Happy New Year!

Best wishes for a wonderful new year! May it be a year of great personal and professional satisfaction for you.

During 2008, this blog received more than 4,700 visits from 62 countries around the world.

In 2009, I will continue to provide timely and relevant information to help government agencies and businesses in the area of contracting.

Michael E. Purdy Associates
Strategies - Solutions - Training

New 2009 IRS Mileage Reimbursement Rates

The IRS announced that the optional standard mileage rates for 2009 will decrease from 58.5 cents per mile (applicable to the last six months of 2008) to 55 cents per mile, effective January 1, 2009.

The reduction is in recognition of decreases in the price of gas over the last number of months. In the middle of 2008, the IRS took the unusual step of increasing the mileage reimbursement rate from 50.5 cents per mile to 58.5 cents per mile in recognition of spiking gas prices. The 2009 rate announced reflects the declining price of gas.

The IRS announcement on the new mileage reimbursement rate may be found on the IRS website.

Force Majeure and Winter Storms

With the severe winter snow storm that has engulfed much of Washington state, and for that matter the northern part of the nation, it's a good time to think about "Force Majeure" and how that impacts public works construction projects.

"Force Majeure" is a French term, literally meaning "superior force" and is often referred to as "Acts of God." Depending on your contract provisions, Force Majeure may include the following:

• Acts of God or the public enemy
• Acts of omissions of any government entity
• Fire, earthquake, or other casualty for which the contractor is not responsible
• Quarantine or epidemic
• Strike, embargo, or defensive lockout
• Unusually severe weather conditions, such as storm, flood, or hurrican which could not have been reasonably anticipated
• Unusual delay in receipt of supplies or products which were ordered and expedited and for which no substitute reasonably acceptable to the owner was available
• Acts of terrorism
• Riots, wars, invasions, acts of foreign enemies, civil war

It is the item about "severe weather conditions" that is particularly relevant now. The cold temperatures, and the accompanying snow and ice are clearly beyond what the area normally anticipates, as witnessed by the fact that the weather conditions are viewed by many as the worst in at least a dozen years.

Again, depending on the terms of your contract provisions, a contractor is generally entitled to an extension of time for performance delays directly attributable to Force Majeure, but not entitled to an adjustment in the contract amount. Be sure to read the terms of your contract carefully in evaluating contractor claims for either additional time or money based on Force Majeure.

Please contact me if you have any questions about how to apply the terms of your contract to delays resulting from Force Majeure.

Merry Christmas!

Best wishes to you and yours for a wonderful holiday celebration!

Training on Problem Construction Projects

Recognizing a Problem Project Before it Becomes One & What to Do if you Have one

When: January 9, 2009

• 6:45 a.m. to 9:30 a.m. - breakfast seminar
• 9:45 a.m. to 4:30 p.m. - all day workshop

Where: Seattle Airport Marriott (Sea-Tac) - 3201 South 176th Street, Seattle, WA 98188

Cost:

• Breakfast Seminar: $78
• All Day Workshop: $248

Sponsored by: Construction Seminars Northwest

For more information and to register, click here

Public Works Emergencies

If you have an event that requires the declaration of an emergency and waiver of competitive bidding requirements (see RCW 39.04.020), it's a good idea for the emergency declaration to also waive the competitive selection process for obtaining the services of the disciplines covered under chapter 39.80 RCW (architects, engineers, landscape architects, and land surveyors). It may be necessary as part of the emergency to have some design work performed and waiving the selection procedures under chapter 39.80 RCW can help facilitate the project.

Port of Seattle Changes Estimate on Project

Port of Seattle staff changed their internal estimate on a project to build a new cruise ship terminal near the Magnolia Bridge after the bids came in 30% over the Port's estimate. By changing the estimate after bids were submitted, Port staff avoided having to notify the Port Commission of the higher bid. The Port's policy requires that any bid that is more than 10% higher than the estimate must be submitted to the Commission for review.

Read the Seattle Times article from December 18, 2008 for more details.

RCW 39.04.020 is the state law that requires public agencies to develop estimates on public works projects. In summary, it requires the following for any public works project:

• Develop plans and specifications
• Develop an estimate of the cost of the work
• Have the plans, specifications, and estimate filed in the office of the individual or body authorized to require the work
  
• Have the plans, specifications, and estimate approved by the authorized individual or body

The law doesn't address the issue of modifying the estimate after bids have been submitted. Such a practice does appear to circumvent the public's interest, and in the case of the Port, appears to be at variance with the Port's internal policies that requires Commission approval of contract awards where the low bid is 10% or more of the estimate.

What practices does your public agency use with respect to development of estimates?

Residential Prevailing Wages

In Washington State, the Department of Labor and Industries establishes separate prevailing wages for residential public works construction projects. Housing authorities, a separate type of governmental entity, along with other types of jurisdictions, frequently construct residential projects.

Residential prevailing wage rates are often significantly lower than prevailing wages for commercial prevailing wage rates. For example, the commercial prevailing wage rate for a carpenter in King County (as of August 31, 2008) is $46.16 per hour, while the residential carpenter rate is $23.47 per hour. The difference in wage rates is primarily due to the fact that residential construction as a whole is not as unionized as commercial construction. In conducting surveys to establish the rates therefore, lower rates end up prevailing for residential construction.

In order to qualify for the residential construction wage rates for various trade classifications, the project must meet certain criteria that are outlined in WAC 296-127-010 (9):

• Type of Work: The definition of residential construction establishes that the work must be "construction, alteration, repair, improvement, or maintenance."
  

• Type of Building: The definition of residential construction establishes that the work must be performed on "single family dwelllings, duplexes, apartments, condominiums, and other residential structures."
  

• Height of Building: The residential structure must "not exceed four stories in height, including basement." An apartment building with four stories of structure above grade and with a basement would not meet the definition for residential construction.
  

• Purpose of Building: The residential structures must be "used solely as permanent residences." Thus, a weekly or monthly apartment or hotel type arrangement would not qualify for residential construction prevailing wage rates. Neither would a single family home that was used on a rotating basis by different individuals to be housed in a location based on business needs.
  

Port of Seattle Disciplines Employees over Contracting Fraud

On Tuesday, December 9, 2008, two Port of Seattle employees resigned and CEO Tay Yoshitani disciplined seven additional Port employees for their role in fraudulent contracting activity.

The actions come after a critical audit of the Port's construction contracting management practices and a recent report that identified ten instances of fraud committed by Port employees.

Resigned:

• John Rothnie, project manager for the third runway project
• Larry McFadden, general manager of Port Construction Services

Suspended without pay:

• Ray Rawe, chief engineer (3 week suspension)
• David Soike, deputy director of aviation (1 week suspension)
• Paul Powell, contract services manager (1 week suspension)
• Robert Riley, director of airport capital improvement (1 week suspension)

Reprimanded:

• Linda Stout, deputy CEO
• Craig Watson, general counsel
• Mark Reis, airport director

The summary of the Port's actions may be found by clicking here.

More information may be found in the Seattle Times story, or by visiting the Port of Seattle's website.

Public Works Bidding Laws Violated by Okanogan County

The Washington State Auditor's Office issued a finding that Okanogan County failed to comply with state competitive bidding laws in the remodeling of a gun range operated by the Sheriff's Department.

Here's an excerpt from the finding:

"The Department started remodeling the range in early 2007. The remodeling project was developed and managed by the Department and consistend of the renovation of the interior and exterior of the range building, grounds, and the purchase and installation of advanced targeting equipment, including electrical work. Total project expenditures were more than $100,000, not including labor costs. County employees and volunteers were used to perform the work. Our review of the project found the County:

• Did not prepare plans or specifications for the project and no official estimate of total costs for the project was determined to correctly apply bid limits.
  

• Did not use its approved small works roster to obtain quotes from contractors nor did it publish a notice of bid for the project to ensure it competitively bid the project."

It is important that public agencies provide appropriate training for their staff on public works contracting requirements and that there be clear policies and procedures governing such activity. Please contact me if you would like to discuss how I can help provide these services for your agency.

CPARB Seeks Members for Project Review Committee

The Capital Projects Advisory Review Board (CPARB) is seeking letters of interest from individuals knowledgeable in the use of alternative public works contracting practices (GC/CM and Design-Build) to serve 1-3 year terms on its Project Review Committee. Current vacancies include:

• 1 to represent Owner - Ports
• 1 to represent Owner - School Districts
• 1 to represent Construction Trades Labor
  

Interested parties may e-mail their letter of interest to Nancy Deakins, Deputy Assistant Director, E&A Services, Washington State Department of General Administration at deakink@dshs.wa.gov by Noon on December 10, 2008. Questions may be directed to Nancy via e-mail or by phone at (360) 902-8161.

Port of Seattle to Announce Disciplinary Measures

Port of Seattle CEO Tay Yoshitani is expected to announce on Tuesday, December 9, 2008, disciplinary measures against Port employees involved in instances of fraud.

An independent investigation recently released reported ten instances of fraud by Port employees, most related to the Port's construction contracting management practices. The investigation was ordered by the Port after the Washington State Auditor's Office performance audit in December 2007 disclosed that the Port wasted almost $100 million due to poor contracting practices.

A Seattle Times article on December 7, 2008 discusses the difficulties of pinpointing which employees were involved in doctoring a critical memo that is at the heart of one of the fraud allegations.

Port of Seattle Fraud Report Issued

After ten months and $1.39 million, former U.S. Attorney Mike McKay issued his report on ten instances of fraud that he discovered at the Port of Seattle.

The report follows a scathing performance audit of the Port of Seattle's contracting practices issued almost a year ago.

McKay found that one Port employee leaked the Port's internal cost estimate to a contractor who later bid on the third runway project and ended up making a 30% profit on the project. Other findings of fraud included:

• Negotiating price with a contractor prior to award
• Breaking projects into smaller projects to avoid competitive bidding thresholds
• Not notifying certain contractors of bidding opportunities
• Steering contracts to favorite contractors
• Issuing an emergency contract for $25,000 that was later amended to more than $1 million for non-emergency work

The complete 76 page fraud report, issued on December 3, 2008, may be found by clicking here. An executive summary of the report may be found by clicking here.

You can also read the December 4, 2008 Seattle Times article on the subject.

Sample Letter Releasing Bid Bond Obligation

When a contractor submits a bid bond on a public works project, the bond becomes a matter of public record and should not be returned to the contractor, even if the contractor requests it.

Instead, if you receive such a request, you may send a letter to the contractor notifying them that you are releasing them from the obligations of the bid bond.

Such a letter should only be sent after you have executed a contract with another bidder. If you release the bid bond prior to contract execution, there is the possibility that the low bidder may, for some reason, not enter into a contract. In such an event, you may end up awarding the project to the bidder who requested the release of their bid bond. If they then fail to enter into a contract, and you have released their bid bond, you would not have any recourse against the bidder for failing to enter into a contract.

The following is sample language that could be used in a letter to a bidder requesting release of their bid bond:

Dear Contractor:

On ________, your firm submitted a Bid Bond along with your bid for the above-referenced project. The contract has since been awarded to another contractor and a contract has been executed. Per your request, this letter is your notice that we hereby release your firm and your bonding company from the obligations and liabilities of the Bid Bond. Because the Bid Bond is a matter of public record, as a matter of policy, we do not return Bid Bonds to contractors. Please let me know if you have any questions.

You may contact me at ( ) ______.

Sincerely,


Name
Title
Public Agency Name

Audit Finding on Competitive Bidding and Prevailing Wage Violations

The Washington State Auditor's Office issued a finding on December 1, 2008 noting that the Shoreline Fire Department (King County Fire District No. 4) did not comply with competitive bid and prevailing wage laws on two public works contracts issued in 2007.

On both projects, the District failed to obtain a Statement of Intent to Pay Prevailing Wages, approved by the Department of Labor and Industries, from the contractor and all subcontractors, prior to issuing the first payment to the contractors as required by RCW 39.12.040.

In addition, one of the projects, an almost $18,000 public works project for installing lightning protection at one of their fire stations, the District did not formally bid the project or use the Small Works Roster authorized by RCW 39.04.155. Instead, a contractor with a history of performing satisfactory work for the District was selected without any competition.

To read the complete audit finding from the State Auditor's Office and the Fire District's response, click here.

If you are concerned about the compliance of your agency with competitive bidding and prevailing wage regulations, please contact me for a comprehensive assessment of your agency's practices, or to discuss training to help educate your agency's personnel.