Continuing Pa. Budget Impasse Affects Payments To Contractors

The current Pennsylvania budget impasse is now entering its fifth month. How does the impasse and the lack of a state budget affect vendors and contractors holding contracts with the Commonwealth of Pennsylvania and its departments, boards and agencies?

According to the FAQ webpage of the Office of the Budget, the following questions and answers address payments to vendors and contractors and future contracts:

Question 9: Will Commonwealth agencies process invoices from vendors?

Answer: Yes. Vendors with state contracts who continue to provide goods and services to commonwealth agencies can submit invoices and Commonwealth agencies will process all invoices received. All invoices held during the budget impasse will be sent promptly to the State Treasury for processing after the FY15-16 budget is enacted.

Question 10: How will the budget impasse affect existing contracts?

Answer: Most state contracts include language addressing this situation, which states that the commonwealth’s obligation to make payments shall be subject to the availability and appropriation of funds and that contractors may not stop work or refuse to make delivery because of non-payment. If the Commonwealth’s untimely payment results in a default situation, the contractor may pursue the remedies set forth in the contract.

Question 11: Can Commonwealth agencies enter into new contracts for 2015-16?

Answer: Agencies may enter into new contracts for FY 2015-16. The contracts will clearly state that payment is subject to appropriation.

The takeaway here is that vendors and contractors doing business with a public entity like the Commonwealth of Pennsylvania should never forget that public contracts are unlike private contracts in many ways, not the least of which is that the payment obligations of the public entity are nearly always subject to legislative appropriation of the funds necessary for payment. So, while payment may be delayed due to non-appropriation, the obligation to perform the work covered by the contract continues even in the face of non-payment.

Posted on November 5, 2015 by Christopher I. McCabe, Esq. in DGS Comments Off

Disappointed Bidder On State Contract Has No Due Process Rights

In a recent, unreported decision concerning a bid protest for a state contract, the Pa. Commonwealth Court reaffirmed its position that a disappointed bidder for a state contract has no due process rights in connection with the award of the contract. Therefore, the bidder has no right to a hearing on its bid protest. Instead, the bidder has only those protest rights enumerated in the Pa. Procurement Code. The Court ruled that a prior decision finding due process rights was expressly overruled by later enacted legislative amendments to the Procurement Code.

The Commonwealth Court also held that it was proper for the winning bidder to participate in the bid protest.

The Court’s full decision, in Corizon Health, Inc. v. Department of General Services, can be found here.

Posted on March 5, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, DGS Comments Off

DGS Publishes List of Exempt Steel Products

On February 9, 2013, the Pa. Department of General Services finally published in the Pa. Bulletin a list of exempt machinery and equipment steel products, as authorized under section 4(b) of the Steel Products Procurement Act (73 P. S. § 1884(b)).

The DGS notice listing the exempt steel products can be found here. The DGS statement of policy relating to its notice can be found here.

According to the DGS notice, the public has 30 days to submit comments regarding the list. Comments can be submitted in writing to: Deputy Secretary for Public Works, Department of General Services, 18th and Herr Streets, Harrisburg, PA 17125. Comments can also be submitted by e-mail to: ra-steel@pa.gov.

My prior post on the amendment to the Steel Products Procurement Act mandating a list of exempt products can be found here.

Posted on February 19, 2013 by Christopher I. McCabe, Esq. in DGS, Steel Products Act Comments Off

Commonwealth Court Can Hear State Contract Claims For Non-Monetary Relief

[UPDATE: The case discussed in this post is no longer valid. The Supreme Court has overruled the Commonwealth Court.]

Despite common misperception, the Pa. Board of Claims is not the exclusive forum for all state contract claims.

In a decision from December 2011, Scientific Games International Inc. v. Commonwealth of Pa., Department of Revenue, the Pa. Commonwealth Court held that it has jurisdiction to hear state contract claims seeking non-monetary relief. The decision concerned an RFP issued by the Department of General Services (DGS), on which there were two bidders, GTECH, the incumbent contractor, and its competitor, Scientific Games. Scientific Games was awarded the contract, which it executed (DGS did not execute contract). GTECH then protested. The protest was rejected by DGS and was also found to be in bad faith. Nevertheless, DGS canceled the RFP, stating that the cancelation was in its best interests.

Scientific Games then filed a complaint in the Commonwealth Court, claiming that it had a contract with the state and seeking specific performance of the contract and other non-monetary relief. DGS filed objections to the complaint, arguing that the Board of Claims had exclusive jurisdiction over state contract claims and that Scientific Games had an adequate administrative remedy.

The Commonwealth Court rejected the arguments of DGS that the Board of Claims has exclusive jurisdiction of all claims arising out of state-issued contracts. The Commonwealth Court relied upon a provision in the Pa. Procurement Code concerning the jurisdiction of the Board of Claims which states: “Nothing in this section shall preclude a party from seeking nonmonetary relief in another forum as provided by law.” The Commonwealth Court also held that the administrative remedies did not apply as the relief being sought by Scientific Games was non-monetary in nature.

This decision allows state contractors another potential forum for determination of their contract disputes with the state, provided, of course, that the disputes do not seek a monetary payment from the state.

The full court decision can be found here.

Posted on February 5, 2013 by Christopher I. McCabe, Esq. in Bid Protests, Board of Claims, Court Decisions, DGS, Procurement Code Comments Off

When A Claim Is Not A Claim

When is a claim not a claim? When it’s not.

In K-B Offset Printing, Inc. v. Department of General Services, a not-so-recent unreported decision, the Pa. Commonwealth Court held that a letter sent by a contractor to the Pa. Department of General Services and asserting entitlement to more than $1 million in contract underpayments did not constitute a “claim,” as that term is defined in the Pa. Procurement Code. As a result, the contractor was barred from pursuing its claim before the Pa. Board of Claims due to its failure to exhaust administrative remedies. (Under the Procurement Code, a contractor must first file a claim with the contracting officer before it can proceed before the Board of Claims, and the claim must be filed within six months of the date it accrues.)

A five-year contract between K-B Offset Printing and the state had expired in May 2011. An audit by K-B discovered that K-B was entitled to additional compensation, due to contractual price adjustments that were to occur every six months but were never implemented. In June 2011, K-B sent a letter to DGS demanding the underpayments. While DGS conceded that it had not made the necessary price adjustments, DGS refused to recognize the K-B claim to additional payments, basing its decision on its belief that K-B’s claims were barred by a six-month statute of limitations.

K-B then filed a claim with the Board of Claims. DGS objected, claiming that the Board lacked jurisdiction because K-B did not first exhaust its administrative remedies by filing a claim with the contracting officer. The claim was then dismissed by the Board of Claims. On appeal, the Commonwealth Court accepted DGS’s argument that K-B’s claim was not ripe because K-B did not first file a claim with the contracting officer before it proceeded with filing its claim with the Board of Claims. The Commonwealth Court held that K-B’s June 2011 letter was not a “claim,” and that K-B’s claim for the additional payments did not accrue until DGS sent the July 2011 letter which stated that DGS would not make any further payments. The Court rested its holding on a rule of the Supreme Court that a “claim” does not accrue until a claimant is affirmatively notified that it will not be paid by the Commonwealth.

At first blush, the court’s reasoning appears to be a monumental splitting of hairs. K-B sends a letter to DGS demanding more than $1 million as a matter of right under a contract. That looks and sounds like a claim. DGS then sends a letter conceding that it goofed on the pricing adjustments, but refusing to pay any more money to K-B due to a legal technicality. That looks and sounds like a denial of a claim. Nonetheless, the Commonwealth Court holds that a “claim” must still be filed with the contracting officer, even if such a claim is identical to the first letter and is doomed to ultimate failure. However, the first letter was not a claim because at that time DGS had not yet stated that would not pay K-B the underpayments. Until that statement was made by DGS, there was no “claim” that could be filed and pursued.

The moral of the story? File the paperwork, and dot your i’s and cross your t’s, even if the claim is pre-destined to be rejected and doomed to failure. The Commonwealth Court has now made it abundently clear that even a pointless gesture must be pursued in order to perfect a claim before the Board of Claims.

The K-B Offset court decision can be found here. Read it and be forewarned.

Posted on January 17, 2013 by Christopher I. McCabe, Esq. in Board of Claims, Court Decisions, DGS, Procurement Code Comments Off

DGS Announces 765 Small Business Self-Certifications

According to a recent announcement of the Pennsylvania Department of General Services, 765 small businesses have self-certified to participate in Pennsylvania’s new Small Business Procurement Initiative program, all in less than three months after Governor Tom Corbett announced the new program.

The DGS press release can be found here. My earlier post on the new Pennsylvania initiative can be found here.

Posted on November 13, 2012 by Christopher I. McCabe, Esq. in DGS Comments Off

New Law Directs DGS To Prepare List Of Products Exempt Under Steel Procurement Act

On October 25, 2012, Governor Tom Corbett signed HB 1840 which amends the Pa. Steel Products Procurement Act (first passed in 1978) and which directs the Pa. Department of General Services (DGS) to prepare a list of steel products, such as machinery and equipment, that are not produced in the United States in sufficient quantities and that are therefore exempt from the provision in the Act that local governments purchase steel products manufactured only in the United States.

Once prepared and publicly accessible via the internet, contractors, subcontractors, suppliers, bidders, and public agencies will be able to rely upon the list in preparing bids and entering into contracts. The list of exempt machinery and equipment is to be updated annually on a date selected by DGS. In addition, prior to publication on its website, and in each subsequent year, DGS must publish the list in the Pennsylvania Bulletin and provide for a 30-day public comment period. DGS is also required, via a statement of policy, to establish a process for creating the list and resolving disputes with respect to items on the list raised during the public comment period prior to the publication on its website.

This new law is sure to be welcomed by contractors and suppliers as it will eliminate uncertainty in bidding and will reduce disputes over whether certain steel products are produced in sufficient quantities in the United States.

HB 1840 takes effect in 60 days and can be found here.

Posted on October 30, 2012 by Christopher I. McCabe, Esq. in DGS, Steel Products Act Comments Off

Commonwealth Court: Offer to Negotiate Renders Proposal Non-Responsive

Recently, the Commonwealth Court of Pennsylvania had occasion to reiterate a long-standing rule of public bidding that offering counter-terms in a bid will render the bid non-responsive and will result in rejection of the bid.

In 2011, the Pa. Department of General Services issued an RFP for a design build contract for a power plant to serve a new State Correctional Facility. The RFP sought competitive, sealed proposals. Pepco Energy Services, Inc., submitted a proposal in response to the RFP, but stated that it expected to be afforded an opportunity to negotiate the terms of the contract documents. DGS sought clarification from Pepco regarding its expectation of contract negotiations and further informed Pepco that the contract terms were non-negotiable. Nonetheless, Pepco restated that it expected to negotiate contract terms. In response, DGS rejected Pepco’s bid as non-responsive on grounds that it contained “conditional” language.

Pepco filed a protest with DGS asserting that, because contract negotiations were contemplated as part of the RFP process, DGS erred in finding that its proposal was non-responsive. DGS rejected the protest and Pepco filed an appeal with the Commonwealth Court.

On appeal, DGS argued, in part, that Pepco’s alternate language would have allowed it to negotiate the contract terms, whereas the other prospective proposers submitted their proposals based on an understanding that the contract terms were non-negotiable, thus giving Pepco an unfair advantage, and violating long-standing case law requiring all bidders to be treated equally under a common standard. The Commonwealth Court upheld the DGS decision, and found that Pepco had no right to negotiate the terms of the contract documents, either before DGS found it to be a responsible bidder, or before DGS made a decision as to which proposal was most advantageous.

The lessons here? First, in a competitive sealed bidding situation, the contract forms are set in stone and are not subject to further negotiation. They are issued on a “take it or leave it” basis. To hold otherwise would undermine the basic rule of a level playing field in public bidding. Second, read the RFP! If it states that the contract documents are non-negotiable, then they are non-negotiable, no ifs, ands, or buts. Including a statement that the bidder would like to negotiate the contract terms is only an invitation to be rejected as non-responsive.

The decision in PepcoEnergy Services, Inc. v. Department of General Services can be found here.

Posted on August 7, 2012 by Christopher I. McCabe, Esq. in Bid Responsiveness, Court Decisions, DGS Comments Off

New State Initiative Will Set Aside Contracts for Small Businesses

On July 19, 2012, Gov. Corbett officially announced the creation of a new state contracting program which is intended to set aside state contracts for small businesses and small veteran-owned businesses. The Department of General Services has formed the Small Business Procurement Initiative and has expanded the Small Diverse Business Program – formerly the Small Disadvantaged Business Program– to include small veteran-owned businesses. The Small Business Procurement Initiative reserves certain state procurements for competition among only self-certified small businesses – those that employ 100 or fewer employees and meet maximum revenue requirements – and enables these small businesses to participate in state contracting opportunities as prime contractors.

The official press release can be found here. A link to the Small Business Procurement Initiative can be found here. FAQ on the initiative can be found here.

Posted on July 24, 2012 by Christopher I. McCabe, Esq. in DGS Comments Off

E-Verify Mandated for Public Works Contracts in Pennsylvania

After a long wait, E-Verify is coming to Pennsylvania. On July 5, 2012, Gov. Corbett signed into law the Public Works Employment Verification Act (S.B. 637) which takes effect January 1, 2013.

The Act requires all public works contractors and subcontractors in Pennsylvania to use E-Verify to verify the employment eligibility of new employees and applies to projects with an estimated cost in excess of $25,000 that are funded by the Commonwealth, or its political subdivisions, authorities, or agencies. E-Verify is an internet-based system that compares information from an employee’s Form I-9, Employment Eligibility Verification, to data from the U.S. Department of Homeland Security and Social Security Administration records to confirm employment eligibility.

Under the Act, a contractor must submit a verification form signed under penalty of perjury and acknowledging its compliance with the Act as a precondition of being awarded a public works contract. Subcontractors must submit the form prior to commencing work on the public works project. In addition, contractors must include in their subcontracts information about the requirements of the Act. The Department of General Services (DGS) will create the verification form and is also charged with enforcement of the Act through complaint-based as well as random audits.

A contractor or subcontractor violates the Act by failing either to use E-Verify or to provide the verification form. Sanctions for failure to use E-Verify range from a warning letter (to be posted on the DGS website) for a first violation to a one year debarment for a third and subsequent violation. A willful violation of the Act will result in a 3-year debarment. Civil penalties for failure to use the form or for false statements on the form range from $250 to $1,000 for each violation.

The Act provides significant protection for whistleblowers. If an employee of a contractor or subcontractor is retaliated against for instigating or cooperating in an investigation, the employee can bring suit (which must be brought within 180 days from the date the employee knew of the retaliation) to obtain reinstatement of employment and to collect three times lost wages, along with an award of attorney’s fees and costs.

A contractor or subcontractor who relies in good faith on E-Verify has immunity from sanctions and shall have no liability to any individual who is not hired or is discharged from employment. Good faith is shown by a federal agency’s written acknowledgment of the use of E-Verify. Contractors are not liable for violations by subcontractors.

Information on E-Verify can be found here. To participate in a webinar on E-Verify click here. The full Act can be found here.