Monday, June 30, 2008

Calculating Retainage on Public Works Contracts

On public works contracts in Washington State, public agencies are required to withhold 5% of each progress payment as Retainage. The Retainage is a trust fund for the protection of the Washington State Department of Revenue for unpaid taxes and for workers, subcontractors, and suppliers who have not been paid. See chapter 60.28 RCW.

When calculating the amount of Retainage, a question frequently comes up: Is the Retainage calculated on the amount earned by the contractor before or after the application of the sales tax amount?

Answer: Retainage should be calculated before the sales tax amount, and just on the amount actually earned by the contractor.

In other words, take the amount earned by the contractor for the month (without sales tax), take 5% of that amount to calculate Retainage, and then add sales tax to the amount earned by the contractor for the month. The following chart illustrates how to calculate the Retainage:


Total amount earned by the contractor


Minus 5% Retainage


Equals total amount earned and due to Contractor


Plus sales tax at 9% (King County rate) calculated on the total amount earned by the contractor


Total payment to contractor (total amount earned and due to contractor plus sales tax amount)

Insurance in the Construction Industry - Training Seminar

Insurance in the Construction Industry – Seminar

When: October 16-17, 2008
Where: Bellevue Courtyard Marriott -- Bellevue, WA
Cost: $422.50 for one day and $695 for both days
Sponsored by: The Seminar Group

For more information about the agenda and faculty, or to register, call 800-574-4852 or visit The Seminar Group

Saturday, June 28, 2008

WSDOT Public Hearing on FY 2009 DBE Goals

The Washington State Department of Transportation (WSDOT) will hold a public hearing on July 8, 2008 from 3:00 p.m. to 5:00 p.m. at the NewHolly Neighborhood Campus Gathering Hall, 7054 32nd Avenue South, Seattle, WA.

The purpose of the hearing is to receive public comments on WSDOT’s proposed goal for Disadvantaged Business Enterprise (DBE) participation on Federal Highway Administration (FHWA) assisted projects. The proposed goal for federal fiscal year 2009 is 15.85%. The federal fiscal year starts on October 1, 2008 and ends on September 30, 2009.

More detailed information about the hearing and contact and comment information is available by clicking here for the flyer on the public hearing.

AIA Amends A312 Payment Bond

The American Institute of Architects (AIA) recently announced interim amendments to their popular A312 Payment Bond form that has been required by many owners from construction contractors since 1984.

Due to a series of court cases about certain provisions of the bond, some sureties have been hesitant to use the A312 Payment Bond without amendments to it in order to protect their interests. At issue are decisions by courts in Maryland, Virginia, and Florida that have strictly held the sureties to the time requirements of the bond for the bonding company to respond to claims.

Paragraph 6 of the A312 Payment Bond imposes certain requirements on the surety to respond to a claimant within 45 days after the surety receives the claim. The surety is further required to state the amounts of the claim that are undisputed and their basis for challenging any amounts of the claim that are disputed.

The courts essentially ruled that when a surety fails to provide the appropriate response within the 45 day period, they waive their defense against the claim and become liable for the full amount of the claim.

In response to the court cases, the AIA has developed interim amendment language to the A312 Payment Bond until they are able to meet with all of the major stakeholders and make appropriate permanent changes in the bond form. The revised language adds the following paragraph:

“The Surety’s failure to discharge its obligations under this Section 6 shall not be deemed to constitute a waiver of defenses the Surety or Contractor may have or acquire as to the claim. However, if the Surety fails to discharges its obligations under this Section 6, the Surety shall indemnify the Claimant for the reasonable attorney’s fees the Claimant incurs to recover any sums found to be due and owing to the Claimant.”

Owners should not be surprised when they receive an A312 Payment Bond with amendments to Paragraph 6, limiting the surety’s liability in the event they fail to provide the notice within the time period specified.

For reference, the following are the three court cases that have triggered this recent activity of changing the Payment Bond:

  • National Union Fire Insurance Co. of Pittsburg v. David A. Bramble, Inc., 879 A. 2d 101 (Md. 2005)
  • Casey Industrial, Inc. v. Seaboard Surety Co., 2006 WL 2850652 (E.D. Va. Oct. 2, 2006)
  • J.C. Gibson Plastering Co., Inc. v. XL Specialty Insurance Co., 2007 WL 2916399 (M.D. Fla. Oct. 8, 2007)

The National Association of Surety Bond Producers (NASBP) has a useful PowerPoint presentation with additional background on the court cases and the problems with the A312 Payment Bond. Obviously, this is written from the perspective of sureties, but it seems fairly balanced.

In addition Construction WebLinks also has a good article about the issue.

Thursday, June 26, 2008

Public Hearing on Prevailing Wage Rules

The Washington State Department of Labor and Industries will be conducting a public hearing to amend the Washington Administrative Code (WAC) in order to address legislative increases in the amounts charged by Labor and Industries for approval of prevailing wage forms required on public works construction projects (“Statement of Intent to Pay Prevailing Wages” and “Affidavit of Wages Paid”).

The hearing will be held on July 25, 2008 at 9:00 a.m. at the Department’s office at 7273 Linderson Way SW, Tumwater Washington.

The current regulations, WAC 296-127-040 and 296-127-045, include the actual dollar amount of the fee charged by Labor and Industries.

When the Washington Legislature approved EHB 3381, effective July 1, 2008, it formally increased the approval amount for each form from $25 to $40.

Rather than amend the WAC to increase the fee amount, the Department of Labor and Industries is proposing to amend the WAC so that the WAC simply references RCW 39.12.070, the section of the law where the dollar amount charged for the forms is codified. This change will make maintenance of the WAC easier for the Department and they will not have to amend the WAC every time the Legislature increases the fees.

This is a housekeeping amendment to the WAC and has no significant impact on the construction industry. The impact of raising the fees occurred when the Legislature approved the increase.

Written comments on the proposed change in the WAC may be made as follows:

By mail to:
Sally Elliott
Specialty Compliance Services Division
Post Office Box 44400
Olympia, WA 98504-4400

By electronic mail to:

By fax: 360-902-5292 (Comments submitted by fax must be 10 pages or less.)

Comments must be received by the Department of Labor and Industries no later than July 25, 2008.

Wednesday, June 25, 2008

Responsiveness vs. Responsibility

The words “responsiveness” and “responsibility” sound very similar, but in public works contracting, they means two entirely different things.

“Responsiveness” refers to whether a bid is responsive. In other words, did the bidder submit a bid that responded to and was in compliance with what was requested in the bidding documents?

Typical issues of responsiveness include the following:

  • Was the bid submitted by the bid submittal deadline?
  • Did the bidder sign the bid?
  • Was a bid guaranty in the appropriate amount submitted with the bid?
  • Did the bidder submit a bid on all required items?
  • Did the bidder acknowledge all addenda issued?
  • Was a list of subcontractors submitted with the bid, if required? For example, in Washington State, RCW 39.30.060 requires that the bidder submit a list of subcontractors with the bid who will be performing HVAC, electrical, and mechanical work if the project is estimated to cost $1 million or more.

A public agency should reject a bid as non-responsive that is materially different from the requirements of the bidding documents. A public agency may waive an irregularity in the bid as an informality if the irregularity is immaterial.

The test as to the materiality of a variance in a bid is whether it gives a bidder a substantial advantage or benefit not enjoyed by other bidders (Gostovich v City of West Richland, March 1969).

“Responsibility” on the other hand refers not to the bid, but to the bidder. The question asked regarding responsibility is whether the bidder is capable and qualified to perform the project.

In Washington State bidder responsibility on public works projects is governed by a law that became effective on July 22, 2008. RCW 39.04.350 defines certain mandatory bidder responsibility criteria and permits public agencies to also establish supplemental bidder responsibility criteria that are relevant to a specific project. Developing supplemental bidder responsibility criteria takes great care to ensure that the criteria are relevant to the project. The Capital Projects Advisory Review Board (CPARB) has developed Suggested Guidelines for Bidder Responsibility that many public agencies will find useful in understanding the State's bidder responsibility law.

Both responsiveness and responsibility have certain levels of subjectivity in making a determination and both are based on the particular facts of a situation. There are a number of court decisions that help shape how these issues are interpreted.

I have developed a training class addressing responsiveness and responsibility issues in public works contracting. Please contact me if you are interested in more information about the training.

Monday, June 23, 2008

Bidder Responsibility Training on June 25th

There’s still time to sign up for the web conference on the new Bidder Responsibility law which is applicable to all public agencies in Washington State. The web conference (from your own computer and telephone) will be held on Wednesday, June 25, 2008, from 11:30 a.m. to 1:00 p.m.

I am one of the presenters along with local attorney, Arne Hedeen. The training is sponsored by Contract Solutions Group and costs $129 for a single connection at which you may have multiple attendees.

For more information and to register, click here.

If you can't make this web conference and are interested in me providing this training to your agency or a group of agencies, please contact me.

Training on Alternative Public Works Contracting

I recently trained approximately 60 project managers, project engineers, and other managers from the City of Seattle - City Light Department. The full day of training was entitled “An Introduction to Alternative Public Works Contracting Procedures.”

We covered the three alternative methods authorized by chapter 39.10 RCW: General Contractor/Construction Manager (GC/CM), Design-Build, and Job Order Contracting (JOC). I conducted two separate sessions, each covering the same material, on June 20
th and June 23rd.

If you’re interested in me repeating the training for your agency or for a group of agencies, please contact me.

IRS Increases Mileage Reimbursement Rate Again

The IRS has formally recognized that gas prices are going through the roof.

Every year the IRS approves a standard mileage reimbursement rate used to calculate the deductible costs of operating an automobile for business purposes. At the beginning of 2008, the amount increased from 48.5 cents per mile to 50.5 cents per mile.

Now with quickly escalating gas prices the IRS has approved a special mid-year increase of the standard mileage reimbursement rate. Effective July 1, 2008 through the end of 2008, the rate will increase from 50.5 cents per mile to 58.5 cents per mile. This 8 cents per mile increase represents an increase of almost 16%.

To read more about it, go to the IRS website.

Port of Seattle Legal Fees Reach $1 Million

The scathing December 2007 performance audit of the Port of Seattle’s construction management and contracting practices has been an expensive endeavor for the Port. The State Auditor’s Office found that the Port wasted $97 million in public money through their practices.

And now the Port has been billed over $1 million from three law firms for their work in helping the Port investigate and respond to the audit, including charges of potential fraud in the Port’s contracting, and working with the U.S. Department of Justice as they investigate the fraud allegations.

The Seattle Times has a story on the Port’s legal fees in its June 23, 2008 edition.

Nora Huey begins her challenging job as the new director of the Port’s recently created Central Procurement Office on June 30th. Nora is a highly competent attorney who previously worked for King County and has the skills and knowledge necessary to help bring some structure and discipline to the Port’s contracting practices.

Saturday, June 21, 2008

JOC and New Construction

When the Washington State Legislature amended the law re-authorizing Job Order Contracting (JOC) - SSHB 1506 - in 2007, they appear to have inadvertently cast a shadow over whether JOC could be used for new construction, or only for repair and renovation projects.

RCW 39.10.420 (3) states that JOC is “an effective means of reducing the total lead-time and cost for the construction of public works projects for repair and renovation required at public facilities…” This appears to limit JOC to only repair and renovation projects, while the previous law made it clear that JOC could be used for “public works projects or repair required at public facilities.”

However, I think that the definition of JOC in RCW 39.10.210 helps support the argument that JOC can still be used for new construction. The definition states that JOC may be used “for public works as defined in RCW 39.10.010.” There is no question that public works includes new construction.

Thus, it seems to me that even though the 2007 legislative changes to JOC were not written as clearly as they could have been, when you attempt to harmonize the provisions of RCW 39.10.420 (3) with the definition of JOC in RCW 39.10.210, you can easily come to the conclusion that JOC can be used for new construction.

Hopefully, the Capital Projects Advisory Review Board (CPARB) will pick up this issue as one of many clean-up items needing to be addressed legislatively, and will make recommendations for the Legislature to consider in the 2009 legislative session.

Wednesday, June 18, 2008

Boeing Wins Bid Protest

The Government Accountability Office (GAO), after considering The Boeing Company’s protest of the award of a $35 billion contract to Northrop Grumman for refueling aerial tankers, ruled on Wednesday that the Air Force violated its own procurement practices in denying the contract to Boeing. Many are urging the Air Force to rebid the contract. More information on this may be found at the Seattle Times online website. The press release from GAO may be found at the online by clicking here.
The high profile case points out the critical importance of establishing clear evaluation criteria, strictly evaluating proposals based on the criteria, having clear solicitation documents, and treating all competing contractors equitably and fairly without giving preference, or the appearance of preference, to any party.
Government contracting must be handled in a fair and transparent manner. Bid protests can cause significant delays and additional costs for government agencies who do not manage the procurement process appropriately. Procurement and contracting functions within government agencies should be empowered to manage processes that reflect best practices and are not influenced by political considerations.
If you find yourself embroiled in a bid protest or appeal, I can provide assistance in helping to manage the process and think through the options with you.

Prevailing Wage Policies

The Washington State Department of Labor and Industries has almost 20 prevailing wage policies of the Department online at their website. These policies are all in the form of letters responding to inquiries about a variety of prevailing wage interpretation questions including the following:
  • HVAC Air Balancing
  • Sheet Metal Roofing Scope
  • Modular Block Walls
  • Overtime
  • Drywaller
  • Fabricated Concrete

More formal than L&I’s policy letters are the regulations adopted by the Department for sections of the Washington Administrative Code (WAC), implementing State law, Chapter 39.12 RCW (Revised Code of Washington).

Port of Seattle Hires Nora Huey as Procurement Chief

The Port of Seattle has appointed Nora Huey, a local attorney, as head of its new central procurement office. The position is a new one, created in the wake of a highly critical performance audit conducted on the Port’s construction management and contracting practices by the Washington State Auditor’s Office in December 2007.

Huey, who previously worked for King County as a supervisor over the county’s public works and professional services contracts, has also been very involved in broader industry wide issues in the State. She has served as the representative of counties on the Capital Projects Advisory Review Board (CPARB), and chaired CPARB’s Industry-Wide Subcommittee. As chair of the subcommittee, she has been influential in helping bring contractors and government agencies together in trying to craft a legislative solution to the Washington State Supreme Court ruling in the Mike M. Johnson cases.

Huey begins her new position at the Port on June 30th, meeting the Port’s self-imposed deadline of when they intended to have the new central procurement office up and running.

Click here to read the Port's news release on the appointment.

Saturday, June 14, 2008

Resolving Contract Disputes

Short of a lawsuit, there are a number of tools that can be used to help resolve contract disputes, especially on a construction project. Collectively, these tools are often referred to as Alternative Dispute Resolution or ADR.

Partnering: Partnering is an attempt to head off disputes before they become problems. Typical public works construction projects that are awarded to the low bidder often breed adversarial relationships between the owner and the contractor. This occurs because the contractor has bid the project, often without a lot of time to really become familiar with the project. If the contractor believes their bid to have been too low, they may look for opportunities to increase their profit margin by requesting payment through change orders. In addition, a low bid situation is really a forced marriage between the contractor and the owner and communications may suffer.

In partnering, the owner, contractor, designer, and any other key parties get together for a retreat, perhaps a half-day or full day prior to the start of the work to discuss the protocols they will use to communicate with one another. They identify potential risks and problems with the project and how they plan to mitigate against those risks, all in a spirit of cooperation. It’s much easier to try to “partner” with the other parties before tensions rise and relationships become frayed. The hope is that in partnering, relationships will be established to such a degree that it will help the parties to successfully navigate through the project. Usually, a professional facilitator is hired for the partnering session to help the parties identify issues and discuss communications. At the end of the retreat, the participants, which includes key individuals from each party, sign a joint document describing how they will communicate with one another in a spirit of cooperation. This document isn’t contractually binding, but represents their good faith intentions.

Disputes Review Board: Typically used for larger projects, a Disputes Review Board is used during the project to help informally adjudicate disputes between the contractor and owner. If the Board includes three members (typical), one member is appointed by the owner, one by the contractor, and the third member is jointly appointed by the other two members. During the course of construction, the Board members meet somewhat regularly on the job site to review the progress of the project and to become familiar with brewing issues. If a dispute arises, the Board hears from both sides and makes a decision. It is most effective if the parties have agreed that the decision of the Disputes Review Board will be binding. This helps from keeping issues from moving onto more serious forms of dispute resolution, such as court.

Mediation: Through the use of a third party mediator who helps the parties understand the position of the other party, the parties in a dispute are often able to agree to a resolution of the dispute. The mediator is an impartial third party chosen by both parties to the dispute. The mediator helps each party understand the position of the other party, makes recommendations, and the parties ultimately decide whether they can agree to a resolution of the dispute. Mediation is an informal, non-binding tool to bring both parties to the table with an impartial third party and try to move forward toward a resolution.

Arbitration: Arbitration is one step closer to a lawsuit and more formal than mediation. In order for arbitration to be effective, the results of arbitration should be binding on both parties, something that would be agreed upon in the actual contract between the parties. Like a mediator, an arbitrator, who is an impartial third party agreed upon by both parties, hears from both parties about their position. Unlike a mediator, however, who tends to have more separate conversations with each party, the arbitrator’s role is to consider the positions of both parties and render a decision. Arbitrators tend to “split the baby” and come up with a resolution that represents a compromise but doesn’t necessarily address the merits of each case. This is one of the risks in using arbitration. In addition, arbitration is more formal than mediation and may cost almost as much as a lawsuit. Arbitration is conducted in accordance with rules established by an arbitration association such as the American Arbitration Association.

Lawsuit: This is a step to avoid if possible. It can be very costly and may not be worth it financially if the dollar amount of the dispute is smaller (less than the amount of attorneys fees for the lawsuit).

Bottom Line: Attempt to resolve contractual disputes and problems at the lowest possible level, and communicate clearly and consistently during the contract with the other party. There’s no substitution for such communications.

Tuesday, June 10, 2008

Using MWBEs on Job Order Contracts (JOC)

In 1998, the voters of Washington State approved Initiative 200. One of the impacts of I-200 is that it prohibits public agencies from granting preference in the award of public contracts based or race or gender considerations. Since the passage of I-200, the percentage of participation by MWBEs (Minority and Women’s Business Enterprises) in the state has dropped dramatically. Public agencies continue to wrestle with how to help provide business opportunities that encourage the use of MWBEs in the expenditure of public contracting dollars.

One tool that holds some promise for using MWBEs is the use of Job Order Contracting (JOC). JOC “means a contract in which the contractor agrees to a fixed period, indefinite quantity delivery order contract which provides for the use of negotiated, definitive work orders for public works as defined in RCW 39.04.010.” Not all public agencies in the state are authorized to use JOC.

Under a JOC work order, the contractor is required to subcontract out 90% of the work, and may select any qualified subcontractor as long as the price for the work order is consistent with the unit prices originally bid in the JOC and the quantities that are negotiated with the public agency. In theory, a contractor could make efforts to subcontract work to MWBEs, thus increasing the participation by these firms on the overall contract. Because work orders are limited to $300,000 and 90% of the work must be subcontracted, these subcontracting opportunities may be ideally suited to MWBEs that are generally small businesses.

Prior to issuance of the first work order, the public agency must approve an MWBE outreach plan by the Job Order Contractor. During the term of the contract, it’s important for the public agency to monitor the actual progress by the contractor in meeting its objectives and plans as outlined in the outreach plan.

Monday, June 9, 2008

Prevailing Wages and GC/CM

We all know that a public agency must obtain a copy of an approved “Statement of Intent to Pay Prevailing Wages” for the contractor and every subcontractor prior to the making payment to the contractor.

But what if the contractor, a GC/CM (General Contractor/Construction Manager), was the low successful bidder on one of the subcontract bid packages? The GC/CM, regardless of whether they were successful in bidding to self-perform work or not, must file an “Intent.” This would apply even if they do not self-perform any work.

And what if the GC/CM, instead of submitting a subcontract bid under the same name as they were awarded the GC/CM contract, bids under the name of an associated company? For example, they might have been awarded the GC/CM contract as “Pacific Construction Company” but successfully submitted a bid on the carpentry subcontract bid package as “Pacific Carpentry Company.” In this instance, Pacific Construction Company, as the GC/CM would be required to file an “Intent” before the owner made any payment, and Pacific Carpentry Company would be required to file an “Intent” as a “subcontractor.” The “subcontractor” is really a separate legal entity, but for all intents and purposes is the GC/CM self-performing the work under a different name.

It’s important to pay close attention to the official legal name of the businesses who are working on a GC/CM project in order to ensure that you, as a public owner, receive the required “Intent” (and Affidavit of Wages Paid) for both the GC/CM, all subcontractors, and any “subcontractor” company associated with the GC/CM who obtains a portion of the work through being the low bidder on a subcontract bid package.

If this isn’t clear, or if you’d like more elaboration on this, please comment and let me know.

Friday, June 6, 2008

Cost Increase for Prevailing Wage Forms

Effective July 1, 2008, it will cost contractors more to have the Washington State Department of Labor and Industries approve prevailing wage forms.

The cost for approval of a Statement of Intent to Pay Prevailing Wages will increase from $25.00 to $40.00 per form. Likewise, the cost for approval of an Affidavit of Wages Paid will increase from $25.00 to $40.00 per form.

The increase was approved by the Washington State Legislature during the 2008 legislative session when it approved EHB 3381.

Contractors may submit the forms for approval online or by submitting a hard copy of the completed form.

No Fraud Found in Port of Seattle Contracts

An independent auditing firm found no evidence of fraud in the Port of Seattle’s contracts that it reviewed.

The audit by the firm of Moss Adams was in response to the December 20, 2007 performance audit of the Port of Seattle’s construction management and contracting programs by the Washington State Auditor’s Office.

Moss Adams reviewed more than 60 contracts from the Port, including large and small construction contracts and consultant contracts. “We found no instances of fraud,” Moss Adams auditor Laurie Tish noted in her briefing to the Port Commission on June 3, 2008. Moss Adams is under contract to the Port to perform independent audits of the Port’s finances and operations.

Thursday, June 5, 2008

Change Order Negotiations - Workshop

Change Order Negotiations – Workshop

When: July 23, 2008, 8:30 a.m. to 4:45 p.m.

Where: Washington State Convention and Trade Center, downtown Seattle

For more information and registration,
visit the website of Contract Solutions Group


Due to the tightening economy, project owners and their consultants can expect increased levels of contractor change orders and claims. This program will focus on improving your negotiation strategies and skills to make you and your staff more effective negotiators in order to better manage project cost growth.

This program will benefit both new and very experienced professionals, by discussing and demonstrating improved negotiation techniques through real-life change order scenarios. Highly qualified presenters will guide participants through simulated change order negotiations to refine negotiation strategies and skills.

The Washington State Auditor's Office will also provide critical guidance on change order documentation and justification requirements for public entities, in view of recent well publicized performance audits of public entity change management practices.

You will learn:

  • Strategies to improve negotiation practices for change orders
  • Negotiation skills that will improve change order negotiated results
  • Guidance on complying with audit requirements

15th Annual Washington Construction Law Seminar

15th Annual Washington Construction Law Seminar

When: September 18 & 19, 2008

Where: Red Lion Hotel on 5th Avenue -- Seattle, WA

For more information and registration, contact The Seminar Group

Description: What's new in Construction Law? Start with changes in the law applicable to public construction (both Washington State and Federal) and Washington State private construction projects, new contract forms and building "green." Add Indian law, surety law and insurance law along with ADR strategies, plus many other topics.

The legal terrain is constantly changing. Avoid having your company or your clients lose rights or defenses. What you don't know will hurt you! Construction industry participants need to have the latest information to navigate the complex construction process in today's world.

Tuesday, June 3, 2008

Northwest Minority Business Council - Showcase 2008

The Northwest Minority Business Council's Showcase 2008 Business Conference and Opportunity Fair will be held today in Bellevue at the Meydenbauer Center (11100 NE 6th Street). It opens at 9:00 a.m. and runs until 4:00 p.m. For more information, check out their website.

Sunday, June 1, 2008

1 Year Anniversary of Public Contracting Blog!

Today marks the one year anniversary of my Public Contracting Blog!

Over the course of the year, I've posted 172 entries on the blog, and almost 1,500 of you have viewed the blog.
Blog readers have come from almost 600 cities in 50 countries, and every continent (except Antarctica).

I hope it's been a helpful tool for you and has provided valuable information about the world of public contracting, especially in Washington state.

If you have thoughts about what you'd like to see in the next 12 months, please let me know.