The Problem with Bid Prices in Numbers and Words

Tennessee construction attorney Matthew DeVries has described the outcome of an Alabama court case in which a bidder left out the word "thousand" in a bid price and was held to the significantly lower bid amount by the public agency. The contractor refused to execute the contract because they would loose too much money and the public agency collected from their bid bond.

Allow withdrawal of bid if error is made:  Public agencies should generally allow a contractor who has made a mistake to withdraw their bid.  It is not in either the contractor's or the public agency's best interest to enter into a contract in which the contractor will loose money.

Request bid prices in numbers only: Public agencies should also not require bid prices in words, but only numbers. It's a way to make the bid process simpler and eliminate yet another area for non-responsiveness and ambiguity. In the event you can't read a contractor's bid price in numbers, language in your bid documents allowing rejection of the bid as non-responsive can resolve the lack of clarity in the bid amount.  

Click here to read Mr. DeVries brief blog post on this court case.

Mike Purdy's Public Contracting Blog
© 2018 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Court Rejects Owner's Claim Against Bonding Company

After repeated performance deficiencies by a contractor, a public agency in Pennsylvania terminated the contract and filed a claim against the surety that issued the performance bond.  

Owner didn't provide notice and opportunity to cure:  After multiple court motions by both the Milton Regional Sewer Authority (MRSA) and Travelers Casualty & Surety Co. (Travelers), the U.S. District Court ruled in favor of the surety, affirming that MRSA had failed to provide the contractor with proper notice of the performance deficiencies and give them an opportunity to cure the problems prior to termination.  

Owner argues material breach the contract:  MRSA argued unsuccessfully that they were not required to provide the notice and give the opportunity for the contractor to cure the deficiencies because the contractor's lack of performance constituted a material breach of contract that would have allowed them to terminate without the notice and cure processes.   

Court rules no material breach of contract:  The Court disagreed with MRSA, ruling that the deficiencies cited by MRSA did not constitute a material breach of contract.  The contractor was guilty only of "poor performance of the contract, which is precisely within the contemplation of the cure provision in the contract." 

More information:  

• June 24, 2014 Court decision

• Article: "U.S. district court in Pennsylvania dismisses owner's claim against performance bond surety - repeated instances of poor performance by contractor were not so material as to allow owner to terminate without providing cure notice," by James M. Kwartnik, Jr, Attorney with Pepper Hamilton LLP, November 25, 2014 

Lessons learned:  If a contractor is not performing consistent with the contract documents, public agencies should:

• Document:  Thoroughly document deficiencies and the contractor's actions that are at variance with the contract documents.

• Keep surety informed:  Communicate clearly and often with the bonding company about the deficiencies.

• Abide by notice and cure provisions:  Follow the notice requirements of the contract for providing the contractor with the opportunity to cure deficiencies.

Presidential History:

• Presidential History Blog:   While I will discontinue writing my Public Contracting Blog on March 5, 2015, you can sign up for a free email subscription to my Presidential History Blog at www.PresidentialHistory.com.  On a case-by-case basis, I will only be accepting limited consulting and training opportunities after March 5, 2015.

• Presidential History News:  Be sure to watch my 6 minute video at www.PresidentialHistory.com in which I report "live" on the election returns for the 1916 presidential election between Woodrow Wilson and Charles Evans Hughes.
  
  
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Mike Purdy's Public Contracting Blog
© 2015 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Court Rules Bid Preference Law is Unconstitutional

An Arizona court has ruled that a City of Tucson ordinance granting local businesses a 5% bid preference is unconstitutional. 

Unconstitutional:  In response to a lawsuit filed against the program, on November 25, 2014, Pima County Superior Court Judge Gus Aragon struck down the City's ordinance as a violation of the Arizona Constitution (Gifts clause and the Equal Privileges and Immunities clause) and the United States Constitution (Federal Equal Protection clause and the Privileges and Immunities clause). 

Appeal by City?  At their meeting of December 9, 2014, the Tucson City Council will consider whether to file an appeal to the decision, or to modify the ordinance.

Additional information:  

• Judge rules Tucson's bid-preference policy unconstitutional, by Darren DaRonco, November 25, 2014, Arizona Daily Star 

• Judge Strikes Down City of Tucson's Local Business Bid Preference Ordinance, November 25, 2014, Press Release from the Goldwater Institute 

• Hirshman v. Rothschild (Bid Preference Suit), February 6, 2014, from the Goldwater Institute

Popularity of bid preference laws:  Many state and local jurisdictions across the county have adopted local bid preference laws.  The ruling in Arizona points out some of the constitutional problems associated with such programs. Click here to read some of the other blogs I've written about local bid preferences.

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

What is the "Standard of Care" for Architects and Engineers in Designing Projects?

Most contracts between public agencies and architects or engineers designing a public works construction project require that the designer's standard of care "shall be no less than that exercised by architects of similar reputation performing work for projects of a size, scope and complexity similar to this project."  The language defining the standard of care may vary by agency and contract.  

John P. Ahlers

Code compliance is important:  Design contracts also generally require the designer to comply with building and other codes when designing the project.  In a 2014 Florida court case, the court held that the architect was liable for the construction change order costs that were necessary because the architect's design had failed to comply with current fire safety standards on a high school renovation project.  During the design process, the architect disagreed with the opinion of an independent design reviewer that the design did not meet code.  During construction, the building department determined that the plans were not in compliance with the code and required changes to the design and construction.

More information:  Well known and respected Seattle construction attorney John P. Ahlers has written a much more detailed summary of this court case in his August 28, 2014 blog, Architect Held to a Higher Standard of Care.

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

Two Types of Fraudulent Bonds

Public agencies regularly require a variety of bonds from contractors including bid bonds, performance bonds, payment bonds, retainage bonds, and warranty bonds.  The bonds are backed by sureties that promise to step in and protect the public agency if a contractor fails to meet their various obligations described in the bond.  If a bond is not legitimate, however, a public agency has no protection.  There are a couple of different scenarios of how fraudulent bonds are issued. 

Fraudulent representation as a surety:  Some individuals have posed as brokers representing bonding companies, issued fraudulent bonds, and collected bond premiums from unsuspecting contractors who then submit the bogus bonds to public agencies.  Last year, a report in Engineering News-Record described how 22 contractors in nine states lost more than $3 million to two men who claimed to be authorized to issue bonds for Chubb subsidiaries Pacific Indemnity Co. and Federal Insurance Co. 

Fraudulent bonds:  Some contractors have used Photoshop and copy machines to dummy up bonds that they then submit to public agencies to comply with bonding requirements for a contract they have been awarded.  Agencies who unwittingly accept such bonds end up with no protection from these bogus bonds, nor has there been any financial review by a surety of the contractor's financial stability.  Click here to read a previous blog posting discussing verifying bonds and referencing a number of forged bond cases.  

Is a bond legitimate?  It is a prudent business practice for public agencies to verify with the bonding company that a bond has been issued.  Bonding companies authorize others, known as an "attorney-in-fact" to obligate the surety.  The attorney-in-fact must, however, report to the surety when they have issued a bond.

• Research the surety's phone number:  Independently research the surety's phone number.  Do not rely on a phone number that may be on the bond.

• Call the surety:  Call the surety to verify the legitimacy of the bond.  

• Verify for all or some contractors:  Some public agencies do not verify bonds for well-known contractors they have done business with for years, and that pose a low risk.  However, researching the legitimacy of a bond for a new or unknown contractor is a good idea.

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

Court Strikes Down Apprenticeship Utilization Requirements on Public Construction Projects

Many public agencies throughout the country require that contractors on public construction projects use a certain percentage of apprentices on the projects.

Federal court rules against city program:  On July 16, 2014, a federal court in Boston struck down an apprenticeship utilization ordinance for the City of Quincy, Massachusetts, arguing that it violated federal law (ERISA).  The decision by the U.S. Court of Appeals for First Circuit will have impacts on similar apprenticeship programs in the states covered by the First Circuit court, including Massachusetts, Rhode Island, Maine, New Hampshire, and Puerto Rico. It may also, in time, have impacts on similar programs across the country.  Click here for a news article on the court decision.  Click here to read the full court decision.

Shortage of construction workers:  It's no secret that many older construction workers are reaching retirement age, and that young people are not flocking to fill the vacancies and anticipated vacancies in the years ahead.  Many argue that apprenticeship utilization requirements are necessary in order to attract young workers to enter the field.  It seems to me, however, that the solutions to the shortage of workers goes much deeper than simply requiring apprenticeship jobs on public construction projects.  That, in and of itself, will not be compelling to convince a young person to enter the field.  There are much deeper reasons why construction is not attractive to young people today.

Lawsuit brought by open shop contractors:  The City of Quincy's ordinance was challenged by a coalition of merit shop (non-union) contractors who argued that the requirement for utilization of apprentices enrolled in a state-approved apprenticeship training program effectively limited competition to union contractors.  Unions generally sponsor and have state approval for most construction training programs.  

Limited competition:  Ronald N. Cogliano, the president of the Merit Construction Alliance that brought the lawsuit stated that "When you artificially limit competition in any market, prices go up.  Fewer bidders means higher prices."

Importance of trained workforce:  There's no question that it is in everyone's best interest that the construction workforce be appropriately trained.  Apprenticeship training programs are often seen as a means to accomplish this.  

Conflicting policy objectives:  With a shrinking construction workforce and the need for a trained workforce, unions have been strong proponents of apprenticeship utilization requirements.  Such requirements, however, often restrict competition to union contractors who have access to union sponsored apprenticeship training programs.  Thus, there are conflicts between policy objectives of ensuring competition and having a trained workforce.  From my perspective, the public is best served when the procurement process is open, fair, and transparent.

Keep competition open:  Any solution to ensuring a trained and sufficient construction workforce must ensure that competition does not exclude non-union contractors from bidding.  Any time competition is restricted, whether it is for an apprenticeship program or a local preference program, it will ultimately result in higher prices to the public.  In promoting apprenticeship utilization requirements, union proponents should develop programs that ensure a trained workforce and do not restrict competition to union contractors only.  The union argument that non-union contractors may participate in the union apprenticeship programs is fraught with major challenges, and is not an acceptable option for many non-union contractors.  

Educate young people:  Perhaps the real solution is not to mandate utilization of apprentices on public projects, but to let the market dictate what workers are used, while at the same time endeavor to educate young people on the advantages of a pursuing a career in construction.  

Washington state:  In Washington state, RCW 39.04.320 requires that 15% of the workforce on public works projects estimated to cost $1 million or more be performed by apprentices enrolled in a state approved apprenticeship training program.  The state law only applies to the state Department of Transportation (WSDOT), institutions of higher eduction, the state Department of Enterprise Services (DES), and school districts.  Some cities and counties have voluntarily adopted apprenticeship utilization requirements on their public works projects.

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

Is it Bid Shopping if a Contractor Substitutes for a Higher Priced Subcontractor?

Bid shopping occurs when a contractor bidding a construction project takes a subcontract bid price, and attempts to get another subcontractor to lower their bid price below the original price received by the contractor.

Anti-bid shopping law:  The purpose of Washington state law (RCW 39.30.60) is to discourage bid shopping by requiring the listing with the bid of subcontractors for HVAC, plumbing, and electrical work on projects estimated to cost $1 million or more. 

When is substitution not bid shopping?  There was recently an interesting court case in which a subcontractor (ETCO Services, LLC) named with the bid was later substituted by the contractor (Killian Construction Company).  ETCO as the substituted subcontractor filed a lawsuit seeking $1 million in damages against the Killian as the contractor.  But because ETCO had made an error in their bid by not bidding all the work, Killian eventually used a higher priced subcontractor whose price included all the work.  The court ruled that using a higher price for a new subcontractor did not constitute bid shopping.

Paul Cressman, Jr.

More details:  Seattle construction attorney Paul Cressman, Jr., from the law firm of Ahlers Cressman PLLC, recently wrote an excellent summary of this court case on the firm's blog.   

• Click here to read Mr. Cressman's comments with additional details about this case.   

• Click here to read the court decision from the 9th Circuit Court of Appeals.

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

Massachusetts Court Affirms Agency Right to Determine Bidder Responsibility

The Massachusetts Supreme Judicial Court has affirmed that public agencies have a right to conduct an investigation into whether the low bidder on a public works construction project is a responsible bidder.

Negative reference checks lead to not-responsible decision:  The Town of Holliston checked the references of the low bidder on a new police station project.  They received several negative reference checks and concluded that the low bidder (Barr) was not a responsible bidder.  Barr sued the town, arguing that the town had gone beyond just checking the standard state certification files for contractors, and that such action was not authorized.  

Massachusetts definition of responsibility:  Massachusetts state law notes that a bidder is responsible if they possess "the skill, ability and integrity necessary to faithfully perform the work called for by the particular contract, based upon a determination of competent workmanship and financial soundness."
 
Court ruling:  The court ruled that it is up to each agency to make a determination of responsibility, and that a disappointed bidder always has the right to challenge a decision of not responsible in court.  Click here for a summary of the court case.

Washington State bidder responsibility:  In Washington State, RCW 39.04.350 governs bidder responsibility.  There are a half-dozen or so mandatory bidder responsibility criteria that must be met and documented by all public agencies in the state before awarding any public works contract.  In addition, public agencies have the option of developing and including in the bidding documents "supplemental bidder responsibility criteria."  It is a fine art to write appropriate supplemental criteria that are clear, fair, and that meet the agency's objectives of ensuring that the low bidder is qualified to perform the work.

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

Court Case on Bidder Responsibility

Questions:  The following are some of the bidder responsibility related questions that an appeals court dealt with in a bid protest from a Spokane Housing Authority window replacement project:

• Is it important that a contractor have a certain number of years experience performing similar work?

• What if the contractor's employees have the experience but not with the company?  

• What if the main subcontractor who will be performing the work has the requisite experience?  

• Does an award constitute a contract?  

More Information:  Seattle construction attorney, John Ahlers, has written a good summary of this case in his Construction Law Blog.  Click here to read more about the case that was decided by the Court of Appeals in December 2012.  

Skyline Contractors, Inc. v. Spokane Housing Authority, 2012 WL 6057471 (Dec. 6, 2012)

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

California Court Exempts City Project from Prevailing Wage Requirements

A brewing conflict in California over prevailing wages between a city and labor unions has been resolved with a ruling by the California Supreme Court that prevailing wages were not applicable for the construction of two new city-owned fire stations.  

Court rules prevailing wages not applicable:  The conflict started with a City of Vista law banning prevailing wage requirements on city public works projects. The State Building and Construction Trades Council of California, AFL-CIO filed suit over the issue, citing a state law that requires payment of prevailing wages on public works projects. The case worked its way up through the court system, and on July 2, 2012 the Supreme Court ruled in favor of the City of Vista, a charter city. 

"Municipal Affair" or "Statewide Concern"?  The Supreme Court's ruling hinged on drawing a line between the interests of charter cities and the state. In general, charter cities have the right to govern their own internal "municipal affairs." However, if this results in a city law conflicting with state legislation that properly addresses a legitimate "statewide concern," the city law is preempted by state law.

In this case, the Court found that, although the city's rejection of prevailing wage requirements was at odds with state requirements, the issue was nonetheless a localized municipal affair that did not rise to the level of a statewide concern. Thus, as a charter city, it falls under the City of Vista's authority to regulate. 

Future Impacts  While this case is concluded, its impacts are predicted to be far-reaching. The demarcation between the municipal authority of charter cities and the state's jurisdiction over statewide concerns has been long-running battle in California. The lure of reduced costs without prevailing wage requirements may prove a compelling draw for many cities experiencing difficult financial situations. 

Additional Resources:

• Summary of the decision by Littler Mendelson, a national employment & labor law firm
• Full California Supreme Court Opinion (PDF)

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Who is Mike M. Johnson and Why is He Important?

Mike M. Johnson was a contractor in Washington State whose name is attached to a lawsuit that continues to have repercussions in the construction industry.

Contractor Documentation of Change Order Requests:  In Washington State, in 2003, the State Supreme Court issued a decision in the Mike M. Johnson v. County of Spokane case, in which the court held that the contractor, Mike M. Johnson, was bound to the strict notice and documentation requirements of the contract for change order requests, and that by failing to follow those procedures, they essentially forfeited their right to relief for change order work.  

Prejudice Standard:  The court ruling has been very controversial with contractors and there have been unsuccessful attempts to have state legislation passed that would institute a prejudice standard for filing of notice and documentation.  In other words, if the owner was not prejudiced or damaged by the failure of the contractor to meet the strict time constraints of the contract, the claims could nevertheless be considered.

John Ahlers and Lindsay Taft

Resources:  Seattle construction attorneys John P. Ahlers and Lindsay K. Taft have written extensively on the subject, most recently in two issues of the Washington State Bar News.

• Part 1: Construction Contract Draconian Notice Provisions - Is Prejudice Still the Issue? (May 2012)

• Part 2: Construction Contract Draconian Notice Provisions - Is Prejudice Still the Issue? (July 2012)

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

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

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

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

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

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

Lessons Learned:  It will be interesting to see how these lawsuits play out in court.  In the meantime, what can we learn from this situation?

• Selection Process:  Prior to selecting a contractor, public agencies should follow their own requirements for selection.  Such a process should be fair, open, and transparent, and the basis of selection should be clear and consistent with applicable laws and policies.

• Valid Contract:  Both agencies and contractors should pay attention to whether all the appropriate steps and approvals have been received for executing a contract.  Are the parties who signed the contract, in fact, authorized to commit the party?

• Payment Authorization:  Public agencies should not pay a contractor for work not performed, or if the contractor is not in compliance with the performance standards of the contract.

• Checks and Balances:  Does the public agency have sufficient management checks and balances in place to ensure that those responsible for managing the project and authorizing payments are performing their tasks appropriately? 

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

New York Halts Project Based on Court Order

The New York State Department of Transportation (DOT) has ordered the contractor on a $72.4 million interchange upgrade project to stop work, after DOT was ordered by the state Supreme Court to re-bid the project.  The contractor has completed less than 10% of the work.

Dispute over Project Labor Agreement:  At issue is a Project Labor Agreement (PLA) that was added to the bidding requirements eleven days prior to the bid submission deadline.  The low bidder on the project, Lancaster Development, Inc., a non-union contractor, had already prepared their bid when the addendum adding the PLA was issued.  Lancaster submitted their bid and, even though its bid was $4.5 million low, it was rejected as non-responsive for failure to comply with the PLA requirements.  Lancaster filed a lawsuit which resulted in the court ruling.

PLA did not advance competitive bidding:  The court ruled that DOT's decision to include the PLA as part of the project did not have "as its purpose and likely effect the advancement of the interests embodied in the competitive bidding statutes."  Lancaster's president, Mark Galasso, noted that the PLA "would force us to fire our entire workforce" and hire union workers.

Next steps:  New York DOT is reviewing its options.  Assuming the project is re-advertised without a PLA, Lancaster intends to bid.  And the joint venture firm that was awarded the project, A. Servidone/B. Anthony Construction Corp., is evaluating whether to appeal the decision.

More Information:  Click here here to read a March 7,2012 article from ENR New York.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

What is the Deadline for a Contractor to Accept a Subcontractor's Quote?

Matthew DeVries

In an interesting court case from 1987 in Virginia (Piland Corporation v. Ree Construction Co., 672 F.Supp. 244 (E.D. Va. 1987), the court ruled that the contractor had failed to provide timely notice to the subcontractor that it had accepted its quote.  The contractor filed a lawsuit for breach of contract that the court ruled against.

Nashville, Tennessee construction attorney Matthew J. DeVries has a good blog entry describing more details of this case.  Click here to view the blog entry.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC http://PublicContracting.blogspot.com

Town in New York Violates Public Bidding Law

The New York State Supreme Court has ruled that the Town of Hamburg violated a state law that requires public agencies to bid and award multiple contracts for subcontract work, rather than awarding public works projects to a general contractor.  

Does Estimate or Cost Trigger the Law?  Hamburg officials maintained that the law (known as the Wicks Law) didn't apply for the construction of a highway department storage building because the low bid came in less than the $500,000 that would trigger bidding and award of multiple prime contracts for the work.  The Court decision was based on the fact that the town's estimate for the project was over $615,000.  The town's attorney argued about the "lack of clarity" in the law as to whether the estimate or actual cost triggers the multiple prime contracts.

Pros and Cons of Multiple Prime Contracts:  The lawsuit was brought against the town by the operating engineers union who argued that the law helps prevent bid rigging and provides certain protections for the subcontractors, resulting in safer projects.  Public agencies, on the other hand, have historically argued that the law, which dates back to 1912, increases the cost of public works projects by as much as 30%.

Only a Few States Have Multiple Prime Contracts:  New York is one of only a few states states with such a requirement.  There are reasons why so few states have multiple prime contract laws.  They require public agencies to be responsible for coordinating public works projects, rather than assigning that risk to a general contractor.

More Information:   

• Click here to read my previous blog entry on Ohio's proposal to eliminate the multiple prime contract requirement, and the advantages and disadvantages of multiple prime contracts.
• Click here to read an article from BuffaloNews.com on the Town of Hamburg case

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Contractor Jailed for Fraud and Forgery

A contractor who had been debarred by the State of New Jersey from bidding on public works projects because of violations of prevailing wage requirements, was sentenced to four years in prison on June 10, 2011 for creating a stolen identity and forging documents.

Debarred in 2008:  In August 2008, Joseph Budis and his company, Murray Hill Equipment were debarred by the State of New Jersey for prevailing wage violations.  His other company, Murray Hill Enterprise, was debarred a month later. 

New Company Set Up With Alias:  But debarment didn't stop Budis from continuing to bid on public works projects.  His solution was to set up a new company, Murray Hill Historic Construction, using an alias - the name and Social Security number of an acquaintance on the contractor registration filing with the state.  With the new company, his real identity as a debarred contractor was shielded, and he figured he could continue bidding. 

Bidding With Forged Documents:  He did continue bidding on public works projects.  But to keep his true identity and the ownership of the new company a secret on the new projects, he submitted forged documents to public agencies he bid to.  

• In one case, before his new contractor registration certificate had been issued by the state for fraudulently set-up Murray Hill Historic Construction, he forged the registration certificate to obtain a public works project.  

• Then last year, he was the low bidder on a $673,240 dam and dike construction project in Clinton, NJ. The town awarded the project to him, unaware that the bid bond, performance bond, payment bond, powers of attorney, certificates of insurance, and notary signature on the bid were all forged. 

True Identity Exposed:  His scheme began to unravel in June 2010 when there was an accident on the Clinton job site.  To investigators, he claimed he was Joseph DeLia (his alias), but his driver's license - the one document he apparently didn't forge - reflected his real name, Joseph Budis.  Officials then realized that Joseph Budis was on the state's debarment list for prevailing wage violations.  It also came out that Murray Hill Historic Construction didn't carry workers compensation insurance for its workers, including the worker whose injury brought Budis' house of cards tumbling down.  The town of Clinton terminated his contract.

Indicted and Sentenced:  In October 2010, he was indicted in superior court.  Click here for a copy of the indictment.  On March 18, 2011, he pleaded guilty to two counts of making false representations on government contracts.  Finally, on Friday, June 10, 2011, he was sentenced to four years in prison, and ordered to pay $44,174 in restitution, and to pay an additional $250,000 as a public corruption profiteering penalty.  He and his companies were also debarred from public contracting for ten years.  Click here for a news story on the case.

Lessons Learned:  It doesn't happen often, at least not that I'm aware of, that contractors forge bonds and insurance documentation, although I have heard of a few cases.  If you have any questions about the validity of the documents, or you are not sure of who you are dealing with, you can always call the contractor's insurance broker and the bonding company to verify coverage. Fortunately, most contractors are honest and hard-working business owners, but this case does point out the need for public agencies to be diligent in checking out the credentials of low bidders.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Contractor Requirements to Give Notice and Documentation of Changes

Most construction contracts include a provision for contractors to give the owner written notice within a certain time period after a potential change is known, and to follow it up with more detailed documentation of potential costs within another specified period of time. 

Court Case:  In Washington State, in 2003, the State Supreme Court issued a decision in the Mike M. Johnson v. County of Spokane case, in which the court held that the contractor, Mike M. Johnson, was bound to the strict notice and documentation requirements of the contract, and that by failing to follow those procedures, they essentially forfeited their right to relief for change order work.  

Prejudice Standard:  The court ruling has been very controversial with contractors and there have been unsuccessful attempts to have state legislation passed that would institute a prejudice standard for filing of notice and documentation.  In other words, if the owner was not prejudiced or damaged by the failure of the contractor to meet the strict time constraints of the contract, the claims could nevertheless be considered.

Resources:  Seattle construction attorney, John P. Ahlers, has written and argued extensively on this subject.  For an excellent, three part, in-depth review of the issues surrounding providing written notice provision and the prejudice standard, I recommend you read John's recent blog entries on the subject:

• May 24, 2011 - Part I - Written Notice Requirements - Time to Revisit the Prejudice Issue

• June 1, 2011 - Part II - Written Notice Requirements - Time to Revisit the Prejudice Issue

• June 7, 2011 - Part III -  Written Notice Requirements - Time to Revisit the Prejudice Issue

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Improprieties by Alaska Procurement Officials

John P. Ahlers, a well-known and respected Seattle based construction attorney, has written in his Construction Law Blog about a bid protest case in Alaska where the protester filed a lawsuit against four procurement officials as individuals.

Read the full blog entry here.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Contractor Involved in Excessive Subcontractor Lawsuits

Ebenal General, Inc., a Bellingham, Washington based contractor has racked up at least 35 lawsuits by subcontractors since 1999, with 14 of those lawsuits in just 2009 and 2010.  That doesn't count the eleven times since 1998 that Ebenal has sued subcontractors to force them "to live up to their agreement," according to the owner of the construction company.  

Statistics such as these are outside the norm for most general contractors.  Contractors with business practices responsible for multiple lawsuits can be problematic for both subcontractors and owners.  

Risks for Subcontractors:  Subcontractors need to be knowledgeable about the integrity and practices of the general contractors they work for.  One project where a contractor fails to pay a subcontractor can be the cause of a subcontractor going out of business.  

Risks for Owners:  Owners who hire general contractors with a poor record of subcontractor relationships and payments and a history of lawsuits can cause project completion to be delayed, often with substantial additional costs to the owner.  Ebenal has recently failed to complete on time a dormitory project at Western Washington University  in Bellingham.

Bidder Responsibility Criteria:  In 2007, the Washington State Legislature adopted RCW 39.04.350 which provides public agencies with the right to establish supplemental bidder responsibility criteria to address issues such as having an excessive history of lawsuits and failure to pay subcontractors in a timely manner.

More Information:  To read an article from The Western Front Online about Ebenal, click here.

Mike Purdy's Public Contracting Blog (© 2010 by Michael E. Purdy Associates) 

http://PublicContracting.blogspot.com