Thursday, January 31, 2008

Port of Seattle Responds to Audit

The Port of Seattle on January 30th released a 34 page report responding with proposed action steps to the audit issued by the State Auditor's Office on December 20, 2007. In the response, the Port addressed each audit finding, indicating whether they agreed with it or not, and also outlined a proposed action plan with estimated completion dates to address the concerns.

To view the report go to the following link: Port of Seattle State Auditor Report Responses and Action Plan.

Tuesday, January 29, 2008

Proposed Legislation Amending Alternative Public Works Contracting Methods

On Friday, February 1, 2008, the House Committee on State Government and Tribal Affairs will hold a public hearing on HB 2780 in Hearing Room D of the John L. O'Brien Building on the Capitol Campus in Olympia at 8:00 a.m.

The proposed legislation is a recommendation from the Capital Projects Advisory Review Board (CPARB) to amend legislation from the 2007 legislative session, primarily relating to the use of Design-Build as an alternative public works project delivery system.

Some of the key elements of the proposed legislation that would amend a half-dozen sections of RCW 39.10 are as follows:

1) The legislation would permit the use of ten Design-Build demonstration projects between $2 million and $10 million, subject to review and approval by CPARB's Project Review Committee. The current threshold for the use of Design-Build is that a project must be greater than $10 million.

2) The legislation would also permit two of the demonstration projects using a Design-Build-Operate-Maintain (DBOM) model for a period greater than the current three year cap on operations and maintenance.

3) The legislation would clarify that the public owner must pay an appropriate honorarium to finalists submitting responsive proposals that are not awarded a Design-Build contract, instead of the language in the current law that honorariums should be paid to those submitting best and final proposals.

4) The legislation clarifies language relating to a public agency seeking certification for use of Design-Build and GC/CM (General Contractor/Construction Manager). It specifies that in order to be approved as an experienced public owner by the Project Review Committee for the use of Design-Build, the agency must have successfully completed one Design-Build project, and in order for an agency to be approved to use GC/CM contracting as an experienced public agency, the agency must have successfully completed one GC/CM project. The current language is ambiguous, leading some to believe that an agency could use Design-Build experience to obtain GC/CM approval and GC/CM experience to obtain Design-Build certification.

Friday, January 25, 2008

"Steakhouse Deal" - Negotiating with the Low Bidder

In the Washington State Auditor's report on construction management practices at the Port of Seattle, the auditor found that the Port improperly negotiated a lower bid price with the sole bidder on its 3rd Runway project. In its front page story this morning, the Seattle Times detailed how the Port had initial discussions with the bidder at a steakhouse near the airport to negotiate a lower bid.

There is one exception in state law that does permit negotiating with the low bidder on a public works project, but that exception only applies to "state contracting" agencies, not to port districts or other jurisdictions. RCW 39.04.015 permits bid negotiation under certain circumstances: all bids exceed the available funds, the low bid does not exceed certain thresholds, and negotiating the bid would bring the price in line with available funds.

Below is the language of RCW 39.04.015:

"Notwithstanding the provisions of RCW 39.04.010, a state contracting authority is authorized to negotiate an adjustment to a bid price, based upon agreed changes to the contract plans and specifications, with a low responsive bidder under the following conditions:

(1) All bids for a state public works project involving buildings and any associated building utilities and appendants exceed the available funds, as certified by the appropriate fiscal officer;

(2) The apparent low responsive bid does not exceed the available funds by: (a) Five percent on projects valued under one million dollars; (b) the greater of fifty thousand dollars or two and one-half percent for projects valued between one million dollars and five million dollars; or (c) the greater of one hundred twenty-five thousand dollars or one percent for projects valued over five million dollars; and

(3) The negotiated adjustment will bring the bid price within the amount of available funds."

Thursday, January 24, 2008

What is a Public Work?

What is a public work? And what work is subject to the payment of prevailing wages?

There's a lot of confusion about the answers to these questions and what Washington State law has to say. Let me try to clarify a few of the issues.

RCW 39.04.010 (4) states in part the following: "Public work" means all work, construction, alteration, repair, or improvement other than ordinary maintenance, executed at the cost of the state or of any municipality, or which is by law a lien or charge on any property therein. All public works, including maintenance when performed by contract shall comply with chapter 39.12 RCW.

From this definition, we see that a public work includes:

  • Construction
  • Alteration
  • Repair
  • Improvement
According to the RCW, "Ordinary maintenance" is not a public work.

So what is "ordinary maintenance"? Ordinary maintenance is defined in the Washington Administrative Code (WAC 296-127-010 (7)(b)(iii)) to mean work performed by employees of a public agency. It is defined "as work not performed by contract and that is performed on a regularly scheduled basis (e.g., daily, weekly, monthly, seasonally, semiannually, but not less frequently than once per year), to service, check, or replace items that are not broken; or work not performed by contract that is not regularly scheduled but is required to maintain the asset so that repair does not become necessary." The only such work not performed by contract is work done by an agency's employees.

Even though the RCW cited above is very clear that "ordinary maintenance" is not a public work, the Department of Labor and Industries, in adopting WAC 296-127-010, I believe exceeded their authority in adopting the WAC by attempting to directly change the statutory definition of a public work. In WAC 296-127-010 (7)(a)(iv), L&I states that "the term 'public work' shall include...maintenance, except ordinary maintenance as defined by (b)(iii) of this subsection, when performed by contract."

The problem with this attempt to include "maintenance" as a public work is that the RCW does not define maintenance as a public work. What RCW 39.04.010 does say, as cited above, is that there are two classes of contracts subject to prevailing wages: 1) public works, and 2) maintenance when performed by contract. But there is a difference between whether something is a public work and whether it is subject to prevailing wages. The Department of Labor and Industries, in adopting WAC 296-127-010 did so under their authority to define prevailing wage regulations for which they have jurisdiction. It doesn't seem to me that they have jurisdiction to define, or re-define in contradiction to the RCW, what a public work is and isn't. It is clear that "maintenance" is subject to prevailing wages, but by statute is not a public work. Maintenance just isn't in the list of items in RCW 39.04.010 for what a public work is (construction, alteration, repair, improvement).

It makes a difference for a public agency how to treat a project from a bidding perspective and whether it is a public work or not. Maintenance is not a public work, but is subject to prevailing wages. Ordinary maintenance is not a public work and is not subject to prevailing wages. A public work (construction, alteration, repair, improvement) is a public work and is subject to prevailing wages.

Where this whole discussion continues to be confusing is categorizing a whole host of specific contracts to determine whether it is a public work and is subject to prevailing wages.

I'll write more on this soon. In the meantime, if you have specific types of contracts that you wonder about how to handle, I'd be interested in hearing your questions. One of the more problematic areas, that I haven't addressed here, is various types of service contracts. More later...

Monday, January 21, 2008

Selection of Architects and Engineers

Under Washington State law (RCW 39.80), public agencies may not use price as a criterion in the selection of architects, engineers, landscape architects, or land surveyors. Instead, these professions must be selected based on which firm is "most qualified." After the public agency has made the selection, negotiations then occur. If the public agency and firm cannot agree on a reasonable price for the work to be performed, the public agency may terminate negotiations and begin negotiations with the next most qualified firm.

Whether this law applies depends on whether the type of service being sought is required to be performed by one of these four disciplines, as defined in state law.

The practice of Architecture is defined in RCW 18.08.320 as follows: ""Practice of architecture" means the rendering of services in connection with the art and science of building design for construction of any structure or grouping of structures and the use of space within and surrounding the structures or the design for construction of alterations or additions to the structures, including but not specifically limited to schematic design, design development, preparation of construction contract documents, and administration of the construction contract."

The practice of Engineering is defined in RCW 18.43.020 as follows: "The term "practice of engineering" within the meaning and intent of this chapter shall mean any professional service or creative work requiring engineering education, training, and experience and the application of special knowledge of the mathematical, physical, and engineering sciences to such professional services or creative work as consultation, investigation, evaluation, planning, design and supervision of construction for the purpose of assuring compliance with specifications and design, in connection with any public or private utilities, structures, buildings, machines, equipment, processes, works, or projects.

"A person shall be construed to practice or offer to practice engineering, within the meaning and intent of this chapter, who practices any branch of the profession of engineering; or who, by verbal claim, sign, advertisement, letterhead, card, or in any other way represents himself or herself to be a professional engineer, or through the use of some other title implies that he or she is a professional engineer; or who holds himself or herself out as able to perform, or who does perform, any engineering service or work or any other professional service designated by the practitioner or recognized by educational authorities as engineering.

"The practice of engineering shall not include the work ordinarily performed by persons who operate or maintain machinery or equipment."

The practice of Land Surveying is defined in RCW 18.43.020 as follows: "The term "practice of land surveying" within the meaning and intent of this chapter, shall mean assuming responsible charge of the surveying of land for the establishment of corners, lines, boundaries, and monuments, the laying out and subdivision of land, the defining and locating of corners, lines, boundaries and monuments of land after they have been established, the survey of land areas for the purpose of determining the topography thereof, the making of topographical delineations and the preparing of maps and accurate records thereof, when the proper performance of such services requires technical knowledge and skill."

The practice of Landscape Architecture is defined in RCW 18.96.030 as follows: ""Landscape architect" means a person who engages in the practice of landscape architecture as hereinafter defined. A person practices landscape architecture within the meaning and intent of this chapter who performs for hire professional services such as consultations, investigations, reconnaissance, research, planning, design or teaching supervision in connection with the development of land areas where, and to the extent that, the dominant purpose of such services is the preservation, enhancement, or determination of proper land uses, natural land features, ground cover and planting, naturalistic and aesthetic values, the settings and approaches to structures or other improvements, or natural drainage and erosion control. This practice shall include the location, design, and arrangement of such tangible objects as pools, walls, steps, trellises, canopies, and other nonhabitable structures, and such features as are incidental and necessary to the purposes outlined herein. It involves the design and arrangement of land forms and the development of outdoor space including, but not limited to, the design of public parks, playgrounds, cemeteries, home and school grounds, and the development of industrial and recreational sites."

Saturday, January 19, 2008

Free Training Classes on Contracts and Contract Language

The Contract Administration Subcommittee of the Washington State Chapter of the American Public Works Association is offering a free class on contracts and contract language, including professional services agreements and bid documents. To register for one of the classes, visit:

The class will be held in three different locations: Renton (Feb. 6th), Camas (Feb. 13th), and Everett (Feb. 19th). The classes are held from 10:00 a.m. to 2:30 p.m.

Subjects to be covered include the following:

Professional Services Agreements (consultant contracts): Personnel from public agencies attending the training should be aware that this section will be taught from the perspective of design professionals and not everything desired by design professionals is necessarily in the public agency's best interest.

  • Basic provisions in professional services contracts
  • Important contract clauses from the design professional's perspective (indemnification, mutual waiver of workers compensation immunity, limitations of liability).
Charlotte Walther, Contracts Administrator for the Port of Everett, who is very knowledgeable in public contracting issues, will teach a session on key provisions in public works contracts and A&E contracts, both from a public agency's perspective.

Finally, from the perspective of a contractor's attorney, there will be a session on public works contracts and the General Conditions of those documents.

SB 6235 and the Port of Seattle Audit

Senate Bill 6235 was introduced into the Washington State Legislature for the 2008 session. Among other things, the legislation would change the definition of "public works" which has traditionally related only to construction work. A whole body of other laws has developed around this definition. The proposed legislation would add consultant and architectural/engineering work to be a public work as well, something that conflicts with other parts of State law (RCW 39.80 requiring selection of architects and engineers based on qualifications, not price). All contractors public works (except for alternative public works - RCW 39.10) are selected based on the low bid.

The recent audit by the State Auditor's Office of the Port of Seattle's contracting practices included recommendations to the State Legislature. These recommendations, including changing the definition of public works, are embedded in SB 6235.

While it is apparent that there are some contract management issues that the Port of Seattle needs to pay closer attention to, SB 6235 is not the solution, especially the portion that would redefine public works.

Monday, January 14, 2008

Monitoring Washington State Legislation

The 2008 session of the Washington State Legislature is now in session. To monitor bills being introduced, you can visit the Legislature's website to lookup individual legislation that has been introduced and to monitor its status.

Proposed Change in Definition of "Public Works"

Senate Bill 6235 has been introduced in the 2008 session of the Washington state Legislature. The bill is in response to the critical audit of the Port of Seattle conducted by the Washington State Auditor's Office. Among other things, the bill would expand the definition of "public works" to include consultant, architectural, engineering, and service contracts. The following is a quick analysis of some of the impacts of the legislation:

  • All consultant contracts would need a payment and performance bond.
  • If such bonds are even available in the market, it would increase the cost of these projects as consultants had to cover these costs. The relationship between the performance bond and professional liability insurance is unclear.
  • Retainage would need to be withheld on every consultant contract, and agencies would need to establish a final acceptance date for every consultant contract.
  • Claims could be filed against the bond and retainage by sub-consultants.
  • Retainage could not be released until the deadlines outlined in RCW 60.28.
  • Prevailing wages would apply to all consultant services. L&I has not established wages for professional services and establishing such wage rates would be very problematic.
  • All consultant work would need to be bid and awarded to the lowest bidder instead of selecting based on qualifications and price in some instances.
  • The draft legislation conflicts with RCW 39.80 that requires that architects, engineers, landscape architects, and land surveyors be selected based on the "most qualified" firm. Under the proposed legislation, the work would need to be bid and awarded to the lowest bidder - a direct conflict with RCW 39.080.

Additional Criteria for Bidder Responsibility

On Thursday, January 10, 2008, the Capital Projects Advisory Review Board (CPARB) adopted two additional supplemental bidder responsibility criteria for optional use by public agencies in Washington state. One deals with lawsuits and the other with prevailing wages. The criteria will eventually be added to the Suggested Guidelines for Bidder Responsibility published on CPARB's website. There are still a couple of other criteria that the task force I chair is working on: one dealing with safety and the other with wage and hour violations.

Let me know if you have any questions about how supplemental bidder responsibility criteria should be used on public works projects.

Negotiating Contractor Change Order Entitlement

Web Conference on Negotiating Contractor Change Order Entitlement: Enforcing Contract Rights in a Collaborative, Equitable Manner.

Thursday, February 7, 2008. 11:30 a.m. to 1:00 p.m, Pacific Time. Cost: $129. Where: your office or conference room. Sponsored by Contract Solutions Group.

Construction change order and claim entitlement analysis is the critical initial assessment required to be performed by project owners to first evaluate whether the contractor has established its right to any recovery.

Estimating and Managing Cost Escalation - Dinner Program

On January 16, 2008, from 5:30 p.m. to 8:00 p.m., the American Society of Professional Estimators (ASPE) Chapter 45 will host its January dinner program on the subject of "Estimating and Managing Cost Escalation" in the construction industry.

The meeting is open to members and non-members, and will be held at McCormick & Schmicks Harborside Restaurant on Lake Union (AGC Building, 1200 Westlake Ave. North, Seattle). The cost is $40.

Contact TJ Schwertfeger by fax: 253-841-0925 or email at

You can find more information about ASPE at

GC/CM Training

The Associated General Contractors of Washington (AGC) will be offering a two day training session on the new Washington State law on General Contractor/Construction Manager (GC/CM) contracting, which is an alternative public works contracting delivery method. The law, RCW 39.10, was effective on July 1, 2007, and there are significant changes from the previous legislation.

The training will be held on January 31, 2008 and February 1, 2008 at the AGC Building (1200 Westlake Ave. North, Seattle) from 8:00 a.m. to 5:00 p.m. both days. The cost is $350 per person (lunch included both days).

I attended a similar training session a number of months ago and found it very valuable. If you're a public agency or a contractor or subcontractor, it is a helpful introduction to GC/CM contracting.

For more information, go to

Tuesday, January 8, 2008

Feds Launch Fraud Probe at Port of Seattle

The U.S. Department of Justice announced yesterday that they will investigate possible fraud in the construction management contracting practices at the Port of Seattle. The probe is triggered by the December 20, 2007 report of the Washington State Auditor's Office that found that the Port wasted close to $100 million through their contracting practices. The audit report indicated that fraud was a possibility given the way the Port managed the contracts.

IRS Increase Mileage Reimbursement

Effective Jan. 1, 2008, the standard IRS approved rate used to calculate the deductible costs of operating an automobile for business purposes increased to 50.5 cents per mile from 48.5 cents per mile that was established at the beginning of 2007.

Thursday, January 3, 2008

Verifying Employment Security (ESD) Number for Bidders

The Employment Security Department (ESD) number is the only number required by Washington State Law (RCW 39.04.350) that is not available online for verification as part of ensuring that a bidder meets the mandatory bidder responsibility criteria.

ESD will not verify the number or provide any information about a bidder without a public disclosure request that can take a long time.

I recommend one of two options for how a public agency can deal with the requirement to ensure that a bidder has a current ESD number:

1) Ask the bidder for the number on the bid form and trust that it is accurate.

2) Ask the bidder to provide documentation from ESD that the bidder has a current ESD number.

The Capital Projects Advisory Review Board (CPARB) has adopted Suggested Guidelines for Bidder Responsibility that provides information on this and a variety of other issues in implementing the new bidder responsibility legislation. The Suggested Guidelines are available online at:

Wednesday, January 2, 2008

American Safety Casualty v. City of Olympia

On December 27, 2007, the Washington State Supreme Court issued its decision in a closely watched case dealing with notice requirements on public works construction projects, and whether the owner (City of Olympia) had waived its rights to insist on the bonding company (American Safety Casualty) meet the contractual deadlines for filing a claim for additional compensation. American Casualty was the bonding company for Katspan, Inc., the contractor hired by the City of Olympia for a pipeline project.

In its analysis, the Supreme Court discusses the impact of the Mike M. Johnson case and how it relates to the facts of this case.

The unanimous decision by the Supreme Court states in part:

"This case arises from a contract dispute between American Safety Casualty Insurance Company (American Safety) and the city of Olympia (City) and the trial court's award of summary judgment in favor of the City. There is no dispute that American Safety did not follow the contract's provisions when it sought additional compensation for work it had performed and that it filed suit after the 180-day time limit established in the contract. However, American Safety argues that the City implicitly waived its right to demand compliance with the contract's provisions when it agreed to negotiate and try to reach a settlement. American Safety argues that the trial court erred in granting summary judgment to the City, and that the Court of Appeals was correct to reverse because an issue of material fact existed as to whether the City waived its contractual defenses. The City maintains that it expressly reserved its rights; that any waiver of rights must be unequivocal; and that, at most, its acts were equivocal and thus did not constitute a waiver. We agree with the City and reverse the Court of Appeals."

Conclusion: "Implied waiver of contractual rights requires unequivocal acts, and here the City's acts were, at most, equivocal. Agreeing to enter into negotiations, without more, does not constitute an implied waiver of contractual rights. Therefore, since American Safety admittedly did not comply with the contractual provisions and thus waived its claim to additional compensation, the trial court was correct in granting summary judgment to the City. The decision of the Court of Appeals is reversed."

If you would like a copy of the full decision, please contact me and I'll e-mail it to you.

MRSC Launches New Rosters

The Municipal Research and Services Center (MRSC) recently launched new shared rosters for public works and consulting services. This is in response to the City of Lynnwood ceasing operation of these rosters at the end of 2007. Many government agencies in the Puget Sound area have used Lynnwood's rosters rather than maintain their own.

The MRSC rosters are in addition to the online rosters recently created by a number of government agencies in cooperation with (Shared Procurement Portal). The MRSC and rosters work slightly differently. For example, MRSC charges both contractors and consultants as well as government agencies, while only charges government agencies.

Hopefully, these two groups will continue discussions about merging into a single roster service for the contracting and government communities, with no charges to contractors and consultants for being listed on the rosters. Contractors and consultants shouldn't have to pay to be listed on government rosters for possible business opportunities. Having the separate rosters also sends a confusing message to contractors and consultants and somewhat defeats the purpose of having one centralized location where they can register to be considered for work by many different government agencies. Many government agencies continue to maintain their own separate rosters.

Questions on MRSC Rosters: Contractors and consultants can register for MRSC ROSTERS online now at Agencies can sign up by following the instructions on our How to Use MRSC ROSTERS page. Contact Marcie Klobucher at (or 206-625-1300) if you have any questions.

Questions on the Shared Procurement Portal: Visit the website at or contact Mayvis Schwab at