ENR Editorial on U.S. Department of Transportation DBE Program

On July 16, 2012, Engineering News-Record published an editorial on the U.S. Department of Transportation’s DBE program. The US DOT DBE program principally affects contractors working for entities receiving federal transportation funding, such as PennDOT, SEPTA, and the City of Philadelphia Streets Department, among other public entities. The editorial raises some salient points about the US DOT DBE program and is worth checking out. The full editorial can be found here.

Posted on July 20, 2012 by Christopher I. McCabe, Esq. in DBE/MBE/WBE 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.

Posted on July 17, 2012 by Christopher I. McCabe, Esq. in DGS, E-Verify, Procurement Code Comments Off

Public Contracting 101: Retainage

This post is the first in a series on the basic concepts and tenets of public contracting in Pennsylvania.

Public works contracts in Pennsylvania may include a provision for the withholding of retainage. Retainage is a sum of money which is withheld from payment until the contract is completed.

However, under the Pa. Procurement Code chapter applicable to public works contracts, the retainage cannot exceed 10% of the amount due the contractor. When the contract is 50% completed, one-half of the amount retained by the government agency must be returned to the contractor, provided that the architect or engineer approves payment, and provided that the contractor is making satisfactory progress, and there is no other reason for holding more retainage, such as a backcharge claim. After the contract is 50% completed, the retainage cannot exceed 5% of the value of the completed work.

For multiple-prime projects, the government agency can hold additional amounts as retainage, equal to one and a half times the amount of any possible liability, where there is a dispute between the prime and the government agency based on increased costs claimed by one prime caused by the delay of another prime . This additional retainage can be withheld until such time as a final resolution is agreed to by all parties directly or indirectly involved unless the prime causing the additional claim furnishes a bond satisfactory to the government agency to indemnify the agency against the claim.

Retainage may be withheld from the contractor only until substantial completion of the contract.

If the government agency refuses to follow the foregoing rules, it may be liable to the contractor for interest and penalties on the wrongfully withheld amount. Furthermore, while government agencies often attempt to impose varying retainage provisions and requirements in their forms of contracts (typically AIA forms), such provisions are likely unenforceable as they contradict the statutory provisions of the Procurement Code.

Unless there is sufficient reason, a contractor must pay all of its subcontractors their earned share of the retainage the contractor received within 20 days of the receipt by the contractor.

The Pennsylvania statute on retainage (62 Pa.C.S. §3921) can be found here.

Posted on July 13, 2012 by Christopher I. McCabe, Esq. in Public Contracting 101, Retainage Comments Off

Public Bidding Hall of Fame: Kratz v. Allentown

This post is one of a continuing series which will highlight significant Pennsylvania court decisions in the area of public bidding. The decision highlighted here concerns bidder responsibility.

In Kratz v. Allentown, 304 Pa. 51, 155 A. 116 (1931), the City of Allentown undertook the construction of a sanitary filtration plant on an island in the Lehigh River. The project called for 110,000 tons of crushed stone. The specifications did not require that the stone come from any particular quarry, but bidders were required to designate the quarry from which the stone would be supplied. The specifications also designated the size, quality, etc., of the stone.

Hoch Contracting Company submitted a low price of $1.69 per ton for stone from the Keck quarry. F.F. Hausman submitted a price of $1.78 per ton for stone from the Ziegenfuss quarry.

Allentown rejected the low bid of Hoch Company on grounds that the stone was from an inferior quarry. This decision was challenged. The trial court rebuffed Allentown’s rejection of the low bid, and on appeal the Supreme Court affirmed. In the course of its opinion, the Supreme Court revisited the principles of bidder responsibility and the requirement that public officials conduct a thorough investigation before rejecting a bidder as non-responsible.

The Supreme Court first noted the criteria for determining a responsible bidder as follows:

… the courts have uniformly held that the question of who is the lowest responsible bidder is one for the sound discretion of the proper municipal authority, and does not necessarily mean the one whose bid on its face is lowest in dollars, but includes financial responsibility, also integrity, efficiency, industry, experience, promptness, and ability to successfully carry out the particular undertaking, and that a bond will not supply the lack of these characteristics. At the same time it is held that to award the contract to a higher bidder capriciously without a full and careful investigation is an abuse of discretion which equity will restrain. Where a full investigation discloses a substantial reason which appeals to the sound discretion of the municipal authorities, they may award a contract to one not in dollars the lowest bidder. The sound discretion, which is upheld, must be based upon a knowledge of the real situation gained by a careful investigation. [citations omitted]

In rejecting the Hoch bid, Allentown did not conduct any real investigation into the quarry where Hoch intended to obtain the required stone. The Supreme Court chastised Allentown’s public officials, noting that they were required to conduct a real investigation before rejecting a bidder as non-responsible:

… the proof on both sides was that stone from the Keck quarry and from the Ziegenfuss quarry were of equal quality and fitness. The reasons assigned for rejecting the Hoch Company bid was not the quality of the stone, nor the financial responsibility of the company. The city council, however, acting on the report of their engineers, appeared to have some slight doubt as to whether a sufficient quantity of stone to fill the contract could be secured from the Keck quarry. This report by the engineers was made without any sufficient investigation to determine the quantity of recoverable stone in that quarry, and, when Professor Payrow, of Lehigh University, an authority upon the subject, who had made a careful investigation, offered his report to the city engineer, showing 500,000 tons of suitable stone in the Keck quarry, the latter refused to examine it, remarking that it was no more than a piece of paper. The engineers as agents of the city made no proper investigation of the Keck quarry, nor did the city council. The rejection of that quarry with at most a perfunctory investigation was an abuse of discretion. [citations omitted]

The Kratz v. Allentown decision is nearly always cited in cases involving bidder responsibilty. The first takeaway of this decision is that bidder responsibility is vested within the sound discretion of the public officials. The second takeaway of this decision is that the public officials must truly inquire into the responsbility of a bidder before deciding to reject the bidder as unqualified or non-responsible.

Posted on July 5, 2012 by Christopher I. McCabe, Esq. in Hall of Fame Decisions Comments Off

Free Training for Prevailing Wage Requirements on Federal Contracts

The U.S. Department of Labor will offer a free training session in Philadelphia on prevailing wage requirements for federal contracts. The training will be conducted on July 10-12.

This training is not just for federal government contractors. For example, federal agencies must ensure that recipients of assistance funded by federal stimulus funds require contractors and subcontractors to pay laborers and mechanics at least the Davis-Bacon prevailing wages. Thus, this training will also be useful for contractors performing work on federally-funded public contracts.

The press release with details on the training and how to sign up can be found here.