Christopher I. McCabe, Esq.

PA Public Contracts Quoted In The Philadelphia Inquirer

Linkedin Facebook Twitter Plusone Email

I’m happy to report that PA Public Contracts was quoted today by business reporter Joseph N. DiStefano in his Philly Deals column in the business section of The Philadelphia Inquirer.

The column, “Is state in the clear in loan dispute?”, discusses the Telwell, Inc. v. PSERS Board of Claims decision which I blogged about here.  The Inquirer article can be found here (a subscription may be required) or here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in General Leave a comment

Ryco Steel Products Procurement Act Lawsuit Settled For $429,000

Linkedin Facebook Twitter Plusone Email

In December 2013, the Pa. Attorney General’s Office announced a settlement of the Pa. Steel Products Procurement Act lawsuit with the McKeesport-based Ryco companies and their owners.  The firm and its owners will pay $429,000 to settle the lawsuit, and must comply with a seven-year injunction to guarantee that violations of the Steel Act do not occur again.

The official AG press release can be found here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Steel Products Act Leave a comment

Pa. Steel Products Procurement Act Applies To Work Contracted By Private Non-Profit Foundation

Linkedin Facebook Twitter Plusone Email

Does the Pa. Steel Products Procurement Act apply to a project undertaken by a private non-profit entity for a university under the Pennsylvania State System of Higher Education?  According to a recent decision by the Commonwealth Court in the enforcement lawsuit brought by the Pa. Attorney General’s Office against various Ryco, Inc., entities (see my earlier post here about that lawsuit), the answer is yes.

In an opinion filed February 21, 2013, in the Ryco case, in response to objections raised by the Ryco entities, the Commonwealth Court (Judge Colins) has held that the Steel Act does apply to a student housing project undertaken for Indiana University of Pennsylvania (IUP) by the Foundation for the Indiana University of Pennsylvania (Foundation), a non-profit foundation affiliated with IUP.

The Ryco entities had argued that the Foundation was not a “public agency,” that the housing project was not funded with public money, and that the housing project was not bid as public contracts.  In rejecting these arguments, the Commonwealth Court noted that the Steel Act does not require the owner to be a public agency, only that the project be a public work.  Here, there was no legal question, in the Court’s view, that the student housing project was a public work.

The Commonwealth Court also noted that the Foundation itself was in fact a “public agency” under the Steel Act.  The Foundation was created to promote educational purposes, including for the construction of buildings for IUP.  The Foundation had been engaged by IUP to finance and construct the student housing project.  The Court borrowed from caselaw interpreting the Prevailing Wage Act in finding that, under these facts, the Foundation was a “public agency” for purposes of application of the Steel Act.  In the analagous Prevailing Wage Act case, the Court had held that a private, non-profit corporation created by a county for the purpose of building and operating a nursing home was a “public body.”

The lesson here for contractors working on what are potentially public works projects is to understand the full nature of project they are working on (even if they have only a small part of the project) and to think about the ultimate user/owner of the project.  Here, it seems quite obvious that student housing for a state university has all of the hallmarks of a public works project to which the Steel Act would typically apply.

The Commonwealth Court’s decision can be found here.  A later ruling by the Commonwealth Court in the same Ryco case re-affirmed that the Court’s holdings were as a matter of law, and precluded any further defense by the Ryco entities that the Steel Act did not apply to the student housing project.  That later decision can be found here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Court Decisions, Steel Products Act Leave a comment

Bid Protests 101: Grounds For The Protest

Linkedin Facebook Twitter Plusone Email

This is the another in a series of posts on bid protests in Pennsylvania.  This post covers the potential grounds for the bid protest.

Based on my experience, there are two primary potential bases for a bid protest.  The first concerns a bid’s responsivesness or whether the bid is complete and responsive to the bidding instructions.  The second concerns a bidder’s responsibililty or qualifications.

A challenge that a bid is non-responsive will likely be successful if the challenged bid (which has been accepted by the public entity) is materially defective in some way.  Is it missing a required form?  Are there prices missing?  Did the bidder fail to sign its bid? If the protesting taxpayer can show that the winning bid is “defective” in some way, courts will be receptive to a challenge to the award.  This type of protest is appealing as it raises the question of an unlevel playing field which is a bedrock principle of public contracting. On the other hand, if the public entity has rejected a bid because it is non-responsive, it is unlikely that a protest by the rejected bidder will be unsuccessful. A court will be extremely hesitant to overrule a finding that the bid is defective.

A challenge to a bidder’s responsibility is difficult to win.  Normally, whether a bidder is qualified (responsible) to perform a contract is left to the sound discretion of the public officials.  A court will normally err on the side of allowing the public entity to decide these questions on its own.  On the other hand, if the public entity has excluded a bidder from the bid, either as part of a pre-qualification process, or an ad hoc basis, on grounds that the bidder is “unqualified,” the disqualified and excluded bidder will have a good chance of success if the bidder can show that it is as qualified as the other permitted bidders, or if the criteria under which the bidder is excluded are unpublished or unevenly applied.  Excluding bidders from the bidding process is counter to the notion of competition.  The more bidders there are, the better the price will be for the taxpayers.

Besides these two primary bases, a bid protest can raise other aspects of the bid process that were irregular or were not in conformance with the bidding instructions.  Did the bid comply with minority contracting requirements? Did a bidder has some sort of advantage over other bidders?

As always, it is advisable to consult with experienced counsel before proceeding with a bid protest.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Bid Protests Leave a comment

Pennsylvania Bar Institute Sponsors CLE Primer On Mechanics’ Liens And Bond Claims

Linkedin Facebook Twitter Plusone Email

On Thursday, December 5, 2013, the Pennsylvania Bar Institute (PBI) is sponsoring a continuing legal education course entitled “Primer on Mechanics’ Liens and Bond Claims.”

I will be a presenter, and I am looking forwarding to sharing my knowledge and experiences on the topic of bonds and bond claims on public construction projects in Pennsylvania.

The flyer on the PBI CLE course can be found here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in General, Surety and Bonding Leave a comment

Pa. Transportation Bill Increases Prevailing Wage Threshold To $100K For Locally Funded Highway And Bridge Projects

Linkedin Facebook Twitter Plusone Email

On November 21, 2013, the House and Senate of the Pennsylvania General Assembly finally passed a $2.3 billion transportation bill.  Governor Corbett is expected to sign the transportation bill on Monday, November 25, in State College, Pa.

The transportation bill includes a provision that increases the threshold for prevailing wages to $100,000, but only for “locally funded” highway and bridge projects. The increase is effective with contracts entered on or after January 1, 2014.

A “locally funded” highway or bridge project is defined as one that is “funded entirely by funds”:

1) paid to counties from the Liquid Fuels Tax Fund;

2) allocated to municipalities under Liquid Fuels Tax Municipal Allocation Law;

3) made available to municipalities from the Highway Bridge Improvement Restricted Account within the Motor License Fund for expenditure on bridge rehabilitation, replacement and removal projects;

4) awarded to municipalities as transportation enhancement grants (under red light enforcement systems);

5) allocated from municipal budgetary sources using revenues derived through municipal taxes or fees; and

6) allocated to municipalities under 58 Pa.C.S.(relating to oil and gas).

For all other public projects, the prevailing wages threshold remains at $25,000.

The full transportation bill can be found here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Prevailing Wage Leave a comment

Pa. Board Of Claims Will Continue To Hear Non-Procurement Code Contract Claims

Linkedin Facebook Twitter Plusone Email

Does the Pennsylvania Board of Claims have jurisdiction to decide all “contract” claims against the Commonwealth of Pennsylvania?  Prior to 2002, the Board did have such jurisdiction, without question. However, since 2002, with the passage of Act 142, the Board has been faced “with a constant series of jurisdictional challenges” on grounds that its enabling provisions, now contained in the Procurement Code, limit its jurisdiction only to claims under Procurement Code contracts.

In a decision issued on September 11, 2013, the Board said it could and would continue to hear claims arising under non-Procurement Code contracts, even while it declined to hear the particular non-Procurement Code contract claim before it.  The Board found that it was required to read its jurisdictional statute broadly “so as to acknowledge the Board’s historical purpose, serve the public interest and avoid the potential for disruption to existing Commonwealth business and commercial interests should the validity of its non-Procurement Code contractual relations be called into doubt.”  In its ruling, the Board said that it did not believe that the General Assembly intended to radically alter the Board’s jurisdiction.  The Board agreed that restricting its jurisdiction to Procurement Code contracts only “could potentially threaten to disrupt several significant commercial and economic relationships enjoyed by the Commonwealth outside the Procurement Code arena.” The Board also pointed out that the legislative history of the 2002 amendments did not contain any discussion regarding modification of sovereign immunity coverage for contract claims against the Commonwealth.

Indeed, the Board went so far as to proclaim that: “We believe the circumstances … provide strong indication that the General Assembly did not intend to materially change the Board’s function, the scope of sovereign immunity or the long-established public policy served by the Board.”  The Board also found that a broad reading of its jurisdictional mandate “ultimately serves the best interest of the Commonwealth by providing parties contracting with a Commonwealth agency assurance that it may rely upon the agency to fulfill its obligations as well, avoiding the economic disruption that may result from public knowledge of a contrary holding.”

The Board’s decision came in the context of a claim involving a loan made by a Commonwealth agency. In August 2011, Telwell, Inc., filed claims in the Court of Common Pleas of Philadelphia County against Public School Employees’ Retirement System (PSERS).  Telwell claimed that it was owed $500,000 in overpaid interest on a loan made to it by PSERS.  The claim stemmed from the fact that the loan commitment and the note recited different interest rate terms.  The claim was eventually transferred to the Board of Claims.

When Telwell filed for summary judgment, PSERS raised the issue of the Board’s subject matter jurisdiction. PSERS claimed that Board’s jurisdiction did not extend to claims arising from a loan made by a Commonwealth agency.  PSERS further argued that it enjoyed the defense of sovereign immunity.  PSERS’s position derived support from the 2002 amendments to the Procurement Code which codified the Board of Claims by moving its jurisdictional provisions into the Procurement Code. Thus, the Procurement Code, at 62 Pa.C.S. § 1724(a), now arguably limits the Board’s jurisdiction to claims arising from a “contract entered into by a Commonwealth agency in accordance with this part…” This “part” is a reference to Part I of the Procurement Code.  Section 102(f.1) of the Procurement Code further provides that “[t]his part does not apply to loans.” Again, this “part” is a reference to Part I of the Procurement Code.  On the other hand, section 1724(c) of the Procurement Code extends the Board’s jurisdiction to “a contract entered into by a Commonwealth agency involving real property interests in which the Commonwealth agency is the respondent.”

Telwell conceded that its claim was not based on a Procurement Code contract, but it argued that the Board needed to retain jurisdiction over claims arising from all contracts with the Commonwealth. While the Board agreed with many of Telwell’s arguments (as noted above), the Board ultimately sided with PSERS, relying primarily on section 102(f.1) of the Procurement Code which explicitly exempted “loans” from its purview, and, by extension, from the Board’s jurisdiction. The Board did not see any neat way around this unambiguous and blanket exclusion.  Nonetheless, in doing so, the Board acknowledged the far reaching and potentially disastrous ramifications of a ruling that it could not hear any claims under any non-Procurement Code contracts, noting that, if a contract claim does not fall within the Board’s jurisdiction, then there is no exception to sovereign immunity and no possibility of redress against the Commonwealth.

While the Board expressed its firm view that it could continue to hear non-Procurement Code contract claims, it appears certain that contract claims arising out of Commonwealth loans cannot be heard by the Board.  This in and of itself is a far reaching decision.  Moreover, there is no guarantee that Board’s expansive view of its jurisdictional legislation will be supported by the courts.

Thus, for this reason and more, the ruling in Telwell is potentially foreboding. A party obtaining a loan from the Commonwealth or a Commonwealth agency is now suitably forewarned – there is no remedy for a breach by the Commonwealth. Moreover, any party entering into a non-loan contract with the Commonwealth or a Commonwealth agency, but outside the purview of the Procurement Code, would be wise to look both ways, and think twice.  If the Commonwealth breaches such a contract, and the contracting party is damaged, the contracting party may well be out of luck, without any recourse or remedy if the arguments in favor of limiting the Board’s jurisdiction hold sway with the Commonwealth Court or the Supreme Court.  Section 1724(b) of the Procurement Code may provide some relief to parties contracting with the Commonwealth. This subsection gives the Board jurisdiction to arbitrate claims arising from “[a] written agreement executed by a Commonwealth agency and the Office of Attorney General in which the parties expressly agree to utilize the board to arbitrate disputes arising from the agreement.”  If the contract is an non-Procurement Code contract, the contracting party should insist that the Commonwealth agency and the AG’s office sign off on using the Board of Claims to hear claims.  This would arguably effectuate a waiver of sovereign immunity.

The Board of Claims decision can be found here.

A hat tip and thanks to West Chester attorney, Paul Drucker, Esq., who brought this decision to my attention.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Board of Claims, Procurement Code Leave a comment

Philadelphia Inspector General Investigation Leads To Arrest Of City Contractor

Linkedin Facebook Twitter Plusone Email

Add arrest to the long list of risks facing City of Philadelphia contractors who fudge their bids and obtain City contracts by lying on their paperwork.

As a result of an investigation by the Office of Inspector General (OIG), John Hart, owner of Hart Enterprises & Associates, a City contractor and general contracting firm, was arrested and is facing prosecution on ten felony counts of forgery and four misdemeanor counts of unsworn falsifications to authorities. The OIG investigation discovered that Hart Enterprises made numerous misrepresentations in paperwork submitted to the City for five contracts awarded between 2011 and 2012 for work at the Philadelphia International Airport. The OIG also found that the City did not properly screen the paperwork for potential fraud.   Hart Enterprises allegedly forged ten surety bonds submitted to the City, and also allegedly misrepresented its financial history and City tax status.  The OIG has also recommended that the City debar Hart Enterprises.

The investigation also prompted the OIG to issue a policy recommendation report noting several apparent weaknesses in the City’s contracting process.  The report points out that many of the representations made by potential contractors are never independently verified by City officials, allowing dishonest companies to hide negative information and secure City contracts.  The report also found “communication and coordination problems” across City departments, which prevent the City from recouping money from contractors for outstanding wage or tax obligations.  Among the report’s recommendation are more stringent review of contractor qualifications, better communication in the payment hold process, and independent verification of supporting documentation.  According to the OIG, the Hart Enterprises investigation and the policy report are the work of the OIG’s new Contract Compliance Unit, an initiative which is focused on protecting the integrity of the City’s contracting process.

An article in the Philadelphia Inquirer on the OIG investigation and report can be found here.

The OIG policy recommendation report can be found here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in City of Phila., Phila. Inspector General Leave a comment

City Of Philadelphia Ordinance Imposes New Disclosure Requirement For City Contractors

Linkedin Facebook Twitter Plusone Email

City of Philadelphia contractors now have yet another requirement to contend with before they can be awarded a City contract.  This time, contractors must disclose the gender makeup of their boards and executive staff.

On September 6, 2013, Philadelphia Mayor Nutter signed Bill No. 13045701 which amends section 17-104 of the Philadelphia Code and which mandates that prospective contractors for the City disclose the current percentage of female executive officers in the company and the current percentage of females on the company’s executive and full boards; the company’s aspirational goals for the inclusion of females in executive positions and on the executive and full boards; and the intended efforts by the contractor to achieve the aspirational goals.

Bill No. 13045701 can be found here.

The bill was sponsored by Councilwoman Blondell Reynolds Brown who issued a press release touting the bill.  According to the press release, the bill was a recommendation from a 2013 report produced and sponsored by Councilwoman Reynolds Brown and reported out of the City Council Committee on Commerce and Economic Development. In the press release, Councilwoman Reynolds Brown is quoted as follows:

“We cannot manage what we cannot measure.  This bill will offer us the transparency needed to determine if a contractor values diversity in the workplace and in leadership positions.  It requires prospective contractors to put the gender of their leadership in writing, which tells them up front that gender diversity matters. We want to encourage companies to increase the number of women seated at those tables where major decisions are made, because we know that if women are not at the table, issues that are important to us end up on the menu.”

For what it’s worth, the purpose of this new contractor requirement escapes me.  What if a City contractor has no women on its board or on its executive staff?  How does the City intend to use this information?  For example, the City cannot, in a constitutional manner, mandate that only contractors that have women on their staffs or boards be eligible for City contracts or receive preferential treatment in the award of City contracts.  This new requirement is just one more burden added to already burdened City contractors.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in City of Phila. Leave a comment

Retainage Revisited: For How Long Can A Public Owner Withhold Retainage?

Linkedin Facebook Twitter Plusone Email

Retainage is always sore point for contractors, especially where an owner holds retainage for seemingly no good reason.  On public works projects, for how long can retainage be withheld? More and more, I am seeing public contracts in Pennsylvania where the public owner – oftentimes townships or local authorities or school districts – will grant itself the right to withhold retainage of 5% and sometimes even 10% until the project is finally completed, including until after the completion of all punch list items.  These contracts are often drafted by the hired architects or engineers who are woefully ignorant, sometimes intentionally, of the legal requirements applicable to public works contracts in Pennsylvania.

Can a public owner in Pennsylvania really hold retainage till the last nail is hammered?  The short answer is no!  The Commonwealth Procurement Code sets forth specific legal requirements for the withholding of retainage on public works contracts in Pennsylvania: 10% until the project is 50% complete, then 5% thereafter.  When must the 5% retainage be released?  At substantial completion, not final completion.

On this point, section 3941 of the Procurement Code provides:

§ 3941.  Substantial/final payment under contract.

(a) Contract containing provision for retainage.–A contract containing a provision for retainage as provided in section 3921 (relating to retainage) shall contain a provision requiring the architect or engineer to make final inspection within 30 days of receipt of the request of the contractor for final inspection and application for final payment. If the work is substantially completed, the architect or engineer shall issue a certificate of completion and a final certificate for payment, and the government agency shall make payment in full within 45 days except as provided in section 3921, less only one and one-half times the amount required to complete any then-remaining uncompleted minor items, which amount shall be certified by the architect or engineer and, upon receipt by the government agency of any guarantee bonds which may be required, in accordance with the contract, to insure proper workmanship for a designated period of time. The certificate given by the architect or engineer shall list in detail each uncompleted item and a reasonable cost of completion. Final payment of any amount withheld for the completion of the minor items shall be paid upon completion of the items in the certificate of the engineer or architect.

This statutory provision is mandatory, is the express public policy of Pennsylvania, and cannot be altered by a take-it-or-leave-it agreement.  Of course, this means that the contractor must still demand final inspection and apply for final payment before it can demand release of the retainage.  If it does this, the burden then shifts to the public owner to carry out its statutory obligation, and the contractor should then be entitled to release of all retainage, except for the certified punch list amount.

So, if your project is substantially completed, you should request final inspection and final payment.  If you are still owed retainage, except for the punch list, demand release of the retainage. If the public entity holds onto the retainage after it should be released, you are entitled to collect 10% interest on the withheld amount.  If you don’t enforce your rights to retainage, you can be certain that the engineer overseeing the public project won’t either.

An earlier post on retainage can be found here.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Retainage Leave a comment