Receiving and Checking Certified Payrolls on Federally Funded Projects

One of the requirements that comes with federal funding of a public works construction project is the requirement for the public agency to receive and check weekly certified payrolls from the contractor and all subcontractors.  This process helps to ensure that all workers are being paid at least the prevailing wage rate for the classification of labor they performed. 

What should be monitored?  Because the federal Davis-Bacon Act (prevailing wage) requirements are applicable on all federally funded projects, state and local agencies need to have a process in place to ensure:

• Timeliness:  Payrolls are received in a timely manner.  The Davis-Bacon Act requires that workers be paid weekly, and payrolls must be submitted to the agency weekly.

• Completeness:  Payrolls must be received for the contractor and all subcontractors, regardless of tier.  This means that public agencies need to have an accurate process for identifying what subcontractors are working on the project.

• Interviews:  The public agency must conduct field interviews of workers employed by the contractor and subcontractors to collect information on what they state they are being paid.  The results of these interviews must be correlated with the payroll reports submitted to determine if there are any discrepancies between what a worker states he or she is being paid and what the payrolls reflect they are being paid.

• Review:  Payrolls must be reviewed and monitored on a weekly basis to identify any questions or potential underpayments of prevailing wage to workers.

Audit findings:  The following agencies were recently the subject of audit findings from the Washington State Auditor's Office for failure to collect and monitor prevailing wages on federally funded projects:

• City of Bainbridge Island 
• Port of Benton 
• City of Lakewood

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Who Is Managing Compliance With Your Federal Grant Funding?

What's the first thing a public agency should do after receiving notice that it has obtained a federal grant for a project (right after celebrating!)?  Appoint someone to be responsible for compliance with the terms of the grant.

Complying with grant terms:  When you receive a grant, it's important to also pay attention to the following:

• Understand the grant:  Read the terms of the grant and what it requires the recipient (your public agency) to do.

• Solicitation requirements:  Determine what must be included in the terms of any Invitation to Bid or Request for Proposals/Qualifications.

• Changed practices:  Figure out what agency practices need to change in order to be in compliance with the grant.

• Monitor:  Ensure you have a monitoring system in place so that the various reporting and other requirements of the grant are complied with.

A common mistake:  What is one of the most common mistakes that public agencies make in administering the terms of a federal grant?  Not checking and documenting whether any company you contract with has been debarred or suspended by the federal government for violation of various federal laws and regulations.   

Automatic audit finding:  Public agencies who do not check and document the federal debarment and suspension status of firms contracted with are very likely to be issued an audit finding.  Recently, the Washington State Auditor's Office issued audit findings against the following public agencies for not ensuring compliance with this requirement:

• Public Utility District No. 1 of Clallam County
• City of Prosser
• Chelan County
• South King County Fire & Rescue District
• City of Chelan
• Richland Public Facilities District
• Clark County Fire & Rescue District  
• Spokane County
• Port of Port Angeles 

Why do agencies miss this requirement?  There are a couple of reasons why agencies find themselves out of compliance with the debarment and suspension requirements:

• Lack of awareness:  Some agencies simply aren't aware that it is a requirement to check and document whether firms contracted with have been debarred or suspended. The agency may infrequently receive federal funding or there may have been staff turnover.

• Relying on others:  Some agencies delegate compliance with federal grant requirements to the architect or engineer who may not be familiar with the requirements or have the staffing and systems in place to ensure compliance.

• Not tracking whether project has federal funds:  Without an adequate internal system to identify what projects have federal funding, some agencies fail to check on the debarment and suspension status of vendors, contractors, and consultants.  

• Pass through funds:  Sometimes, federal funds are passed through to a local agency via a state agency.  It is important to track the source of the funding.  If the state received it from the federal government, the various grant requirements will continue to be passed through to local agencies.

• Emergency contracts:   In issuing an emergency contract without competition, some public agencies forget that the federal debarment and suspension requirements still apply.

When do federal requirements apply?  

• $25,000:  The federal debarment and suspension checking requirements apply to all vendors, contractors, and consultants receiving $25,000 or more on a federally funded project.

• $1 taints the pot:  A project with any federal funding, regardless of how small, will trigger all of the requirements associated with such funding.

How to check for federal debarment:  It's easy to check for whether a business your agency is contracting with has been suspended or debarred from doing business with the federal government.  Go to www.sam.gov, and enter the name of the business.  If the search does not reveal a record, click on the "save PDF" link that will include the name you searched for as well as a note indicating there were no search results.  Print this PDF and maintain it in your contract/project file for when you are audited.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

WA State Auditor Issues Updated Guidance on Federally Funded Projects

The Washington State Auditor's Office has issued important updated guidance to local agencies about how they will interpret federal and local requirements working together, and what the Auditor's Office expects in terms of compliance.

Here's what the Auditor's Office wrote in their Fall 2014, Audit Connection newsletter: 

"Federal procurement requirements update:  In the past, our Office's guidance regarding procurements using federal funds indicated that local governments could rely solely on state bid law.  However, that guidance is being updated.  Procurements using federal funds must meet all of the applicable federal, state and local government-specific requirements.  Therefore, when there is state law that sets a threshold for small purchase procedures that is less restrictive than federal requirements, the local government's purchasing practices must also conform to the applicable federal regulations.

Federal regulations require that all purchases using federal funds meet certain bidding and procurement requirements.  The Circular A-102 Common Rule, currently adopted by federal agencies in their own regulations, allows non-federal entities to "use their own procurement procedures which reflect applicable State and local laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in this section."

For example, a local government may have state law thresholds that require quotes for purchases over $40,000 and bids for purchases over $75,000.  However, current federal regulations for small purchases (under $100,000) require it to obtain quotes from an "adequate number of qualified vendors" - which means at least two.  Therefore, we would expect to see quotes for all purchases below the state bid threshold of $75,000 or less.  Since the federal "micro-purchase" rules exempt procurements of less than $3,000 from these requirements, we would apply this guidance to purchases of $3,000 and above. (Note that the federal limit for small purchases will rise to $150,000 in December 2014.)

Additionally, the local government's policies and procedures for small purchases with federal funds should be consistent with its procedures for purchasing with state or local funds.  In other words, if the policy is to obtain three quotes (written or verbal), we would expect the same for the federal purchases."

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

No Competitive Bids: Agency to Pay $5 Million to Settle Lawsuit

In 2010, the Washington, DC Metropolitan Area Transit Authority (Metro) awarded a $14 million federally funded contract without competition to a consulting company hired to oversee an integration of the agency's financial and business computer systems.  

Settlement:  In a settlement of a whistleblower lawsuit, Metro agreed on August 20, 2014 to pay more than $5 million to settle the case, without admitting any wrongdoing.  Metro will also pay $390,000 to the worker who alleges he was fired for raising concerns about the lack of competition.

Federal audit:  Metro's procurement problems goes beyond just this one contract.  In an audit commissioned by the Federal Transit Administration, FTA found that Metro's procurement practices allowed award of other contracts without competition and contracts were awarded to preferred vendors without adequate qualifications.  As a result, FTA has restricted Metro's use of federal funds until Metro implements procurement reforms that demonstrate an ability to properly manage procurement processes.

Additional information:  Click on the links below for more about Metro's procurement issues:

• Metro agrees to pay nearly $5 million for role in no-bid contract, by Lori Aratani, Spencer S. Hus, and Paul Duggan, The Washington Post, August 20, 2014

• Settlement Agreement of whistleblower lawsuit

• Report questions Metro's handling of billions in federal funds, by Lori Aratani, The Washington Post, March 28, 2014

Lessons learned:  The following are some of the issues raised by Metro's problems:

• Policies:  Have clear procurement policies and practices that comply with applicable laws and best practices.

• Chief Procurement Officer:  Ensure the agency has a chief procurement officer with sufficient authority to ensure compliance with procurement requirements, even when political pressure is exerted by elected officials and agency leadership.

• Training:  Regularly train agency leadership and staff on procurement policies.

• Grant compliance:  Ensure compliance with federal grant requirements.

• Review waivers of competition:  Establish a process with sufficient internal checks and balances for when goods and services may be obtained without competition.

• Documentation:  If no competition is used, document the basis for waiving competitive selection processes.

• Public perception:  Consider the perception of how waiving competitive selection procedures will be viewed in the newspaper and on social media 

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Washington State Plans to Audit On-Call Public Works Contracts

The Washington State Auditor's Office has announced that one of the areas they intend to focus on when they audit public agencies relates to On-Call Public Works contracts.  

Controversial topic:  This has been a controversial topic given that the Auditor's Office statements on the subject have not recognized the critical operational importance for many agencies to use On-Call Public Works contracts in order to provide basic services.  In addition, the Auditor's Office has not been forthcoming with specifics of what their concerns are and what they will be looking for in their audits.

Previous Auditor position: Almost two years ago, the Auditor's office issued a statement expressing their concerns about On-Call Public Works contracts.  Click here to read my earlier blog post when their initial statement came out.

Heads-up on audit topics:  In their newly issued edition of The Audit Connection, dated Summer 2014, the Auditor's Office wrote the following introductory statement providing a "heads-up" to agencies about their upcoming focus on audits:

"Local governments have asked the State Auditor’s Office to let them know in advance the areas they can expect auditors to emphasize in upcoming audits. To help them be proactive in preparing for their audits, we have provided this list of areas for focused assessment during the next series of county and city audits. The level of focus on the areas may vary, depending on the applicability and significance to the county or city."

Which agencies will be audited? Based on the Auditor's statement above, it appears they may only be focusing on cities and counties with respect to On-Call Public Works contracts.  However, it is unclear whether their audit activities relating to On-Call Public Works contracts will extend to other types of agencies such as port districts, school districts, water-sewer districts, public utility districts, etc.

What will be audited?  Using very similar language to their statement from almost two years ago, the Auditor's Office included the following paragraph in their Summer 2014 edition of The Audit Connection, identifying "Using on-call contracts for public works" as one of a number of topics they plan to focus on for upcoming audits:

"On-call contracts are not specifically authorized in state law. These contracts can result in noncompliance with statutes concerning public works contracting and prevailing wages. Auditors will be evaluating county and city use of these contracts to determine if there are established policies, procedures and internal controls to ensure their contracting process is in compliance with public works contracting statutes (Chapters 39.04, 39.06, 39.08, and 60.28 RCW) as well as prevailing wage statutes (Chapter 39.12 RCW)." 

Lack of clarity:  It is not clear from the Auditor's Office statement whether they intend to issue audit findings for all agencies using On-Call Public Works contracts, or if they will be looking to see whether agencies have established policies, procedures, and internal controls to ensure compliance with various laws.  The Auditor's Office has not been clear in any of their statements specifically what their areas of concern are with respect to On-Call Public Works contracts, other than their broad statement of "public works contracting statues" and "prevailing wage statues."

Moving forward:  Public agencies should carefully evaluate their practices and policies regarding On-Call Public Works contracts, and should consult with their attorneys in evaluating the risks to their agencies.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

7 Consequences of Audit Findings

Public procurement and contracting practices are regularly under the microscope of federal, state, and local auditors for compliance with various laws, regulations, and policies. 

Disclosure not compliance:  If an audit reveals non-compliance issues, an audit finding is often published.  Auditors do not generally have enforcement authority, but are there to publicly disclose how government agencies are operating. 

Consequences of audit findings:  What are some of the negative consequences of an audit finding?  Here are just a few:

1. Negative publicity for a public agency in the form of front page news that elected officials and appointed directors would prefer to avoid.
2. Political fallout including officials being defeated for re-election, or defeat of bond/levy votes seeking additional or continued funding from the voters.
3. Personnel actions including disciplinary warnings, suspension, and termination.
4. New requirements:  Establishment of new and often cumbersome requirements for all procurements and contracts.
5. Grant funding:  Disapproval of future grant funding applications, or having to pay back previously received grant funds.
6. Bond ratings:  Lower bond ratings that increase the cost of financing operations and capital improvements.
7. The auditor will return:  Review of the agency's operations the following year to determine if corrections have been made.

Pre-audit:  Make it a practice to regularly conduct a pre-audit of your agency's procurement and contracting practices to ensure it is in compliance with applicable regulations and policies.  A pre-audit can be conducted by internal staff or through a consultant.  It is preferable to identify and fix problems before an auditor zeros in on them and issues an audit finding.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

What's Important to the State Auditor

The Washington State Auditor's Office has published a 3-page document entitled "Basics of Bid Law" summarizing public works bid requirements and common mistakes made by public agencies.  It is included as part of the resources in their Local Government Performance Center. 

Strengths and weaknesses:  While the document is fairly general and has some errors and misleading statements, it is nevertheless a helpful window into understanding the issues that the auditor is most concerned about. 

Outline of document:  The following is the high-level outline of the major topics included in the Basics of Bid Law document:

• Plans, specifications and estimated cost
• Competitive bid process
• Small works roster (<$300,000)
• Limited public works projects (<$35,000)
• On-call contracting for public works projects
• Other compliance requirements
  

Basics of Bid Law:  Click here to view the Basics of Bid Law document.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Fire District Disputes Audit on Violation of Construction Bid Requirements

A fire protection district in Washington state has disputed an audit finding from the State Auditor's Office that the district failed to comply with bidding requirements for the construction of a training tower. 

Audit findings:  The audit report cited the Spokane County Fire Protection District No. 3 for the following on $186,530 of work on the tower that had a total cost of $637,662:

• Project split:  The District split the work into smaller projects each worth less than $20,000, which is the dollar amount below which the district is not required to seek competitive bids.

• District employees doing work:  The District used district employees to perform part of the work which is not permitted for fire protection districts.

District response:  The District responded in writing to the audit as follows:

• Why was the project split?  The District implies in their response that they used the Small Works Roster for the work, and that splitting a Small Works Roster project is prohibited only "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 [$300,000]."  The District maintained that the reason they split the project was to save money by having its own staff and volunteers do the work.  What the District failed to note and may not understand, however, is that under the Small Works Roster process, competitive bids are still required.  The District's argument is not persuasive.

• Why did district employees perform some of the work?  The District stated that there was no prohibition on using their employees for the work.  However, unlike other types of public agencies, fire protection districts have no explicit authority in state law to use their own forces for a public works project in lieu of bidding it.  The auditor affirmed their original finding, probably based on the fact that RCW 52.14.110 that governs how public works are governed for fire protection districts requires formal sealed bidding unless the work will cost less than $20,000 or the Small Works Roster process is used.  Under the Small Works Roster process, of course, competitive bids are still required, but they don't have to be sealed bids.

Lessons learned:  Public agencies should:

• Strategy:  Think strategically about each project and the best method for structuring and bidding the work.

• Laws:  Be aware of applicable laws governing how public works construction projects are to be bid.

• Advice:  Seek appropriate advice prior to embarking on a public works construction project, especially if the agency does not normally do such projects and does not have staff who are knowledgeable on applicable laws and best practices.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

How to Invite (or Avoid) an Audit Finding

It's really very simple.  If you receive any federal funding for any project (construction, consulting, services, goods and supplies), it comes with strings. 

Debarment and suspension:  One of the most common audit findings issued by the Washington State Auditor's Office is against public agencies who fail to check and document that companies they have contracted with are not on the federal government's debarment and suspension list.  

Recent audit findings:  Here's a list of just some of the recent audit findings issued for failure to ensure compliance with the federal debarment and suspension requirements:

• Town of Cathlamet
• City of Lakewood
• Grays Harbor County Public Hospital District No. 1
• Mason County
• City of Longview
• Adams County
• City of Puyallup

What's the requirement?  According to the State Auditor's Office, "Federal grant regulations prohibit recipients from contracting with or making subawards to parties suspended or debarred from doing business with the federal government.  For vendor contracts of $25,000 or more and all subawards, the [agency] must ensure the vendor or subrecipient is not suspended or debarred." 

Practical tips:

• Check grant terms and comply:  If you receive federal funding, designate an individual responsible for compliance with the grant term, one of which, of course, is to check the federal debarment and suspension status of firms.

• Document compliance:  Document by printing out from the federal website (www.SAM.gov) that the firms are not debarred or suspended by the federal government.  Click here for a previous blog posting about how to document compliance.
  

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

When is a Change Order Permitted vs. Bidding the Work Separately?

Under what circumstances may a public agency issue a change order to a public construction project, versus when must additional work an agency desires to add to a project be separately bid and awarded?

It's an important question.  The answer, however, isn't always clear. Just like the skies of the Pacific Northwest, some things are simply gray.

Audit finding:  In the State of Washington, the State Auditor's Office regularly issues audit findings against agencies who have issued change orders for work that was "not included in the awarded bid specifications."  The Auditor's Office recently issued an audit finding against the Orcas Island Fire Department for adding $56,000 of work to a $426,562 contract for construction of a new fire station.  The audit report noted that the work included in the change orders represented "separate projects and appropriate bidding procedures should have been followed."  Unfortunately, the audit report does not identify the nature of the change order work that the auditor deemed inappropriate.

All change orders represent work not bid  The audit report makes the following statement: "Change orders are only allowable if the additional work is within the bid upon scope of the project."  By their very nature, all change orders include work that are not part of the "bid upon scope of the project."  That's the reason why a change order is necessary.  The audit report statement that "change orders are only allowable" under certain circumstances represents an opinion that is not specifically supported by any state law. 

Spectrum of acceptable actions:  Clearly, there are some change orders that are outside the original intent and scope of a project that should be bid as separate projects.  But there are also other change orders that may be outside the original intent of the project where it makes more sense to execute a change order.  Here are some reasons why it isn't always in the public's interests to separately bid all changed work:

• Mobilization costs:  Adding work may be less expensive due to reduced contractor mobilization costs.

• Safety issues:  There may be safety concerns associated with having more than one contractor on the project site.

• Accountability:  With one contractor, it is easier to identify what party is responsible for coordination and appropriate performance and execution of the work.  

• Contract documents are never complete:  No set of drawings and specifications that are bid is ever 100% complete.  It's simply not possible or cost effective to develop such documents.  The very nature of the construction process is that there will be unexpected conditions that arise, and changes and additions to the work that are necessary.

Ensuring competitive costs on change order work:  One of the criticisms of auditors with change order work is that there is an increased risk for a public agency of not receiving "the best price possible."  Just as public agencies are frequently required by laws and regulations to develop a cost estimate for each project (federally funded projects require this, and RCW 39.04.020 requires it in Washington state), a cost estimate can and should be developed for change order work.  Public agencies should also require from contractors a breakdown of change order costs with backup documentation that can be compared with the agency's estimate.  

Problems with low bidders:  Bidding is not the only method to determine the best price possible, and, in fact, bidding comes with its own host of challenges as evidenced by the experience of so many agencies of the problems that often come from the low bidder.  While a bidder may be low, their bid may be too low and an agency may end up either paying more to administer the project, deal with delays, and put up with inadequate performance. 
 
The question:  Change orders are a fact of life for construction projects, whether it is for governmental, commercial, industrial, or residential construction.  When is a change order permitted versus when must additional work be bid separately?  The answer is complicated and depends on the specific circumstances.  Agencies in Washington state, however, should be aware of the conservative position that the State Auditor's Office routinely takes on change orders and act appropriately.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Best Practices for Monitoring Federal Prevailing Wages on Public Construction Projects

Federal prevailing wage requirements on public works construction projects requires that the contractor and all subcontractors, regardless of tier, submit weekly certified payrolls to the public agency.

Audit finding:  Some public agencies with federal funding on a project do not pay attention to the requirement for weekly payrolls.  Sometimes, they don't collect the payroll reports at all, or they collect them in batches from the contractor (not weekly), or collect them at the end of the project.  The largest county in Washington, King County, received a finding in 2012 from the Washington State Auditor's Office (see page 56) for failing to enforce the submission of weekly payroll reports.  Instead, the county collected payrolls at the end of their projects. 

Best practices:  If you have public works construction projects with federal funding, pay attention to the following:

• Frequency:  Are you collecting payroll reports weekly from the contractor and all subcontractors?

• Subcontractors:  Do you have a system for determining what subcontractors are working on site?

• Reviewing payrolls:  Are you reviewing the certified payroll reports on a weekly basis to ensure that prevailing wages are being paid to the workers?  As part of your review, are you evaluating the following: a) whether the classifications reported are appropriate, b) the hourly wage rate is at least the prevailing wage rate, c) the proper overtime rates are being paid, d) apprentices are registered apprentices who may be paid less than the journey-level wage, e) the payroll report is signed by an authorized individual?  

• Documenting your review:  Are you documenting your review of the payrolls by marking the payroll reports?

• Weekly pay:  Are you monitoring to ensure that the contractor and their subcontractors paying their workers on a weekly basis?  This is required by the federal Davis-Bacon Act.

• Worker interviews:  Are you interviewing a representative sample of workers on-site, asking them questions about what work they are performing and how much they are being paid?  Are you correlating this information with what is reported on weekly payroll reports?

• Invoices:  Do you have a process that ties in your approval of a contractor's monthly pay application and invoice with your review and approval of the weekly payroll reports?

Note:  This blog posting is a repeat of one from December 4, 2012.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Avoid Changes to Bid Documents After Bids Are Received

Public bidding takes careful planning and thought up front before the bid documents are ever published.   

Basis of bidding:  The bid documents become the basis of bid prices submitted by contractors, and changes after bids have been received undermines the integrity of the competitive bidding process, and may result in bid protests and audit findings.

No changes after bids:  Here are two provisions that should not be changed after bids have been received:

• Bidder responsibility:  Often, public agencies will include in bid documents bidder responsibility criteria that the low bidder must meet.  Waiving these requirements after bid opening and prior to award may result in bid protests.  Including the responsibility criteria in the bid documents may necessarily limit what bidders choose to submit a bid, but then eliminating the requirements after bids have been received is not a fair or transparent process.  

Yakima County (WA) recently waived bidder responsibility criteria for a jail project after bids were received but prior to award, and their action has resulted in a bid protest.  Click here to read more about the bid protest.

• Bonding and insurance:  If bid documents for a public construction project require the successful bidder to provide a payment and performance bond and evidence of insurance prior to execution of the contract, these requirements should then not be waived for the low bidder.  Providing bonds and insurance are part of the cost of a contractor doing business and these costs should be built into a bid price.  By waiving these requirements after bids have been received, a public agency changes the basis of bidding and creates an uneven competitive bidding environment. 

Plan ahead:  Think carefully about your bid documents as you are developing them.

• Reasonable bidder responsibility criteria:  If you've included any bidder responsibility criteria included in the bid documents, are they reasonable?  Are there contractors in the market who can meet the criteria?   

• Bidder responsibility checklist:  Click here to review the Checklist for Developing Supplemental Bidder Responsibility Criteria that I developed to help public agencies in Washington manage the provisions of RCW 39.04.350.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Avoiding the Risk of Paying Back Federal Grant Money

Public agencies that fail to comply with the terms of federal grants risk being required to pay grant money back to the federal agency providing the funds.

3 proactive steps:  Here are four important steps public agencies can take to avoid having to pay back grant money:

• Know what's required:  Read the terms of the grant agreement and understand your obligations.

• Designate a point person:  Designate an individual(s) within your agency to be responsible for complying with the terms of each grant.

• Ask the Feds:  Find and develop a knowledgeable contact person with the federal agency who can help interpret what is required.

• Ask other public agencies:  Seek assistance from other public agencies who have received similar grants.

Common pitfall:  One of the most common areas of non-compliance with the terms of federal grants occurs when public agencies fail to check the status of contractors, consultants, and vendors (with contracts of $25,000 or more) to ensure they are not suspended or debarred from participating on federally funded contracts.  Payments made to an ineligible party are not allowable costs and would be subject to recovery by the federal funding agency.

Audit findings:  Four school districts in Washington state were recently hit with audit findings by the State Auditor's Office for failing to check and document the suspension and debarment status of organizations they contracted with using federal funds.  Click on the links below to read the audit findings:

• Elma School District No. 68 (Grays Harbor County)
• Mossyrock School District No. 206 (Lewis County)
• Nine Mile Falls School District No. 325/179 (Spokane County)
• Othello School District No. 147 (Adams County)

How to check for federal debarment:  It's easy to check for whether a business your agency is contracting with has been suspended or debarred from doing business with the federal government.  Go to www.sam.gov, and enter the name of the business.  If the search does not reveal a record, click on the "save PDF" link that will include the name you searched for as well as a note indicating there were no search results.  Print this PDF and maintain it in your contract/project file for when you are audited.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC http://PublicContracting.blogspot.com

Agency Violates Selection Processes and Conflict of Interest Provisions

Using federal funds, a small fire protection district had one of its elected commissioners draw plans for a building to house fire trucks.  The district also hired a contractor owned by another commissioner to build the building,   In the process, the district skirted both consultant and contractor selection requirements and violated conflict of interest laws.

Audit finding:  Here's the audit finding the Washington State Auditor's Office recently wrote about the practices of the Klickitat County Fire Protection District No. 15:

• Bidding violation:  State Law requires the District to seek formal bids on public works projects of more than $20,000. The District stated they called local construction companies and informed them of the project; however, this did not meet the requirements for a project of this size. 

• Conflict of interest:  State law prohibits a conflict of interest with a municipal officer. The District paid the Commissioner’s company $66,000 during the audit period for this project.

• Consultant competition required:  State law requires that all architectural and engineering services be competitively procured. The District used architectural services from a Commissioner without publicly advertising a request for services.

• Prevailing wage violations:  State law requires contractors to pay prevailing wage on all public works projects.  While we saw evidence of certified payrolls from the contractor, the District did not ensure intents and affidavits were filed with the State Department of Labor and Industries and thus cannot be sure the contractor complied with prevailing wages requirements.

More information:  Click here to read a copy of the audit report.  The District indicated they were not aware of the procurement and conflict of interest laws applicable to the project.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Convenience, Competition, and Compliance in Selecting Consultants

In procuring professional consultant services for the public sector, there is a natural tension between convenience, competition, and compliance.  

Convenience:  The argument for convenience and picking a firm a public agency is already familiar with may be summarized by the response of a mayor to a recent audit:  "If you're happy with a professional's work, and their pricing is competitive with the industry, you continue to use that professional."  That's the opinion of Mayor Joe DeStefano of Middletown, New York in response to an audit finding issued by the New York State Comptroller's Office about Middletown's procurement practices.

Competition:  The audit criticized Middletown for not soliciting competitive proposals from five of the eight professional service providers covered by the audit, totaling $164,613.   The audit noted that the city had used the same law firm for 17 years for assisting with labor and labor contract law issues without going through a competitive solicitation process, or justifying the firm as a sole source.  In the city's response to the audit, they wrote that the law firm's "years of experience make them far more efficient than breaking in a new firm."  While that may be true to a certain extent, the best practices in public procurement dictates that the selection process be transparent and that other firms be offered the opportunity to compete.  In addition, somewhat ironically, the audit noted that the city did not have a written contract with the law firm to provide the services. 

Compliance:  Many public agencies have either state or local laws or policies that require a competitive process in selecting consultants.  In selecting consultants, it is important for agencies to comply with the applicable laws and policies.  In the case of Middleton, the auditor criticized the city for not having adequate procurement policies in place to ensure services are procured at the most favorable terms and without favoritism:

The City uses a decentralized purchasing system in which department heads are responsible for procuring goods and services for their respective departments.  The City's procurement policy is not comprehensive enough to ensure that individual departments procure goods and services at the best price possible.  For example, the policy does not provide guidance on using request for proposals for obtaining professional services, evaluating proposals, and determining if purchases are emergency in nature or if a vendor is a sole source for a specific procurement.

Decentralized procurement processes without strong guidelines and policies can often lead to a wide variety of inconsistent practices within an agency.

Lessons Learned:  In selecting consultants, it is important to balance the competing interests of convenience, competition, and compliance.  

1. State laws:  Does your agency have adopted procurement policies that are consistent with applicable state laws and your current practices?  
2. Federal requirements:  When you receive federal funding, are your procurement policies consistent with federal grant requirements?
3. Competition:  Are your agency's procurement policies comprehensive in describing the competitive selection process for obtaining consultant services?
4. Knowledge of employees:  Do your agency's employee's understand the applicable procurement process, and are they regularly provided with training on the procurement policies?
5. Standard RFP:  Does your agency have a template RFP that is consistent with the required process?
6. Evaluation criteria:  Do your agency's RFPs contain appropriate evaluation criteria for ensuring competition for services?
7. Sole source:  Does your agency have a process for justifying and documenting sole source procurements?
8. What is most important?  Are your procurement selection decisions based on compliance and competition, or does the convenience of selecting the same firm trump compliance and competition?

More information:

• Click here for reading the audit finding and the city's response to it. 
• Click here for a summary news article on the audit from the Times Herald-Record.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Avoiding Audit Findings

Public agencies are regularly subject to the scrutiny of federal, state, and local auditors, whose role is to report on whether the agency has complied with laws, regulations, policies, and grant provisions.

What do auditors review?  Most auditors do not audit all  procurement and contracting actions for compliance with all requirements.  Instead, auditors typically have a checklist of key items they review on selected contracts. 

Federal requirements:  Auditors regularly review to ensure that state and local agencies are in compliance with the provisions of federal grants.  While receiving federal funds enables an agency to accomplish work it might not otherwise be able to do, federal grants do come with many and often complex requirements.  It is important that each agency receiving federal funds carefully review the grant requirements and comply with them.  Who is responsible in your agency for reviewing and complying with federal grant provisions?

Common audit finding:  One of the most common audit findings on federally funded projects relates to agencies that fail to verify that all vendors, contractors, and consultants who receive $25,000 or more have not been suspended or debarred from doing business on federally funded projects.  Educational Service District No. 112 (a public agency supporting school districts in southwest Washington state) recently received an audit finding from the State Auditor's Office for failure to produce documentation that they had verified that two vendors were not on the federal suspension or debarment list.

How to check for federal debarment:  It's easy to check for whether a business your agency is contracting with has been suspended or debarred from doing business with the federal government.  Go to www.sam.gov, and enter the name of the business.  If the search does not reveal a record, click on the "save PDF" link that will include the name you searched for as well as a note indicating there were no search results.  Print this PDF and maintain it in your contract/project file for when you are audited.

Documentation matters:  Auditors are not mind readers.  You may have made appropriate decisions about a procurement or contract, but if your files do not include documentation demonstrating that you complied with the law and your policies, you may receive an audit finding.  Remember to maintain documentation in your files about your actions.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Documenting Government Credit Card Purchases

Government issued credit cards, sometimes known as "Purchasing Cards," "Procurement Cards," or "P-Cards" can be a great tool to simplify the procurement process.  However, they come with risks if there are not adequate controls in place.

Audit finding:   The Washington State Auditor's Office recently issued an audit finding to the Grays Harbor County Fire Protection District No. 16 for not having adequate supporting documentation, such as invoices or detailed receipts, to support $19,695 in expenses with District issued credit cards.  The audit cited purchases for food, fuel, clothes, holiday decorations, supplies, and lodging that were not documented, raising the question whether they were an allowable use of public funds as required by state law.

Practical tips:

• Policies:  Does your agency have clear policies on the acceptable and unacceptable purchases? Do your policies prohibit an employee loaning their card to another employee?  Do the policies establish the maximum dollar amount per purchase and per day, and prohibit splitting of purchases to be less than the established thresholds?

• Training:  Proper training should be mandatory for anyone issued an agency credit card, so they understand the expectations and restrictions surrounding use of the credit card.

• Certification:  Employees should be required to sign a statement acknowledging the policies surrounding use of the card and the consequences for using it improperly. Employees should understand they may be required to personally pay for unauthorized or inappropriate uses of the card.

• Documentation:  All purchases with an agency credit card should be documented with invoices or detailed receipts.

• Monitoring:  All purchases should be reviewed by a supervisor on a monthly basis before payment to ensure they are appropriate uses of the card and do not violate agency policies.

More information:  

• Click here to read the audit finding.

• Click here to read other blog postings of mine relating to government issued credit cards.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Update on On-Call Public Works Contracting

The subject of on-call public works and maintenance contracts has been an area of considerable discussion over the last six months.  

Auditor and L&I issues:  It began in the fall of 2012 when the Washington State Auditor's Office issued a statement that they did not believe on-call public works contracts were specifically authorized in state law.  In addition, the Department of Labor and Industries has required that an Affidavit of Wages Paid be filed for each task or work order issued under an on-call contract, regardless of the size of the task or work order.

Meeting last week:  On Tuesday, April 20, 2013 a number of public agencies met in downtown Seattle, with many participating by telephone, to discuss the status of on-call public works and maintenance contracts.  The Municipal Research and Services Center (MRSC) reported that the auditor's office informed them they were continuing to review the issue and to examine specific examples of problematic on-call contracts referred to them by the Department of Labor and Industries.  The auditor's office told MRSC that they would not be available to discuss the issue in more detail until their review was completed, perhaps in June or July.

Public owners group:  A group of public agencies has been meeting for a number of months to discuss the issue.  They are comparing the similarities and differences in how they contract for on-call public works and maintenance, and may develop a "best practices" document to assist others.  The public owners group will be the lead group in the future for concerns of public agencies on the issue of on-call public works and maintenance contracts, and for interacting with the State Auditor's Office and the Department of Labor and Industries.  

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

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 
http://PublicContracting.blogspot.com

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 
http://PublicContracting.blogspot.com