Tuesday, April 30, 2013

What is the Appropriate Weighting of Price in the Selection Process?

The allocation of evaluation criteria points between qualifications and price in government issued Requests for Proposals (RFPs) is sometimes a hotly disputed issue.  

California dispute:  The California High-Speed Rail Authority, which is planning to award a Design Build contract for the construction of the first 28 miles of track for the 200 miles per hour train, finds itself embroiled in a controversy over its evaluation and selection process for a contractor.

Original selection process:  The original two step selection process, approved by the Authority's board, called for shortlisting only the top three firms from a Request for Qualifications (RFQ) based on their technical approach and qualifications to build the project, estimated at $1.2 billion.  From there, an RFP was to be issued only to the finalist firms and a selection would be based on the combination of price and technical scores.  However, the Authority changed the process and issued the RFP to all five contractors who had responded to the RFQ.  

Weighting price and qualifications:  The RFP issued by the Authority assigned 30 points to the technical evaluation from the RFQ, and 70 points to the price in response to the RFP.  On such a technical and complex Design-Build project, the high number points assigned to price has drawn criticism.  It turns the Design-Build process back into almost a low bid scenario.  The best practice for Design-Build projects is to weight qualifications higher than price.

Selection results:  It turns out that the firm ranked lowest for qualifications and technical approach had the lowest price.  By adding the technical and price points together, they were the highest ranked firm.  Without the earlier change opening the RFP process to all five firms, the joint venture of Tutor Perini-Zachry-Parsons would not have moved to the RFP stage.  Tutor Perini ranked dead last on the technical evaluation with only 20.55 points, compared with the highest ranked firm that received 27.71 points.  However, Tutor Perini came in with the lowest price of $985 million, giving them the full 70 points for price, and the highest number of points overall for both the technical and price components.  Below is a chart with the scores for all the firms.

Lessons learned:  While the California High-Speed Rail Authority project is a Design-Build process, it illustrates the importance of developing a good evaluation process for all RFQs and RFPs for services, consulting, and alternative methods of construction (Design-Build and Construction Manager at Risk).
  • Think through the selection process carefully up front, including evaluating likely proposers and how the process and point allocation may impact the end result.
  • Based on the particular procurement, evaluate the appropriate allocation of points between qualifications/technical merit and price.  Refer to a previous blog posting I've written on some principles to consider in making this decision.
  • Don't change the selection process mid-stream through the procurement.  This can lead to protests and delays for the project.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Monday, April 29, 2013

Do You Check the Math of All Bidders After Bid Opening?

If a public agency's Bid Form requests unit price bids for estimated quantities and units of measure, it's important to be aware that bidders may have made a mathematical calculation error in either multiplying the unit price they bid by the estimated quantity, or in adding up the extended amounts.  

Where's the error?  At the time of bid opening, identification of the low bidder is tentative, especially for unit price bids.  See the sample bid form below and note the error in bid item 2.
What do your bid documents state?  In using a unit price bid form, it is important to include language in the bid documents giving the public agency the ability to make mathematical corrections to the bid price.  Below is sample wording that enables a public agency to make these corrections:
After bid opening, bids will be checked for correctness of bid item price extensions and the total bid price.  A discrepancy between a bid item price and the extended amount of any bid item shall be resolved by accepting the bid item price as correct.
Check the math:   After bid opening, all bids should be checked for correctness of mathematical calculations (unit price times estimated quantities, and addition of extended bid amounts).  If any bidder has made a mistake in these calculations, this may change the order of the bidders from that noted at bid opening.  In other words, the low bidder at the bid opening may no longer be the low bidder because of an error they've made or that another bidder has made.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Sunday, April 28, 2013

Job Opening: Sr. Contract Administrator - Construction

Port of Seattle
  • Position:  Sr. Contract Administrator - Construction
  • Location:  Seattle, Washington (Seattle-Tacoma International Airport)
  • Closing Date:  Friday, May 10, 2013 at midnight, Pacific Time
  • Salary:  Minimum $70,493 - Midpoint $88,101
  • Job Summary: Manage all aspects of the procurement contract process for complex construction contracts from inception to closing.  Lead procurement planning, establishing and managing milestones and related procurement schedules. Develop and/or implement new public works procurement and contract methods for high profile, unique and politically sensitive projects.  Advise customers/clients on public works procurement requirements and strategies to facilitate and expedite the process such as GC/CM, Design Build, and other alternative procurement methods.
  • For More Information and to Apply:  Click here.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Bonding Education Program for Small Contractors

Bonding Education Program - 4 Week Workshop

What:  One of the biggest challenges for small contractors and subcontractors of entering the public works construction arena is their inability to obtain payment and performance bonds from a surety - something often required by prime contractors and almost always required by public agencies.  This workshop will help small contractors and subcontractors take the necessary advance steps to position themselves to be able to obtain bonds.

When: (5:00 p.m. to 8:30 p.m.)
  • May 8, 2013 (Bonding Fundamentals, Managing Growth)
  • May 16, 2013 (Construction Accounting and Financial Management)
  • May 23, 2013 (Estimating and Bidding, Banking and Financing for Contractors)
  • May 30, 2013 (Project Management and Field Operations, Claims and Dispute Resolution)
Cost:  Free (includes free parking and dinner)

Where:  Seattle, Washington (King County Chinook Building, 401 Fifth Ave.)

Sponsored by:
  • U.S. Department of Transportation
  • Surety and Fidelity Association of America
  • Other co-sponsors
Information and registration:  Click here.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Wednesday, April 24, 2013

Why Are Headers and Footers Important for Bid Documents?

The formatting and structure of bid documents is important to prevent disputes during bidding and during the term of the contract.  There are at least four pieces of information that should be included in either the header or footer of every page of the specifications.

Page numbers:  There are three ways that I've seen page numbers addressed in bid documents:
  • No page numbers:  I was recently reviewing a draft set of bid documents that did not include any page numbers.  As I read through the document and referred back to previous pages I had read, I quickly got confused about what order the pages were supposed to be in.  The risk for a public agency of not including page numbers is that a bidder (or later the contractor) may argue they did not have all of the pages of the bid documents and thus didn't account for certain things in their bid price.
  • Page numbers:   Sometimes, a public agency will number the pages of each section.  The risk of this approach, however, is almost the same as not including any page numbers.  If the section is a 15 page section, and each page is numbered "page 1," "page 2," etc., the bidder has no way of knowing whether they have received all of the pages of the section.  Their set of bid documents may only have 12 pages, and they would not know that any pages were missing.
  • Page x of y: Numbering pages of each section in the header or footer of the document with "page x of y" is the best practice and makes it most clear to the bidder how many pages are actually included.  It is an effective safeguard against errors that may occur in photocopying and assembling the bid documents.
Section name and number:  For ease of reference, the header or footer of each page should include the section name and number, so a reader of the documents can quickly know what section they're reading.

Project name and number:  It is important that each page include the project name and number.  In the event of a dispute either during bidding or construction, it is important for the public agency to be able to clearly identify what documents were part of the bid and the contract.  Without a project name and number, disputes may arise as to what provisions are really applicable to the project. 

Date of specifications:  Just as it is important to include the project name and number, the date of the specifications and drawings is also an important piece of information to include on each page of the bid documents.  In executing a contract, it is important to specify what documents constitute the applicable documents for the project. Here's an example of what this might look like in a contract:
Header format:  The following is an example of what a header might look like that would include page numbers, section name and number, project name and number, and the date of the specifications:

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Tuesday, April 23, 2013

How Should Addenda Be Acknowledged? Let Me Count the Ways

A standard feature of every Bid Form should be a place for bidders to acknowledge that they have received any Addenda issued during the bidding process.  

What is the bid based on?  It is important that bidders acknowledge their receipt of these changes to the original bid documents so it is clear that they have based their bid on the revised bid documents with the Addenda issued.

Basic principles:  In developing a Bid Form, public agencies should keep in mind a couple of basic principles:
  • Less is Better:  In the last minute rush of developing and submitting a bid, bidders often make inadvertent errors.  Bid Forms that do not ask for too much information reduce the risk of errors.
  • Error proof the Bid Form:  Think about the ways that bidders might make mistakes on the Bid Form and develop the form with the least room for possible errors.
Different options of addenda acknowledgement:  Public agencies have a variety of practices of how to obtain the bidders' acknowledgement of Addenda receipt, some of which are better than others.  The following represent seven basic models for how public agencies often request acknowledgement of Addenda:

Option 1:   In my mind, this is the best format for obtaining the bidders' acknowledgement of Addenda.  It only requires a check in the appropriate box(es), and doesn't require them to write in numbers.

Option 2:  This is a good option as well, but requires a little more work for the bidder to fill in the numbers.

Option 3:  This option introduces some ambiguity.  What if the bidder simply writes "all" or writes "1 - 3," or something similar?  Is the bid responsive?

Option 4:  Part of why a public agency wants the bidders to acknowledge receipt of Addenda is to ensure they received and based their bid on all of the Addenda.  In other words, did they have the complete set of bid documents?  If the Bid Form requests a range of Addenda, it raises the question of whether the bidder necessarily received all of the Addenda within the range, an issue addressed by Options 1 and 2.

Option 5:  Under this option, the bidder is not required to specifically acknowledge any Addenda numbers, and there is no alternative for them to note that they didn't receive some of the Addenda.  This may become an issue during construction when the bidder finds they based their bid on less than the complete bid documents.

Option 6:  Requiring the bidder to also note the date of the Addenda is unnecessary, and introduces a further element for a non-responsive bid.  All Addenda already have a date when it was issued.  What is the value of requiring the bidder to tell the public agency the date of the Addenda?  What happens if the bidder fails to include the date, or if the date they've listed is inaccurate for a specific Addendum? 

Option 7:  This option is similar to Option 6, except that it also requires that the bidder list the Name of the Recipient.  Should this be an individual's name or the bidder's business name?  What is the purpose of requiring this?  If the Bid Form is signed by an authorized representative of the bidder, they are acknowledging for the firm that they have received the Addenda without listing someone's name.  I've also seen bid forms in which a public agency, instead of requesting the Name of Recipient, requires a signature of receipt for each Addendum. 

Evaluate your bid form:  Is your Bid Form clear in requiring acknowledgement of receipt of all Addenda?  Do you have a different practice from what I've outlined above that works well for your agency?  Be deliberate and thoughtful about how you construct your Bid Form to make it simple, and reduce the possibility of errors or mistakes.

Bonus:  Remember that "Addendum" is singular and "Addenda" is plural.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Monday, April 22, 2013

Tennessee Moves to Repeal Prevailing Wage Requirements

The Tennessee legislature has approved a bill (HB-0850) that would essentially repeal Tennessee's Prevailing Wage Act.   The bill was sent to Governor Bill Haslam for approval on April 16, 2013.

Click here for a recap from Nashville attorney Matt DeVries of what the bill would do.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Sunday, April 21, 2013

State Seeks Members for Project Review Committee

The Washington State 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) procedures, to serve three-year terms on its Project Review Committee (PRC).

What is the PRC?  The PRC reviews applications of public agencies interested in being approved to use either Design-Build or GC/CM on a public works project.  Click here for more information about the PRC.

PRC openings by industry sector:  

Open Seats:  
  • 1 Constructions Trade Labor
  • 1 Private Sector
Expiring July 1, 2013:  
  • 1 Design Industry - Architect
  • 3 General Contractors
  • 1 Specialty Subcontractor
  • 1 Construction Manager
More information:  
  • Click here to read CPARB's recruitment notice.  Letters of interest are due by April 30, 2013.  CPARB will vote on selections at its May 9, 2013 meeting.

Emergency PRC meeting:  The PRC will meet on April 25, 2013 to consider applications from Snohomish County and Sound Transit.  The next regularly scheduled meeting of the PRC is for May 23, 2013.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Job Opening: Contracts Specialist 2

Washington State Department of Enterprise Services (DES)
  • Position:  Contracts Specialist 2
  • Location:  Olympia, Washington
  • Closing Date:  April 24, 2013 at 11:59 p.m. Pacific Time
  • Salary:  $3,443 to $4,513 Monthly
  • Job Summary: This position is responsible for developing, managing, monitoring, and administering contracts, work orders, amendments and related documentation between DES and customer agencies or private vendors for goods and services.  Responsibilities include reviewing and ensuring contract terms and conditions are in conformance with law.  This position also ensures compliance with terms of contracts and resolves problems concerning obligations of either party.
  • For More Information and to Apply:  Click here.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Wednesday, April 17, 2013

When Are Change Orders Not Appropriate?

We know that change orders are a fact of life on pubic works construction projects.  But are all change orders appropriate?  

Auditor and City disagree:  A change order issued by the City of Kennewick, Washington was the recent subject of an audit finding issued by the Washington State Auditor's Office.  The auditor noted that the change order was inappropriate and the work should have been bid.  The City argued that the auditor had no statutory support for their subjective decision, and that the City got the best financial deal possible for the taxpayers.

Basic facts:  Shortly after the City awarded a contract for building a new sports pavilion using a "Sprung Instant Structure" specified in the bidding documents, the City executed a no cost change order with the low bidder changing the building to a pre-engineering steel building instead.  The change order, which was executed prior to the work beginning, also increased the size of the building by 8,000 square feet and added 20 years of the useful life to the facility over the original design.

Reasonable price?  Even though the change order was a no cost change order, the auditor argued that the City cannot verify that it received the most reasonable price for the project, which should have been re-bid with new specifications for a new pre-engineering steel building.  In addition, the auditor noted, the scope of work that was the subject of the change order was very different than the project that was bid, and thus the new project should have been competitively bid in accordance with state law.  

City's position:  The City argued that the change order ended up costing the City less than it would have if the pre-engineering steel building were bid, as the City did not incur costs for termination of the existing contract, redesign costs, and delay costs pushing the project into a potentially higher priced bidding climate.

Subjective area:  There are no state laws in Washington specifically addressing the subject of when a change order is or is not appropriate.  The driving principle is that public works projects must be competitively bid.  When the scope of work is materially changed or increased beyond what was competitively bid, the auditor has consistently taken the position that agencies have violated the law.  What constitutes a material increase or change in the work is obviously subject to interpretation, and public agencies and the auditor's office often come to different conclusions.  

Project planning:  The City of Kennewick project points out the importance of public agencies doing sufficient design planning when preparing bidding documents.  It is interesting that the City had not previously evaluated the possibility of specifying a pre-engineering steel building instead of the "Sprung Instant Structure."  

Documentation:  Sometimes, public agencies make change order decisions for what they believe are the best of reasons.  If such a change order, however, may appear to be a material change, public agencies should be careful to clearly document not only the reasons for the change order, but to conduct a detailed cost analysis demonstrating why the price of the change order represents the best price that could be obtained, even in a competitive bid situation.  Such justification and cost analysis documentation may prove useful when the auditor's office reviews the actions of the public agency.

More information:  Click here to read the audit finding.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Tuesday, April 16, 2013

Is a Contract Bond Different From a Payment and Performance Bond?

When public agencies contract with a construction contractor, they typically are required to obtain a bond or bonds issued by a surety.  Bonds often have different names.  The important thing is that the bond or bonds submitted provide the appropriate protections.

Performance protection:  A public agency is most concerned that they obtain a bond that protects the agency to ensure that the contractor successfully and faithfully performs and finishes the work that is the subject of the contract.  Here is typical language from a bond that describes the obligation of the surety in which they guaranty the performance of the contractor:
This statutory performance bond shall become null and void, if and when the Principal, its heirs, executors, administrators, successors, or assigns shall well and faithfully perform all of the Principal’s obligations under the Contract and fulfill all the terms and conditions of all duly authorized modifications, additions, and changes to said Contract that may hereafter be made, at the time and in the manner therein specified; and if such performance obligations have not been fulfilled, this bond shall remain in full force and effect.
Payment protection:  Public agencies are also often required to obtain a bond that provides for payment protection, in which the bonding company guaranties that the contractor will pay all of their subcontractors, suppliers, and workers.  If the contractor fails to do so, the surety agrees they will pay.  Here is typical language from a bond (from Washington state) that describes the obligation of the surety for payment:
This statutory payment bond shall become null and void, if and when the Principal, its heirs, executors, administrators, successors, or assigns shall pay all persons in accordance with RCW Titles 39.08 and 39.12 including all workers, laborers, mechanics, subcontractors, and materialmen, and all persons who shall supply such contractor or subcontractor with provisions and supplies for the carrying on of such work; and if such payment obligations have not been fulfilled, this bond shall remain in full force and effect.
Bond names:  In evaluating a bond, there may be one bond that provides both performance and payment protections.  Read the language of the bond carefully to ensure that it provides protection for both performance and payment.  These combined bonds may have a variety of names (Contract Bond or Performance and Payment Bond).  What it is called is less important than if it provides the required protections.  On the other hand, the bonding protection may be in the form of separate bonds in which the contractor is required to submit a separate Performance Bond and a separate Payment Bond (sometimes called a Labor and Material Payment Bond). 

Obtain separate bonds:  Public agencies receive more protection if they obtain separate Performance and Payment Bonds, each in the amount of 100% of the awarded contract amount.  I've previously blogged on this subject.  Click here to read my previous blog entry on the subject.

Standard agency bond forms:  Because language in performance and payment bonds may vary, and may or may not provide the required protections, it is a good practice for public agencies to work with their attorneys to adopt their own performance and payment bonds that sureties and contractors are required to use.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Monday, April 15, 2013

Washington State Changes Retainage Release Review Process

The Washington State Department of Labor and Industries has announced a change in their review of Notices of Completion submitted by public agencies. A Notice of Completion is issued by public agencies after they established the final acceptance date for a public works construction project.

Affidavits must be on file before Notice of Completion:  Effective April 1, 2013, L&I will return any Notice of Completion to a public agency for which an Affidavit of Wages Paid has not been filed for the contractor and all subcontractors.  

Historic practice and requirements:  Prior to this change by L&I, the practice of many agencies was to submit the Notice of Completion immediately after the establishment of the final acceptance date, and to then collect the remaining Affidavits of Wages Paid.  This historical practice has been supported by RCW 39.12.040 that states the following:
"Following the final acceptance of a public works project, it shall be the duty of the officer charged with the disbursement of public funds, to require the contractor and each and every subcontractor from the contractor or a subcontractor to submit to such officer an "Affidavit of Wages Paid" before the funds retained according to the provisions of RCW 60.28.011 are released to the contractor."
According to RCW 60.28.051, the Notice of Completion must be submitted to L&I and the other two state agencies immediately after final acceptance has been established.  The definition of "forthwith" as used in the state law as noted below means "immediately; without delay":
"Upon completion of a contract, the state, county, or other municipal officer charged with the duty of disbursing or authorizing disbursement or payment of such contracts shall forthwith notify the department of revenue, the employment security department, and the department of labor and industries of the completion of contracts over thirty-five thousand dollars."
Is L&I's new procedure consistent with RCW 60.28.051?  L&I's policy introduces a delay in the public agency notifying L&I of final acceptance by stating that the Notice of Completion may not be submitted without all Affidavits being filed.  But RCW 39.12.040 states that the Affidavits are to be obtained by the public agency after final acceptance.  Thus, the correct procedural chronology would be as follows: 1) final acceptance, 2) immediately notify state agencies with Notice of Completion, and 3) obtain Affidavits of Wages Paid.  L&I's new policy forces agencies to essentially violate RCW 60.28.051 regarding immediate submission of the Notice of Completion to L&I.

Why was the change made?  L&I made the change to speed up their review process.  The change places the responsibility on the public agency and the contractor to ensure that all Affidavits of Wages Paid are on file before the Notice of Completion is submitted.   Public agencies, of course, may not release retainage to the contractor until they have received a release from L&I, the Employment Security Department, and the Department of Revenue.  And, of course, an agency must also wait a minimum of 45 days following final acceptance before releasing retainage.  

L&I's statement:  The following is language that L&I is providing to public agencies by email:
Newly submitted Notices of Completion (NOC) will receive preliminary review within two business days, after which incomplete NOCs will be returned to the public entity. Detailed review of complete NOCs should take 4 to 6 weeks.  After March 31, 2013, we will no longer process any Notice of Completion we receive that does not have filed affidavits of Wages Paid for all contractors. Instead, we will return unprocessed NOCs to the public entity.  Incomplete requests will not be reviewed for release of final payment. This change to our process is intended to reduce delays for contractors who have properly filed these Affidavits.
Contractor response:  The Associated General Contractors (AGC) has issued a statement applauding L&I's recent change of practice.

L&I website:  Click here for L&I's Retainage Release FAQ.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Sunday, April 14, 2013

Upcoming Training, Networking, and Legislative Events

Bid Schedules and Bid Forms:  Free training sponsored by MRSC and APWA's Contract Administration SubcommitteeIn four locations around Washington state: Renton (May 2, 2013), Yakima (May 9, 2013), Camas (May 16, 2013), Everett (May 23, 2013).  10:00 a.m. to 3:00 p.m.  The workshop will explore the varying methods used by public agencies in developing bid schedules and bid forms, and determining the basis of award on public works construction projects.  Click here for more information and registration.

New Design-Build Legislation in Washington State:  Whether you're a public agency thinking about using Design-Build, or a contractor working in or interested in this market, you'll benefit from this timely update from a panel of experts involved in drafting and negotiating the changes in the Design-Build law - RCW 39.10 (Robynne Parkinson, Eric Smith, Bob Maruska, and Dan Absher).  DBIA Seattle breakfast meeting.  May 8, 2013 from 7:15 a.m. to 9:00 a.m. at the Harbor Club (801 Second Avenue). Cost: $65 for DBIA members; $90 for non-DBIA members.  Click here for more information and registration.
Business Opportunities Workshop:  Designed for consultants interested in doing business with Seattle Public Utilities.  Thursday, April 18, 2013, 2:30 p.m. to 5:00 p.m., Seattle Municipal Tower (Rooms 4050/4060).  Information about projects and upcoming consultant contract opportunities to do business with SPU.  Network with other consultants.  More information and questions, contact Vicky Schiantarelli at (206) 684-7821 or by email at vicky.schiantarelli@seattle.gov.  Space is limited.  Click here to register for this free event.

Capital Projects Advisory Review Board (CPARB):  May 9, 2013 from 9:00 a.m. to noon in Olympia.  Open to the public. Click here for more information about CPARB.  The agenda for the meeting will be posted soon.

Blue Book Network Showcase:  Free networking and educational event for the design and construction community.  May 9, 2013 (3:00 p.m. to 7:00 p.m.) in Seattle, Washington at the Bell Harbor International Conference Center.  Click here for more information and registration.

GC/CM Training Workshop:   Whether you're a public agency interested in exploring use of GC/CM or a contractor or designer, this two day training event will outline the basics and best practices of GC/CM (General Contractor/Construction Manager) as authorized by RCW 39.10.  May 30-31, 2013 in Seattle at the AGC Building.  8:00 a.m. to 5:00 p.m.  Cost: $350.  Sponsored by AGC Education Foundation, University of Washington, and Mechanical Contractors Association of WashingtonClick here for more information and registration.

Construction Owners Association of America (COAA) - Washington State Chapter Workshop:   June 5, 2013.  9:00 a.m. to noon at the University of Washington's Waterfront Activities Center (3900 Montlake Blvd.).  Presentations on a) Coyote Ridge LEED Gold Prison Performance Comparison with David Jensen and b) COBie (Construction Operations Building Information Exchange), BIM, GIS and other Digital Adventures at the University of Washington with Eric Smith.  Cost: $30 for COAA members; $35 for non-COAA members.  Click here for more information and to register.

City of Seattle Reverse Vendor Trade Show:  Companies interested in doing business with the City of Seattle can learn about upcoming solicitations, sustainable purchasing, and business-to-business opportunities for Goods and Services, Consulting, and Construction.  July 30, 2013, 10:00 a.m. to 2:00 p.m. at Seattle Center Fisher Pavilion (305 Harrison Street).    Click here for more information and registration.

Institute for Supply Management (ISM) Conference:  98th Annual International Supply Management Conference in Dallas/Ft. Worth, Texas.  April 28-May 1, 2013. Keynote speaker: Condoleezza Rice.  Click here for more information.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Wednesday, April 10, 2013

Do Payment and Performance Bonds Cover the Contract Amount with Change Orders?

Most public agencies, after awarding a construction contract, require the contractor to provide a Payment and Performance bond in the amount of 100% of the contract amount.  (I've written previously about the importance of obtaining separate Payment and Performance bonds, each in the amount of 100% of the contract amount.)

Do bonds cover increased contract amounts?  But what happens during the project if (when) there are change orders that increase the dollar amount of the contract?  Do the Payment and Performance bonds cover the increased contract amount?  It all depends on what the bid documents required and the actual language of the bonds.

3 options:  There are three broad options of how Payment and Performance bonds handle increases in the contract amount based on change orders:
  • Surety approval always required:  Sometimes, the language of the bonds will require that all increases in the contract amount be approved by the bonding company.  This may be documented by the surety in the form of a rider (amendment) to the bonds, a new bond for the full amount, or their signature on the actual change order.  This is a cumbersome process that slows down execution of change orders.
  • Surety approval sometimes required:  The language of some bonds will only require surety approval after a certain cumulative percentage of change orders has been reached.  For example, if the original contract was for $100,000, and the bonds required surety approval after a 10% increase in the contract amount, then bonding company approval would be required once the cumulative amount of the change orders reached $10,000, and all subsequent change orders would also require surety approval.  While this option is preferable to the option of requiring surety approval on all change orders, it is still a cumbersome process that may require bonding company approval on very small change orders that occur after the percentage threshold has been reached.  In other words, once $10,000 (in our example) in change orders was reached, even a small change order amount would also require surety approval.
  • Surety approval never required:  Under this option, which is the smoothest administrative process, the language of the bonds binds the bonding company to any and all increases in the contract amount from change orders without having to seek surety approval on the increased contract amount.  Here's some language from bonds that addresses this option:  
"The Surety for value received agrees that no change, extension of time, alteration or addition to the terms of the Contract, the specifications accompanying the Contract, or to the work to be performed under the Contract shall in any way affect its obligation on this bond, except as provided herein, and waives notice of any change, extension of time, alteration or addition to the terms of the Contract or the work performed.  The Surety agrees that modifications and changes to the terms and conditions of the Contract that increase the total amount to be paid the Principal shall automatically increase the obligation of the Surety on this bond and notice to Surety is not required for such increased obligation."
Agency requirements:  Here's a quick checklist for agencies (and contractors) to pay attention to regarding Payment and Performance bonds:
  • Bid document language:  What do the bid documents require regarding surety approval of change orders?  The best protection for a public agency is to require the bond amount to automatically increase with change orders.  Make sure this option is permitted by any grant funding source, and consult with your attorneys.
  • Agency bond forms:  In order to ensure that appropriate language is in the bonds not requiring surety approval on increases in the contract amount, it's a good idea for public agencies to have their own Payment and Performance bond forms.  Without agency required forms, an agency must then read each bond carefully to ensure it adequately protects the agency and appropriately addresses the question of whether surety approval is or is not required for changes in the contract amount.  
Standard bond forms:  In Washington state, the local APWA chapter (with legal advice and input) has developed separate Payment and Performance bonds that do not require surety approval when the contract amount increases.  Click here to go to their web page and look for the bullet labeled "P and P Bonds When Retainage Allowed."  There is also an option for bonds samples when retainage may not be withheld if the project is funded by the U.S. Department of Transportation, which is something I've written about previously.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Tuesday, April 9, 2013

Job Opening: Senior Buyer

City of Tacoma
  • Position:  Senior Buyer
  • Location:  Tacoma, Washington
  • Closing Date:  April 26, 2013 at 5:00 p.m. Pacific Time
  • Salary:  $24.68 to $33.07 per hour
  • Job Summary: The position's responsibilities include serving as expert consultant to assigned departments, recommending effective procurement methods, performing market analysis, conducting competitive solicitation processes, composing and issuing specifications, advertising, tabulating and evaluating bid submittals to determine lowest and best responsible bidder.  Participates in contract negotiations and facilitates resolution of problems as needed.  Ensures the timely and cost effective procurement of materials, supplies, equipment and services for the City of Tacoma, within the requirements of applicable state law, City of Tacoma ordinances, and department guidelines.
  • For More Information and to Apply:  Click here.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Monday, April 8, 2013

When Can a Public Agency Reject All Bids?

Most public construction bid documents include language reserving the right of the agency to reject any and all bids.  But when can or should this be done (and not done)?

Valid reasons to reject all bids:  The following is a list of some of the reasons why an agency might choose to reject all bids:
  • All bids are above the amount of money available for the project.
  • The low bid is within budget but is non-responsive, and the other bids are above the amount available in the budget.
  • There is a bid protest based on mistakes or ambiguities in the specifications and drawings.
  • The low bid is materially unbalanced to the potential detriment of the agency, and the agency realizes that the bid documents are unclear about quantities or how the work will be performed.
Invalid reasons to reject all bids:  The following is a list of some less than good reasons for rejecting all bids (and for bidding in the first place):
  • The agency didn't perform an estimate of the construction cost and was just using the bid process to get estimates from contractors.  In many cases, preparing an estimate is required prior to bidding, and is always a good practice.  Bidding should not be used as a cost estimating procedure.
  • The agency always intended to perform the work with their own crews if bid prices came in above a certain amount.  Again, the bidding process should not be used as a cost estimating procedure.
Contractors' perspective:  It costs contractors time and money to prepare bids, and the bidding process should only be entered into if there is an intention to award a contract to a responsible bidder with the low responsive bid that is within the amount of money available in the budget.  In some jurisdictions, there has been discussion by contractors to obtain legislation to limit the ability of public agencies to reject all bids because of abuses by some agencies.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Sunday, April 7, 2013

Upcoming Free Training Events

Estimating for Job Order Contracting:  April 18, 2013 (Noon to 1:30 p.m.), Bellevue City Hall (450 110th Ave NE, Room 1E-108), Free.  Sponsored by the Job Order Contracting Users Group.  Instructor: Rory Woolsey, The Gordian Group.  Space is limited to 80 attendees.  Email mschwab@bellevuewa.gov to register and for more information. 

How To Manage Growth Workshop:  April 9, 2013 (5:30 p.m. to 7:30 p.m.), Shoreline City Hall (17500 Midvale Ave. N.), Free.  Sponsored by US DOT and City of Seattle.  Click here for details.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Thursday, April 4, 2013

New Mexico Introduces Legislation to Authorize Public Private Partnerships

New Mexico is considering legislation that would authorize Public Private Partnerships on state construction projects that have been affected by the weak economy.  Click here to read the bill.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Wednesday, April 3, 2013

Avoiding Common Audit Findings

The Municipal Research and Services Center (MRSC) has done an analysis of audit findings issued by the Washington State Auditor's Office between 2010 and 2012 for counties and selected special districts.

MRSC has categorized the 150 county audit findings and the 140 special district audit findings into a number of general categories, including the following that impact procurement and contracting:

Failure to ensure federal grant compliance:  
  • Not checking for federal suspension and debarment
  • Not ensuring payment of prevailing wages
  • Not requiring and obtaining weekly payroll reports from the contractor and subcontractors
Irregularities in purchasing, bidding, contracting
  • Failure to bid projects that should have been competitively bid, including significant change orders or projects outside the scope of the original contract
  • Improperly splitting a larger project into phases to eliminate requirement for sealed bids
  • Improper use of volunteer or in-house employees for project labor
  • Use of piggybacking without an interlocal agreement or without ensuring the use of a competitive bid process
  • Failure to document three vendor quotes for a small works roster project
  • Failure to perform responsible bidder checks
  • Failure to ensure prevailing wages paid
  • Failure to withhold retainage or receive bonds in lieu of retainage
  • Failure to have a signed contract in place before the start of a project
Review your procedures:  Does your agency have procedures and controls in place to ensure compliance in these areas?  Are your agency's staff trained on the requirements of bidding and contracting?
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Tuesday, April 2, 2013

Former Federal Procurement Chief Says Bid Protests Are Important

Dan Gordon, former director of the Office of Federal Procurement Policy, believes that bid protests are important.

Dan Gordon
Few firms protest, limited success rates:  Gordon notes that very few federal contracts actually are protested - about a half a percent.  Of those that are protested, very few result in the protesting firm being awarded the project.  So should bid protest rights be restricted in order to make government procurement more timely and efficient?  Gordon argues that bid protests are actually valuable.  Click here to read an article about Gordon's opinions.

Value of protests:  Gordon notes that bid protests help provide a level of accountability and transparency in the procurement process that is important:
  • Inexpensive Accountability Forum:  Protests provide a relatively low-cost forum for concerned vendors to raise their concerns about the procurement process.
  • Vendor Confidence:  The ability to protest a procurement process or award increases the confidence level of vendors in the integrity of the process.
  • Public Confidence:  Bid protests help the general public have more confidence in the integrity of the process of how the government obtains goods and services.
  • Transparency:  Protests help keep the procurement process transparent and open.
  • Guidance:  Protest decisions provide guidance for future procurements.
Protest policies:  Here are some questions to ask about your agency's protest policies:
  • Policies:  Does your agency have clear protest and appeals policies?
  • In Solicitation Documents:  Are your protest procedures described in your solicitation documents, whether it's an Invitation to Bid or Request for Proposals?
  • Compliance with Laws:  Are your protest policies consistent with any state or federal regulations?
  • Best Practices:  Are your protest policies consistent with best practices?
Meet with the protestor:  Some protests have good points to them, while others are driven more by firms simply disgruntled for not winning a contract.   Regardless of the validity of a protest, it's always a good idea to treat the protestor with respect.  
  • Meet:  Meet with the protestor.

  • Understand:  Try to understand their position. 
  • Question:  Ask questions of both the protestor and the agency.
  • Listen:  Listen to both substance and emotion.
  • Empathy:  Make sure the protestor feels heard, whether you agree with them or not.
  • Impact on future:  How you treat a protestor can go a long ways when the protestor makes the decision to take the protest for the next level of appeal.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

Monday, April 1, 2013

When Are Change Orders Appropriate?

Change orders are to be expected on public works construction projects.  It's impossible to design a project to address all unknowns that may arise.  But when should additional work be performed as a change order, and when should it be bid as a separate project?

Politics and change orders:  Sometimes, political decisions cause public agencies to issue change orders in order to meet critical deadlines.  The borough of Belmar, New Jersey recently bypassed competitive bidding for more than a half million dollars of electrical and foundation work in repairing the borough's boardwalk that had been damaged by Superstorm Sandy.  Officials are racing to have the boardwalk opened in time for Memorial Day tourists.

NJ change order regulations:  New Jersey state regulations prohibit change orders for "extra work that could reasonably be effectuated by a separately bid contract without unduly disrupting the basic work or imposing adverse cost consequences."  The state code also prohibits change orders if they "materially expand upon the size, nature or scope of the project as it was originally described in the bid specifications."  Experts noted, however, that other parts of the regulations provide flexibility to support Belmar's actions.

Article on Belmar's change order:  Click here for an article describing more of the circumstances surrounding Belmar's change order.

Negotiate and document:  When change orders are necessary, it is important for public agencies to carefully review detailed backup documentation of the contractor's proposed costs, and, where appropriate to negotiate costs.  A record of the negotiations process should be maintained to demonstrate that the amount of the change order is competitive and reasonable.  This type of cost analysis is required for federally funded projects, and is a good practice for all projects. 

Change orders in Washington state:  Unlike New Jersey, Washington state does not have any state laws addressing when it is or isn't appropriate to execute a change order.  However, the Washington State Auditor's Office routinely issues audit findings to public agencies for change orders they deem are outside the original scope of work and could be bid as a separate project.  In January 2012, the Auditor's Office issued a performance audit on the importance of agencies negotiating and documenting change order costs.  Click here to read my blog entry on their audit report.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC