Monday, April 30, 2012

What is a Material Irregularity in a Bid?

When a bidder fails to submit a required document with its bid, does that render the bid non-responsive, or may the omission of a required document be considered as an immaterial irregularity, and the contract awarded to them?

This is the question that the City of Scranton, Pennsylvania is wrestling with now.  Under the City's blight removal program, an invitation to bid was developed for the demolition of 13 homes throughout the city.  

Bid protest:  After bids were received in February 2012, the City awarded a contract to the low bidder, Shea Demolition, for $121,375.  The second low bidder, Scartelli Construction Services then filed a bid protest, alleging that Shea failed to submit its qualifications and a schedule for the work with its bid, as required in the bidding documents.

Internal City dispute:  The City Controller ruled that Shea's bid was non-responsive and that the project needed to be re-bid.  The City's Office of Economic and Community Development disagreed with the Controller, arguing that the qualifications were not necessary since they knew of Shea's reputation, and that the schedule wasn't critical since the City had provided six months for the work to be completed.

Responsive or non-responsive?  Is the City Controller or the Office of Economic and Community Development correct?  The Controller's attorney stated that "The law on bidding is clear.  Whether the requirements contained in a bid invitation are met is not a discretionary matter."  Is he right?  It really all depends on the nature of the irregularity in the bid.  In this particular situation, without having seen the bidding documents, it appears that the Controller's position is probably correct and that the failure of Shea to submit their qualifications and schedule with the bid is a material irregularity.  Whether the Controller's position that the project must be re-bid is correct versus awarded to the second low bidder is a matter of the City's policy and the budget for the project.

What is a material irregularity?  How should you make a determination whether an irregularity in a bid is material or immaterial?  Generally, the test as to materiality is whether it gives a substantial advantage or benefit not enjoyed by other bidders.  Since the City of Scranton required certain documents to be submitted with the bid, these became requirements.  A bidder failing to submit them has an advantage or benefit that other bidders don't have.  They have additional time because they don't have to prepare their qualifications and schedule.  In addition, they have the theoretical advantage of deciding after bids are opened whether to take the project (arguing their bid is responsive) or not (arguing that the irregularity is material and their bid is non-responsive).  This is a decision for public agencies only to make.

What should be required with the bid?  In order to help decrease the risk of bid protests, and to provide bidders with as much time as possible to prepare and submit their bid, my practice has always been to only require a few documents to be submitted with the bid: the bid form, a bid guaranty, and anything else legally required to be submitted with the bid. Adding other requirements to the bid submission creates a risk of non-responsive bids.

More Information:  For more information about the City of Scranton's situation, click here to read an article from
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Sunday, April 29, 2012

Colorado Kills Bid Preference Bill

The Colorado Legislature voted down a bid preference bill for public works construction contracts on April 25, 2012. 

Details of the bid preference:  The bill would have provided a 3% bid preference on service and construction contracts over $1 million for companies proving that at least 90% of the workers were Colorado residents.  An additional bid preference of 1% would be added if the company provided health and retirement benefits to their workers, and another 1% bid preference would be applied for firms providing apprenticeship training.

States with bid preference percentages:  If the bill had passed, Colorado would have joined Alaska, Wyoming, Nevada, and New Mexico as the only states offering a bid preference on public works construction projects.  The State of Washington adopted a reciprocal bid preference law (RCW 39.04.380) that went into effect on March 30, 2012. Click here for blog postings about Washington's new reciprocal bid preference law.

Washington State Resident Hiring Law Unconstitutional: Had Colorado's bill been approved, there would have been discussion as to whether it was constitutional. For many years, the State of Washington had a public works law requiring 95% or more Washington State residents where more than 40 workers were used, and 90% or more Washington residents where less than 40 workers were used. In 1982, the Washington State Supreme Court declared that chapter 39.16 RCW was unconstitutional and violated the privileges and immunities clause of the U.S. Constitution, Article IV, Section 2.

More Information:
  • 1982 Washington State Supreme Court decision, Laborers Local Union No. 374, et al, Appellants, v. Felton Construction Company, et al, Respondents, click here.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Wednesday, April 25, 2012

Project Delivery Methods for Public Construction Projects

Let's take a look at some of the project delivery methods that are sometimes used for public works construction projects. 

Design-Bid-Build:  Traditionally, most public works construction projects are advertised and then awarded to the lowest responsible bidder with a responsive bid.  This is known as the Design-Bid-Build model, where there is a separate designer, the agency then bids the project, and it is awarded to a contractor to build it.  

Rosters:  Sometimes, there are variations to the bidding process.  The project may be publicly advertised or the plans and specifications may be provided to only a limited number of bidders on a roster.  But it's still Design-Bid-Build since bidders are submitting prices for constructing the project based on complete plans and specifications.

Design-Build:  In the Design-Build model, the public agency selects one firm to both design the project and to build it.  Here are some features of Design-Build: 
  • Ends the blame game:  Eliminates a traditional source of contention with contractors blaming the designer for faulty design when things go wrong, and the designer blaming the contractor for faulty installation.
  • Speed:  Can be a fast process for delivering projects.  
  • Requires sophisticated owner:  It is a more complex process and requires a fairly sophisticated public agency to manage not only the selection process, but the actual design and construction portions of the work.   
  • Not applicable for all projects:  May not be a good project delivery method if the agency and the end users or the public want to have significant input into the design.
  • Selection process:  In some instances, the Design-Builder might be selected based on a combination of qualifications, design, and price, while in others they may be selected only based on qualifications, and then work with the agency during the design process.  At the end of design, the parties would negotiate a contract price.
Construction Manager at Risk: The Construction Manager at Risk method goes by a variety of different names, including GC/CM (General Contractor/Construction Manager), CM/CM (Construction Manager/General Contractor), CM at Risk, and CMAR.  
  • Preconstruction Services:  It is a method in which the agency selects a contractor early in the design process to provide consultant input to the design from a contractor’s viewpoint, and to begin planning the project.
  • Qualifications and Price Based Selection:  The selection is based on qualifications and limited pricing, such as the cost of general conditions work and the contractor’s overhead and profit.
  • Negotiated Price:  When the design documents reach a certain percentage of completion, the agency and contractor negotiate the construction cost.
  •  Subcontractors:  In some jurisdictions, there are requirements that all work be competitively bid or that limits the amount of work the contractor may perform with their own forces, while other agencies don’t have such requirements.
IDIQ (Indefinite Delivery/Indefinite Quantity):  Job Order Contracting is one form of IDIQ and is a means for agencies to obtain the services of a contractor on an on-call or as-needed basis for construction, maintenance, and repair work without advertising each specific project.  Typically, the contractor is selected partially on qualifications and partially based on either unit prices or price markups.  Other forms of IDIQ include advertising for bids from contractors  to perform on-call work in a specific specialty area (such as electrical or carpentry).  Selection is usually based on unit prices.

Public-Private Partnerships: In an era with shrinking public dollars for public improvements, some agencies have successfully tapped into the private sector with creative, “one-off” types of partnerships, in which the private sector contributes financially to the project with the prospect of gaining financially.  Examples might include a toll highway built and operated by the private sector, or low income housing projects that benefits from federal tax credits.

Best Value Procurement:  In Best Value Procurement, a contractor is selected based on a combination of their bid of complete plans and specifications for a construction project, and also based on their qualifications.  Evaluation criteria with maximum points are established for both the bid price as well as specifics about the contractor’s qualifications.  As an example, if the bid amount was only worth 15 points out of a total of 100 points, an agency could end up awarding a project to a firm without the low price because they were rated high on their qualifications.  

No Competition:  Some public agencies have dollar thresholds, below which they are not required to obtain bids for a project, but are free to select any contractor.  

Emergency Project:  Other times, competitive bidding is waived in the event of an emergency situation when there is not sufficient time to advertise and award a project.  Emergencies are usually based on a threat to public safety or health, or a situation which would prevent the agency from performing its essential functions and providing critical services.

Work Performed by Agency Staff:  Some public agencies have dollar thresholds, below which their own internal staff may perform public works projects, and that don't have to be competitively bid to contractors.

Other Project Delivery Methods:  There are a variety of other project delivery methods, some of which are not used as frequently.  These include Multiple Prime Contracts and Integrated Project Delivery.

Regulations and Resources:  In assessing the most appropriate project delivery method to use:
  • Regulations:  Review your state and local laws to see what methods your agency is authorized to use.
  • Staff:  Assess your staff resources and knowledge and whether you have sufficient ability to engage in some of the more complex project delivery methods.
  • Project:  Evaluate what project delivery method will be best for a specific project.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Tuesday, April 24, 2012

Indemnification Law on Public Contracts Amended

With strong backing and support from the professional design community, the Washington State Legislature approved (with only one dissenting vote) Substitute House Bill 1559 related to indemnification provisions in public contracts. Governor Christine Gregoire signed the bill.

Current Law:  The purpose of the current law in RCW 4.24.115 is to establish a standard of concurrent negligence in indemnification clauses.  In other words, a public agency may not require a contractor to indemnify the public agency against liability for damages "caused by or resulting from the sole negligence" of the public agency.  Instead, it establishes that indemnification is valid and enforceable only to the extent of the concurrent negligence of the contractor and public agency.

Three Changes in Law:  SHB 1559 will amend RCW 4.24.115 in the following three areas:
  • Clarification of covered parties:  The existing law states that it applies to a contract "relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, highway, road, railroad, excavation, or other structure, project, development, or improvement attached to real estate, including moving and demolition in connection..."  [emphasis added]  Many agencies interpreted the phrase "relative to" to include contracts for architectural, engineering, landscape architectural, and land surveying services, even though the language is not explicit.  SHB 1559 specifically adds contracts for these four disciplines to the protections provided for in the law.
  • No duty to defend:  One of the regular sticking points in negotiating contracts with designers relates to whether the indemnification provided by the designer covers their duty to defend the public agency in the event of a claim.  SHB 1559 explicitly prohibits language in public contracts that includes the duty to defend and the cost of such defense.
  • Extent of indemnification:  The current concurrent negligence standard is only applicable to liability for damages related to bodily injury and property damage.  Thus, for any other type of liability, a public agency could apply a sole negligence standard.  SHB 1559 changes this.  The concurrent negligence framework will expand to cover any liability arising out of any services performed on the contract.
Contracts will change:  The bill, which becomes effective on June 7, 2012, will require public agencies to review and change indemnification language included in both construction contracts and contracts for architectural, engineering, landscape architectural, and land surveying services.  Indemnification is a complicated area and attorneys are best suited to sort through and develop appropriate contract language.  Public agencies should consult with their attorneys for what language may need to change in their contracts. 

More Information:  Two Seattle area law firms have recently written helpful articles about SHB 1559 that may help in understanding this new legislation:
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Monday, April 23, 2012

Speech on Washington State Legislative Updates - PowerPoint

On April 19, 2012, I spoke at the Pacific Northwest Chapter meeting of CMAA (Construction Management Association of America) on the following Washington State legislation affecting public works contracting:
  • 2011:  Update on Reciprocal Bid Preference law (RCW 39.04.380) - approved in 2011
  • 2012:  Bills that passed and didn't pass the 2012 legislative session
  • 2013:  Potential legislation to be considered in 2013
Presentation Available Online:  Click here to view my PowerPoint presentation.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Tuesday, April 17, 2012

Conflict of Interest Charges Lead to Bid Protest

A bid protest was filed on April 5, 2012 with the Charleston (SC) International Airport by the second low bidder on a $150 million passenger terminal redevelopment project.

Inside Information?  The basis of the protest is that an Airport board member owns a construction company that is part of the winning contractor's team, and that the board member was inappropriately involved in decisions and had inside information about the project.  

Involved in Decision Making for Project?  Board member Joey Jefferson, owner of Palmetto Civil Group, LLC, recused himself from the project in a letter dated the date the contract was awarded by the board.  However, the second low bidder maintains that Jefferson was involved in a variety of prior meetings related to the project.  He was apparently involved in the selection of the architectural firm for the project.  It is also alleged that he participated in a meeting that narrowed down the list of bidders and dealt with the contractor selection process.

Unfair Advantage Alleged:  The protest letter from Holder Construction Co. notes that 
"During these meetings, Mr. Jefferson - and by extension the Hitt team [Palmetto is a subcontractor to Hitt, the local partner to Austin Commercial LP] - was privy to inside information regarding the selection process that other firms were unable to learn.  This provided Hitt with an unfair advantage that materially taints the solicitation."
Lessons Learned:  While all of the facts have not yet come out, if Mr. Jefferson was involved as alleged, it would represent a breach of ethical standards applicable to public officials.  
  • Public Interests Come First:  Elected officials, as well as appointed officials, have a high standard and duty to ensure their private business dealings are not in conflict with their public duties.  They must remember that their primary obligation is to the public and not to their own financial interests.
  • Require Signed Conflict of Interest Statements:  A best practice is for anyone involved in contractor or consultant selection to be required to file a signed statement that they have no conflict of interest with any of the competing firms.
  • Regular Ethics Training:  Public agencies should require elected officials and key management personnel to attend yearly ethics training to be reminded of ethical issues.
More Information:  Click here for an April 7, 2012 article from The Post and Courrier.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Monday, April 16, 2012

How Long Should Bid Prices be Valid?

Public works bidding documents should specify how long after the bid submission deadline the contractor must agree its bid price will remain valid.

Factors to consider:  What factors should go into a pubic agency's decision on how many days to require that the bid remain valid? 
  • How long will the award evaluation process take?  In making a decision on the number of days, factor in how long it will take to: 
  1. Evaluate whether the bid is responsive 
  2. Address any claim of error by the bidder
  3. Review and tabulate the accuracy of unit price extensions and the total for all bidders
  4. Evaluate the certainty of funding for the bid amount including any additive or alternative bid amounts
  5. Review any criteria in the bidding documents to determine whether the bidder is responsible
  6. Address any potential protests or appeals
  7. Obtain internal approvals from management and elected officials to award
  8. Obtain approval from any funding sources or grant providers (if required)
If you establish a number of days that is too short, the bid price might expire prior to completing some of the steps above.
  • How much risk is it reasonable to ask the bidder to take?  If the bidders are required to hold their prices for too long, the bid prices may come in high, as the bidders will be forced to factor in unknown risks related to subcontractor or supplier price increases.
  • What state, local, or grant regulations apply?  Verify whether there are any state, local, or grant requirements governing the length of time a bid must be valid, or whether there is an agency policy for determining this period of time.
  • What is the impact on the project's schedule?  If the project is on a tight time schedule, a shorter period of time may be appropriate for the bid validity period.
How much time is reasonable?  The shortest period of time for bid validity that I've typically seen is 30 days.  This seems to provide sufficient time for most projects to go through the bid evaluation process.  Sometimes, I've seen 45 or 60 days if there are other factors involved.  The longer the time period, the more risk in the bidding process.

Obtain an extension of prices:  In the event that the bid evaluation process takes longer than anticipated, or there is a bid protest, pay attention to the clock.  If the bid prices are set to expire, contact the bidder(s) and request a written extension of their bid price through a specific date.  Include language in your bidding documents that you reserve the right to request this.  The bidder, of course, is not obligated to extend their prices.  If the bids expire for whatever reason, the project will need to be re-advertised.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Sunday, April 15, 2012

April 30 Deadline for Early Registration for 2012 NIGP Forum

After Monday, April 30, 2012, the registration fee for attending the 2012 Annual NIGP Forum in Seattle, will increase.

What:  The Forum is the largest North American educational conference exclusively for individuals in public procurement, and is sponsored by the National Institute for Governmental Purchasing.  

When:  The Forum will be held from August 18-22, 2012.

Information and Registration:  For more information about the Forum, including fees and registration process, visit NIGP's website.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Wednesday, April 11, 2012

New Apprenticeship Compliance Regulations Adopted

The Washington State Department of Labor and Industries adopted new regulations at the end of 2011 establishing a process for investigating contractor violations of apprenticeship program standards relating to the ratio, supervision, or approved work processes.

Applicability:  The new regulations in WAC 296-05-015 were adopted on December 31, 2011.  They apply to the compliance requirements of RCW 39.04.350 (for bidder responsibility) and RCW 39.12.055 (for debarment).

Bidder Responsibility:  One of the mandatory bidder responsibility criteria of RCW 39.04.350 for public works projects applies only to the following agencies who are subject to the apprenticeship requirements of RCW 39.04.320 on public works projects:
  • State Department of Enterprise Services (formerly General Administration or GA)
  • Washington State Department of Transportation (WSDOT)
  • Institutions of higher education
  • All school districts
RCW 39.04.350 (1)(e) states that a bidder on a project for one of the above-named agencies will be found to not be a responsible bidder if they been 
"...found out of compliance by the Washington state apprenticeship and training council for working apprentices out of ratio, without appropriate supervision, or outside their approved work processes as outlined in their standards of apprenticeship under chapter 49.04 RCW for the one-year period immediately preceding the date of the bid solicitation."
Debarment:  Separate from the mandatory bidder responsibility requirement above, RCW 39.12.055, which is part of the prevailing wage law, states the conditions under which a contractor may be debarred for a one year period of time.  One of the three violations that may subject a contractor to debarment relates to a determination by the Washington State Apprenticeship and Training Council that the contractor is out of compliance
"...for working apprentices out of ratio, without appropriate supervision, or outside their approved work processes as outlined in their standards of apprenticeship under chapter 49.04 RCW."
Nature of Apprenticeship Violations:  Under both the bidder responsibility and debarment laws noted above, the violations of apprenticeship standards relate to:
  • Working apprentices out of ratio: Each separate apprenticeship program approved by the Department of Labor and Industries has an approved ratio of how many apprentices may work at any given time on a project based on the number of journey-level workers present.  For example, if the program standards require that there be no more than one apprentice for every two journey-level workers, but the contractor has two or more apprentices working with a crew of two journey-level workers, the contractor would be out of compliance with the ratio.
  • Working without appropriate supervision:  Program standards for each apprenticeship program require certain levels of supervision for apprentices.  At its extreme, for example, if an apprentice was working alone on a project without any supervision, that would be a violation of the supervisory standards, and probably the ratio standards as well.
  • Working outside approved work processes:  Apprentices for a particular trade may perform duties related to that particular trade as defined in the program standards of the Department of Labor and Industries and the prevailing wage work classifications.  Performing work outside of what an apprentice is authorized to work on would be a violation of the apprenticeship standards.
Due Process:  The new regulations in WAC 296-05-015 describe the due process requirements of the Washington State Apprenticeship and Training Council in investigating allegations and making findings that a contractor is out of compliance with apprenticeship standards.

Public Notice:  The new WAC states that a list of those found out of compliance will be made "available to the public upon request."  Presumably, and hopefully this means that the Department of Labor and Industries will, for debarment purposes, include such violations on their existing online debarment list for violations of prevailing wage, workers compensation, and contractor registration requirements.  The new WAC, however, is not clear on this point.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Tuesday, April 10, 2012

Training: Construction Change Order Pricing

Construction Change Order Pricing:  This training will feature a representative of the Washington State Auditor's Office, reviewing the findings from a recently released audit on Construction Change Order Pricing by public agencies.  The training will include a presentation by a contractor, and there will be a panel discussion with the auditor, contractor, and a public agency.

  • May 3, 2012 (Renton, Washington)
  • May 10, 2012 (Camas, Washington)
  • May 17, 2012 (Everett, Washington)
  • May 22, 2012 (Yakima, Washington)
Times:  10:00 a.m. to 3:00 p.m.

Cost:  Free

 Sponsored by:
  • Chris Cortines, CPA, Deputy Director of Performance Audits, State Auditor's Office
  • Mike Myette, P.E., President, MM Construction Consulting, LLC
  • Linda Shilley, Contract Administrator, Port of Olympia
More Information and Registration:  Click here.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

3 Members Sought for Washington's Project Review Committee

The State of Washington's Capital Projects Advisory Review Board (CPARB) is seeking letters of interest from individuals knowledgeable in the use of Design-Build and GC/CM (General Contractor/Construction Manager) under RCW 39.10 to serve on the Project Review Committee (PRC).

Constituencies:  The position would represent the following constituencies:
  • 1 Owner - General Public
  • 1 Construction Trades Labor
  • 1 General Contractor
Deadline:  Letters of interest must be submitted by April 30, 2012.  The three positions on the PRC will be reviewed by CPARB for appointment at its May 10, 2012 meeting. 

Purpose of PRC:  The PRC meets to review the applications of public agencies seeking permission to use either Design-Build or GC/CM (General Contractor/Construction Manager) for specific public works projects.  The PRC reviews applications to ensure that the project meets the criteria outlined in chapter 39.10 RCW and that the agency has sufficient, qualified, and knowledgeable staff (or consultants) to help them with the project.

In addition, for agencies who have successfully completed a Design-Build project, they may apply to the PRC for a three year certification for using Design-Build without seeking specific project approval from the PRC.  Likewise, for agencies who have successfully completed a GC/CM project, they may apply to the PRC for the three year certification.

More Information:  For more information about the PRC and the application process, click here.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Monday, April 9, 2012

Washington State Legislative Updates - CMAA Meeting

Washington State Legislative Updates

When:  Thursday, April 19, 2012 (5:30 p.m. to 8:30 p.m.)

Where:  Dinner Meeting at Rock Salt Steaks & Seafood (1232 Westlake Avenue, Seattle)

Speaker:  Mike Purdy

Agenda:  Update of legislative activity affecting public works contracting in Washington.
  • Bills approved in 2012
  • Bill not approved in 2012
  • Potential bills for 2013
  • Update on Bid Preference law (RCW 39.04.380) approved in 2011
Cost: $45 (dinner and program)
Information and Registration:  Click here.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Sunday, April 8, 2012

Job Opening: Manager, Contracts

Port of Tacoma (Washington)
  • Position:  Manager, Contracts
  • Location:  Tacoma, Washington
  • Closing Date:  April 22, 2012
  • Salary:  $4,871 per month to $6,332 per month
  • Job Summary: This position is responsible for the management, oversight and administration of contract services for major public works construction projects, including both pre-award and post-award contract administration functions.  Serves as the contracting resource to the Project Managers for construction, professional and personal service agreements, and provides support and guidance in all functional areas of contract administration.
  • For More Information and to Apply:  Click here.  
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Wednesday, April 4, 2012

Training: Supply Chain Management

Supply Chain Management

When:  May 2, 2012 (8:00 a.m. to 3:00 p.m.)

Where:  Spokane, Washington (WSDOT Eastern Region, 2714 North Mayfair Street)

  • Free for NIGP Washington State Chapter Members
  • $50 for everyone else

Instructor:  Steven M. Demel, CPPO, Purchasing Manager, Tacoma School District

Added Benefit:  PNPPA's Spring Conference will be held in Spokane on May 3 and 4, immediately following the training.

More Information:  Click here.

Registration:  Click here.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Seminar: The Design-Build Selection Process: How to Get Design-Build Teams

Seminar:  The Design-Build Selection Process: How to Get Design-Build Teams

When:  April 17, 2012 (7:00 a.m. to 12:00 p.m.)

Where:  Bellevue, Washington (Bellevue Coast Hotel, 625 116th Avenue NE)

Sponsored by:   
  • $245 (members)
  • $295 (non-members)
  • Owner's Panel: What we are building; How we select our teams; Case studies - lessons learned
  • Contractor's Panel:  What we look for in a team; How we select our teams; Case studies - lessons learned
  • Design Consultants: How we put our teams together to get selected; When to say "no"; Case studies - lessons learned 
More Information:  Click here.

Registration:  Click here.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Tuesday, April 3, 2012

Why Did California Agency Pay $1 Million if There Was No Contract and Performance Standards Were Not Met?

A California school district and energy conservation contractor are locked in a legal dispute with competing lawsuits over a multi-year energy conservation savings program contract.

2 Lawsuits:  After being hit with a $1.5 million lawsuit from Energy Education, Inc. for unpaid bills and a termination fee, the Sacramento City Unified School District filed a counter suit against the firm. 

What was the District thinking?  The District's defense is somewhat unusual.  The District now claims that the contract is not valid because it was never approved by the school board, and that it was "not properly subjected to the public bidding requirements mandated under the law and that requirements in the contract for termination and unpaid fees are illegal and unenforceable."  All this after the District has already paid the firm almost $1 million since September 2008.  And the District now contends that they never should have paid the firm a performance fee of $23,500 a month because the metrics the firm uses to measure the amount of energy savings is flawed.  They're asking for that money back.

More Information:  Click here to read an April 1, 2012 story from the Sacramento Bee newspaper (published on the Modesto Bee's website) on the dispute.

Lessons Learned:  It will be interesting to see how these lawsuits play out in court.  In the meantime, what can we learn from this situation?
  • Selection Process:  Prior to selecting a contractor, public agencies should follow their own requirements for selection.  Such a process should be fair, open, and transparent, and the basis of selection should be clear and consistent with applicable laws and policies.
  • Valid Contract:  Both agencies and contractors should pay attention to whether all the appropriate steps and approvals have been received for executing a contract.  Are the parties who signed the contract, in fact, authorized to commit the party?
  • Payment Authorization:  Public agencies should not pay a contractor for work not performed, or if the contractor is not in compliance with the performance standards of the contract.
  • Checks and Balances:  Does the public agency have sufficient management checks and balances in place to ensure that those responsible for managing the project and authorizing payments are performing their tasks appropriately? 
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Blog Correction on Job Order Contracting Legislation

This is a correction to my earlier blog posting of April 2, 2012 regarding the Job Order Contracting bill that was approved by the Legislature.  The final version deleted some of the earlier provisions that had been proposed.  The following is a summary of the actual changes.  I'm sorry for the inaccurate information in my earlier blog posting.

Changes to Job Order Contracting:  Engrossed House Bill 2328 unanimously passed both the Senate and House, and was signed by the Governor on March 29, 2012.
  • Authorized Agencies:  Permits the following additional agencies to use Job Order Contracting: regional universities, The Evergreen State College, and Sound Transit as a regional transit authority. 
  • Work Order Threshold:  Increases the maximum amount of each work order from $300,000 to $350,000.
  • Reporting Year:  Standardize reporting to be based on a July 1st to June 30th year, rather than a contract year basis in order to make aggregation of statewide reports easier.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Monday, April 2, 2012

Update on Public Works Legislation in Washington State

In my blog postings of January 16, 2012 and February 1, 2012, I described a number of bills that had been introduced into the Washington State Legislature affecting public works contracting.  Here is an update on the status of the bills (along with a couple of others), only two of which passed the Legislature.

Changes to Job Order Contracting:  Engrossed House Bill 2328 unanimously passed both the Senate and House, and was signed by the Governor on March 29, 2012.
  • Authorized Agencies:  Permits the following additional agencies to use Job Order Contracting: regional universities, The Evergreen State College, and Sound Transit as a regional transit authority. 
  • Work Order Threshold:  Increases the maximum amount of each work order from $300,000 to $350,000.
  • Reporting Year:  Standardize reporting to be based on a July 1st to June 30th year, rather than a contract year basis in order to make aggregation of statewide reports easier.
Filing of Affidavits of Wages Paid by Contractor on Behalf of Subcontractor:  Substitute Senate Bill 6421 was unanimously approved by both the Senate and the House, and is awaiting the Governor's signature.  The bill allows a contractor or subcontractor to file an Affidavit of Wages Paid on behalf of a subcontractor if the subcontractor "has ceased operations or failed to file" the Affidavit as required.  

Increasing Use of Design-Build on WSDOT Projects: Second Substitute Senate Bill 5250 passed the Senate by a vote of 47 to 1.  The House did not vote on the bill.  

Allowing Regional Transit Authorities to Use Job Order Contracting:  House Bill 2369 was not voted on by either the Senate or the House.  

Limiting Prevailing Wage Complaints:  Neither the Senate nor the House voted on Senate Bill 6480

Requiring Certified Payrolls on Public Works Projects:  Neither the Senate nor the House voted on Senate Bill 6416.

Evaluation Criteria for Design-Build and GC/CM:  Neither the Senate nor the House voted on House Bill 2327 

Streamlining Small Public Works Projects:  Neither the Senate nor the House voted on House Bill 1970.  

No Retainage on Federally Funded Transit Projects:  Neither the Senate nor the House voted on Senate Bill 6063 

Small Works Roster and Small Businesses:  Neither the Senate nor the House voted on Substitute House Bill 1173.   

Subcontractor Selection on GC/CM Projects:  Neither the Senate nor the House voted on House Bill 1971

2013 Legislative Session:  I expect that some of these bills will be introduced into the 2013 legislative session.  In addition, there will likely be proposed legislation from the Capital Projects Advisory Review Board (CPARB) that will re-authorize alternative public works contracting (Design-Build, GC/CM, and Job Order Contracting) with some changes.  Without new legislation, these alternative public works contracting methods will expire in June 2013.  A CPARB committee is now evaluating and discussing potential legislative changes.
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

Sunday, April 1, 2012

Audit Hits Agency for Splitting Public Works Project

Did an agency improperly split a public works project into multiple projects in order to avoid triggering dollar thresholds requiring that work be publicly advertised?  

That was the question addressed in a recent report by the Washington State Auditor's Office in which they issued an audit finding against the Newport Hospital and Health Services (Pend Oreille County, Washington), a public hospital district.

How did the hospital split the project?  Although the facts are not clearly presented in the audit finding, it appears the auditor was suggesting that expenditures from 2008 to date of approximately $614,000 in renovation costs represented one project that should have been advertised and competitively bid. Here's how the auditor outlined how the $614,000 was actually procured:
  • $125,800 - advertised for competitive bids
  • $269,435 - competitive bids through the Small Works Roster process
  • $  72,300 - work performed by hospital employees
  • $145,985 - architectural and engineering services
One or multiple projects?   The hospital district disagreed with many of the findings by the auditor, including the auditor's assertion that the district "split the original project into smaller phases, which reduced the estimated project cost and eliminated the requirement for formal sealed bids."  Let's take a look at each of the procurement methods outlined above.
  • Advertised for competitive bids:  Hospital districts are required by RCW 70.44.140 to publicly advertise projects over $75,000, unless the Small Works Roster process is used.  By publicly advertising work for $125,800, the district appears to have complied with the requirements for this part of the work.
  • Competitive bids through the Small Works Roster process:  The district awarded what appears to be two contracts, totaling $269,435, through the Small Works Roster process.  According to RCW 39.04.155, the Small Works Roster process may be used for any project less than $300,000, in lieu of the requirements of RCW 70.44.140 of advertising projects over $75,000 (applicable to hospital districts).  The question here is whether these two projects were integrally tied into the work that was publicly advertised and the work performed by hospital employees, such that it really constituted one project and not multiple projects.  The audit report does not include any details on this question.
  • Work performed by hospital employees:  RCW 70.44.140, which governs public hospital districts, implies that a project estimated to cost less than $75,000 may be performed by district employees rather than through a publicly advertised contract opportunity.  If the $614,000 of renovation work performed was really one project, then the district would not have had the ability to have work performed on that project by district employees.  If, however, the work performed by hospital employees was an independent project, in and of itself, and less than $75,000, then use of district employees would have been appropriate.
There are different thresholds for what work may be performed with an agency's own staff based on the type of agency.
  • Architectural and engineering services:  It's unclear why the auditor included the district's costs for architectural and engineering services in the cost of the project.  Typically, the cost of such services is not considered as part of a public works project for the purposes of determining the thresholds for what selection process applies.  The audit also noted that the district failed to obtain these services consistent with RCW 39.80.
What is a public works "project"?  State law doesn't define a public works "project."  So what factors should go into making a reasonable decision as to what constitutes a project for the purposes of various bidding thresholds?  Here are some possible factors, all of which should be considered together when making an appropriate decision on what defines a specific project.
  • Agency acting as prime contractor:  If the work to be performed would typically be performed by a single general or prime contractor responsible for coordinating the work of multiple trades, it may be inappropriate to split the project and have the agency act as its own prime contractor in coordinating the work.  Not only is there the risk of potentially splitting a project for bid threshold determinations, but an agency picks up liability in coordinating the work of multiple subcontractors, with possible on-site conflicts and warranty issues.
  • Small Works Roster prohibition on splitting:  RCW 39.04.155 which governs Small Works Roster projects, prohibits splitting a project in order to be less than the $300,000 threshold for use of the Roster.  It states that "the breaking of any project into units or accomplishing any projects by phases is prohibited if it is done for the purpose of avoiding the maximum dollar amount of a contract that may be let using the small works roster process or limited public works process." [emphasis added]  Thus, splitting a project into units or phases may be appropriate, depending on the reasons for splitting it.
  • Where is the work to be performed?  If the work to be performed is all at one location, it may suggest that it is one project.  Location, of course, isn't defined and is subject to interpretation.  If, however, the work to be performed is at multiple locations, it might be argued, depending on the facts, that the work constitutes multiple projects.
  • What is the purpose of the work?  If there is a necessary connection between the different elements of the work, such that it is important to have one contractor be responsible for all of the work, perhaps the work should be considered as one project.  If, however, the work could be independently contracted for without compromising other parts of the work, then separate projects may be appropriate. 
  • What is the duration of the work?  If similar work is to be performed over a period of time, it tends to suggest that the work may consist of multiple projects.  If, however, the work of separate "projects" is all performed at the same time, it might indicate that the work really is one project.  
  • What is the funding source?  If the funding source for work is all the same, it may suggest that the work constitutes one project.  If the work is accomplished over a number of years in order to afford the work, it may be one project, or depending on the facts, it may be appropriate to have multiple projects.  Multiple funding sources may suggest multiple projects, but not always.
  • What is the intent of multiple projects?  If the intent of having multiple projects, rather than one project, is to avoid triggering various bidding thresholds, such an action would be problematic.  If, however, the intent of having multiple projects, rather than a single project, is based on legitimate business and operational considerations, it may be appropriate to divide the work into multiple projects.
Your comments?  This list of factors is the beginning point for a discussion on how to evaluate what defines a public works "project."  I welcome any comments or suggestions you may have on how to make the determination of what constitutes a "project."
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC