7 Consequences of Audit Findings

Public procurement and contracting practices are regularly under the microscope of federal, state, and local auditors for compliance with various laws, regulations, and policies. 

Disclosure not compliance:  If an audit reveals non-compliance issues, an audit finding is often published.  Auditors do not generally have enforcement authority, but are there to publicly disclose how government agencies are operating. 

Consequences of audit findings:  What are some of the negative consequences of an audit finding?  Here are just a few:

1. Negative publicity for a public agency in the form of front page news that elected officials and appointed directors would prefer to avoid.
2. Political fallout including officials being defeated for re-election, or defeat of bond/levy votes seeking additional or continued funding from the voters.
3. Personnel actions including disciplinary warnings, suspension, and termination.
4. New requirements:  Establishment of new and often cumbersome requirements for all procurements and contracts.
5. Grant funding:  Disapproval of future grant funding applications, or having to pay back previously received grant funds.
6. Bond ratings:  Lower bond ratings that increase the cost of financing operations and capital improvements.
7. The auditor will return:  Review of the agency's operations the following year to determine if corrections have been made.

Pre-audit:  Make it a practice to regularly conduct a pre-audit of your agency's procurement and contracting practices to ensure it is in compliance with applicable regulations and policies.  A pre-audit can be conducted by internal staff or through a consultant.  It is preferable to identify and fix problems before an auditor zeros in on them and issues an audit finding.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

City of Richland Appoints New Purchasing Manager

Cathy Robinson has been appointed as the new Purchasing Manager for the City of Richland, Washington.  

Cathy was previously the Purchasing Manager for Snohomish County.

She replaces John Noble who was serving as Purchasing Manager for both the City of Richland and the City of Kennewick.  John will now focus just on the City of Kennewick.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Job Opening: Contracts Engineer

Washington State Department of Natural Resources

• Position:  Contracts Engineer (Natural Resources Engineer 3)

• Location:  Olympia, Washington

• Closing Date:  Open until filled - First review date is May 5, 2014

• Salary:  $4,322 to $5,668 per month

• Job Summary:   As a principal assistant to the Design and Construction Engineer, this position serves as the designated expert with delegated responsibility for public works contracting.  This position manages the bidding, award, and closeout process of all DNR's public works and A/E contracts (averaging approximately $10 - $12 million per year) for Public Use, Natural Areas, Aquatics, Forest Roads, and Facility construction/maintenance programs.  

• Required Qualifications: 

• Demonstrated ability to draft and interpret construction specifications and plans.
• Demonstrated ability to apply general engineering principles to project design and construction activities.
• Demonstrated ability to perform engineering surveying (site mapping) for use in design and construction.
• One year as a Natural Resource Engineer 2,
• -OR-
• Bachelor's degree in Forest Engineering or Civil Engineering and, subsequent to graduation, two years of engineering experience including civil engineering design and/or public works construction contract administration.
• Master's Degree in Forest Engineering or Civil Engineering will substitute for 1 year of engineering experience.
• Registration as an Engineer-In-Training will substitute for education.
• Registration as a Professional Engineer in Civil Engineering or Logging Engineering in the State of Washington or another state based on registration requirements equivalent to those in Washington will substitute for either the education or experience requirements.

• Questions:  Contact Matt Miskovic at (360) 902-1176 or by e-mail at DNRrecruiting@dnr.wa.gov.

• For More Information and to Apply:  Click here.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Reverse Vendor Trade Show in Seattle

Reverse Vendor Trade Show:  This event is an opportunity for public agencies in the Seattle area and companies interested in doing business with the government to meet and discuss procurement processes and upcoming contract opportunities.  There will also be special informational presentations for public agencies hosting a table.  See the agenda below.

When:  Thursday, July 24, 2014 (8:30 am to 3:00 pm) 

Where:  Seattle Center Fisher Pavilion (305 Harrison Street, Seattle) 

Sponsored by:

• City of Seattle Purchasing and Contracting Services
• Seattle Center
  

Agenda:

• 8:30 am - 9:30 am - Breakfast (for agencies and non-profits that are hosting a trade show table)

• 9:00 am - 9:30 am - City Procurement Changes

• 9:30 am - 10:30 am - US Communities Presentation

• 10:30 am - 11:00 am - Set up of tables by agencies and non-profits

• 11:00 am - 3:00 pm - Vendors and the public are invited to attend the Trade Show and meet with public agencies and non-profits

Agency participation:  If your agency is interested in participating in the event, please contact Michael Mears at michael.mears@seattle.gov.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Researching Bonds and Bonding Companies

Bonding companies (also known as sureties) play an important role in public works construction contracting.  Sureties issue bonds for the following:

• Bid Bonds: The bonding company agrees to pay the public agency a specified dollar amount or percentage of the bid amount if the bidder is awarded a contract by the the public agency, but fails to execute or sign the contract.  Click here for a previous blog posting on limitations on the bid bond amount.

• Payment Bond:  A payment bond is a guarantee by the surety that the contractor will pay their subcontractors, suppliers, and workers on the project. If the contractor fails to do so, an unpaid party may file a claim against the payment bond and collect from the surety.

• Performance Bond:  With a performance bond, the surety stands behind the contractor and guarantees that the contractor will faithfully perform according to all of the terms and conditions of the construction contract.  In the event the contractor fails to do so, the surety agrees to pay for the completion of the project.

• Warranty Bond:  A warranty bond, also known as a maintenance bond, is the guaranty of the surety that the contractor will perform and pay subcontractors, suppliers, and workers during a warranty period.  The payment and performance bond will typically cover a one year warranty period after the substantial completion date of a project.  A warranty bond may be required by a public agency if the agency desires a warranty period for longer than one year.

Is the surety financially strong?  Public agencies require bonding companies to make guarantees to ensure the contractor performs.  But how do we know that a surety will be able to fulfill its financial obligations?  One indicator of a bonding company's financial capacity comes from ratings given by an independent private company, A.M. Best.  A.M. Best rates sureties on two factors that should be considered together:

• Financial Strength Rating:  A.M. Best assigns letter grades to sureties with scores of A++, A+, A, A-, B++, and B+ representing secure bonding companies.  Sureties that are rated B through F (or S for suspended) represent vulnerable sureties.  Many public agencies require that the bonds submitted by contractors be from bonding companies with a specified minimum rating.

• Financial Size Category:  A.M. Best also rates sureties based on their financial size using what is referred to as "adjusted policyholders' surplus" (PHS).  The higher the Roman numeral rating, the larger financial capacity of the bonding company.  For example, a surety rated as "class I" has an adjusted PHS less than $1 million, while a firm rated as "class VII" has an adjusted PHS of $50 to $100 million.  Like the Financial Strength Rating, many public agencies require that the bonds submitted by contractors be from bonding companies with a minimum Financial Size Category rating.

What is a good surety rating?  I frequently see public agencies requiring that bonds be from a sureties with an A.M. Best rating of A- VII, or something similar.  Do your bid and contract documents require a minimum A.M. Best rating for sureties? 

How can you verify a surety's A.M. Best rating?  A.M. Best makes their ratings available online at http://www.ambest.com/.  To access the ratings, you do need to sign up on their website.  The registration and access to the information is free. 

Does the government rate sureties?  The federal government maintains a list of approved sureties and state agencies often have lists of sureties authorized to do business in that state.

• Federal:  Public agencies can verify that a surety is on the federal list by going to the U.S. Department of the Treasury's Listing of Approved Sureties (Circular 570) at the following website:  http://www.fms.treas.gov/c570/c570_a-z.html.

• State:  The State of Washington, as an example, through its Insurance Commissioner's Office, publishes a list online of sureties authorized to do business in the state at the following website: http://www.insurance.wa.gov/consumertoolkit/search.aspx

Is a bond legitimate?  With advanced technology today, there are more and more cases of forged bonds.  Click here to read a previous blog posting discussing verifying bonds and referencing a number of forged bond cases.  It is a prudent business practice for public agencies to verify with the bonding company that a bond has been issued.  Bonding companies authorize others, known as an "attorney-in-fact" to obligate the surety.  The attorney-in-fact must, however, report to the surety when they have issued a bond.  

• Research the surety's phone number:  Independently research the surety's phone number.  Do not rely on a phone number that may be on the bond.

• Call the surety:  Call the surety to verify the legitimacy of the bond.  

• Verify for all or some contractors:  Some public agencies do not verify bonds for well-known contractors they have done business with for years, and that pose a low risk.  However, researching the legitimacy of a bond for a new or unknown contractor is a good idea.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Prevailing Wage Dispute in Central Washington

Should prevailing wages have been paid to workers for the construction of a privately-funded $960,000 building that the private owners have leased to a public agency, the Mid-Columbia Libraries, for the west Pasco branch of the library?  The new library opened in April 2013.

Wage compliant filed:  A complaint was filed with the State Department of Labor and Industries arguing that prevailing wages should have been paid, something that the private owners of the building suggest may cost them an additional $25,000.  The private owner argues that "this is not a public works project.  This is privately owned by my wife and I and built for investment purposes."  The library district and their attorneys have stated that prevailing wages do not apply for the construction of the building.

Is the project a public work?  In Washington state, prevailing wages apply for projects that meet the definition of a public work: "work, construction, alteration, repair, or improvement...executed at the cost of the state or of any municipality." (emphasis added) (RCW 39.04.010)  In this particular instances, the building does not appear to have been constructed at the cost of the library district, and thus, based on this definition alone, it would appear that prevailing wages did not need to be paid.

Is the project a lease back project?  Even when a project is not "executed at the cost" of a public agency, RCW 39.04.260 requires that prevailing wages must be paid on any "work, construction, alteration, repair, or improvement" that a public agency "causes to be performed by a private party through a contract to rent, lease, or purchase at least fifty percent of the project."  While the private construction of the library building is part of a larger private development, there was apparently a separate contract for the library building.  Thus, the argument can be made that 100% of the "project" is being leased by the library district, which would then make the project subject to prevailing wages.  Is the "project" just the library building or the larger planned development? 

Public-private partnerships:  Public-private partnerships raise a variety of questions, including payment of prevailing wages.  Parties entering into public-private partnerships need to carefully investigate all of the potential ramifications of the agreement before moving forward. 

Additional information:  Additional information about the Pasco prevailing wage dispute may be found in an April 5, 2014 article published by the Tri-City Herald: "State looking into Pasco library worker's wage dispute."

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Training: "Call Before You Dig Law"

Changes to Washington state's "Underground Utility Damage Prevention Act" (RCW 19.122) went into effect on January 1, 2013.  

Training:  This training and certification process will identify companies and field personnel who have taken the time to go through safe digging practice training and understand local and national laws relative to pipeline and underground utility preservation and safety. 

When and where (8:30 am to 2:00 pm):

• May 1, 2014 (Yakima)
• May 6, 2014 (Spokane Valley)
• May 13, 2014 (Fife)
• May 27, 2014 (Walla Walla)
• June 3, 2014 (Arlington)
• June 19, 2014 (Camas)

Who should attend:

• Public works employees
• Contractors
• Excavators
• Landscapers

Bid documents:  According to RCW 19.122.040, project owners must "indicate in bid or contract documents the existence of underground facilities known by the project owner to be located within the proposed area of excavation."
 
Cost:

• $90 - NUCA members
• $110 - non-NUCA members
  

Sponsored by:

• NUCA of Washington (National Utility Contractors Association)
• APWA Washington State Chapter (American Public Works Association)
• MRSC (Municipal Research and Services Center)

2 year certification:  Upon completion of the five hour training, attendees will receive a two year certification in this "Dig-Safe Certification Program."

Information and registration:  Click here.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Bidding Problems and Alligators

I was in Tampa, Florida on April 10 (also my 60th birthday!!) teaching an all day class on "When Bad Things Happen to Bids: Strategies for Ensuring a Successful Public Construction Project."  

Sign outside the classroom at the Florida State Fairgrounds in Tampa

Holding an alligator!  During the lunch break, I got to hold an alligator that an instructor from another class had brought in!  

 

Mike Purdy holding a Florida alligator!

Additional offerings of the course:  I'm scheduled to be teaching this NIGP sponsored class again this year in Texas (San Marcos and McKinney), Ohio (Cleveland), Minnesota (Bloomington), Pennsylvania (Philadelphia), and Maryland (Annapolis).

Course outline:  Here's an outline of the course "When Bad Things Happen to Bids":

Why Aren’t Bidders More Careful?

• Why Do Bidders Make Mistakes?
• Missing Bid Prices
• Conflict Between Numbers and Words
• Bid Calculation Errors
• Claims of Error

Is Your Bidder Playing Games?

• Bid is Too Low
• Unbalanced Bids
• Conditioned or Qualified Bids

Will the Real Low Bidder Please Stand Up?

• Additive and Alternate Bids
• Tie Bids
• Responsive Bids
• Responsible Bidders
• Local Bid Preferences
• Bid Protests and Appeals
• Conflicts of Interest

What Can You Do to Manage Bidding?

• What Should Be on the Bid Form?
• Why Should You Limit Submissions with the Bid?
• On What Days Should You Not Receive Bids?
• When is a Bid Late?
• When Should You Take a Bid Guaranty?

More information about the course:  Visit NIGP's website for additional information about the course. 

Other NIGP courses:  I'm also teaching the following two classes for NIGP:

• Best Practices for Developing Successful Public Construction Bid Documents

• Tools for Ensuring Contractor Performance on Public Construction Projects

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Job Opening: Procurement Coordinator

Intercity Transit

• Position:  Procurement Coordinator

• Location:  Olympia, Washington

• Closing Date:  April 25, 2014 at 4:00 pm Pacific Time

• Salary:  $59,966 to $80,974 Annually

• Job Summary:   This position is responsible for performing professional level procurement and special project work for programs, including serving as program liason, coordinating complex acquisitions of products, services and construction, and providing recommendations for program direction.

• For More Information and to Apply:  Click here.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Free Webcast on "2014: Breakthrough Year for Construction"

2014:  Breakthrough Year for Construction

When:  Thursday, April 17, 2014 (11:00 a.m. to 12:30 p.m., Pacific Time) 

Where:  Your office.  This is a webcast.

Description:  2014 should be the turnaround year everyone in construction has been waiting for.  With the ripple effects of severe winter weather across much of the nation, is the anticipated economic growth still on target?  What are the hottest market segments?  Will rising temperatures this spring also hear up materials prices and competition for skilled labor?  where do the biggest opportunities - and risks - lie?


Cost:  Free 

Speakers:

• Ken Simonson, Chief Economist, AGC of America
• Kermit Baker, Chief Economist, AIA
• Bernard Markstein, Chief Economist, Reed Construction Data

More information and registration:  Click here. 

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Electronic Bidding on Public Works Projects Approved for State Agencies in Washington

The Washington State Legislature approved Substitute House Bill 1841 that authorizes state agencies to conduct public works competitive bidding processes electronically and accept electronic signatures in such processes.

State agencies only:  The new law, which is effective on June 12, 2014, does not apply to local governments such as cities, counties, school districts, port districts, etc., but only to state agencies and departments.  Most laws that apply to local agencies require the submission of "sealed bids" for public works projects, and thus electronic bidding is not permitted for local agencies. 

Electronic signatures:  The bill defines an electronic signature as "a signature in electronic form attached to or logically associated with an electronic record." 

Standards and policies:  The state is required to develop standards and policies for electronic submision of public works bids.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Job Opening: Purchasing Manager

Snohomish County (Washington)

• Position:  Purchasing Manager

• Location:  Everett, Washington

• Closing Date:  April 16, 2014 at 5:00 pm Pacific Time

• Salary:  $82,402.20 to $116,439.36 Annually

• Job Summary:   This position is responsible for managing the central purchasing operations for the County's Division of Purchasing, in accordance with legal requirements and County policies.  This is high-level managerial work, which involves the oversight and coordination of all purchasing related activities throughout the county.

• For More Information and to Apply:  Click here.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Are Bid Preference Laws Counter Productive?

Many states and local governments have adopted bid preference laws that give bidders from within the agency's boundaries a competitive price advantage against bidders from outside the boundaries.  

Why do we have bid preference laws?  Bid preference laws are touted by political leaders as a way to keep public dollars local.  While they may accomplish this objective, bid preference laws often end up costing public agencies and the taxpayers more money. 

Reciprocal bid preferences:  In response to bid preference laws, some public agencies have adopted reciprocal bid preference laws, meaning they only apply a bid preference against a firm who bids from a different area that does have a bid preference law. 

When are bid preferences applied?  Some local bid preference laws or reciprocal bid preference laws apply only to the purchase of goods, supplies, materials, and equipment.  Others extend to services or to public construction projects. 

Florida's experiences:  In a March 19, 2014 opinion article published in Miami Today, Michael Lewis has written about how bid preference laws result in loses for both taxpayers and businesses.  He describes current laws and proposed legislation in Florida and Miami.  It's a well written piece that points out some of the problems with bid preference laws.  He cites a 2012 briefing on in-state bid preferences from the National Association of State Procurement Officials:

"The costs of goods or services are increased for all taxpayers when a percentage differential is allowed; meaning that the state will not get the same value for the dollars spent...This practice discourages firms that don't meet the preference from participating in the procurement process...Experience has shown that when restricting a market, or implementing a preference, prices increase."

Washington state's law:  Washington state has adopted a reciprocal bid preference law for public works construction projects, meaning it puts contractors from the four states (Alaska, New Mexico, Wyoming, and Nevada) that have a local bid preference at a competitive disadvantage when bidding on public works projects with any government agency in Washington.  The result is often that projects end up costing more.  Click here to read more from various blog postings I've written about local bid preferences and Washington's reciprocal bid preference requirements.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

New Legislation Requires Training on Public Records and Open Public Meetings Laws

The Washington State Legislature and Governor Inslee have approved Engrossed Senate Bill 5964 requiring that state and local government officials attend training and regular refresher courses on the requirements of the Public Records Act (RCW 42.56) and the Open Public Meetings Act (RCW 42.30).

Purpose of the training:  The new law, which becomes effective on July 1, 2014, states the following purpose for the law:

Rights of citizens:  The legislature finds that the rights of citizens to observe the actions of their public officials and to have timely access to public records are the underpinnings of democracy and are essential for meaningful citizen participation in the democratic process.  Violations of laws denies citizen rights:  All too often, however, violations of the requirements of the public records act and the open public meetings act by public officials and agencies result in citizens being denied this important information and materials to which they are legally entitled.  Violations due to error or ignorance:  Such violations are often the result of inadvertent error or a lack of knowledge on the part of officials and agencies regarding their legal duties to the public pursuant to these acts.  Violations costly to public agencies:  Also, whether due to error or ignorance, violations of the public records act and open public meetings act are very costly for state and local governments, both in terms of litigation expenses and administrative costs.  Training will help ensure compliance:  The legislature also finds that the implementation of simple, cost-effective training programs will greatly increase the likelihood that public officials and agencies will better serve the public by improving citizen access to public records and encouraging public participation in governmental deliberations.  Compliance will enhance public perception of government and save money:  Such improvements in public service will, in turn, enhance the public's trust in its government and result in significant cost savings by reducing the number of violations of the public records act and open public meetings act.

Applicability of training:  The training applies to members of governing bodies of public agencies and local and statewide elected officials.  Public records officers must also complete training related to the Public Records Act.  Make sure your agency's leadership is aware of the requirements of this new law.

Other systematic training is important:  While the new law addresses systematic and deliberate training on the Public Records Act and Open Public Meetings Act, it is also important for public agencies to regularly provide training their employees on other topics such as:

• Public Works Bidding and Contracting Requirements
• Managing and Developing RFPs and RFQs for Selection of Consultants and Service Providers
• Avoiding Ethical Violations

I regularly provide training in these three areas to public agencies to help ensure a common base of knowledge and keep public employees up to date on the latest requirements and best practices.  If you are interested in having me provide training for your agency on public works, RFPs/RFQs, or ethics, please contact me.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com