Small Business Preference Legislation

HB 1830 would establish definitions for three different types of small businesses and then permit public agencies using the Limited Public Works process (less than $35,000) under the Small Works Roster law (RCW 39.04.155) to "solicit and award small works roster contracts to small businesses, minibusinesses, and microbusinesses."

The legislation would amend what was passed in 2007 permitting agencies to solicit and award these contracts to "registered contractors with gross revenues under one million dollars annually as reported on their federal tax return."

In its place would be three new categories of businesses: small, mini, and micro that each have definitions under the bill. For each of the three types of businesses, they must be a "business entity, including a sole proprietorship, corporation, partnership, or other legal entity, that is owned and operated independent from all other businesses."

They differ based on the annual gross revenues permitted, all as reported on the federal tax return or Department of Revenue return of the business.

• A microbusiness would have gross revenue of less than $1 million annually.
• A minibusiness would have gross revenue of less than $3 million but more than $1 million annually.
• A small business would have gross revenue of less than $7 million annually.

The bill also would add these three business type definitions to RCW 39.29.006, the definitions section of the Personal Services Contracts section of the law that is applicable to state agencies. But there are no provisions in the bill for applying these definitions in the application of Personal Services Contracts.

For public agencies with bid limits of less than $35,000 (the amount for using the Limited Public Works process and therefore applying these proposed definitions), the bill may have limited value as most of the public work under $35,000 may be performed with in house forces or not through the Limited Public Works process.

Public Works Bills Introduced in Legislature

In addition to the various bills being considered by the Washington State Legislature that I've commented on in earlier blog entries, there are a number of other bills relating to public works projects that have been introduced.

I will comment on them more in the days ahead. For now, however, I want to just list them here and provide a couple of comments on them from my quick skim of them:

• HB 1847 - Changing various bid limit thresholds. I haven't yet had a chance to see how this is different from HB 1198, requested by the Capital Projects Advisory Review Board (CPARB). This is scheduled for consideration at an Executive Session of the House State Government and Tribal Affairs Committee on February 5, 2009 at 8:00 a.m. HB 1230 also relates to changing bid limits for certain types of jurisdictions.
  
  
• HB 1786 - Defining independent contractor for the purposes of prevailing wages. There appears to be some duplication between this bill and HB 1555 on the underground economy as it relates to independent contractors.
  
  
• HB 1648 - Relating to state contracts with veteran-owned businesses.
  
  
• HB 1641 - Authorizing the University of Washington to establish alternative public works contracting procedures, increasing the threshold for Small Works Roster projects to $1 million, permitting award of design-bid-build, design-build, and GC/CM projects over $1 million on the terms most advantageous to the University, and authorizing the University to pre-qualifiy contractors, all only for public works projects not funded with state appropriate funds.
  
  
• HB 1916 - Appears to contain the same provisions as HB 1641 and also authorizes similar procedures for Washington State University.
  
  
• HB 1690 - Authorizing CPARB to approve any alternative public works contracting procedures requested by a university and to recommend to the Legislature whether such practice should be adopted, and restricting all public bodies only to the alternative public works contracting procedures authorized in chapter 39.10 RCW.

If you are aware of other bills impacting public works or other contracting practices in the State of Washington that I haven't commented on here, please contact me or comment on my blog.

New State Prevailing Wages

The Washington State Department of Labor and Industries has published updated prevailing wage rates for use on public works projects.

The new rates will become effective on March 4, 2009.

The rates may be viewed and printed by clicking here on the Labor & Industries website.

Executive Session for 5 CPARB Bills

The House State Government and Tribal Affairs Committee of the Washington State Legislature will hold an Executive Session on Thursday, February 5, 2009 at 8:00 a.m. to consider five bills recommended to the Legislature by the Capital Projects Advisory Review Board (CPARB).

The bills, with the Senate companion bill in parenthesis, are:

• HB 1195 - Regarding payment of undisputed claims (SB 5399)
• HB 1196 - Increasing the dollar limit for Small Works Roster projects
• HB 1197 - Regarding alternative public works contracting procedures (SB 5397)
• HB 1199 - Housekeeping bill on public works retainage (SB 5396)
  
• HB 1200 - Allowing municipalities to negotiate adjustments in public works bids (SB 5398)

The sixth bill recommended by CPARB is HB 1198 regarding changing public works bid limits. This bill is not currently slated for the Executive Session.

The "Underground Economy"

The "Underground Economy" is a term used by the labor union community to refer to contractors and subcontractors who skirt public laws regarding contractor registration, payment of taxes and prevailing wages, and handle transactions in cash.

HB 1555 would address some of the concerns stemming from the underground economy. I find the bill to be unclear and technically flawed in a number of places. Generally, here's a quick summary of the bill from what I can gather:

1. Verify Contractor Registration. Agencies such as cities and others who issue business licenses would be required to verify that the applicant is a registered contractor with the Department of Labor and Industries if such registration is required. It may be difficult for agencies issuing the business licenses to make this determination.
2. Prevailing Wage Exemption. The bill would define what independent contractors do not meet the definition of "laborer, worker, or mechanic" for the purposes of being paid prevailing wages. The bill attempts to define when an individual is really an independent contractor and not subject to prevailing wages. This is a very confusing section. Read it and see what you think. If you have any insight into it, please let me know.
3. Purpose of Retainage. The bill would add the Employment Security Department and the Department of Labor and Industries as trust fund beneficiaries of the retainage. Interestingly, however, the bill does not require that public agencies obtain releases from these agencies prior to release of retainage.
4. Priority of Claims Against Retainage. The bill would insert the Employment Security Department and the Department of Labor and Industries into a tied third place position for the priority of claims against the retainage. First place would still be workers due prevailing wages and second place would still be the Department of Revenue. By inserting these two new departments into the priority list, subcontractors and suppliers would have less clout in terms of tapping into retainage for claims. Subcontractors and suppliers who form the backbone of our economy need better protection against contractors who fail to pay. Also, this section is very awkwardly written. I think my interpretation above is correct, but it's very confusing.

This legislation is technically flawed, confusing, and poor public policy.

There was a public hearing on the bill on January 28, 2009 before the House Commerce and Labor Committee.

Off-Site Prefabrication Data Collection Legislation

HB 1836 would require public agencies in the State of Washington to include in public works specifications requirements for reporting relating to the production of off-site, prefabricated, nonstandard, project-specific items produced for a public works project.

The bill would require contractors, subcontractors, lower-tier subcontractors, and employers "who are not required to register as contractors in the state" to submit, prior to final acceptance by the public agency, a list of the specific items produced, the name of the business who produced it, and other information. The requirement for submission would not apply to a business required to submit a Statement of Intent to Pay Prevailing Wages.

The bill would also require public agencies to include a provision in bidding documents and contracts requiring submission of certified payroll reports for the off-site work upon request by a third party. The payrolls would be sent to the public agency and the State Department of Labor and Industries. It would apply to contractors, subcontractors of any tier and employers responsible for producing such off-site items. It would not apply to those firms required to submit a Statement of Intent to Pay Prevailing Wages.

The legislation appears to have at least one internal conflict. One the one hand, it requires the submission of the lists prior to final acceptance by the public agency. On the other hand, it states that failure to submit the lists will not delay release of retainage by the public agency. However, without final acceptance, the 45 day countdown for release of retainage under chapter 60.28 RCW does not begin.

Practically, the bill would require someone in each public agency to make a determination prior to final acceptance whether such lists of prefabricated items are applicable and must be submitted. The addition of this requirement has the potential to further delay final acceptance of projects. Such delays have a cost to contractors when they do not receive their retainage in a timely manner. The public ends up paying for these inefficiencies in the form of higher bids by contractors.

This subject has long been a concern of labor unions in Washington State. They assert that out of state firms, often just across Washington borders, are producing off-site items for Washington public works projects without having to pay Washington prevailing wages. Under the Everett Concrete Products case that went to the Washington State Supreme Court, the Court held that prevailing wages for such off-site, non-standard items must be paid based on the wages in effect for the county where the items were produced. Please contact me if you'd like me to send you a copy of this court decision. But if the items are produced out of state, Washington prevailing wage laws have no jurisdiction. Labor unions contend that such practices are putting Washington businesses in border cities at a competitive disadvantage and that the State is also losing tax revenue.

The bill is an attempt to collect data to help evaluate the nature of the problems. The legislation would sunset on December 31, 2011.

Bill to Expand Subcontractors List

HB 1837, currently under consideration by the Washington State Legislature, would add additional provisions to the requirement for bidders to include a subcontractors list with their bid on public works projects by amending RCW 39.30.060.

In my opinion, the bill is poorly drafted, ambiguous, and represents poor public policy. It would result in more non-responsive bids and protests on public works projects, resulting in delays and additional costs for public agencies. Especially in these difficult economic times, now is not the time to add more government regulations, especially of the type contemplated. Because the language of the bill is so unclear at some points, it is difficult to fully assess the impact of it on both contractors, subcontractors, and public agencies.

Here is a quick summary of the bill which may be accessed by clicking here:

1) In lieu of only three trades required to be listed on the subcontractors list as is the current law (HVAC, electrical, and plumbing), the bill would require that:

a) All first tier subcontractors who will perform work valued at $50,000 or more be listed.

b) All subcontractors who will perform work valued at $350,000 or more be listed. Presumably, this refers to lower tier subcontractors, but this contradicts section (7) of the legislation that restricts the application of the law to only subcontractors who will contract directly with the prime bidder.

c) "The prime contract bidder must list all subcontract work that it will perform." (Section 2 (1)). This doesn't make a lot of sense. If the prime contract bidder performs work, it is not, by definition, subcontract work.

2) Section (3) is very difficult to understand. Whatever the language is intended to accomplish, it is hard to comment on it here and it would be difficult to implement as a result. It appears to imply that the public agency should be opening subcontract bids in addition to the prime contractor's bids - something that would create havoc in the contracting community for both contractors, subcontractors, and public agencies, and bring work to a standstill. Here's what the bill states: "The public entity shall open all bids submitted by prime contract bidders, alternates, and subcontractors that are required to be listed under this section at the end of the published bid submittal time. Bids submitted by prime contract bidders and their subcontractors may not be opened separately."

3) The bill adds to the list of reasons why a prime contract bidder may not use a listed subcontractor. The additions to the list are, by and large, welcome additions, even if they are not clearly worded, and such wording will create ambiguity in implementation. Clearly, there is an intent to permit bidders to disqualify subcontractors who do not meet certain basic criteria.

a) Section 5 (g) lists one reason as "The listed subcontractor fails to meet the requirement established in RCW 39.04.350 for responsible bidders." This should be a reference instead to RCW 39.06.020 which is where subcontractor responsibility is discussed.

b) Section 5 (i) and 5 (l) both include identical language: "The listed subcontractor did not include the entire cost of the subcontract in the bid submittal."

The bill has been referred to the House State Government and Tribal Affairs Committee. At this point, no hearing has been scheduled for it.