Sunday, January 23, 2011

Proposed Legislation Would Restrict Use of "Limited Public Works Process" to Small Businesses

Small Works Rosters:  Under current Washington State law (RCW 39.04.155), public agencies may establish a Small Works Roster and use that as the means to solicit contractors for public works projects with an estimated cost of $300,000 or less (and not advertise the project in the newspaper).  

Limited Public Works Process:  In addition, public agencies may, for projects estimated to cost less than $35,000, use a subset of the Small Works Roster, called the Limited Public Works process [RCW 39.04.155 (3)].   The primary distinguishing feature of the Limited Public Works process (in addition to the lower dollar threshold) is that an agency may waive the requirements for obtaining a payment and performance bond from the contractor, and for withholding retainage on each progress payment.

Proposed Legislation:  House Bill 1173, which has been introduced in the 2011 session of the Washington State Legislature, would restrict the use of the Limited Public Works process to contractors based on their size as measured by annual revenue.

HB 1173 would make the following changes in existing law:
  • Small Business and Microbusiness Definitions:  Two new definitions would be created.  Both a small business and a microbusiness must be "owned and operated independent from all other businesses."  A small business must have an annual gross revenue of less than $7 million, and a microbusiness must have an annual gross revenue of less than $1 million.  For both types of businesses, public agencies would need to verify the revenue based on what the business reported on its federal tax return or its return filed with the Department of Revenue.
  • Increase Limited Public Works Process Threshold:  The threshold for use of the Limited Public Works process would increase from projects estimated to cost less than $35,000 to those estimated to cost less than $50,000.
  • Restrictions on Soliciting Contractors Based on Size:  HB 1173 would require that public agencies could only solicit "small businesses" for projects under the Limited Public Works process (those less than the proposed new threshold of $50,000).  This means that larger contractors would not be eligible to participate in these smaller contracts.  Furthermore, HB 1173 would restrict competition on Limited Public Works projects estimated to cost less than $35,000 to only "microbusinesses" (those with an annual revenue of less than $1 million).
Implications of HB 1173:  The following are some of the implications of HB 1173 if it is approved as drafted:
  • Roster Administration:  Public agencies using the Limited Public Works process under the Small Works Roster would pick up additional duties of verifying the annual revenue of contractors to determine eligibility to bid on smaller projects.
  • Less Competition:  Under HB 1173, there may be fewer contractors submitting bids on projects estimated to cost less than $50,000.  As a result of limiting the competition to only small businesses, public agencies may see an increase in prices.
  • More Use of Small Businesses:  HB 1173 is a measure designed to increase the participation of small businesses in public contracting by carving out certain contracts in which they are only competing against other small businesses.  The objective of increasing the use of small businesses (many which are minority or women owned) on public works projects has been a long term strategy of many, especially since the passage of Initiative 200 in 1998 by the voters of the State of Washington.
  • Delayed Contract Close-out:  By increasing the Limited Public Works threshold to $50,000, HB 1173 would alter the current alignment of when retainage release approvals are required from state agencies (Revenue, Employment Security, Labor and Industries).  Currently, with a $35,000 threshold for the Limited Public Works process, none of these projects require that public agencies notify the three state agencies to obtain approval for release of retainage.  By increasing the Limited Public Works process threshold to $50,000, it would mean that projects of $35,000 or more up to an amount less than $50,000 would be required to go through the often time-consuming process of obtaining releases from the state agencies before retainage could be released to the contractor.  This approval process would be required even if a public agency had waived withholding of retainage, potentially opening up a public agency to claims against the retainage from one of the three state agencies for retainage that was not withheld (and increasing the financial liability of the public agency).
Committee Hearing:  The House Committee on Community Development & Housing will hold a public hearing on HB 1173 at 1:30 p.m. on Monday, January 24, 2011.  The bill analysis prepared by House staff may be read by clicking here.
Mike Purdy's Public Contracting Blog 
© 2011 by Michael E. Purdy Associates, LLC

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