Archive for the 'Public Bidding & Procurement' Category

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.

Evansville Contractors Challenge Procurement Tactic

By: Scott P. Fisher

On February 7, 2011, several Evansville area contractors filed what is commonly known as a Taxpayer’s lawsuit challenging the award of a construction contract to a certain Evansville area contractor (“Contractor”) for the renovation/construction of an existing building owned by the Evansville Vanderburgh School Corporation (“EVSC”) to be known as the Supportive Service Center.  The plaintiff contractors seek a declaratory judgment that a combination of transactions between EVSC, the EVSC Foundation and the Contractor were coordinated to circumvent public bidding laws.

The gist of the contractors’ allegations is that EVSC solicited a price from the Contractor, and only the Contractor, for the project.  EVSC then sold the building which would be renovated to its Foundation, a private entity.  About a month later, the Foundation then contracted with ICI to perform its services related to the project to the tune of about $6.5 million.  Three (3) days later, EVSC agreed to re-purchase the building (and project) from the Foundation for approximately $7.2 million through installments over the course of four (4) years.  The contractors allege that this circumvents the public bidding laws specifically enacted to maximize competition and prevent fraud and graft.

It should be noted that this is not the “normal” process for the construction of a local project such as a public school building.  Aside from Design/Build projects where the contractor competitively bids to both design and build the project, in a Design/Bid/Build project the plans and specifications are put out to bid requesting all interested contractors to provide a price for the completion of the project.  The owner, through its architect, evaluates the merits of each bid including price, responsiveness to the bid solicitation and the perceived responsibility of the bidding contractor, i.e., whether the contractor is sound financially and capable of completing the work.  Ultimately the contractor with the lowest bid who is both responsive and responsible is awarded the project.  The contractors allege that since the monies used to fund the project come from the public coffers, i.e., tax dollars, the purpose of such a process is to ensure that the local governmental entity receives the lowest price possible for the project.

From a bidding contractor’s perspective, if all it takes to circumvent the public bidding laws is the creation of this “straw-man” type transaction, the safeguards put in place by the Indiana General Assembly may be no protection at all.  If this type of transaction is legal, as EVSC contends, it does not bode well for smaller, less politically connected, contractors seeking to perform public bid work.

However, from the EVSC’s perspective (and likely the perspective of all political subdivisions from school corporations to the State), expediency and other factors make this type of arrangement necessary.  EVSC officials say the foundation chose to hire the Contractor without a competitive process because of that company’s ability to complete as well as obtain financing for the renovation work in a short time.  Furthermore, the Contractor has successfully completed several projects for EVSC in the past and there is every reason to believe it would successfully complete the Supportive Service Center as well.

Nevertheless, all entities involved in public bid work, including contracting public owners, should be watching this matter closely as it may dramatically affect the landscape of public construction work in Indiana.  Check back for updates on this interesting development.

http://www.courierpress.com/news/2011/feb/07/evsc-sale-and-buyback-plan-challenged-court/

Bid Protest Statistics for 2009

By: Andrew C. Briscoe

On January 25, 2010, the United States Government Accountability Office (“GAO”) released its annual compilation of bid protest statistics for the 2009 fiscal year.  The statistics revealed that contractors filed 1,989 protests, a 20% increase from the prior fiscal year, and that protesting proved effective.  In total, protestors obtained favorable relief in 45% of the protests.  The increase in protests is attributable to GAO’s recently expanded bid protest jurisdiction and the weak economy experienced in 2009, which likely caused contractors to pursue government awards.

Alternative dispute resolution also played a more significant role in this past year’s protests, with 149 protests being referred to ADR, nearly double the amount in 2008.  Of the 149 protests that were referred to ADR, 93% were resolved without a formal GAO decision.

You can view the GAO’s complete report on 2009 bid protest statistics at:

http://www.gao.gov/special.pubs/bidpro09.pdf

The Impact of the Stimulus on Public Bidding

By: Daniel M. Drewry

For those accustomed to doing public work, it comes as no surprise to hear that the number of bidders on a per project basis has increased. The economic downturn left the private sector credit-starved, and caused more contractors to turn to public projects to fill capacity. The stimulus has and will continue this competition. Michael Moore reported in the September 28, 2009 ENR Cost Report that the increased competition, in combination with stabilized material costs, has resulted in many states seeing dramatically lower bid prices, freeing up additional funding for more projects. On highway projects, for example, Moore pointed to the stabilization of steel and cement prices as one factor leading to lower bid prices as the bidder does not have to include an escalation factor in its bid. More significantly, the stiffer competition, whether in sheer number of bidders or quality of bidders, has caused some contractors to take jobs at cost or below cost simply to keep their doors open.

As the flow of stimulus funds increases and the bid prices decrease, state and local government entities will push to get more for their money. However, the question remains – if contractors are bidding jobs at a loss or at cost, will public owners find they have traded lower bid prices for increased performance risks, change orders and claims?


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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