Thursday, October 31, 2013

Webinar: Communication Between the Owner and Design-Builder

Design-Build is gaining increasing popularity as a project delivery method for public construction projects.  

Webinar date/time:  November 12, 2013 (10:30 a.m. to 12:00 p.m. - Pacific Time)

Robynne Parkinson
Speaker:  Robynne Parkinson, JD, DBIA.  Robynne is one of the most knowledgeable Design-Build experts in the country, and is a dynamic and informative speaker. 

Cost: $50 

Agenda:  Robynne will discuss the communication between the owner and the Design-Builder, the single most important and most ignored tool between all parties.  She will also explain how the DBIA Contract Documents help to promote communication and make your project a success.  She will also provide updates on recent case law and legislation and their effect on the industry. 

Information and registration.  Click here for more information and to register for this webinar. 

Differing state laws:  State laws differ on whether and how much Design-Build is permitted.  In Washington state, Design-Build is regulated by RCW 39.10.  Earlier this year, North Carolina adopted a comprehensive Design-Build law (click here for information about training in NC).
Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Wednesday, October 30, 2013

Design-Build Conference

2014 Design-Build Conferences for Water Wastewater and Transportation

  • March 17-19, 2014 - Water Wastewater
  • March 19-21, 2014 - Transportation
Where:  San Jose, CA (San Jose Convention Center)

Sponsored by:  DBIA (Design-Build Institute of America)

Information and registration:   Click here.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Tuesday, October 29, 2013

Best Practices for Managing Government Credit Cards

Government issued credit cards, sometimes known as "Purchasing Cards," "Procurement Cards," or "P-Cards" can be a great tool to simplify the procurement process.  However, they come with risks if there are not adequate controls in place.

Audit finding:   The Washington State Auditor's Office recently issued an audit finding to the Grays Harbor County Fire Protection District No. 16 for not having adequate supporting documentation, such as invoices or detailed receipts, to support $19,695 in expenses with District issued credit cards.  The audit cited purchases for food, fuel, clothes, holiday decorations, supplies, and lodging that were not documented, raising the question whether they were an allowable use of public funds as required by state law.

Practical tips:
  • Policies:  Does your agency have clear policies on the acceptable and unacceptable purchases? Do your policies prohibit an employee loaning their card to another employee?  Do the policies establish the maximum dollar amount per purchase and per day, and prohibit splitting of purchases to be less than the established thresholds?

  • Training:  Proper training should be mandatory for anyone issued an agency credit card, so they understand the expectations and restrictions surrounding use of the credit card.
  • Certification:  Employees should be required to sign a statement acknowledging the policies surrounding use of the card and the consequences for using it improperly. Employees should understand they may be required to personally pay for unauthorized or inappropriate uses of the card.

  • Documentation:  All purchases with an agency credit card should be documented with invoices or detailed receipts.
  • Monitoring:  All purchases should be reviewed by a supervisor on a monthly basis before payment to ensure they are appropriate uses of the card and do not violate agency policies.
More information:  
  • Click here to read other blog postings of mine relating to government issued credit cards.
Note:  This blog posting is a repeat of one from May 8, 2013.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Monday, October 28, 2013

Public Private Partnership Conference

Public Private Partnership Conference.  Increasingly, public agencies are turning to Public Private Partnerships (P3) to finance and promote public facilities and economic development opportunities.  Public Private Partnerships create a variety of procurement and contracting related questions.

When:  February 24-25, 2014

Where:  Dallas, Texas (Downtown Sheraton Hotel)

Breakout and Plenary Sessions:
  • Advancing Public Building P3 Projects
  • P3: Revolution or Evolution?  It's Not Just About the Financing
  • How the Public Sector Processes PC Opportunities:  Testimonials of Public Managers Who Survived P3 Challenges
  • Assessing and Managing Risks of P3 Projects
  • Enhancing Convention Destinations Through P3s
  • What Happens When Things Go Wrong - Dealing with Underperforming and Non-Performing Assets
  • Putting the Ps Together - Finding the Partner and Structuring and Financing a P3 Project
  • Building Communities Through P3
  • EB-5 Financing and P3: Leveraging International Migration to Create Capital
  • P3 Law for the Non Lawyer
  • Professional Sports Stadiums, Successful Districts and Economic Development
  • Risks and Rewards - Who Benefits in a P3?
  • Creating Affordable Housing Through Public Housing Conversion
  • How to Launch Your P3 Project
Information and registration:  Click here.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Sunday, October 27, 2013

Free Webcast: Beyond Job Order Contracting

Beyond Job Order Contracting

When:  November 6, 2013 (11:00 a.m. to 12:30 p.m. - Pacific Time) 

Cost:  Free 

Description:  Topics for the webcast include:
  • Research into JOC effectiveness
  • Big data, little data
  • JOC best practices
  • Top 10 lessons learned in JOC programs
  • JOCWorks for estimating through the project lifecycle
  • Validating construction costs
  • Getting started 
JOC in Washington State:  In Washington, Job Order Contracting is one of three alternative public works contracting methods authorized by Chapter 39.10 RCW.  Only specific agencies and agency types are authorized to use JOC.

  • Lisa Cooley, RS Means
  • Marck Harclerode, MARTA
  • Mike Brown, 4Clicks Solutions
Information and registration:  Click here.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Wednesday, October 23, 2013

Prohibited Back Door Negotiation of Public Construction Bids

Public construction projects that are bid should be awarded to the responsible bidder with the lowest responsive bid.  Negotiation of bids is generally prohibited.

Budget:   Let's say that the low bid on a public construction project is more than the amount of money available to a public agency.  There are two inappropriate actions that agencies sometimes take when the low bid exceeds the funds available:
  • Negotiation before award:  Unless specifically authorized by law, a public agency may not negotiate a bid amount in order to bring the amount within the funds available.  State agencies (not local agencies) in the Washington state are authorized, within a limited formula, to negotiate with the low bidder according to RCW 39.04.015.
  • Negotiation after award:  Some public agencies have been tempted to award the project at the amount of the bid (even though they don't have have the funds available) and then immediately after contract execution, negotiate a deductive change order bringing the amount of the contract within the available budget.  The City of University Place (WA) did this and their action was the subject of an audit finding from the Washington State Auditor's Office.
The best strategy to manage higher than expected bid prices is to include additive bid amounts as part of the bid form as a bid protection tool. Click here to read more about additives from my blog.
Scope:  Change orders occur regularly on public construction projects because there are always unforeseen conditions that arise and no set of drawings and specifications can ever be 100% accurate and prescriptive.  However, adding significant or unrelated work during a project when the work could have been bid as a separate project, has the following risks:
  • Lack of competitive prices:  One of the purposes of public bidding is to obtain competitive prices.  Work that is added through a change order process is negotiated and may not result in the best prices for a public agency. 
  • Limiting contractor participation:  A change order for work that could have been bid as a separate project does not provide the wider contracting community with an opportunity to bid on the work.
  • Audit findings:  Auditors will frequently issue audit findings when a public agency adds unrelated work to a project, noting that it violates the intent of competitive bidding laws. Click here to read about an audit finding against the City of Bremerton (WA).  Click here to read about the out-of-scope change orders issued by Clallam County (WA) that resulted in an audit finding.
Planning ahead:  In developing bid documents, ask the following questions:
  • Scope:  Is the scope of work realistic for the funding available?
  • Additives:  Does the bid form include additives designed to ensure you have enough funding to construct the core and essential portions of the project?
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Tuesday, October 22, 2013

The Corruption of Contracts

Whether you are a public agency or a business, do you have your standard contract documents electronically locked up to prevent accidental or purposeful altering of the contract language without your knowledge?

Procurement and contracting documents may become corrupted internally within your organization or by those outside the organization.

Internal controls:  Does anyone own the standard contracts within your organization, or is each contract simply developed based on the last similar project you did, which may have had unique provisions that don't apply to the next contract?  Who has authority to make changes to standard language in a contract based on a specific project?  It's important to develop and then maintain standard language that can only be changed deliberately by authorized individuals.  Here are a couple of ideas and strategies to consider:
  • Centralized procurement:  If you have a central procurement and contracting function, they can maintain the standard language and adapt the documents for each project.  If this is your model, it is important that the electronic version of the document not be emailed to others, unless it is protected (see below) or a PDF version.
  • Password protected documents:  If your organization's procurement function is decentralized, you can post a Word, password protected version of the document on an internal or external web site or on a common access drive within the organization's computer network.  The document can be protected either in track changes or through fill in the blanks.  That means that either any changes to the document will show up in track changes or a user can only fill in certain information on the document but can't change anything else. 
  • Document changes:  Develop a mechanism to document and track the date and nature of changes to your standard procurement and contract documents.  This can be posted online for all to have access to.
  • Last revision date:   Include a "last revision date" in the footer of each document in order to help ensure that you are using the most recent version.
External controls:  Public agencies should be cautious about sending an electronic, non-password protected version of a contract to a contractor or consultant.  Inadvertent or purposeful changes can then be made without the public agency even being aware of the change.  It is a best practice to only send a track changes password protected or PDF version of the document electronically to an outside party.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Monday, October 21, 2013

What You Need to Know About Liquidated Damages

Most public works contracts include a provision giving the public agency the right to assess liquidated damages against the contractor, usually a fixed dollar amount for each day the contractor fails to complete the work by the agreed upon date for substantial completion.

Why include Liquidated Damages?  Liquidated damages is a tool that public agencies may use to help ensure that the contractor performs the work consistent with the schedule in the contract documents.  Liquidated damages are intended to fairly compensate a public agency for costs that may be incurred by the contractor's failure to complete the work in a timely manner.

Establishing the Liquidated Damage amount:  It is not normally possible to determine ahead of time what the actual costs may be for a public agency in the event of the contractor's delay in completing the project.  In establishing the amount of liquidated damages to include in the bidding documents and contract, public agencies should go through a process to estimate what their costs might be.  In other words, there should be some rational basis for the amount of liquidated damages.  Some common factors that often go into establishing the liquidated damage amount include the following:
  1. Temporary facility costs for the public agency if the project is not completed on time
  2. Administrative staff costs of managing the project for a longer period of time
  3. Additional fees paid to the designer (architect/engineer) or a third party construction manager required to provide services for a longer period of time
  4. Revenue loss for the public agency if the facility is not completed in a timely manner
  5. Temporary systems and security for the project (e.g. fire watch)
  6. Agency costs for additional storage time for furniture or equipment
  7. Regulatory financial sanctions against the public agency for failure to meet a deadline
Can Liquidated Damages be too high?   Yes, liquidated damages, even when calculated based on likely costs, may be too high.  In establishing the per day amount for liquidated damages based on potential costs, public agencies should evaluate the reasonableness of the amount, and the potential risks of an amount that is too high.  Factors to consider in establishing the liquidated damage amount include the following:
  • Don't discourage bidding:  Not so high that it either discourages bidders from bidding the project.
  • Don't risk higher bids:  Not so high that it encourages bidders to submit higher bid prices to mitigate their perceived risk in being potentially assessed the liquidated damage amount.
  • Incentive for timely performance:  Should be a sufficient amount so that it serves as an incentive for the contractor to complete the work on time.
When does "substantial completion" occur?  Liquidated damages may be assessed up to the required substantial completion date.  Substantial completion occurs when the public agency has beneficial use and occupancy of the facility for its intended purpose.  Not all of the punch list work must be completed, but the owner must be able to actually use the facility.

Assessing liquidated damages:  Many public agencies are hesitant to actually assess liquidated damages against a contractor even if the contractor is late in completing the work.  The reasons for a delay in completion must be documented in order to make a case to assess liquidated damages.  To the extent that any of the delays are not the fault of the contractor, the public agency should grant an extension of time.  All completion past the required date of substantial completion should be accounted for either through the use of liquidated damages, and/or granting an extension of time.

Practical tips:
  • Worksheet:  Develop a worksheet to help you calculate liquidated damages to include on each project.
  • Fair Liquidated Damage amount:  Conduct a risk analysis for each project to make sure the liquidated damage amount is neither too high nor too low.
  • Keep records:  Maintain careful records during construction to document contractor delays.
  • Assess damages and/or grant days:  Account for all of the late completion days after the required substantial completion date by either assessing liquidated damages, and/or granting an extension of time for some or all of the days.
Note:  This blog posting is a repeat of one from February 25, 2013. 
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Wednesday, October 16, 2013

Detecting Counterfeit Payment and Performance Bonds

Changes in technology have given rise to a number of cases where contractors have forged Payment and Performance Bonds, leaving the public unprotected.

What do bonds do?  Most public agencies require Payment and Performance Bonds for public works construction projects.  These bonds are important tools to protect the public in the event the contractor either fails to pay subcontractors, suppliers, and workers, or the contractor fails to perform the work.

Check the bonds:  Here's a quick list of things to do to help ensure that the Payment and Performance Bonds you receive from contractors are not counterfeit.
  • Evaluate the contractor's reputation:  Have you done business with the contractor in the past?  What is their reputation?  Are they are new and unknown contractor?   If you aren't familiar with the contractor, you may want to investigate the legitimacy of the bonds
  • Review the bonds:  Are there irregularities or inconsistencies in the bonds?  Is the bond form current?  Are all of the dates, including those on the Power-of-Attorney document current?  The last date on the Power-of-Attorney should be within the last six months to year.
  • Verify the bonds independently:   Contact the actual bonding company backing the bond, not the attorney-in-fact who signed the bond on behalf of the bonding company.  Research the contact information for the bonding company independently and don't rely on a phone number provided on the bond.  One California contractor set up a separate cell phone number they included on a forged bond in the event a public agency called to verify the bond.  Contact the surety to verify that the bond was appropriately issued by the attorney-in-fact.
Examples of bond forgeries:  Here are a couple of stories of forged bonds by contractors:
  • New Jersey contractor jailed for forgery.  Click here to read the entry from my blog on June 12, 2011.  
  • California contractor pleads guilty to forging payment and performance bondsClick here to read the entry from my blog on September 25, 2011.     
  • New York City contractor submits phony bonds to Housing Authority. Click here for details. 
  • Washington state contractor forges bonds. Click here for details.  
Note:  This blog posting is a repeat of one from October 29, 2012.
Mike Purdy's Public Contracting Blog 
© 2012-2013 by Michael E. Purdy Associates, LLC

Tuesday, October 15, 2013

Training: Best Practices for Construction and Services Contracting

I will be providing two days of training in Anchorage, Alaska on Best Practices for Construction and Services Contracting, applicable to both the public and private sectors.

When:  November 7-8, 2013 (8:00 a.m. to 4:30 p.m.)

Where:  Anchorage, Alaska (Westmark Hotel)

Instructor:  Mike Purdy

Sponsored by:   NAPM Alaska

Contact me if you would like a copy of the outline of the training.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Monday, October 14, 2013

Have You Changed Your Indemnification Clause in Your Contracts?

It's been more than a year since the Washington State Legislature amended the provisions for what is permitted in contracts regarding indemnification.  Has your agency updated the indemnification clause in your contracts?  This blog posting is a repeat of one from April 24, 2012 with only minor changes.

With strong backing and support from the professional design community, the Washington State Legislature approved in 2012 (with only one dissenting vote) Substitute House Bill 1559 related to indemnification provisions in public contracts. Then Governor Christine Gregoire signed the bill. 

Previous Law:  The purpose of the previous law in RCW 4.24.115 was to establish a standard of concurrent negligence in indemnification clauses.  In other words, a public agency may not require a contractor to indemnify the public agency against liability for damages "caused by or resulting from the sole negligence" of the public agency.  Instead, the previous law established that indemnification is valid and enforceable only to the extent of the concurrent negligence of the contractor and public agency. 

3 Changes in Law in 2012:  SHB 1559 amended RCW 4.24.115 in the following three areas:
  • Clarification of covered parties:  The previous law stated that it applied to a contract "relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, highway, road, railroad, excavation, or other structure, project, development, or improvement attached to real estate, including moving and demolition in connection..."  [emphasis added]  Many agencies interpreted the phrase "relative to" to include contracts for architectural, engineering, landscape architectural, and land surveying services, even though the language was not explicit.  SHB 1559 specifically added contracts for these four disciplines to the protections provided for in the law.
  • No duty to defend:  One of the regular sticking points in negotiating contracts with designers relates to whether the indemnification provided by the designer covers their duty to defend the public agency in the event of a claim.  SHB 1559 explicitly prohibits language in public contracts that includes the duty to defend and the cost of such defense.
  • Extent of indemnification:  The previous concurrent negligence standard was only applicable to liability for damages related to bodily injury and property damage.  Thus, for any other type of liability, a public agency could apply a sole negligence standard.  SHB 1559 changed this.  The concurrent negligence framework expanded to cover any liability arising out of any services performed on the contract.
Have you changed your contracts?  SHB 1559, approved in 2012, became effective on June 7, 2012.  Has your agency reviewed and changed indemnification language included in both construction contracts and contracts for architectural, engineering, landscape architectural, and land surveying services?

Talk with your attorney:  Indemnification is a complicated area and attorneys are best suited to sort through and develop appropriate contract language.  If you have not already done so, public agencies should consult with their attorneys for what language may need to change in their contracts. 

More Information:  Two Seattle area law firms have written helpful articles about SHB 1559 that may help in understanding this 2012 legislation:
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

Sunday, October 13, 2013

Training: Bid Responsiveness and Bidder Responsibility

Bid Responsiveness and Bidder Responsibility:  Responsiveness and Responsibility.  They sound very similar but are very different concepts.  This training will provide key background information and examples on how public agencies should evaluate whether bids are responsive or non-responsive, and how to help ensure that the low bidder is a responsible bidder. 

Where and When:  Four training sessions in Washington state, all from 10:00 a.m. to 2:30 p.m.
  • Renton (October 31, 2013)
  • Yakima (November 5, 2013)
  • Camas (November 13, 2013)
  • Everett (November 21, 2013)
Cost:  Free 

  • Mike Purdy
  • John Carpita, MRSC
Sponsored by:
  • APWA Washington Chapter, Contract Administration Subcommittee
  • MRSC (Municipal Research and Services Center)
Information and registration:  Click here.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Free Prevailing Wage Training in Spokane, Washington

Prevailing Wage Workshop for Awarding Agencies

Sponsored by:  Department of Labor and Industries and State Auditor's Office

Where:  Spokane Community College, Lair Student Center, 1810 N. Green Street, Spokane, WA 99217)
Cost:  Free

Date:  October 25, 2013 (9:30 a.m. to Noon)

Information and registration:  Contact Laura Herman at L&I at herq235@LNI.WA.GOV or at (360) 902-5311
Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Thursday, October 10, 2013

Training: Construction Project Scheduling & Delay Claims

Construction Project Scheduling & Delay Claims

When:  October 25, 2013 (9:00 a.m. to 4:45 p.m.)

Where:  Seattle, Washington (City University, 521 Wall Street)


  • 30 Minutes to CPM Proficiency
  • Basic Scheduling Concepts for Delay, Acceleration and Mitigation
  • Primary Legal Concepts for Delay Claims
  • Cost Analysis for Schedule and Delay Claims
  • The Evolving Claims Landscape for Projects in Washington & Oregon
  • Contracting Strategies for Schedule Issues
  • Managing Schedule Delays and Claims on Complex Construction Projects
  • Dispute Resolution and Arbitration of Schedule & Delay Claims
  • $425 - government employees
  • $525 - single registration
  • $500 - two or more registrations
  • See website for other prices
Information and registration: Click here.

Live Webcast:  This training is available via live webcast.  Click here for more information.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Wednesday, October 9, 2013

Should Payment and Performance Bonds Cover Sales Tax Amounts?

Public agencies in the State of Washington are required, with limited exceptions, to obtain both a Payment Bond and a Performance Bond for each public works project. 

The Question: 
  • Is it required that the dollar amount of these bonds include sales tax that is added to each progress payment paid to the contractor? or 
  • Is it acceptable for a contractor to submit the bonds without the sales tax amount? 
A lower dollar amount of the bonds may result in a lower bond premium amount the contractor is required to pay to the surety, and thus a lower cost to the public agency. 

Current Practices:  From what I've gathered, some public agencies require the sales tax amount be included, while others exclude it from the amount of the bonds. 

What is the "Full Contract Price"?  RCW 39.08.030 states that the Payment Bond and Performance Bond must be "in an amount equal to the full contract price agreed to be paid for such work or improvement."  Does the "full contract price" include or exclude sales taxes paid separately by the public agency to the contractor?

While RCW 39.08.030 does not specifically address sales tax, it states that the "full contract price" is for the "work or improvement" defined in the specifications - which I would interpret to be the physical construction work, and not sales taxes.  Based on this, a public agency could make the argument that the amount of the Payment Bond and Performance Bond does not need to include sales tax. 

Payment Bond:  RCW 39.08.010 states that under a Payment Bond the bonding company guaranties that the contractor shall "pay all laborers, mechanics, and subcontractors and material suppliers."  Payment to the State Department of Revenue of sales taxes by the contractor from such amounts paid separately by the public agency to the contractor is not listed as one of the protections of the Payment Bond, (unless the project is a federally funded transportation project in which case the Payment bond must protect the Departments of Revenue, Employment Security and Labor and Industries since no retainage may be withheld on these projects).  The Department of Revenue is a beneficiary of Retainage withheld by public agencies for unpaid taxes, but is not protected by the Payment Bond.

Another way to look at this issue is to ask whether the Department of Revenue would be successful in collecting from a bonding company for unpaid sales taxes, if the language of the Payment Bond mirrored the language of RCW 39.08.010 in ensuring payment to "all laborers, mechanics, and subcontractors and material suppliers."  It seems unlikely that the Department of Revenue would be able to make a successful argument with the bonding company that unpaid sales taxes should be paid by the bonding company under the Payment Bond. 

Performance Bond:  RCW 39.08.010 states that the purpose of the Performance Bond is for the bonding company to guaranty that the contractor "shall faithfully perform all the provisions of such contract." 
There are two ways to understand this.  First, the "provisions" of the contract can be understood to include all of the provisions of the contract documents for performing the physical work.  Second, you could also understand that requirement to pay sales tax is a "provision" of the contract, and that the amount of the Performance Bond should therefore include sales tax.  However, it seems to me that sales tax is more an issue of whether it is paid than whether it is performed. 

Options:  A public agency can take one of at least three positions with respect to the amount of the Payment Bond and Performance Bond:
  • Require that the amount of the bonds include sales tax.  If an agency chooses this approach, the language of the Payment Bond should specify that payment of sales taxes is protected under the Payment Bond.   Likewise, the language of the Performance Bond should specify that payment of sales taxes is considered an issue of faithfully performing all the "provisions" of the contract.  I don't know how bonding companies would respond to requests for this supplemental language in the bonds.  Note that under this option, payment of sales tax would be covered under both the Payment Bond and the Performance Bond.
  • Require that the amount of the Payment Bond includes sales tax, but not the amount of the Performance Bond.  This option recognizes that it is easier to make the argument (through added Payment Bond language) that sales tax is covered under the Payment Bond.  This option also recognizes that it is more difficult to make the argument that the Performance Bond should include payment of taxes. Finally, under this option, coverage of sales tax isn't doubled up under both bonds.
  • Require the amount of both bonds exclude sales tax.  This option recognizes the language of RCW 39.08.010 that does not include sales tax as a protected category for the Payment Bond, and acknowledges that payment of sales tax is not a performance issue for the contract, at least as performance is typically understood.
Consult Your Attorney:  Public agencies have a variety of practices on this issue.  You should consult with your attorneys to help you understand the best option for your agency.  It is important for agencies to think deliberately about their comfort level with each of the options. 

Other States:  Obviously other states have different laws relating to Payment Bonds and Performance Bonds, and I would likewise be very interested in hearing how other states address this issue.

Feedback:  I am very interested in hearing what your practice is and what you ultimately decide to require as the amount of your Payment and Performance Bonds.  Please contact me with with your thoughts and questions.

Note:  This blog posting is a repeat of one from August 30, 2010.
Mike Purdy's Public Contracting Blog 
© 2010-2013 by Michael E. Purdy Associates, LLC

Tuesday, October 8, 2013

How an Unbalanced Bid Can Cost an Agency More Money

Eastern Washington's Douglas County was forced in 2012 to rebid a roadwork project after receiving a large number of unbalanced bids that exploited an error in the project specifications. 

Unit price bids:  Projects are vulnerable to unbalanced bids when they use unit price bids, where the overall bid amount must be itemized and include the unit price for each item (e.g. a bid item for 100 widgets that a bidder prices at $1/each means that $100 of their total bid amount is the cost of widgets). This makes determining prices for quantity changes more straightforward (if 50 extra widgets are needed, the contract amount is just increased by 50 x $1 = $50). 

Unbalanced bids:  Sometimes, however, bidders will try to game the system by unbalancing their bid: manipulating a unit price in order to profit from future quantity changes, usually compensating by changing other prices elsewhere in the bid to avoid affecting their overall bid amount. For example:
  • Inflating bid prices:  If a bidder anticipates that the quantity of an item will be increased, they may artificially inflate that item's unit price (if the bidder guesses that 50 extra widgets will be added, they might list widgets at $100/each in hopes of a $5,000 windfall, and then lower the cost of another item to maintain the same overall bid amount).
  • Lowering bid prices:  The opposite technique is also used: artificially lowering the unit price for items the bidder thinks will have their quantity reduced, minimizing the impact those reductions will have on the overall amount the bidder gets paid. 
Risks of unbalanced bids:  Both types of unbalanced bids can of course backfire for the bidder if they guess wrong. They are also detrimental to the public agency, since a low bid that is unbalanced may not end up being the lowest after changes to the project have been made. An unbalanced bid that carries this risk for the public agency is termed materially unbalanced. 

The Douglas County situation:  The county solicited unit price bids for a roadwork project that included a bid item for asphalt, which was estimated to be $75/ton. The county later realized that the specification listed more asphalt than the project needed, among other things. Upon reviewing the bids, they saw that several contractors had also spotted the error and - anticipating a reduction in the amount of asphalt - attempted to take advantage of it by unbalancing their bids. The low bidder, for instance, listed a unit price for asphalt of just $0.01/ton. 
  • County's analysis of bid environment:  County engineer Doug Bramlette attributed the unbalanced bids to contractors in unusually dire need of work, noting that bidders would normally have pointed out the error so the county could correct it. "The bidding climate is so competitive that we’re seeing some unusual things occur here," he said. The project will be rebid, delaying it by four to six weeks. 
Lessons learned:  
  • Accurate specifications:  The county's situation illustrates the importance of accurate specifications: as can be seen, bidders will not always help correct the owner's mistakes and may even seek to use the errors to their own advantage. 
  • Language permitting bid rejection for unbalanced bids:  While most standard specifications include language allowing the public agency to reject all bids and re-advertise a project (as Douglas County had to do), it's important to also include provisions making it clear that unbalanced bids will be rejected as non-responsive, a potentially less time-consuming and costly option than completely rebidding a project. 
Additional resources:
  1. Article on the Douglas County situation from the Wenatchee World
  2. 2-part blog post on unbalanced bids from Seattle construction attorney John P. Ahlers: Part 1 and Part 2
  3. My previous blog entry on unbalanced bids 
Note:  This blog posting is a repeat of one from August 15, 2012. 
Mike Purdy's Public Contracting Blog 
© 2012-2013 by Michael E. Purdy Associates, LLC

Monday, October 7, 2013

Subcontractors List Not Required on Alternative Public Works Projects

In Washington state, the Legislature has gone on record declaring that the practice of "bid shopping" is against public policy. 
Bid shopping occurs when a contractor seeks to pressure a subcontractor to lower their price below another price the contractor has already received, since a lower overall price increases the chance of the contractor being the low bidder.
When is the Subcontractors List required?  Due to the different nature of contractor selection and bidding on what are known as alternative public works projects (those not solicited through the traditional or Design-Bid-Build method but through methods authorized in Chapter 39.10 RCW), the subcontractors list requirements of state law do not apply on alternative public works.  

What does state law require?  RCW 39.30.060 requires, for projects estimated to cost $1 million or more, that the prime bidder submit a list of subcontractors (for electrical, plumbing, and HVAC) with the bid (or within an hour of the bid submittal deadline).   Here's the relevant language:
Every invitation to bid on a prime contract that is expected to cost one million dollars or more for the construction, alteration, or repair of any public building or public work of the state or a state agency or municipality as defined under RCW 39.04.010 or an institution of higher education as defined under RCW 28B.10.016 shall require each prime contract bidder to submit as part of the bid, or within one hour after the published bid submittal time, the names of the subcontractors with whom the bidder, if awarded the contract, will subcontract for performance of the work of: HVAC (heating, ventilation, and air conditioning); plumbing as described in chapter 18.106 RCW; and electrical as described in chapter 19.28 RCW, or to name itself for the work."

Design-Build:  Under Design-Build, public agencies do not issue an "invitation to bid" as noted in the subcontractor list law cited above, but issue either a Request for Proposals or a Request for Qualifications, in which the Design-Builder is selected based on qualifications and cost or price related factors. Under legislation approved in 2013 by the Washington State Legislature, price may now be negotiated with the chosen Design-Builder once the design has progressed to a point where the price may be determined.  RCW 39.30.060, the subcontractors list law, was written to address Design-Bid-Build projects.  Under Design-Build, subcontractors are generally not even identified at the time a contractor submits their qualifications to the public agency, making submittal of the subcontractors list not possible.

GC/CM:  Like Design-Build, the GC/CM is not selected based on an "invitation to bid," but through a Request for Proposals process.  When the GC/CM is selected, subcontractors have not been identified as RCW 39.10.380 requires that the GC/CM competitively bid all subcontract work after the construction cost has been negotiated.  The subcontractors list law requires the prime contract bidder to submit the list with their bid, but with the GC/CM process, subcontractors submit bids to the GC/CM after the GC/CM has already been selected and has executed a contract with the public agency.

Job Order Contracting:  RCW 39.10.430 (6) is more explicit than the provisions for Design-Build or GC/CM and states that "the requirements of RCW 39.30.060 [subcontractors list] do not apply to requests for proposals for job order contracts."

Legislative changes:  For clarity, chapter 39.10 should be amended to explicitly exempt Design-Build and GC/CM projects from the requirements of RCW 39.30.060.  They are very different project delivery methods and the requirements for the subcontractors list simply do not apply to these methods of selection.
Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Sunday, October 6, 2013

Federal Bid Protests Affected By Government Shutdown

The shutdown of the federal government will delay review and action on bid protests for federal solicitations and contracts.  The Government Accountability Office (GAO), which is charged with managing the federal bid protest process, has issued the following guidelines about how the closure of GAO will impact the bid protest process:
  • GAO is closed due to the shutdown of the federal government. This includes the GAO bid protest office. There will be no personnel monitoring protest filings at GAO during the time our Office is closed.
  • GAO will endeavor to decide protests within 100 days of when they are filed. If necessary, decision deadlines will be extended one day for each day that GAO is closed.
  • Any deadline for a protest filing from a private party that falls on a day that GAO is closed is extended to the first day that GAO resumes operations. This extension operates in the same manner as when a deadline falls on a weekend or federal holiday.
  • Any deadline for an agency filing--such as an agency report or other filing requested by GAO--may, upon request, be extended by up to one day for each day that GAO is closed.
  • Any new protest received by GAO during the time that GAO is closed will be treated as filed on the day that GAO resumes operations.
Filing Protests During GAO Shutdown:  GAO will accept new bid protests during the shutdown, but only via email. They will not receive any bid protests submitted via mail or fax during the shutdown.

Future delays:  It is anticipated that once the GAO resumes normal operations, there will still be a delay in GAO addressing bid protests as they get caught up from the impacts of the shutdown.

More information:  You can access more information and view the shutdown guidelines from the GAO here, or go to the website of General Counsel, P.S. to read more about the issue.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Job Opening: Buyer II

City of Kennewick, Washington
  • Position:  Buyer II
  • Location:  Kennewick, Washington
  • Closing Date:  Tuesday, October 15, 2013 at 11:59 p.m., Pacific Time
  • Salary:  $47,256.00 to $66,168.00 Annually
  • Job Summary: This position requires the initiative and skills necessary to perform, under general supervision of the Manager or designee, all levels of procurement and contracting duties for the City including bids, quotes, requests for proposals, contracts, research and analysis of a wide variety of commodities, construction and services for the City and collaborative partners at multiple organizations.  Duties require evaluating specialized and high dollar value procurement subject to competitive bidding, contracts, negotiating, and other formal purchasing requirements and procedures. 
  • For More Information and to Apply:  Click here.
Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

Wednesday, October 2, 2013

Training: The Liability of Design Professionals

The Liability of Design Professionals

When:  November 1, 2013 (9:00 a.m. to 5:00 p.m.)

Where:   Seattle, Washington (Hotel 1000, 1000 First Avenue)

  • $450 single registration
  • $350 for government employees
  • Other fees for other categories
Partial Agenda:
  • The Foundation of Design Professional Liability
  • The Erosion of Privity - Economic Loss Doctrine vs. Independent  Duty
  • Managing Risk through Contract Language
  • Dispute Prevention for Non-Adjudicative Resolution
  • Defenses to Liability Claims
  • Contract Law and Professional Liability
  • Liability in Contract vs. Liability in Tort
  • Contractor vs. Design Professional 
  • What Causes Claims and How to Avoid Them
  • Building Envelope Expert Roundtable
  • The Structural Engineer's Perspective
  • Architect vs. Contractor
  • Design Professional Liability Insurance
  • Addressing Professional Liability Risks in a Changing Practice Environment
Sponsored by:  The Seminar Group

More information and registration:  Click here.

Mike Purdy's Public Contracting Blo
© 2013 by Michael E. Purdy Associates, LLC

Tuesday, October 1, 2013

Best Practices for Monitoring Federal Prevailing Wages on Public Construction Projects

Federal prevailing wage requirements on public works construction projects requires that the contractor and all subcontractors, regardless of tier, submit weekly certified payrolls to the public agency.

Audit finding:  Some public agencies with federal funding on a project do not pay attention to the requirement for weekly payrolls.  Sometimes, they don't collect the payroll reports at all, or they collect them in batches from the contractor (not weekly), or collect them at the end of the project.  The largest county in Washington, King County, received a finding in 2012 from the Washington State Auditor's Office (see page 56) for failing to enforce the submission of weekly payroll reports.  Instead, the county collected payrolls at the end of their projects. 

Best practices:  If you have public works construction projects with federal funding, pay attention to the following:
  • Frequency:  Are you collecting payroll reports weekly from the contractor and all subcontractors?
  • Subcontractors:  Do you have a system for determining what subcontractors are working on site?
  • Reviewing payrolls:  Are you reviewing the certified payroll reports on a weekly basis to ensure that prevailing wages are being paid to the workers?  As part of your review, are you evaluating the following: a) whether the classifications reported are appropriate, b) the hourly wage rate is at least the prevailing wage rate, c) the proper overtime rates are being paid, d) apprentices are registered apprentices who may be paid less than the journey-level wage, e) the payroll report is signed by an authorized individual?  
  • Documenting your review:  Are you documenting your review of the payrolls by marking the payroll reports?
  • Weekly pay:  Are you monitoring to ensure that the contractor and their subcontractors paying their workers on a weekly basis?  This is required by the federal Davis-Bacon Act.
  • Worker interviews:  Are you interviewing a representative sample of workers on-site, asking them questions about what work they are performing and how much they are being paid?  Are you correlating this information with what is reported on weekly payroll reports?
  • Invoices:  Do you have a process that ties in your approval of a contractor's monthly pay application and invoice with your review and approval of the weekly payroll reports?
Note:  This blog posting is a repeat of one from December 4, 2012.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC