The Dilemma of Low Bids and Contractor Performance

The Question:  Are public agencies required to award public works construction projects to the low bidder, even if the low bidder has a history of poor performance or a pattern of filing unjustified change order requests and claims?

While there are some tools available to public agencies to help manage the low bid process, those tools must be managed carefully, and even then it may be difficult to disqualify the low bidder.

Not all agencies are authorized to use all of the following tools.  Check your local and state laws to determine if you can use these tools.  The following is a very quick summary introduction to some of the issues involved.

Pre-Qualification:  Under this process, a public agency only accepts bids from contractors who have already gone through a qualifications-based short listing process.  It is often authorized for agencies with specialized work, such as for electrical work.  In theory, it limits the bidding pool only to qualified contractors.

Bidder Responsibility Criteria:  This process is similar to Pre-Qualification except that the review of the contractor's qualifications occurs after the bid submittal deadline instead of before it.  Criteria must be relevant, fair, defensible, and not overly restrictive of the bidding pool.  In Washington State, supplemental bidder responsibility criteria may be used and are outlined in RCW 39.04.350.

References:  Reference checks with previous owners is often a part of a bidder responsibility analysis.  Owners desiring to use references as a means to disqualify a bidder should proceed with caution.  There are often personality conflicts that may have occurred on a previous project that may impact the comments of a reference.  Public agencies should provide bidders who may be disqualified based on reference checks with the opportunity to provide feedback on the comments received.

Performance Evaluation Program:  If implemented correctly, this can be one of the most effective tools for not awarding contracts to contractors with a consistently poor record of performance.  A performance evaluation program should be included in the bidding and contract documents, with clear and relevant evaluation criteria, an appeal process, and how poor performance evaluation scores will be used in making future award decisions.

Think Strategically:  If your agency is facing specific issues about unqualified contractors being awarded projects, it is best to think strategically about the particulars of your situation as well as what is authorized by your state and local laws.  If you would like assistance in thinking through these issues, or in developing a contractor performance evaluation program, please contact me.

Labor and Industries Issues Q&A on EHB 2805

Engrossed House Bill 2805, which passed the Washington State Legislature in the spring of 2010 requires contractors and subcontractors to report certain information on the Affidavit of Wages Paid form about work that was prefabricated off-site, out of the State of Washington, specifically for a public works project.

Q&A Document Published:  The Department of Labor and Industries on August 11, 2010 issued a Q&A document on the new law.  I was not able to locate L&I's document on their website (having only received it by e-mail), so I have placed a copy of it on my website.  You may view if by clicking here.

What Agencies Are Exempt from EHB 2805?  Many agencies have asked what the new law refers to when it states that it does not apply to "local transportation public works projects."  In L&I's Q&A document, they have characterized the exemption as applying to "local transportation agencies" which is not what EHB 2805 states, and is, I think, misleading.  EHB 2805 refers to types of public works projects that are exempt, and that are conducted by "local" agencies.  It does not refer to "local transportation agencies."  I have contacted a key senator who was apparently influential in the exemption language for "local transportation public works projects" to find out more about the intent and scope of that exemption.  I will share what I find out as soon as I hear more information.

More Information:  I've written about this new law a couple of times previously in my blog:

• May 16, 2010 - basic explanation of the new law
• July 27, 2010 - contract language available from State General Administration Department

Training: Contracting for Services in Washington State

Topic:  Contracting for Services in Washington State

Where and When (10:00 a.m. to 2:30 p.m.) - choose one location:

• Everett (September 14, 2010)
• Renton (September 16, 2010)
• Camas (September 21, 2010)
• Yakima (September 30, 2010)

Cost:  Free

Agenda:  

• What's the difference between purchased services, personal services, and professional services?
• What dollar thresholds apply for selection?
• What laws apply to different types of contracts?
• What advice do consultant give for how a public agency should structure and RFP or RFQ?

Sponsored by:  Washington State Chapter, American Public Works Association, Contract Administration Subcommittee

For more information and to register, click here.

Alabama Official Gets 10 Years in Prison for Accepting Bribes

A former Jefferson County, Alabama elected commissioner was sentenced on July 29, 2010 to ten years in prison for accepting bribes from an engineering company in exchange for awarding, without use of competitive selection processes, more than $11 million in sewer-related professional service contracts to the company, U.S. Infrastructure.

According to the U.S. Department of Justice, Sohan Singh of U.S. Infrastructure "regularly gave White $100 bills in white envelopes.  The amount routinely was $2,000, but ranged from $1,000 to $4,000."

Restitution Ordered:  The federal judge who sentenced Gary White also ordered White "to pay $22,000 in restitution to the Jefferson County Commission and to forfeit $22,000 to the government as proceeds of illegal activity."  Whilte must report to prison on August 30, 2010.

Click here to read the press release from the U.S. Department of Justice.

Question:  Does your public agency have controls in place to prevent abuses such as this, and do you have clear consultant selection procedures that include review of the selection process by more than one individual?  Checks and balances in procurement systems are important tools.

GC/CM Training

I provided training for City of Bellingham (WA) staff on Tuesday, August 10, 2010 on the use of the General Contractor/Construction Manager (GC/CM) project delivery method as authorized by chapter 39.10 RCW.  

The City is hoping to use GC/CM for their Post Point Wastewater Treatment Plant Improvements project.

The following is a detailed outline of the training:

What is GC/CM?

• Authority
• Definition
• Overview of Selection Process
• Philosophy
• Role of Project Review Committee (PRC)
• Public Owners Approved by PRC

Why Should GC/CM Be Used?

When Should GC/CM Be Used?

How Do You Select a GC/CM?

• Do it Early
• Schedule Elements
• 3 Step Process
• Request for Proposals (RFP)
• RFP Evaluation Criteria
• Weighting of RFP Evaluation Criteria
• Price Selection Formulas
• Should a Bid Guaranty Be Required?
• Pre-Proposal Meeting
• Receiving and Reviewing Proposals
• Evaluation Committee
• Notification to Proposers After Review
• Content of Evaluation Form
• Interview Preparation
• Sample Interview Evaluation Criteria
• Interview Evaluation Process
• Notification to Proposers After Interview
• Request for Final Proposals (RFFP)
• RFFP Internal Consistency
• RFFP Summary Matrix of Cost Allocation
• Opening GC/CM's Prices
• Score Sheets

Preconstruction Services

• Partnering
• Pricing Options
• Payment Issues
• Contract Issues
• Sales Tax
• Insurance
• Prevailing Wages

What is the "Total Contract Cost"?

• Fixed Amount for Specified General Conditions
• Percent Fee on the MACC
• Maximum Allowable Construction Cost (MACC)
• Percentage for Risk Contingency
• Negotiated Support Services
• How the MACC Works
• Summary of Contingencies

What Are the Owner's Responsibilities?

• Documents
• Constructability
• Budget
• Staffing
• Disputes
• Responding to Claims
• Reporting to CPARB

How Do You Contract for GC/CM Services?

How is Subcontract Bidding Handled?

• Award of Subcontract Bids
• Bonding
• Claim of Error
• Negotiation of Bid Prices
• 4 Options for Subcontractor Selection
• Self-Performed Work by GC/CM
• Subcontractor Eligibility Criteria
• Subcontractor Responsibility
• Subcontractor's Bill of Rights

Managing Construction

• Key Issues
• Who is Responsible for Trade Damage
• Insurance
• Prevailing Wages

 5 Outstanding Issues

• MACC Negotiation
• Early Subcontract Bidding
• Subcontractor Eligibility
• Allocating and Managing Cost Categories
• Subcontractors and Union Membership

If you are interested in discussing me providing this training for you, please contact me. 

Prevailing Wages May Now Be Included by Reference Only in Bidding and Contract Documents

The Washington State Department of Labor and Industries (L&I) announced on August 9, 2010 that public agencies may now comply with the requirement that prevailing wage rates be included in bidding and contract documents by including L&I's website address for prevailing wage rates.  

Major Policy Shift:  This new policy represents a significant departure in L&I's historical interpretation of RCW 39.12.030 in which they have previously argued the law required including a complete hard copy listing of the prevailing wage rates.  

Easy and Green:  The new interpretation of RCW 39.12.030 will make bidding public works projects easier and greener.  It will have a large impact especially on small projects where the prevailing wage rates were often many times longer than the actual specifications.

What Must Be Included?  In making this additional option available for public agencies, L&I issued the following instructions for what public agencies should include in the bidding and contract documents if they choose to include the URL to L&I's prevailing wage rate pages instead of including a hard copy of the wage rates in the documents.  I have also added my comments to some of the items:

• Date:  Identify the exact wage publication date to use.  This is noted on L&I's website as "Effective Date" which is actually more accurate than "wage publication date."  Wages become effective 30 days after publication by L&I.   Remember that prevailing wages are effective as of the bid submittal deadline.  L&I publishes wages twice a year.
• County:  State the county in which the public works project is located.
• Copy Available for Viewing:  Specify that a copy of the prevailing wage rates is available for viewing at the public agency's office.
• Rates Mailed Upon Request:  Note that the public agency will mail a hard copy of the prevailing wage rates upon request.
• Keep Hard Copy for the File:  Retain a printed version of the applicable prevailing wage rates as part of the records of the public works project.  This is important from both an enforcement and audit perspective.

Options:  The new policy is one option for including prevailing wages in bidding and contract documents.  Public agencies have the option of still including a hard copy of the prevailing wages instead of referencing L&I's URL.

Suggested Language:  If your agency chooses to exercise this new policy option made available by L&I, I've included below some language I wrote that you may want to consider to help you as you implement referencing L&I's website address.  Consult with your appropriate decision makers and attorneys to make sure the language meets your needs.  If you have suggested changes to the language, please contact me.

The State of Washington prevailing wage rates applicable for this public works project, which is located in ________ County, may be found at the following website address of the Department of Labor and Industries:  https://fortress.wa.gov/lni/wagelookup/prvWagelookup.aspx.   Based on the bid submittal deadline for this project, the applicable effective date for prevailing wages for this project is _____________. A copy of the applicable prevailing wage rates are also available for viewing at the office of the Owner, located at _____________________.  Upon request, the Owner will mail a hard copy of the applicable prevailing wages for this project.

Residential Wage Rates: If you believe your public works project is subject to residential prevailing wage rates, be aware of the provisions of RCW 39.12.030.  Regardless of whether you include the full wages or reference L&I's URL, for residential projects you must state that the project is subject to residential wage rates.  Note that if a determination is made later that the project is not subject to residential wages but to commercial construction prevailing wages, the public agency must pay the difference in the wage rates.

 

Early Selection of Mechanical and Electrical Subcontractors on University of Washington GC/CM Project

The University of Washington's Bothell Campus, Phase 3 project appears to be the first one in the state to take advantage of a new state law (Senate Bill 6401) that permits a General Contractor/Construction Manager (GC/CM) to select the mechanical and electrical subcontractors early in the project as partners, in much the same manner as public owners select the GC/CM.

Lease Crutcher Lewis, the GC/CM on the UW's Bothell Phase 3 project, placed the required advertisement for an August 17, 2010 public hearing in the Seattle Daily Journal of Commerce on August 3 and 4, 2010.

For more details about SB 6401, visit my previous blog by clicking here.  

I have also developed an outline of the new law that you can view by clicking here to visit my website.