Lorman Education Services)
  
• APWA Washington Chapter Fall Convention (Wenatchee, Washington, October 5-8, 2010)
  
• National NIGP Forum & Expo (San Antonio, Texas, August 13-14, 2010)
  
• AGC Building Contractors Conference (Midway, Utah, June 9-12, 2010)
  
• AIA National Convention (Miami, Florida, June 10-12, 2010)
  
• Design-Build Institute of America Conference & Expo (Las Vegas, Nevada, October 18-20, 2010)

Report on Bidder Responsibility Task Force Meeting

The Task Force on Bidder Responsibility, under the umbrella of Washington State's Capital Projects Advisory Review Board (CPARB), met for two hours on Thursday, May 20, 2010, to discuss the issues and to chart a course of action.

Contractor Concerns:  At issue are concerns expressed by contractors about how some public agencies have developed supplemental bidder responsibility criteria that is not consistent with RCW 39.04.350 and that overly restricts competition.

Action Steps:  The Task Force agreed on two preliminary action steps: 

1. To revise the Suggested Guidelines for Bidder Responsibility and to make recommendations to CPARB
   
   
2. To launch an outreach and training initiative to ensure that public agencies and contractors understand how supplemental bidder responsibility should be used.

Revisions to Guidelines:  The revisions to the Suggested Guidelines for Bidder Responsibility that the Task Force will consider will include the following: 

• Provide suggested bidding document language for public agencies outlining the appeal process during bidding that is outlined in RCW 39.04.350.
  
  
• Provide additional language and structure for public agencies using supplemental bidder responsibility criteria so that the criteria, documentation required, and deadlines (all required by state law) are consistently and clearly described in bidding documents.
  
  
• Provide additional examples of good supplemental bidder responsibility criteria used by public agencies.
  
  
• Provide examples (anonymous) of bad supplemental bidder responsibility criteria used by public agencies along with language showing how the criteria could be improved.
  
  
• Provide a checklist for public agencies to use in developing criteria that touch on key decision points.

Next Meeting:  At the next meeting of the Task Force, which has not yet been scheduled, the group will review specific proposed wording changes to the Suggested Guidelines.  In addition, the Task Force will discuss the concept of whether there should be some type of enforcement mechanism to ensure compliance with the provisions of state law.

Longer Term Issue:  A longer term issue that the Task Force will address is how to help ensure that public agencies use relevant supplemental bidder responsibility criteria on projects.

Wrong Risk Classifications Reported for Workers Compensation

The Washington State Department of Labor and Industries (L&I) is reviewing all public works contracts awarded within the last three years.  

Back Premiums Due by Some Contractors:  In the process, they have noted some contractors have been reporting and paying on incorrect risk classification categories based on the work performed.  Those contractors are now being required to pay back premiums for workers compensation to reflect the correct risk classifications.

Contractors Advised to Contact L&I Before Bidding:  L&I issued a statement on May 11, 2010 recommending that contractors contact their Industrial Insurance Employer Services account manager before bidding any public works project to verify that the "Industrial Insurance risk classification assigned to their account matches the work specified in the contract." 

L&I's May 11, 2010 Statement:  The following is an excerpt from L&I's May 11, 2010 statement:

Contracts that involve tunneling, drilling, bridge work, boring, shoring, pipe laying, landscaping, masonry, concrete, brick work, paver work, gate, fence, electrical and demolition work seem to be the contracts most reviewed.  Reason: There can be more than one Industrial Insurance risk classification that defines the work listed above. Also, the overall project can dictate which risk classification is appropriate. The above list is not all inclusive. Please contact your Industrial Insurance Employer Services account manager to verify your firm’s risk classifications with the proposed public works contract. Have the account manager document your conversation, the project discussed, and the appropriate risk classification for the discussed project.

Do not confuse Industrial Insurance risk classifications with Prevailing Wage scope of work classifications. They are not the same and often do not correlate. Please remember, using the correct Industrial Insurance Risk Classification(s) does not change your responsibility to also use the correct Prevailing Wage scope of work classifications for Prevailing Wage Intent and Affidavit reporting purposes.

Your Industrial Insurance Employer Services account manager’s phone number appears on your quarterly report, or you may call (360) 902-4817 to be transferred to your Industrial Insurance account manager.

Resources:  The following websites contain resources about Industrial Insurance:

• Information about L&I's Workers Compensation program may be found on their website.

• Actual Industrial Insurance risk classifications are described in L&I's Washington Administrative Code (WAC) 296-17A. 

Retainage Release Procedures Revised by Employment Security Department (WA)

Effective May 20, 2010, the Washington State Employment Security Department (ESD) has revised their procedures for what dollar size public works projects they are requiring public agencies to notify them of in order to obtain retainage releases at the end of the project. 

After a student in one of my classes recently told me about ESD's position of requiring releases for projects of $20,000 or more, I contacted ESD with my opinion that releases were only required for projects over $35,000, based on the provisions of RCW 60.28.051.  After internal discussions within ESD's management, they have now modified their practice to only require that public agencies notify them of public works projects over $35,000 (through the Department of Revenue who will continue to forward a copy of the Notice of Completion of Public Works Project to ESD. 

ESD's Past Practice:  ESD's position and practice up to this point has been to require public agencies to submit a Notice of Completion of Public Works Project form (Department of Revenue form) for those public works projects of $20,000 or more but less than $35,000.  On projects over $35,000, the Department of Revenue forwards a copy of the form to ESD after receiving it from public agencies.  

ESD Notification Only Required if Project Over $35,000:  Due to errors in legislation in both 2007 and 2009, an inconsistency cropped up in the law that has not been fixed yet.  On the one hand, one version of RCW 60.28.040 grants ESD the right to submit a claim against retainage for any public works project of $20,000 or more. (That's right, due to the complications of the legislative process, there are actually two contradictory versions of RCW 60.28.040 on the books now.)

However, RCW 60.28.051 only requires public agencies to notify ESD of projects over $35,000.  Thus, while ESD may have a claim against retainage on projects between $20,000 and $35,000, public agencies are not required to notify ESD of projects in this range. 

This problem with the State law applies to the Department of Revenue and Labor and Industries as well.  Both of these departments have gone on record only requiring public agencies to file the release forms for projects over $35,000.

Requests in the Pipeline:  For any Notice of Completion of Public Works Project that ESD has received prior to May 20, 2010, they will still review and either issue a release form, or if unemployment premiums are due, they will send a claim against the retainage to the public agency.  Effective May 20, 2010, however, ESD is not requiring that public agencies send the completion notice form to them for projects of $20,000 or more.  ESD commented to me that they will continue, upon voluntary requests by public agencies, to review release requests for projects of $20,000 or more, but that it is not required.

The Bottom Line:  Public agencies are required to obtain a release from ESD, L&I, and Department of Revenue for projects over $35,000 as part of the close-out process and release of retainage to the contractor. 

Confused?  If all of this is confusing, that's because it is...well...confusing, especially since the state law on it has been amended inconsistently.  If you have any questions about the details of this blog entry, please contact me. 

Training:  I have offered a number of times a six hour training class on "Public Works Contract Close-out:  Bonding, Retainage, and Claims."  If you are interested in such a class being taught again, either by your agency or if I offer it again independently, please contact me. 

Tools for Selecting the Best Contractor

It's important that the contractor selected for a public works project be qualified and capable of successfully performing the project.  

Generally, there are three points in time when a public agency can review contractor qualifications:

1. Prior to Advertising - Prequalification
2. Prior to Award - Bidder Responsibility
3. Prior to Performance - Specification Qualifications

Prequalification:  Under Prequalification, the public agency conducts a separate evaluation process to determine which contractors meet specific criteria and are thus able to submit bids.  Contractors may protest the Prequalification process which may lead to delays in the project.  In addition, of course, there may be protests and delays at the point of award. 

In Washington State, only three types of public agencies are specifically authorized to use Prequalification:

1. WSDOT (State Department of Transportation) for highway work - RCW 47.28.070
2. Public Utility Districts (PUDs) for electrical work - RCW 54.04.085
3. Cities or towns owning an electrical utility for electrical work - RCW 35.92.350

The general interpretation has been that since the Washington State Legislature has specifically authorized certain types of agencies to use prequalification, that the authority does not exist for other public agencies to prequalify contractors.

Under the GC/CM (General Contractor/Construction Manager) project delivery method, the GC/CM may prequalify subcontractors prior to competitively bidding subcontract bid packages (RCW 39.10.400).

Bidder Responsibility:  Bids should be awarded to the responsible bidder submitting the low responsive bid.  Responsiveness deals with the bid and whether the bid complies in all material respects to what was required in the bidding documents.  Responsibility, on the other hand, relates to the bidder and whether they are capable and qualified to perform the project.  

RCW 39.04.350 authorizes public agencies in the State of Washington to establish relevant supplemental bidder responsibility criteria for public works projects, and to evaluate whether the low bidder meets these criteria.  

There has been a lot of controversy since this law was adopted in 2007 about how some public agencies are implementing the law.  Contractors have raised concerns about overly restrictive and anti-competitive criteria that have been used.  A Task Force to address these concerns has been created by the Capital Projects Advisory Review Board (CPARB).  The next meeting of the Task Force is on May 20, 2010.

Specification Qualifications:  Technical specifications frequently require that the contractor performing the work of certain sections in the specifications must meet specific qualification requirements related to years of experience or certifications.  Prior to the work being performed, it is the responsibility of the public agency to ensure that the contractor performing the work meets any qualification requirements outlined in the specifications.

What's the Difference?  Functionally, each of these tools accomplishes the same objective of ensuring the use of qualified contractors on public works projects.  The primary difference relates to when the review occurs of the contractor's qualifications.  

The Challenge:  Each of these tools has a level of subjectivity that requires public agencies to carefully define their objectives.  The challenge for public agencies is to protect the public's interests and get the best contractor at the lowest price (primary purpose of public bidding), while at the same time ensuring a fair and transparent selection process for the contracting community (secondary purpose of public bidding).

Training:  In mid-April 2010, I taught a five and a half hour class for the City of Bellingham on how to develop and implement Supplemental Bidder Responsibility Criteria on public works projects.  I am thinking of offering a similar class sometime in the fall.  If you're interested in such a class, please contact me.

Training on Construction Bonds

I taught a two hour class on Wednesday, May 19, 2010 in Camas, Washington on "Construction Bonds: Bid, Performance, Payment, Retainage, Warranty, and Contractor Registration."  

Close to 40 people attended the class co-sponsored by the Washington State Chapter of the American Public Works Association and the Municipal Research and Services Center.

I will be teach the same class in Everett on May 25, 2010 and in Yakima on May 26, 2010.

To register for this free class, click here to visit APWA's website.

Washington Governor Signs Budget Bills

Steve Goldblatt, recently retired, longtime University of Washington Construction Management faculty member specializing in design and construction law, has been covering the legislative scene in Olympia for more than 25 years.

In this guest blog entry, Steve summarizes two budget bills recently signed by Governor Chris Gregoire.

Jobs Act Bonds: EHB 2561 (Chapter 35, 2010 Laws 1st Special Session) authorizes the state to issue $505 million in general obligation bonds—subject to voter approval in the November general election—to create jobs by constructing energy-saving capital improvements to public K-12 and higher education facilities. Consulting with General Administration and the WSU Extension Energy Program to establish a competitive process and evaluate applications, the Department of Commerce will determine final grant awards. Effective July 13, 2010.

Supplemental Capital Budget: ESHB 2836 (Chapter 36, 2010 Laws 1st Special Session, partial veto) appropriates $433 million for the 2009-11 biennium.  One of three vetoed sections would have eliminated the Office of Financial Management’s authority to transfer funds from one project to another within the same state agency, prohibited allotments for contingencies above the amount required for completion of a project and proposed alternatives if agencies could not document a programmatic need and operational budget saving, and prohibited allotments for equipment costs or project scope beyond the funded project. Effective May 4, 2010.

Massachusetts Court Strikes Down Public-Private Partnership

Strapped for cash to fund construction projects, it is becoming increasingly common for public agencies to enter into public-private partnerships to construct public facilities.  Private companies often get tax breaks on the projects.

 

Student Housing Deal:  In 2008, the University of Massachusetts Lowell made a deal with a private developer to construct university housing that the University would then lease.  However, after a bid protest that argued the University had violated competitive bidding requirements, the project was terminated.  That's when the developer who had been awarded the project, Brasi Development, filed a lawsuit.   

Violation of Competitive Bidding Laws:  On May 10, 2010, the Massachusetts Supreme Judicial Court ruled that the "project was indeed construction of a building by the university in the sense contemplated by the competitive bidding statute," and that the University had violated competitive bidding requirements.  The ruling overturned an earlier ruling by the Superior Court.   

For more information about the case:

• www.Boston.com
• Massachusetts Municipal Law Blog

Issues Public Agencies Must Address:  Public agencies contemplating public-private partnerships must be aware of competitive bidding requirements, whether there is a legal basis for such projects, and public perceptions about arrangements in which a private developer may profit at the expense of a public agency.  In some areas, labor unions have also raised concerns about whether prevailing wages should be paid to workers employed on public-private partnership projects.

National Council for Public-Private Partnerships:  According to the National Council for Public-Private Partnerships (NCPPP), "a Public-Private Partnership is a contractual agreement between a public agency (federal, state, or local) and a private sector entity.  Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public.  In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility."

Washington State:  In Washington State, the following may be of interest regarding public-private partnerships:

• HB 1992, which was considered in 2009 and 2010, would have required the payment of prevailing wages on public-private partnerships.  The bill was not approved.
  
• RCW 39.04.260 requires payment of prevailing wages on projects constructed by a private contractor when a public agency will rent, lease, or purchase at least 50% of the project.

Washington State Construction Law Seminar

17th Annual Washington Construction Law Seminar

When:  September 16-17, 2010 (9:00 a.m. to 5:00 p.m.)

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

Topics (Speakers):

1. Federal Construction Law - New Developments (Bruce P. Babbitt)
2. A View from the State (Karin L. Nyrop)
3. Don't Let Your Construction Contract Kill the Project:  How to Properly Allocate Your Risk and Negotiate a Contract You Can Live With (Erika S. Baurecht)
4. Contracting in Indian Country (Anthony S. Broadman)
5. Washington State Competitive Bidding (Arnold R. Hedeen)
6. Environmental Considerations (David K. Eckberg)
7. Construction Changes/Differing Site Conditions (Douglas R. Roach)
8. What Happens When Someone in the Chain Goes Bankrupt? (Jerry N. Stehlik)
9. Washington Construction Law - New Developments (Paul R. Cressman, Jr.)
10. Legal Issues Concerning Design Professionals (Stanton P. Beck)
11. Contractors' Liability & Builders Risk Coverage (A. Richard Dykstra)
12. Lien and Bond Claims; Dealing with Sureties (Alexander A. Friedrich and J. Todd Henry)
13. Construction Mediation (M. Wayne Blair)
14. Issues and Benefits of Building Green (Margaret P. Montgomery and John D. Sullivan)
15. Ethical Considerations for Construction Lawyers (Christopher J. Soelling)

Cost:  $695.  Other prices for various categories.

For more information and to register, visit the website of The Seminar Group. 

New State Agency Violates Contracting Laws

An audit by the Washington State Auditor's Office found a number of violations of laws by the Puget Sound Partnership related to sole source contracts, convenience contracts, information technology purchases, and goods and services.

The Puget Sound Partnership is a new State of Washington agency created in 2007 to restore Puget Sound.  

Highlights of some of the findings in the 16 page audit report include the following:

• Sole Source:  Failure to advertise an intent to award a $33,300 sole source contract.  The state law threshold for such advertisement is $20,000.

• Payment of More Than Contract Amount:  Award of a $19,950 sole source contract to a law firm that was amended three times, increasing the total amount to $35,000.  The Puget Sound Partnership ended up paying $51,498, even though the contract was not amended to that amount.  The agency was also required to obtain approval from the State Attorney General's Office to use outside legal counsel, something that did not occur.

• Lack of Competition for Roster Work:  After advertising and awarding 35 convenience consultant contracts, the agency did not consistently seek competition from the firms on the roster before awarding actual work.  Work assigned was not equitably distributed to firms on the roster, nor did all firms on the roster have the chance to compete for specific work.

• No Competition on Purchases and Gifting of Public Funds:  The agency did not competitively procure various promotional items that were given to staff members, as well as elected and appointed officials.  Giving away such items violates state law on recognition awards.  They also spent almost $2,500 on catering for a private reception in violation of state law.

 Click here to read the complete report.

How Do Selection Committees Make Their Decisions?

The Seattle chapter of the Society for Marketing Professional Services is presenting a lunch program on "Decision Makers" that focuses on understanding the dynamics of decision-makers who are engaged in the selection process.

When:  Tuesday, May 25, 2010 (Noon - 1:30 p.m.)

Where:  Bellevue, Washington (The Coast Hotel Bellevue)

Speakers:

• Charles McIntyre
• Harold Glaser

For more information and to register, visit SMPS Seattle's website.

New Contractor Reporting Requirements for Prefabricated Items

Contractor Requirements:  A new law passed by the Washington State Legislature in 2010 will require public works contractors to report information on the use of off-site, prefabricated, nonstandard, project specific items produced outside the State of Washington and used on a public works project within the State.  

Public Agency Requirements:  Engrossed House Bill 2805 will a) Require public agencies to include specific language on the reporting requirements in bidding and contract documents, and b) to verify with the Department of Labor and Industries as part of the mandatory bidder responsibility criteria that the contractor has not violated the reporting requirements of the new law.

Why Was This Law Passed?  The applicable prevailing wage rates for all off-site, prefabricated, nonstandard, project specific items are the wages in effect in the county in which the items were produced.  However, there is anecdotal information that some prefabricators have moved their businesses to Idaho and Oregon, just over the Washington State border in order to avoid paying prevailing wages, which do not apply for any work performed outside of the State boundaries.

Concerns have been expressed about the loss of tax revenue and jobs for Washington State.  The reporting requirements of the new law will enable policy makers to review actual data in order to develop long term strategies to address the concerns about practices relating to prefabrication outside of Washington's boundaries.

Here are the relevant details of the new law:

• Applicability:  Applicable for all public works projects estimated to cost over $1 million.

• Effective Dates:  Effective for public works projects entered into between September 1, 2010 and December 31, 2013.

• Contract Language:  All applicable projects must include contract language requiring the reporting.  The State Department of General Administration will develop this contract language, and make it available to all public agencies by posting it on their website.  Public agencies will need to add this language to their bidding and contract documents for any project that may be awarded between the effective dates noted above.

• Reporting Format:  The information required is to be reported by contractors and subcontractors on the Affidavit of Wages Paid form that will be revised by the Department of Labor and Industries.  The information is required to be completed only "by the contractor or subcontractor who directly contracted for the off-site, prefabricated, nonstandard, project specific items produced outside Washington."

• Data Collection:  The Department of Labor and Industries will report information collected from contractors to the Capital Projects Advisory Review Board (CPARB) for review.

• Report Content:  The data that must be reported by contractors and subcontractors includes the cost of the public works project; the name of the awarding agency; the title of the public works project; the contract value for the prefabricated items produced outside Washington State, including labor and materials; the name, address, and federal employer identification number of the contractor that produced the items.

• Exemptions:  The new law does not apply to public works projects of the Washington State Department of Transportation (WSDOT) or "local transportation public works projects."

• Definition:  "'Off-site, prefabricated, nonstandard, project specific items' means products or items that are: (a) Made primarily of architectural or structural precast concrete, fabricated steel, pipe and pipe systems, or sheet metal and sheet metal duct work; (b) produced specifically for the public work and not considered to be regularly available shelf items; (c) produced or manufactured by labor expended to assemble or modify standard items; and (d) produced at an off-site location."

• Consequences of Non-compliance with Reporting:  A new mandatory bidder responsibility criterion (RCW 39.04.350) and a subcontractor responsibility criterion (RCW 39.06.020) is added with this new law.  Any contractor or subcontractor that is determined by the Department of Labor and Industries to have violated the reporting requirements more than one time may not be awarded a public works project by a public agency or a subcontract by a contractor under the bidder responsibility criteria.  Presumably, although the legislation doesn't specify, the Department of Labor and Industries will publish the names of violators on their list of firms ineligible to be awarded public works contracts.

State Regulations:  Washington Administrative Code (WAC) 296-127-020 (3) requires payment of prevailing wages for the county in which the off-site, prefabricated, nonstandard, project specific items were produced.  

Court Case:  In 1983, there was a court case, Everett Concrete Products vs.the Department of Labor and Industries in which Everett Concrete Products was required to pay prevailing wages for I-90 concrete tunnel liners that were manufactured in Everett, off-site of the project site.

Vendor Education Seminar on June 2, 2010

The Washington State Department of General Administration (GA) is sponsoring a Vendor Education Seminar to help businesses succeed in navigating through state rules, regulations, and services.  It will also offer tips for bidding on the billions of dollars that public agencies spend annually for goods and services.

When:  June 2, 2010 (8:00 a.m. to 4:00 p.m.)

Where:  Tacoma, Washington (Greater Tacoma Convention and Trade Center, 1500 Broadway)

Cost:  $50 (includes lunch, snacks, and all day training)

Guest Speaker:  Rep. Bob Hasegawa

Breakout Sessions:

• Electronic Opportunities
• Procurement Reform Update
• Responding to the Bid
• Commodity Connection
• How Architects, Engineers and Contractors get Business with the State
• Large and Small Business Meet-and-Greet

For more information and to register, visit GA's website.  Registration deadline is this Friday, May 21, 2010.

Washington State Auditor to Audit Public Works Change Orders for all Public Agencies

According to the Washington State Auditor's Office, they are embarking on an initiative to audit change orders on public works projects for all public agencies in the state.  I talked with a representative of the Auditor's Office last week who confirmed this information that I had previously heard.

The Auditor's Office frequently issues audit findings charging
that agencies have executed change orders for work outside the original scope of work of the project.  

While there is no state law governing what is a permissible versus impermissible change order, the findings of the Auditor's Office often note that the agency being audited cannot guarantee that the price of the change order work is the best price because the work was not competitively bid.  In addition, out of scope change orders violate the intent of competitive bidding laws that provide an opportunity for all contractors to compete for such work.  

If you work for a public agency, here are three action steps you may want to consider:

1. Policies and Procedures:  Does your agency have a policy and procedure in place for reviewing change orders to ensure they are within the scope of the original project and not a "cardinal" change - something that should have been separately bid?
    
   
2. Training:  Have you considered providing training for your project management and contracting staff on change orders?  I have developed and taught a class on change orders and what constitutes appropriate versus inappropriate change orders.  If you are interested in discussing this training, please contact me.
   
   
3. Pre-Audit:  It may be helpful to conduct a pre-audit of your change order practices in advance of an actual audit to give you time to correct any deficiencies in your practices.  You could conduct this with your own staff, or I could perform this service for you.  Please contact me if you would like to discuss having me perform a pre-audit for you, or to help you set up a pre-audit program for your agency to conduct.

Training on Public Works Contract Administration

I taught a six hour course on May 12, 2010 on Public Works Contract Administration sponsored by the Washington State Department of Transportation (WSDOT) and the Municipal Research and Services Center (MRSC).  

About 45 public agency representatives attended the training in Bellevue, Washington.  This was the second day of this training program.  The first day focused on purchasing and professional services.

The topics I covered included the following:

• Construction Contract Documents
• Bid Receipt and Opening
• Insurance, Bonds, and Retainage
• Responsive Bids
• Responsible Bidders
• Change Orders
• Public Works Contract Close-out: Claims Against Bonds and Retainage

The same class will be held again in the fall as follows:

• September 22-23, 2010, Camas, Washington
• October 13-14, 2010, Mount Vernon, Washington

For more information about the class and to register, visit WSDOT's website.  If you would like to discuss me providing training for your agency, please contact me.

Georgia Lawsuit: What is a Material Irregularity in a Bid?

A contractor has filed a lawsuit against the City of Augusta, Georgia contending its bid should not have been thrown out on a technicality after the company had been awarded a repair project. No decision has been made in this case yet that was filed on April 14, 2010 in the Superior Court of Richmond County, Georgia.

Bid Rejection After Award:  The City of Augusta notified Ammar Construction Co. that its bid was "noncompliant" eight days after the City had awarded the contract to Ammar, and after Ammar had already obtained and paid for a performance bond.  At issue is the completion of a "Subcontractor's Affidavit" by the contractor.  Ammar asserts that the form, to be completed and submitted by subcontractors, does not have instructions or blanks when a contractor will not be using any subcontractors.

History of Lawsuits Against City:  Apparently, Ammar is not the only company concerned with Augusta's procurement practices, and there has been a history of lawsuits over the years against the city's application of the "materiality provision" in their bidding documents.  The "materiality provision" requires the city to reject any bids that contain any irregularity, even if the irregularity is immaterial. 

What is a Material Irregularity in a Bid:  The "materiality provision" language from the City's standard Invitation to Bid reads as follows:

"All specific requirements contained in the invitation to bid including, but not limited to, the number of copies needed, the timing of the submission, the required financial data, and any other requirements designated by the Procurement Department are considered material conditions of the bid which are not waiveable or modifiable by the Procurement Director."

The general test, of course, as to whether an irregularity in a bid is material is whether it gives one bidder an advantage or benefit not enjoyed by others. Augusta, however, has determined that any irregularity should result in rejection of the bid as non-responsive, without evaluating whether the irregularity gives one bidder an advantage or benefit not enjoyed by others.  Augusta has also been criticized for its inconsistent application of the provision, sometime waiving irregularities and at other times strictly enforcing them.  

Judge Criticizes Augusta's Poor Procurement Process:  In a separate lawsuit decided in April 2010, Augusta was criticized for its poor procurement practices and for throwing out bids on technicalities.  Even though the City won that lawsuit, U.S. District Court Judge J. Randal Hall wrote that "The city should not interpret this decision as endorsing the quality of its procurement operations.  In fact, the record in this case suggests otherwise.  The court empathizes with the plaintiffs' understandable frustration with the city's poor administration of the procurement process."

Augusta Revising Policies:  The City is apparently working on revising its procurement ordinance to address its administration of whether bid irregularities are material or immaterial.

Additional information is available in an article on the website of the Georgia Tech Procurement Assistance Center.

New Member Appointed to CPARB

Washington State Governor Chris Gregoire has appointed Christine McCorkle to the Capital Projects Advisory Review Board (CPARB), representing the interests of specialty contractors.  

Christine is the Project Executive at SAK and Associates, a concrete subcontractor.

Restricting Public Works Projects to Small Businesses

There is a little known and somewhat confusing law that the Washington State Legislature adopted in 2009 that permits public agencies in the state to restrict competition on certain public works projects to small businesses.

Gross Revenues Less than $1 Million:  RCW 39.04.155 (5) permits a public agency to use the Limited Public Works process (conducted through the Small Works Roster process for projects less than $35,000) and restrict competition only to those firms "with gross revenues under one million dollars annually as reported on their federal tax return."  

Here's how it would work.  If a public agency has a Small Works Roster in place, or shares a Small Works Roster with another agency or organization, bidding on projects less than $35,000 could be limited to just the businesses on the roster meeting the $1 million revenue threshold.  A public agency would, of course, have to collect this documentation from contractors on the Small Works Roster in order to verify eligibility to bid on the Limited Public Works projects based on the annual revenue threshold.  

What is a Limited Public Work?  Projects less than $35,000 are called Limited Public Works and a public agency may waive bonding and retainage on these projects, as long as it is noted in the bidding documents. 

Gross Revenues Less than $250,000:  A second provision of RCW 39.04.155 (5) is less clear.  It states the following:

"A state agency or authorized local government may adopt additional procedures to encourage small businesses that are registered contractors with gross revenues under two hundred fifty thousand dollars annually as reported on their federal tax returns to submit quotations or bids on small works roster contracts."

All this provision appears to accomplish is to state that public agencies may encourage small businesses (less than $250,000 annual revenues) to submit bids on small works roster projects.  It's unclear to me why legislation was necessary, and it doesn't appear to give small businesses any real advantages.

CPARB to Meet May 13, 2010

The State of Washington's Capital Projects Advisory Review Board (CPARB) is scheduled to meet on Thursday, May 13, 2010 in Olympia, Washington, from 9:00 a.m. until noon.

The agenda includes the following items:

• Integrated Project Delivery / Best Value Task Force Report
• Bidder Responsibility / Subcontractor Eligibility Criteria Task Force
• 2010 Work Plan 
• 2010 Legislative Update

Is San Francisco's Preference Law for Minority and Women Businesses Legal?

The California Supreme Court heard arguments on May 4, 2010 over whether a San Francisco law permitting preferences of 5 to 10 percent for minority and women owned businesses violates Proposition 209, passed by California voters in 1996.  

Proposition 209, similar to what votes in the State of Washington passed in 1998 with Initiative 200, prohibits the use of preferences based on race or gender in public contracting, employment, and education.

The lawsuit was brought forth by two construction companies.  The City of San Francisco argued that the preferences are necessary "to protect citizens' right,." and that Proposition 209 violates the U.S. Constitution.

The Court is expected to issue a decision within three months.

For more details from an article in the Bay City News, click here.

APWA Public Works Week Luncheon

The Washington State Chapter of the American Public Works Association will be hosting a National Public Works Week Luncheon on Tuesday, May 18, 2010 at the Bellevue Hilton in Bellevue, Washington.  The agenda includes presentation of the APWA Yearly Award.

From more information and to register, visit their website by clicking here.

Prevailing Wage Correction in Yakima County, Washington

The Washington State Department of Labor and Industries has corrected the prevailing wage rate for Plumbers and Pipefitters for Yakima County, effective May 8, 2010.  As of that date, the rate is corrected to $30.69 from the incorrectly published rate of $28.75.

Study Supports Use of Qualifications-Based Selection for Design Professionals

According to a study developed at the request of the American Public Works Association (APWA) and the American Council of Engineering Companies (ACEC), Qualifications-Based Selection (QBS) of design professionals (architects and engineers) on public projects has a number of benefits.  

QBS is a system that requires the selection of the most qualified design firms, without using cost as a selection criterion.  The cost of the design is negotiated with the most qualified firm before a contract is executed.

Key findings from the June 2008 report include the following strengths of the using QBS:

• Ensures Cost-Effectiveness
• Results in Better Projects and Highly Satisfied Owners
• Lowers Risk for Complex Projects
• Encourages Innovation, Protects Intellectual Property
• Takes Account of Emerging Societal Issues
• Supports Owner Capacity Building

Federal projects require the use of QBS under the Brooks Act, and most states have adopted similar QBS requirements for non-federally funded public design projects.

In Washington State, chapter 39.80 RCW is a QBS requirement.

To read to entire 52 page report from APWA and ACEC, click here.

Training on AIA Contracts

All Day Training on AIA Contracts

When:  May 18, 2010 (8:00 a.m. to 4:30 p.m.)

Where:  Seattle, Washington (Red Lion Hotel, 1415 5th Avenue)

Cost:  $359

Speakers:

• John P. Ahlers 
• Paul R. Cressman, Jr.
• Bruce A. Cohen 
• Scott R. Sleight

Sponsored by:  Lorman Education Services

For more information and to register, click here.