Training: Public Works Bidding and Contracting

2 Day Class on "Public Works Bidding and Contracting"

Mike Purdy

When:  February 26-27, 2015 (8:00 am to 5:00 pm) 

Where:  Kennewick, Washington 

Instructor:  Mike Purdy 

Training Outline:  This two day "Public Works Bidding and Contracting" class will cover the following subjects:

• Types of Public Works Contracts
• What is a Public Work, Ordinary Maintenance, and Maintenance?
• On-Call Public Works Contracts and the State Auditor's Office
• Small Works Rosters
• Developing Bid Documents
• Bid Receipt and Opening
• Bonds and Insurance
• Bid Responsiveness
• Bidder Responsibility
• Bidding and Award
• Prevailing Wages
• Change Orders
• Retainage and Contract Close-out

Cost:

• $140 - WA NIGP Chapter members
• $180 - Non-WA NIGP Chapter members

Sponsored by:  Washington State Chapter of NIGP

Information and Registration:  Click here. Don't delay as decision whether there are enough registrants to hold the class must be made in the next week or so.

Mike Purdy's Public Contracting Blog
© 2015 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Reporting Requirements for Small Works Roster Projects

Most public agencies in the State of Washington have the option, for public works construction projects estimated to cost less than $300,000, of not advertising the project, but of soliciting bids from a Small Works Roster of contractors.

Limited Public Works process:  Small Works Roster projects less than $35,000 are known as Limited Public Works and enable an agency to waive the payment bond, performance bond, and/or retainage.  

Reporting requirements:  Agencies using the Small Works Roster or the Limited Public Works process are required to make certain information available about contracts awarded under these processes.  The reporting requirements for Small Works Roster and Limited Public Works are a slightly different as noted in the chart below:

Small Works Roster	Limited Public Works
Maintain list of contracts awarded and make it available	Maintain list of contractors contacted (solicited) and contracts awarded
List shall be made available at least once every year	Maintain these lists for contracts awarded during previous 24 months under Limited Public Works
List shall contain: Name of contractor Contract amount Brief description of the type of work performed Award date Location where bid quotations for contracts are available for public inspection	List shall contain: Name of contractor Contract amount Brief description of the type of work performed Award date Contractor’s registration number

Meeting the reporting requirements:  Rather than maintaining two separate reporting systems, one for Small Works Roster projects and one for Limited Public Works project, an agency could combine the requirements.  The list below combines requirements and offers practical suggestions for how to meet the requirements:

• Content of list:
• Name of contractors solicited for each project
• Name of contractor awarded each project
• Contractor's registration number
• Contract amount
• Brief description of the type of work performed including project title
• Award date

• Availability of list:  Because the list must be made available once every year, one way to accomplish this would be to include in the annual Small Works Roster advertisement a notice of the availability of the list of previously awarded projects.

• Accessibility of list:  An easy way to make the list available is to include it on your agency's website, or make it available upon request by e-mail or other means of communication.  Update the list regularly as Small Works Roster/Limited Public Works projects are awarded so it is always current.

• Duration of list:  The list should be a cumulative list including at least those Small Works Roster and Limited Public Works projects solicited and awarded within the past 24 months.

State law:  Here are the reporting requirements for these two processes under state law:

• Small Works Roster:   

Any state agency or local government using the small works roster process established in RCW 39.04.155 to award contracts for construction, building, renovation, remodeling, alteration, repair, or improvement of real property must make available a list of the contracts awarded under that process at least once every year. The list shall contain the name of the contractor or vendor awarded the contract, the amount of the contract, a brief description of the type of work performed or items purchased under the contract, and the date it was awarded. The list shall also state the location where the bid quotations for these contracts are available for public inspection.  RCW 39.04.200

• Limited Public Works: 

A state agency or authorized local government shall maintain a list of the contractors contacted and the contracts awarded during the previous twenty-four months under the limited public works process, including the name of the contractor, the contractor's registration number, the amount of the contract, a brief description of the type of work performed, and the date the contract was awarded. RCW 39.04.155 (3) 

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Additional $1.3 Million in Questionable School District Spending Unearthed

A little over a year and a half ago, a scandal calling into question $1.8 million of spending on consultant contracts swept through the Seattle School District. 

What happened then?  That investigation, which centered on the District's Regional Small Business Development Program, ultimately led to the firing of the District's superintendent and its chief financial officer, as well as criminal charges against the program's manager, Silas Potter Jr., who is currently awaiting trial on 41 counts of theft stemming from the scandal.   

New audit finds more questionable payments:  It now seems that the total amount misspent could be much higher, according to a recent report from the Washington State Auditor's Office. In addition to the previous payments, the new investigation calls into question almost $1.3 million of expenditures from Small Works Roster construction contracts awarded by Potter.

Systemic problems found:  The recent report identifies problems in a number of key areas that are essential to a healthy Small Works Roster program:

• Oversight:  The report criticizes the lack of internal controls and oversight.  Checks and balances are important for all public procurement and contracting activities.

• Documentation:  The auditor found that many invoices lacked sufficient details and supporting documentation, and that payments were made when services were not provided.

• Policies:  The district also lacked Small Works Roster policies and procedures to ensure compliance with applicable laws, such as obtaining quotations from the required number of contractors and always executing written contracts with contractors.

• Training:  The audit recommended that managers and staff be trained about effective internal controls, and that staff running the program have the experience identified in the position description.

District response:  The district initially reported its concerns to the auditor to conduct its investigation, and has since made a number of changes to strengthen the management of its Small Works Roster process.

Additional information:

• Seattle Times article on the most recent scandal
• Washington State Auditor's report on the issue
• My previous blog post on the original scandal

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Is a Bid Guaranty Required on Small Works Roster Projects?

Washington state authorizes some public agencies to solicit competitive bids for public works construction projects less than $300,000 without advertising the project in the newspaper.  Instead, the invitation to bid is sent to firms on a Small Works Roster maintained by the public agency.

Bid guaranty requirements:  Many types of public agencies have requirements for a bid guaranty (usually 5% of the amount of the bid) to be submitted with the bid.  Bid guaranties come in the form of either a bid bond, cashier's check, certified check, or cash.

May the bid guaranty be waived?  A project bid under the Small Works Roster process of RCW 39.04.155 is not required by state law to have a bid guaranty submitted.  This is supported by the following:

• Different procedures:  RCW 39.04.155 notes that the Small Works Roster is "in lieu of other procedures to award contracts."  Thus, even if the state law governing a particular agency type requires a bid guaranty on public works projects, the Small Works Roster procedures may be different.

• Electronic bids:  It is permissible under the Small Works Roster requirements for a public agency to accept telephone or electronic bids from contractors.  If a public agency follows this practice, it would be impossible to accept an enforceable bid guaranty over the telephone or electronically.  In other words, a photocopy of a bid bond, cashier's check, certified check, or cash would not be enforceable!

Should telephone or electronic bids be accepted?  Even though it is permissible to accept telephone or electronic bids for Small Works Roster projects, without proper controls and documentation, this can be a problematic practice.  If an agency does accept telephone or electronic bids under the Small Works Roster process, they should automatically waive the bid guaranty requirement.  If the bid guaranty requirement is important to an agency, then bids should be submitted in hard copy format.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Audit Hits Agency for Splitting Public Works Project

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

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

How did the hospital split the project?  Although the facts are not clearly presented in the audit finding, it appears the auditor was suggesting that expenditures from 2008 to date of approximately $614,000 in renovation costs represented one project that should have been advertised and competitively bid. Here's how the auditor outlined how the $614,000 was actually procured:

• $125,800 - advertised for competitive bids
• $269,435 - competitive bids through the Small Works Roster process
• $  72,300 - work performed by hospital employees
• $145,985 - architectural and engineering services

One or multiple projects?   The hospital district disagreed with many of the findings by the auditor, including the auditor's assertion that the district "split the original project into smaller phases, which reduced the estimated project cost and eliminated the requirement for formal sealed bids."  Let's take a look at each of the procurement methods outlined above.

• Advertised for competitive bids:  Hospital districts are required by RCW 70.44.140 to publicly advertise projects over $75,000, unless the Small Works Roster process is used.  By publicly advertising work for $125,800, the district appears to have complied with the requirements for this part of the work.

• Competitive bids through the Small Works Roster process:  The district awarded what appears to be two contracts, totaling $269,435, through the Small Works Roster process.  According to RCW 39.04.155, the Small Works Roster process may be used for any project less than $300,000, in lieu of the requirements of RCW 70.44.140 of advertising projects over $75,000 (applicable to hospital districts).  The question here is whether these two projects were integrally tied into the work that was publicly advertised and the work performed by hospital employees, such that it really constituted one project and not multiple projects.  The audit report does not include any details on this question.

• Work performed by hospital employees:  RCW 70.44.140, which governs public hospital districts, implies that a project estimated to cost less than $75,000 may be performed by district employees rather than through a publicly advertised contract opportunity.  If the $614,000 of renovation work performed was really one project, then the district would not have had the ability to have work performed on that project by district employees.  If, however, the work performed by hospital employees was an independent project, in and of itself, and less than $75,000, then use of district employees would have been appropriate.

There are different thresholds for what work may be performed with an agency's own staff based on the type of agency.

• Architectural and engineering services:  It's unclear why the auditor included the district's costs for architectural and engineering services in the cost of the project.  Typically, the cost of such services is not considered as part of a public works project for the purposes of determining the thresholds for what selection process applies.  The audit also noted that the district failed to obtain these services consistent with RCW 39.80.

What is a public works "project"?  State law doesn't define a public works "project."  So what factors should go into making a reasonable decision as to what constitutes a project for the purposes of various bidding thresholds?  Here are some possible factors, all of which should be considered together when making an appropriate decision on what defines a specific project.

• Agency acting as prime contractor:  If the work to be performed would typically be performed by a single general or prime contractor responsible for coordinating the work of multiple trades, it may be inappropriate to split the project and have the agency act as its own prime contractor in coordinating the work.  Not only is there the risk of potentially splitting a project for bid threshold determinations, but an agency picks up liability in coordinating the work of multiple subcontractors, with possible on-site conflicts and warranty issues.

• Small Works Roster prohibition on splitting:  RCW 39.04.155 which governs Small Works Roster projects, prohibits splitting a project in order to be less than the $300,000 threshold for use of the Roster.  It states that "the breaking of any project into units or accomplishing any projects by phases is prohibited if it is done for the purpose of avoiding the maximum dollar amount of a contract that may be let using the small works roster process or limited public works process." [emphasis added]  Thus, splitting a project into units or phases may be appropriate, depending on the reasons for splitting it.

• Where is the work to be performed?  If the work to be performed is all at one location, it may suggest that it is one project.  Location, of course, isn't defined and is subject to interpretation.  If, however, the work to be performed is at multiple locations, it might be argued, depending on the facts, that the work constitutes multiple projects.

• What is the purpose of the work?  If there is a necessary connection between the different elements of the work, such that it is important to have one contractor be responsible for all of the work, perhaps the work should be considered as one project.  If, however, the work could be independently contracted for without compromising other parts of the work, then separate projects may be appropriate. 

• What is the duration of the work?  If similar work is to be performed over a period of time, it tends to suggest that the work may consist of multiple projects.  If, however, the work of separate "projects" is all performed at the same time, it might indicate that the work really is one project.  

• What is the funding source?  If the funding source for work is all the same, it may suggest that the work constitutes one project.  If the work is accomplished over a number of years in order to afford the work, it may be one project, or depending on the facts, it may be appropriate to have multiple projects.  Multiple funding sources may suggest multiple projects, but not always.

• What is the intent of multiple projects?  If the intent of having multiple projects, rather than one project, is to avoid triggering various bidding thresholds, such an action would be problematic.  If, however, the intent of having multiple projects, rather than a single project, is based on legitimate business and operational considerations, it may be appropriate to divide the work into multiple projects.

Your comments?  This list of factors is the beginning point for a discussion on how to evaluate what defines a public works "project."  I welcome any comments or suggestions you may have on how to make the determination of what constitutes a "project."

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Reciprocal Bid Preference for Public Works Starts March 30, 2012

Washington state's new reciprocal bid preference law for public works projects will go into effect on March 30, 2012, according to information published by the Department of Enterprise Services (DES).

What public agencies are affected?   RCW 39.04.380 afffects all state and local agencies in Washington with the authority to procure public works.

What is a Reciprocal Bid Preference?  The following is an excerpt from the state's recent announcement:

Beginning March 30, contractors from states that have an in-state bidder preference competing on public works projects in Washington will have a reciprocal amount added to their bid proposals.  The reciprocal amount will be added to bring them in line with the disadvantages contractors based on Washington face when bidding on projects in Alaska, Nevada, New Mexico, and Wyoming."

How is the bid preference calculated?  Public agencies in Washington state should add a reciprocal disadvantage to all public works bids submitted by contractors from states with an in-state bidding preference (Alaska, Nevada, New Mexico, Wyoming).  The disadvantage amount will be equal to the advantage given by the state with the bidding preference.

Example of Calculation:

 

Alaska contractor bid amount	$100,000
Multiplied by Alaska bidding preference	x    0.05
Total	$5,000
Alaska contractor bid amount	$100,000
Amount added to Alaska contractor bid	$5,000
Final bid total for award evaluation	$105,000

If the Alaska contractor's final bid total is lower than the bid amounts submitted by all other contractors, including those from Washington, then the Alaska contractor is the successful bidder, and will be awarded a contract for the bid amount of $100,000.

What percentage preferences apply?  The four states with an in-state bidding preference for public works projects (Alaska, Nevada, New Mexico, Wyoming) all have a 5% bid preference for in-state bidders. 

 

What state is a contractor from?  The state of residence for a nonresident contractor is the state in which the contractor was incorporated or, if not a corporation, the state where the contractor's business entity was formed.  Public agencies will need to collect information indicating the state of residence of the bidders.  This may be accomplished either on the bid form or after bid opening. 

 

What is a nonresident contractor?  Nonresident Washington state contractors, at the time of bidding a public works project, are "from a state that provides a percentage bid preference to its resident contractors bidding on public works contracts" and do not have a physical office located in Washington.  Washington state resident contractors, on the other hand, have a physical office located in Washington.

What is the effective date of the new law?  The state has indicated the new requirement will be effective as of March 30, 2012, but does not specify whether that is based on bidding or award date.  In order to apply the new law, bidders will need to understand the reciprocal bid preference, and thus it seems to me, that the March 30 date would be for any project with a bid submittal deadline of March 30 or later.  Bidding documents should address the reciprocal bid preference, by addendum if necessary.

Language for Bidding Documents:  The Department of Enterprise Services has amended its Instructions to Bidders to include language addressing the implementation of the reciprocal bid preference.  Public agencies should review this language in sections 0.01 A and 0.12 E and include appropriate language in their bidding documents regarding the reciprocal bid preference requirements.  Click here to review the state's Instructions to Bidders.

Non-Applicability:  The reciprocal bid preference requirements do not apply to:

• Small Works Roster or Limited Public Works projects (RCW 39.04.155)

• Emergency public works projects (RCW 39.04.280)

• "Any other procurement exempt from competitive bidding."  Although not explicitly stated, this may include public works procurements that are not based strictly on competitive bids such as alternative public works contracts (RCW 39.10) and procurements covered in RCW 39.04.270 (electronic data processing and telecommunications).

Additional Resources: The following links from DES provide additional information:

• DES announcement of March 30, 2012 effective date
• DES report to the Legislature, December 2011
• Bidding Preference Survey of States
• DES Instructions to Bidders

Questions and Comments: 

• Roland Orr, DES contracts manager, may be contacted for more information: (360) 407-9361 or roland.orr@des.wa.gov.

• I'm interested in hearing from you about any specific questions you may have about interpreting or implementing this new provision.  Please contact me with your thoughts

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Soliciting Firms on Small Works Roster to Bid

Public agencies in the State of Washington who chose to establish and maintain a Small Works Roster must follow the solicitation requirements outlined in state law (RCW 39.04.155).

Projects Not Advertised:  Small Works Roster projects ($300,000 and under) are not publicly advertised.  Instead, public agencies solicit the firms on the roster or appropriate rosters (if separate rosters by trade or geography have been established) when a project arises. 

Roster Solicitation Requirements:  The following chart identifies the requirements for soliciting firms on the Roster with bidding opportunities.  

For each dollar range threshold below, there are two options for solicitation: 

1. Solicit all firms on the Roster (or appropriate rosters), or 
2. Solicit five contractors, which comes with the requirement to "equitably distribute" opportunities to all firms on the Roster over time. 

In other words, it's not okay to simply go to the same firms on the Roster time after time, and ignore others on the Roster.

Audit Finding:  The Washington State Auditor's Office recently issued an audit finding against the Town of Woodway in Snohomish County regarding the use of their Small Works Roster.  The Town had a storm drainage project estimated to cost $184,765.  Because it was estimated to cost $150,000 or more, the Town had an obligation to either solicit from all the contractors on the Roster, or to solicit from at least five contractors, and notify the remaining contractors on the Roster of the opportunity.  The Town solicited bids from seven contractors, but did not notify the other contractors on the Roster that it was soliciting bids.

Procedures:  Does your agency have procedures in place to ensure that the Small Works Roster is being used appropriately?

Additional Audit Findings:  The same audit report found that the Town of Woodway also failed to withhold retainage or obtain a retainage bond on a different public works project.  On a third public works project, the Town released retainage before receiving releases from the Department of Revenue, Employment Security Department, and the Department of Labor and Industries.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Seattle Drops Small Works Roster

The City of Seattle announced last week that it is eliminating its Small Works Roster program for public works construction projects valued at less than $300,000.

Limited Use:  City officials indicated that the demise of the 10 year old Small Works Roster was due its limited use.  Last year, the City bid only six projects through the Small Works Roster.  

More Use of Job Order Contracting:  Increasingly, the City has been using its two Job Order Contracts as the tool to complete smaller public works projects.  Advantages of Job Order Contracting over the Small Works Roster include the ability to have the contractor participate in the design process and increased use of women and minority owned businesses.  Only certain public agencies in the state are authorized to use Job Order Contracting (RCW 39.10.420).

Custom Rosters:  When the City's Small Works Roster ends on March 1, 2012, the City will continue to rely on Job Order Contracting and City crews for completing smaller construction projects.  In addition, the City will develop a few custom rosters for work at remote locations.

State Law:  Washington State law, RCW 39.04.155, permits public agencies to solicit bids from contractors on their Small Works Rosters as an alternative to advertising public works projects less than $300,000.  Just like an advertised project, a Small Works Roster project must be awarded to the low responsible bidder submitting a responsive bid.

More Information:  The February 23, 2012 issue of the Seattle Daily Journal of Commerce includes an article on the City of Seattle's decision to drop its Small Works Roster.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

When Should Bidding Documents be Made Available to Bidders?

Making bidding documents available to bidders early - or late - both have negative consequences to the bidding process.

Early Availability of Bidding Documents:  A public agency that provides bidding documents to some bidders prior to the advertisement in the newspaper, or prior to notification to contractors on a small works roster, gives those bidders a competitive advantage over the other bidders. The bidders who receive the bidding documents early have additional time in which to review the documents and prepare their bid.  

• Protests:  Providing bidding documents to some bidders early increases the risk that a public agency will receive a bid protest from other bidders who were not afforded the additional time.

• Transparency:  In public contracting, it is important that the process be fair and transparent, and that it builds the confidence of the contracting community and the public in the integrity of the process. Providing bidding documents early to some bidders creates a perception that the public agency is favoring some bidders over others, and that the process is not an open one

Late Availability of Bidding Documents:  When a public agency announces through an advertisement or a roster process that the bidding period has begun, the bidding documents should be available right away.  Failure to have documents available reduces the effective bidding period.

• Non-Compliance with Laws:  Reducing the time allowed for bidders to prepare their bids may result in a shorter time period for bidding than applicable laws may require.

• Fewer Bidders:  Not having the bidding documents availability immediately gives less time for bidders to actually prepare their bids.  As a result, some bidders may choose not to bid given the shortened time period.

• Higher Bid Prices:  Finally, reducing the bidding period by not having the bidding documents available when the project is publicized may result in bids that are not competitive.  If bidders do not have sufficient time to review the documents, understand the project, and assess the risks, they may increase their bid price to deal with these issues.

Mike Purdy's Public Contracting Blog 
© 2011 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Free Webinars on MRSC's Rosters for Construction and Consulting

Many public agencies solicit bids and proposals from contractors and consultants on rosters, rather than advertising each project separately.  When and whether to use rosters is generally a matter of either state or local laws.

MRSC Rosters:  The Municipal Research and Services Center (MRSC) announced that it will offer three free webinars describing how its small public works and consultant rosters operate.

When:  The webinars will be held from 10:00 a.m. to 11:00 a.m. on the following dates:

• October 4, 2011 (Tuesday)
• October 20, 2011 (Thursday)
• October 26, 2011 (Wednesday)

Information and Registration:  For more information and to register for attending one of the free webinars, visit MRSC's website.

Other Cooperative Rosters:  In the State of Washington, www.eCityGov.net also maintains a cooperative roster with participation by a variety of public agencies.  There are also some rosters that are cooperative efforts between a couple of public agencies located near one another.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

To Bond or Not to Bond

Most public agencies have requirements to obtain payment and performance bonds on public works construction projects.

Why Are Bonds a Good Idea:  A payment and performance bond serves as a form of insurance or protection for the public agency, taxpayers, and others to protect against two types of events: 

1. The contractor doesn't pay subcontractors, suppliers, or workers 
2. The contractor fails to perform the work

Especially in this troubled economy where many contractors are on shaky financial footing, it's a good idea for public agencies to have protection beyond the assets of the contractor alone.  That's why most states have laws requiring payment and performance bonds.

Ohio's Gamble: Ohio State University (OSU) recently awarding a $1 billion Construction Manager at Risk hospital project without a requirement for the contractor to submit a  payment and performance bond.  

• OSU's Position:  OSU argued that the bond was not required since the law requiring bonds applied only to "bidders," and Turner Construction Company was not a bidder, but was selected as the Construction Manager based on a qualifications based process. 

• The Challenge to OSU:  The American Subcontractors Association (ASA) and the Surety and Fidelity Association of America (SFAA) disagreed and took OSU to court.  ASA and SFAA argued that projects came under the Construction Demonstration Reform Projects authorized by the Ohio Legislature (HB 318) that requires that 

"in developing their Construction Demonstration Reform Projects, the state institutions of higher education are not exempt from the applicable provisions of law concerning...bonding..."  

• The Court's Decision:  The Supreme Court of Ohio dismissed the lawsuit on June 21, 2011, noting that ASA and SFAA lacked standing to file the case.  With $1 billion at stake let's hope there are not performance or payment problems on the project.

More Information:  For additional details about the OSU case, see the following links:

• A Bond Loophole? by Keane E. Aures, Robinson & Cole, LLP, Attorneys at Law
• American Subcontractors Association

Evaluate the Risk:   Even in those limited cases where laws permit a public agency to waive or reduce bonding requirements, public agencies should evaluate the potential risk to the project.  

• Example:  In Washington State, a public agency using a Small Works Roster process with a project costing less than $35,000 may waive the bonding requirements, provided that the agency agrees to pick up the liability in the event of claims.  

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Is a Bid Guaranty Required on Small Works Roster Projects?

In Washington State, most public agencies may streamline the selection of a contractor for public works projects less than $300,000, by not publicly advertising these projects but instead sending the Invitation to Bid to firms on the agency's Small Works Roster.

The Question:  The requirements for Small Works Rosters are found in RCW 39.04.155.  Many of the public agencies that use a Small Works Roster also have specific laws requiring them to obtain a bid guaranty from bidders on public works projects.  So, is a bid guaranty required on a Small Works Roster project for these agencies?  I was recently asked this question in a class I taught for contract administrators from many different agencies. 

No Bid Guaranty on Small Works Roster Projects:  I think there is a strong case to be made that a bid guaranty is not required on a Small Works Roster project.  I base my opinion on two elements from the Small Works Roster law (RCW 39.04.155):

• Alternative Procedures:  RCW 39.04.155 (1) states that "these [Small Works Roster] provisions may be used in lieu of other procedures to award contracts..."  Thus, as an example, even though second class cities are required by RCW 35.23.352 to obtain a bid guaranty on public works projects, the argument can be made that such requirements don't apply for Small Works Roster projects.  However, RCW 39.04.155, in describing the procedures for Small Works Rosters, doesn't specifically discuss bid guaranties at all, so technically there are no alternate procedures relating to bid guaranties.

• Electronic Quotations:  Perhaps more convincing, however, is that RCW 39.04.155 (2)(c), in describing Small Works Rosters, states that procedures shall be established by the public agency "for securing telephone, written, or electronic quotations from contractors..."  Thus, it is permissible under the Small Works Roster process to receive telephone or electronic quotations.  In the event an agency does this, obviously it would not be possible to obtain a bid guaranty since the guaranty couldn't be submitted by telephone or electronically.

Reasons to Still Require a Bid Guaranty:  Thus, all things in balance, I don't think it is required that public agencies obtain a bid guaranty on a Small Works Roster project.  However, just because it might not be required, doesn't mean that agencies should automatically waive bid guaranties.  There are some very good reasons for requiring a bid guaranty, especially in this difficult economic market.  Many contractors are struggling with obtaining bonding on public works projects.  A bid guaranty (especially a bid bond) is an indication that the contractor will be able to obtain Payment and Performance Bonds, and may serve as a good screening tool to ensure that only financially viable companies bid on public works projects.

Talk With Your Attorney:  In deciding whether to require a bid guaranty on a Small Works Roster project, consult with your attorney and others as you make a legal and risk analysis of how to approach this question.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Public Works Selection Processes and Requirements

The State of Washington has a number of different selection (or project delivery) processes that may be used for public works projects.  Despite the different processes, certain requirements apply to all public works projects.

Public Works Selection Processes:  In Washington State, the following are the basic options for selecting a contractor for a public works project:

• Advertise the Project:  Publicly advertise the project and award to the responsible bidder submitting the low responsive bid.

• Small Works Roster:  Solicit bids or quotations from contractors on the agency's Small Works Roster and award to the responsible bidder submitting the low responsive bid, consistent with RCW 39.04.155.

• Limited Public Works:  Use the Limited Public Works process for projects less than $35,000 (part of the Small Works Roster), and award to the responsible bidder submitting the low responsive bid.

• Direct Selection if Less than the Bid Limit:  Select a contractor without competition (or consistent with the agency's policies) if the dollar amount of the project is less than the threshold for competition for that type of public agency (often referred to informally as the "bid limit").  Different types of public agencies (cities, counties, port districts, school districts, fire protection districts, etc.) often have separate state laws that apply to their procurement of public works, services, and goods and supplies. 

• Job Order Contracting:  This alternative public works process provides for the selection of a job order contractor to perform certain public works for less than $300,000 based on a unit price book.  The contractor is selected based on qualifications and their markup (coefficient) of the unit prices.  Under this process, outlined in RCW 39.10, 90% of the work must be subcontracted.  Not all public agencies are authorized to use this process.

• General Contractor/Construction Manager (GC/CM):  This alternative public works process is also outlined in RCW 39.10 and provides for early selection of the contractor based on a combination of qualifications and limited pricing.  Generally used for projects of $10 million or more and requires approval of the State's Project Review Committee for a public agency to use this process.

• Design-Build:  Another alternative public works process outlined in RCW 39.10 in which the public agency contracts with one firm to provide both the design and construction of the project.  Limited to projects of $10 million or more and requires approval by the State's Project Review Committee for a public agency to use this process. 

Required for All Public Works Projects:  

• Mandatory Bidder Responsibility Criteria:  Regardless of the selection or project delivery process used, all public agencies in Washington must ensure, prior to award, that the successful contractor meets the mandatory bidder responsibility criteria outlined in RCW 39.04.350.

• Resident Bid Preference Requirements:  Under the recently adopted legislation (2SSB 5662), once the State Department of General Administration (GA) surveys the practices of other states and adopts regulations implementing the legislation, public agencies in Washington will be required to provide a bid preference to resident contractors over out-of-state contractors.  Because it appears the legislation was written primarily with traditional public works projects in mind, GA will need to address in their regulations how the bid preference will be applied, if at all, to the three alternative public works contracting procedures outlined above. The legislation, which has not yet been signed by the Governor, states the following:

• "In any bidding process for public works in which a bid is received from a nonresident contractor from a state that provides a percentage bidding preference, a comparable percentage disadvantage must be applied to the bid of that nonresident contractor."

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

King County (WA) Announces New Online Roster Programs

On April 4, 2011, King County rolled out a new online system to manage their Architectural & Engineering Roster and Small Works Roster. Firms can now apply for and manage their membership in both rosters online. 

Less Than $300,000:  Both rosters which will be used for projects under $300,000. While King County will begin using the new system to solicit bids starting in June, firms can apply any time during the year.

Application Process:  To apply to the online roster, firms should be registered with the King County Online Vendor Registration (OVR) program. To register with the OVR system and apply to the rosters, visit the OVR account page.

More information:

• Read the announcement
• King County OVR account page
  • Small Works Roster application guide (PDF)
  • Architectural & Engineering Roster application guide (PDF)

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Seattle Schools Scandal: Poor Management Oversight at Best

The Seattle Times has published an excellent article on March 20, 2011 focusing on the role of Fred Stephens, who was the supervisor of Silas Potter, the individual at the center of a Seattle School District contracting scandal exposed by the Washington State Auditor's Office and the Seattle Times.  

The scandal involves the awarding of $1.8 million of questionable contracts in support of the District's now defunct small business development program.  The scandal has resulted in the firing of the Seattle School District's superintendent and top financial officer earlier this month.

Fred Stephens is now a top official in the U.S. Department of Commerce.

Click here to read the Seattle Times article.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Contracting Scandal and Fraud Rocks Seattle School District

The Seattle School District is embroiled in a damaging contracting scandal involving allegations of fraud in the management and award of contracts surrounding its program designed to promote the use of minority and women owned businesses.  

Superintendent May Be Fired:  The crisis, which became public last week with the publication of a special investigative audit by the Washington State Auditor's Office, has put the jobs of school superintendent Maria Goodloe-Johnson and other high ranking officials, at risk.

Fraud:  At the center of the scandal is a former district employee, Silas Potter, Jr., who resigned in June 2010, when he deposited a $35,000 check made out to the District into a private company he had established with the same name as the District program he managed (Regional Small Business Development Program).

Questionable Payments by District:  The audit found that, through the District's small business program that Potter managed, the District paid:

• $1,519,965.34 for services with a questionable public purpose
• $280,005.25 for services it did not receive and for services that benefitted a private company.

How Did the District Produce Results?  While the District produced statistics over the years about the high percentage of minority and women owned businesses utilized on construction projects, many wondered how the District could obtain such results given the requirements of Washington state law requiring award of contracts to the low bidder.  

District Lobbied for State Law Change:  One tool the District apparently took advantage of was a change in state law that the District lobbied for.  In 2007, the Legislature approved changes to the Small Works Roster program (RCW 39.04.155) permitting public agencies to essentially restrict competition on projects less than $35,000 (Limited Public Works process) to businesses with gross annual revenues under $1 million.  The District also apparently produced results through questionable awards of contracts to businesses who did not perform legitimate services.

Warning Signs Ignored by District:  In 2009, the District received a report from a private consultant hired by the District to investigate Potter's management of the Small Works  Roster program.  The report from the Sutor Group resulted in the District stripping Potter of his responsibilities for awarding construction contracts and resulted in a reorganization within the District, but it still left Potter able to award consultant (personal service) contracts, which he continued to do, many to friends and associates.  According to the State Auditor's Office report, many of these contracts did not result in work actually being performed, but the entities were nevertheless still paid.

Organizational Conflict of Interest: While it is clear that Potter was not sufficiently supervised, it is also clear that the District set the stage for the scandal by creating an organizational structure with an inherent conflict of interest that did not segregate the functions of small business development from procurement and contracting.  Potter was authorized to not only encourage the development and use of small businesses, but to actually award those contracts to them, thus making his program look successful.  Without checks and balances in place to ensure that procurement laws are followed, there are no guarantees that programmatic objectives will not override regulatory requirements.

More Information:  The Seattle Times and State Auditor's Office have conducted significant investigations and written extensively on the scandal.  The following are some of the many good resources available for more information:

• State Auditor's Office audit

• State Auditor's Office - Summary of interview and findings

• Seattle School District Independent Investigative Report from attorney Patty Eakes (February 25, 2011)

• Seattle Public Schools spending targeted in criminal probe (Seattle Times article from Feb. 22, 2011)

• Seattle schools officials were warned two years ago of financial problems (Seattle Time article from February 23, 2011)

• Documents detail financial abuse in Seattle schools program (Seattle Times article from February 24, 2011)

• School superintendent could be ousted within a week over spending scandal (Seattle Times article from February 25, 2011)

• Brash furniture man made school program his fiefdom (Seattle Times article from February 26, 2011)

Lessons Learned: 

• Checks and balances and internal controls in public contracting are critical.

• Supervision of employees, especially those involved in contracting decisions, is critical.

• Public agencies should have clearly documented procurement and contracting procedures that should be followed.

• Public agencies should carefully and regularly evaluate the management of their contracting program, looking for areas of exposure and risk.

• Public agencies should institute procedures to enable employees to report inappropriate activities.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Bill to Encourage Use of Small Businesses

Substitute House Bill 1173 is an improvement over the original version of the bill introduced into the Washington State Legislature (see my earlier blog entry on the bill).

What is the Intent?  The substitute bill is essentially just a clean up of language from RCW 39.04.155 and doesn't appear to make any substantive changes.  The intent of the bill is probably to give public agencies an option on Limited Public Works process to restrict competition to small, micro, and mini-businesses.  But it doesn't really do that, just like the existing law doesn't really do that.

Alternative Language:  I think the intent of Section 5 might be more accurately expressed if it read as follows:  

"A state agency or authorized local government using the limited public works process of subsection (3) of this section may choose to restrict soliciting quotations or bids and awarding small works roster contracts to small businesses, minibusinesses, and/or microbusinesses that are registered contractors."

Encouraging Use of Small Businesses:  The current language of RCW 39.04.155 and the proposed substitute bill that allows agencies to adopt procedures to "encourage" smaller businesses to submit bids is curious language.  An agency always has the right to "encourage" certain firms to submit bids.  Thus, in my suggested "intent" language above, I've eliminated the "encourage" language to suggest that agencies would have the option to restrict competition on the limited public works to small businesses, minibusinesses, and/or microbusinesses.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

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

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

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

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

HB 1173 would make the following changes in existing law:

• Small Business and Microbusiness Definitions:  Two new definitions would be created.  Both a small business and a microbusiness must be "owned and operated independent from all other businesses."  A small business must have an annual gross revenue of less than $7 million, and a microbusiness must have an annual gross revenue of less than $1 million.  For both types of businesses, public agencies would need to verify the revenue based on what the business reported on its federal tax return or its return filed with the Department of Revenue.

• Increase Limited Public Works Process Threshold:  The threshold for use of the Limited Public Works process would increase from projects estimated to cost less than $35,000 to those estimated to cost less than $50,000.

• Restrictions on Soliciting Contractors Based on Size:  HB 1173 would require that public agencies could only solicit "small businesses" for projects under the Limited Public Works process (those less than the proposed new threshold of $50,000).  This means that larger contractors would not be eligible to participate in these smaller contracts.  Furthermore, HB 1173 would restrict competition on Limited Public Works projects estimated to cost less than $35,000 to only "microbusinesses" (those with an annual revenue of less than $1 million).

Implications of HB 1173:  The following are some of the implications of HB 1173 if it is approved as drafted:

• Roster Administration:  Public agencies using the Limited Public Works process under the Small Works Roster would pick up additional duties of verifying the annual revenue of contractors to determine eligibility to bid on smaller projects.

• Less Competition:  Under HB 1173, there may be fewer contractors submitting bids on projects estimated to cost less than $50,000.  As a result of limiting the competition to only small businesses, public agencies may see an increase in prices.

• More Use of Small Businesses:  HB 1173 is a measure designed to increase the participation of small businesses in public contracting by carving out certain contracts in which they are only competing against other small businesses.  The objective of increasing the use of small businesses (many which are minority or women owned) on public works projects has been a long term strategy of many, especially since the passage of Initiative 200 in 1998 by the voters of the State of Washington.

• Delayed Contract Close-out:  By increasing the Limited Public Works threshold to $50,000, HB 1173 would alter the current alignment of when retainage release approvals are required from state agencies (Revenue, Employment Security, Labor and Industries).  Currently, with a $35,000 threshold for the Limited Public Works process, none of these projects require that public agencies notify the three state agencies to obtain approval for release of retainage.  By increasing the Limited Public Works process threshold to $50,000, it would mean that projects of $35,000 or more up to an amount less than $50,000 would be required to go through the often time-consuming process of obtaining releases from the state agencies before retainage could be released to the contractor.  This approval process would be required even if a public agency had waived withholding of retainage, potentially opening up a public agency to claims against the retainage from one of the three state agencies for retainage that was not withheld (and increasing the financial liability of the public agency).

Committee Hearing:  The House Committee on Community Development & Housing will hold a public hearing on HB 1173 at 1:30 p.m. on Monday, January 24, 2011.  The bill analysis prepared by House staff may be read by clicking here.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com