Archive for the 'Government Services' Category

Local Price Preference Repealed

By: Daniel M. Drewry

During the 2011 session, the Indiana state legislature created uproar in the construction community when it passed a Local Price Preference.  Last summer on this blog we discussed the impacts of the statute and the City of Indianapolis’ reaction to the price preference as an example of how local communities were responding to the price preference.  In theory, the drafters and sponsors of the preference intended the statute to simply give a nudge in the direction of a local contractor in very limited situations.  In practice, the preference was confusing, difficult to implement, contradicted long-standing competitive bidding rules and concepts, and ultimately was unworkable.  As the opposition to the Local Price Preference grew, it quickly became clear that the preference statute needed to be fought, re-written and/or altogether repealed.  The question became not if, but when and how.  During the 2012 session, the Indiana legislature answered those questions – on February 29, 2012 Governor Mitch Daniels signed House Enrolled Act 1154, which repeals the local price preference (save for certain preferences allowed for local agencies purchasing supplies or equipment) effective July 1, 2012.  Whether the legislature will look to re-open the issue of local price preferences for construction projects in the future remains to be seen, but for now, local public projects will be back to business as usual (whatever that new “usual” is in 2012).

Mass Transit Plan Update

By: Scott P. Fisher

The Carmel Chamber of Commerce recently held a luncheon where the topic was the Mass Transit plan of the Central Indiana Mass Transit Authority, a group of various individuals and entities who developed the plan.  It was an interesting discussion and I would encourage anyone who is interested in the topic to try to attend one of these informational sessions.  As the plan moves through the General Assembly, I’m sure there will be more.

So what is the Mass Transit Plan?  The plan proposes a phased approach to implementation of the bus and rail portion – with Phase One beginning in Marion and Hamilton counties and primarily built out within 10-years (by 2021).  Additional contiguous counties could choose to join sometime during that time period and the system would be built out within that county as suggested in the plan.  Essentially, the plan calls for light rail from Noblesville to Union Station.  Other elements include dedicated Rapid Bus service from Carmel to downtown where the bus would have control of the lights at intersections and stops would only be every half mile rather than every block.  There is also expanded bus service in Marion County and newly created bus service in Hamilton County.  For more information on the details of the Pass Transit Plan, see the dedicated Indy Connect website.

So how do you pay for it?  First, the General Assembly this Spring would have to authorize a referendum in the counties which seek to be a part of the Transit program.  Representative Jeff Espich, R-Uniondale, has proposed HB 1073, the bill which authorize the referendum. That referendum would take place in November, 2012.  The voters would then have to authorize a new income tax of .02%.  The Central Indiana Mass Transit Authority originally asked for .03% but Rep. Espich’s bill only authorizes a referendum for .02%.  This amounts to about $200 per $100,000 of income.  The Transit Authority would utilize this tax, the current property taxes dedicated to IndyGo, Federal and State Funds and rider fares to construct and operate the System.  Note that the System would not be self sustaining.  The nationwide average for operating expenses of transit systems is only about 25% rider fares.  The rest of the operating costs come from other sources including Federal and state taxes.  This System would likewise rely heavily on subsidies from Federal and state taxes and the .02% income tax.

So how likely is it to pass?  At this point, HB 1073 is awaiting a vote in the House Ways & Means Committee, a committee with 25 members.  Rep. Espich has stated only one lawmaker has expressed support, Rep. Peggy Welch, D-Bloomington.  Espich, chairman of the House Ways & Means Committee, said he is hesitant to bring it to a vote in Ways & Means and see it soundly defeated.  The lack of support could be tied to the on-going rolling walk out by the Democrats in the House due to the Right to Work legislation, which is making it difficult to bring bills like HB 1073 for a vote, or possibly the fact that the Mass Transit Plan in its current form is viewed simply as a central-Indiana issue with the legislature, by and large, having other regional or state-wide priorities this session.  Regardless, despite the momentum gained by the new plan, a referendum on mass transit may have to wait.

Is Indiana Ready for a Green Building Code?

By: William E. Kelley, Jr., LEED AP BD+C.

The International Code Council (ICC) has been developing its International Green Construction Code (IgCC) for some time now, with the intent of rolling out the final version in March 2012.  Despite the fact that the “final” version of the IgCC has not yet been released, several states and local jurisdictions (including Rhode Island, Maryland, Florida, North Carolina, Scottsdale (AZ), and Richland (WA)) have adopted portions of the early versions of the IgCC for their own regulatory purposes.  Similarly, California adopted its own green building code, called CALGreen, which went into effect on January 1 of this year.

In their most basic form, green building or construction codes provide minimum development standards for public and/or private projects.  These codes differ from green building rating systems (such as LEED, Green Globes, and Energy Star), in that they are mandatory and establish a minimum threshold for compliance for all projects, as opposed to being voluntary and rewarding projects that achieve targeted levels for certification.  These codes share some similarities to green building rating systems, though, in that many of the requirements allow owners some flexibility in which “credits” to pursue in order to achieve compliance.

One reason that green building codes appear to have gained momentum is in response to federal, state, and local jurisdictions that have mandated that certain types of projects achieve certification under third-party green building rating systems.  Rightly or wrongly, some criticism has been levied on such legislation based upon the fact that such mandates result in the jurisdictions ceding control of the regulations and requirements for achieving certification to a third-party entity.  If a City requires public or private projects to be LEED Silver certified, there can be an element of ambiguity for all project participants if the USGBC and/or GBCI materially changed the requirements for what is required to achieve LEED Silver certification, not to mention situations where third-party entities provide discretionary credit interpretations that may materially affect the level of certification awarded.  Green building codes result in returning some of the power (i.e., control) back to the jurisdictions where the projects are being built.

So is Indiana primed to make the leap into the world of green building codes?  Recent legislative history suggests that Indiana is not quite ready.  In 2008, Governor Mitch Daniels issued Executive Order 08-14, which provided that state buildings should be designed and constructed to achieve “energy efficiency”, which was defined as LEED Silver certification, a two-globe rating under Green Globes, Energy Star compliance, or an equivalent rating under the American National Standards Institute (ANSI).  Despite this executive-level initiative, Indiana’s legislators have considered, but not passed, multiple bills relating to green building and sustainable mandates and incentives for both public and private projects.

However, the IgCC is also a tool that can be utilized by local jurisdictions, such as counties, cities, and towns.  In terms of sustainable legislation, Indiana has been somewhat more progressive on the local level than on the state level, with the cities of Bloomington and Indianapolis enacting voluntary green building incentive programs for private developments.  Consequently, if Indiana is to join the green building code movement, it seems feasible that the initiative could originate at the local level.

This much is clear: It appears to be a question of “when” and not “if” states will ultimately adopt some form of a green building code.  All eyes will be on California and the other jurisdictions that move forward with green building codes, so that states and local jurisdictions (including Indiana) can determine how and when adoption of similar codes should be pursued.

Construction Conversations: Buffet Says the Economy will be Fine

By: Andrew J. Mallon

I love our culture.  Most people pay $100-$200 a month for cable to watch news shows where the actual news to spin/screaming ratio is completely out of balance.  We all complain but keep tuning in.  At the same time we all have FREE access to what (in my opinion) is the most quality news program in generations- namely Charlie Rose on PBS.

Take Monday night for example. . .  Charlie interviewed Warren Buffet, CEO of Berkshire Hathaway (aka the “Oracle of Omaha”), for an hour on the same day Buffet’s op-ed advocating for higher taxes on the “ultra-rich” was published by the New York Times.  Charlie asked probing questions about Buffet’s politics, values, successes, failures . . . everything.  Though probing, Charlie confronted Buffet with credibility, respect and in a manner that endeared Buffet to Charlie rather than make Buffet defensive.  It caused Buffet to thoughtfully open up his undisputedly high intellect and was riveting.  I invite you watch it here.

What kept me captivated was not Buffet’s opinions on taxes or his political analysis (although he has a great analogy about what you do when playing a game of chicken and your opponent throws his steering wheel out the window).  I was captivated by his sense of history and context about U.S. recessions and his firm grasp of market principles.  After watching, our current troubles finally made sense and (after 3+ years of anxiety) I finally found a sense of calm.  Everything is going to be ok . . . in 2013.

Buffet explained what we all already know.  This horrible recession was caused by a housing bubble that burst.  Different from the dot-com and other market bubbles, this one hit where it counted, our home values – the cornerstone of wealth for average Americans.  I don’t know about you, but I wasn’t speculating or investing in a business that had no plan to create revenue; and I wasn’t a developer riding a wave as long as I could; but I got hit anyway just because I owned a house.  Look, even the banking and finance industry has recovered and is thriving.  So here is where we are two years later, according to Buffet: too many houses, not enough households.  “Fear not,” says Buffet.  Buffet sees a U.S. economy really that is doing fine – as long as you do not look at housing construction and ancillary industries and markets connected to housing.  We have stopped building houses and we are producing new households every day; so the housing industry is eventually going to be ok.  The market is taking care of it and it is only a question time.  How long will it take for the number of households (demand) to catch up with the current housing inventory (supply)?  Buffet says 2013.  Whew, what a relief!

Wait . . . but this leaves the obvious question of what does that mean for the construction industry – in particular the Greater Indianapolis construction and housing industry?  MSNBC ranked the Indianapolis housing market the second “sickest” in the country (behind only Tuscon, AZ).  According to MSNBC, in Indy “[t]he average home price has dropped by $20,000, or 15.3 percent, between the second quarter of 2010 and the first quarter of this year.”  Let the hand-wringing begin (again).  Buffet’s prediction of recovery by 2013 may be ambitious for us.  This is the realization I had Tuesday morning after a brief anxiety “breather” precipitated by a late night watching Charlie Rose.  At least I didn’t pay for it.

So for those of us still scrapping it out in the Indianapolis construction market, what do we do?  Channeling my inner Warren Buffet, my advice- do what is being done; it is going to be alright.  If not housing, what do you see being built?  I see public re-development projects everywhere. (Full disclosure: I’m also a government lawyer so that is what I’m looking for).  I see the Carmel City Center (mostly because it is where my office is).  I see public-funded redevelopment projects in Indianapolis building roads and doing re-development deals like “North of South” (commercial/residential) and federally “stimulated” Neighborhood Stabilization Program projects (residential).  I also see developments in new industries, like EnerDel batteries in Hancock, County.  The underlying thread through these is public spending.  If you are “private,” find yourself a “public”- entity and “partner.” (See “P3”).  Now realize that local municipal budgets are shrinking and the referendum requirement certainly is not helping spur big new public projects.  So be flexible and open to partnering scenarios and project delivery methods like design-build that can bring projects in on time and on a perhaps reduced budget for public entities.  Sell cost efficiency.  Let’s stick together.  It is going to be okay . . . eventually.

City of Indianapolis Reacts to New Price Preference Law

By: Daniel M. Drewry

As discussed in a previous DSV Blog Entry, the Indiana’s new Price Preference Law goes into effect today, July 1, 2011.  The City of Indianapolis just released its Local Indiana Preference Claim Guide to assist bidders in understanding the price preference and how the City seeks to implement it.  The City also released the application form for claiming and qualifying for the local price preference.  The Local Preference Claim Guide and Application were not the only modifications made to the City’s bidding procedures and policies necessitated by the recent legislative changes.  The City also released new E-verification documents, which can be found, together with the local preference documents on the City of Indianapolis’ website under Bidding Opportunities.  We will continue to follow this issue as local governments seek to implement the local preference into their procurement policies.

Indiana Enacts New “Buy Local” Preference Law

By: David B. Vornehm and Scott P. Fisher

During the 2011 session, the General Assembly passed and the Governor signed House Enrolled Act (HEA) 1004, which goes into effect on July 1, 2011.  There are many provisions in HEA 1004, but one in particular stands out: a new “buy local” requirement for public procurement in IC 5-22-15-20 which is then carried over into IC 36-1-12 and applies to most public works projects in Indiana and particularly those at the local level.

As enacted, if a business qualifies as a “local Indiana Business”, that business will get a price preference for contracts on supplies of 5% for purchases less than $50,000, 3% for purchases between $50,000 and $100,000 and 1% for purchases over $100,000.  There are certain criteria in order to qualify as a “local Indiana Business” such as having a principal office in the county or adjacent county where the contract is located (referred to as “affected counties”), paying a majority of its payroll to residents of affected counties, employing residents of affected counties as a majority of its employees, making significant capital investments in affected counties, having a substantial economic impact in the affected counties.  If a business wants to claim a preference it must satisfy certain pre-bid notice requirements such as claiming the preference in its bid and providing certain documentation related to the above criteria to the purchasing agency.

The essence of the local preference revision is the modification and conditional abandonment of the long understood requirement that a contract be awarded to the lowest, responsive, responsible bidder.  Notwithstanding provisions of Title 5 and 36 that previously required the award of a contract to the lowest responsive and responsible bidder or the lowest responsive and responsible quoter, a contract now must be awarded to the lowest responsive and responsible local Indiana business that claims the preference.

How will this actually be applied?  Assume that there are two bidders on a Title 36 public works project.  Bidder A is not a local Indiana business, and Bidder B is.  Bidder A bids $90,000, and Bidder B bids $92,500. Bidder B is entitled to a 3% local business preference (provided it claims the preference and fulfills the requirements), so its adjusted bid is $89,725.  Bidder B is the lowest, responsive and responsible local Indiana business that claimed the preference and is awarded the contract.  Note that the contract amount is not $89,725; it is $92,500.  Now let’s apply this to a mega project such as the Indianapolis deep tunnel job that, by some estimations, is projected to exceed $300,000,000.  For a bid of that size, the 1% preference could be equal to $3,000,000!

The new law pushes several key policy questions down to the agencies.  Note that the phrase “as defined in rules adopted by the political subdivision” appears in such key sections as how “local Indiana business” is defined.  Businesses seeking to submit bids on public procurement projects falling under these new statutes will need to contact the public agencies involved, on an agency-by-agency basis, in order to determine what rules may be put into place.

Other questions also remain unanswered at this stage, including how this local preference will apply to joint ventures where one member is out of state.  These questions must be answered before bids are received for award beginning July 1st.  This means addenda must be issued in the very near future to include the new language in the contract documents. The awarding agencies have a lot of work to do before July 1st, and businesses intending to bid on these contracts must also work to educate themselves regarding these new requirements in order to retain their competitive edge in the bidding process.

Will Indiana Set The PACE With Bonds for Energy Efficient Improvements?

By:  William E. Kelley, Jr., LEED AP

The Indiana General Assembly is currently considering a bill that would put into place a bond and financing program based upon the Property-Assessed Clean Energy (PACE) model.  The proposed legislation would allow local governments to establish “clean energy improvement financing districts” that would provide a mechanism for financing energy efficient improvements on public and private construction projects, including installation of clean energy improvements utilizing solar energy, photovoltaic cells and panels, geothermal heating and cooling systems, and energy from waste heat recovery systems.  Once established, the districts would administer applications from project owners seeking financing to incorporate “clean energy improvements” into their projects.  Approved projects would receive financing from the district for the energy efficient improvements, and those projects would then be subject to special assessments against the real estate to secure repayment for the financing.  The districts would be authorized to issue low interest bonds to finance the installation of clean energy improvements in buildings, and the proceeds of the bonds would be used to pay the costs of the clean energy improvements financed by the district.

One of the stated justifications for using the bonds to finance the energy efficient improvements is the idea that the cost savings to the property owner over the useful life of the clean energy improvement will exceed the actual cost of that improvement.  In other words, the project owner gets up-front financing for energy efficient improvements to its project, pays back the financing through property tax assessments against the real estate, and—in theory—still comes out money ahead with cost savings realized over the useful life of the clean energy improvement.  In turn, the clean energy improvement financing district issues low interest bonds to finance the improvements, then secures its investment in the improvements in the same manner as property tax assessments.  Thus, in the event of a transfer in title or even a default by the property owner, the district’s interest is still secured by a tax lien on the property.

Indiana’s legislators have considered several bills relating to energy efficiency and green building over the last several years, including bills that would have required public projects to achieve certification under LEED, ENERGY STAR, or Green Globes.  This time around, the legislation is aimed at incentivizing and financing energy efficient improvements, as opposed to mandating those same improvements.  Several organizations, including AIA of Indiana, have already publicly declared their support for this particular bill, as a means to stimulate construction and economic growth in Indiana.  All eyes are now on the Indiana General Assembly to see if the legislators believe that use of the PACE model will be a means to potentially promote both energy efficient improvements and new construction throughout Indiana.


Daniel M. Drewry

Daniel M. Drewry

Daniel M. Drewry

About This Blog

The DSV Construction Law Blog is hosted by Daniel M. Drewry. Dan is a Partner with the law firm Drewry Simmons Vornehm, LLP and concentrates his practice in the areas of Construction Law and Litigation, and Labor & Employment Law.

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