Are you a contractor located in the City of Philadelphia and doing business with the City? If so, you may qualify for a bidding preference that could help you land even more City contracts.
A well-known secret of City contracting is the local business entity (LBE) preference. Under the LBE preference, the bid price of a certified LBE is adjusted downward by 5% so that a bid price of $100,000 is treated as $95,000 for purposes of determining the lowest bid price for contract award. After contract award, the LBE is still paid its full bid price.
A contractor can become certified as an LBE if, in the preceding 18 months, (a) it has had its principal place of business in the City, or (b) it has had an office in the City and either more than 1/2 of the contractor’s full-time employees, or more than 50 of the contractor’s full-time employees, have worked in the City at least 60% of the time. The contractor must also have a valid business privilege license for the same preceding 18 months and must have filed a business privilege tax return in the preceding 12 months. The City’s LBE certification is good for 5 years, but is subject to an annual recertification.
It is critical that a contractor awarded a City contract due to its LBE status maintain its LBE status during the term of the City contract. The failure to do so will result in revocation of the LBE status, the imposition of liquidated damages, and a 3-year debarment. The City’s LBE regulations provide that:
The certification made by an LBE in its bid … shall be deemed incorporated into any contract resulting from the bid for which a preference is granted. If the Procurement Commissioner determines that the LBE fails to comply with its certification at any time during the term of its contract, the LBE certification will be revoked and the LBE shall be deemed in substantial breach of such contract, shall be required to pay liquidated damages of 10% of the awarded contract amount, and may be debarred by the Procurement Commissioner in accordance with the Procurement Department Debarment Regulation for a period up to three years.
The City will enforce this regulation and penalize those who abuse the LBE preference. In September 2010, the Philadelphia Inquirer reported on the imposition of liquidated damages for an LBE which could not establish the bona fides of its LBE status.
The City’s LBE regulations can be found here. The City’s LBE application can be found here.
As for whether the LBE preference has benefited the City and its taxpayers economically, this remains an open question. Business columnist Joseph N. DiStefano of the Philadelphia Inquirer recently commented on the City’s LBE, highlighting a large construction contract that the City awarded last year to an LBE. His column can be found here.
Christopher I. McCabe, Esq.
