Can Retainage Be Held Until Final Completion Of The Project?

On public projects, an owner typically withholds retainage of 10%. Can the owner hold this 10% retainage until final completion? The short answer is, No! Section 3921 of the PA Procurement Code mandates that, when the contract is 50% completed, retainage "shall Read more

Can A Public Owner Ever Seek Clarification Of Ambiguous Pricing?

Recently, a public owner solicited bids for a university construction project. The bid form sought pricing for base bid work and alternate work. One of the bidders included ambiguous pricing for an alternate item, in that the pricing was Read more

Debriefing After Non-Selection Does Not Toll 7-Day Deadline For Bid Protest

The Pa. Procurement Code sets a strict deadline for bid protests - the protest must be filed within seven days after the protestant knew or should have known of the facts giving rise to the protest.  If the protest is untimely, it Read more

Does Separations Act Prohibit Use Of Best Value Contracting For Construction Of Philadelphia Public Buildings?

Now that "best value" contracting is officially the new game in town for City of Philadelphia procurement, with the issuance of the new best value regulations, it's worth asking whether the longstanding Separations Act precludes the City from using best Read more

Does PA Steel Act Prohibit Public Owner From Specifying Foreign-Made Cast Iron Boiler?

The PA Steel Products Procurement Act requires that all steel products (including cast iron products) supplied on a Pennsylvania public works project must be made from U.S.-made steel. Recently, a school district's contract specified a cast iron boiler manufactured in Europe as the Read more

Procurement Code

Can Retainage Be Held Until Final Completion Of The Project?

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On public projects, an owner typically withholds retainage of 10%. Can the owner hold this 10% retainage until final completion? The short answer is, No!

Section 3921 of the PA Procurement Code mandates that, when the contract is 50% completed, retainage “shall not exceed 5% of the value of completed work” and can then be withheld only until substantial completion. The only condition is that the contractor must be making “satisfactory progress,” and there must be no cause for a “greater withholding.” Read more

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Posted on by Christopher I. McCabe, Esq. in Procurement Code, Retainage Leave a comment

Debriefing After Non-Selection Does Not Toll 7-Day Deadline For Bid Protest

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The Pa. Procurement Code sets a strict deadline for bid protests – the protest must be filed within seven days after the protestant knew or should have known of the facts giving rise to the protest.  If the protest is untimely, it will be rejected. The impact of this brightline rule was shown in a recent Commonwealth Court decision involving a late-filed protest.

In 2016, the Pa. Department of Human Services issued an RFP seeking proposals from managed care organizations to implement a managed care program for physical health and long-term services for the elderly and disabled.  After evaluation of proposals, the Department notified one of the bidders, UnitedHealthcare of Pennsylvania, Inc., that it was not selected. Thereafter, the Department conducted a debriefing with UnitedHealthcare where it provided information concerning the strengths and weaknesses of UnitedHealthcare’s proposal. Unhappy with the outcome, UnitedHealthcare filed a protest, more than seven days after it was notified that it was not selected, but within seven days of the debriefing. The Department denied the protest as untimely, and UnitedHealthcare filed an appeal with the Commonwealth Court. Read more

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Com. of Pa., Court Decisions, Procurement Code Leave a comment

Are RFQs Immune From Protest Under The Procurement Code?

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If you respond to a Request for Quotes (RFQ) issued by a Commonwealth department or agency, can you protest if the resulting purchase order is awarded to another bidder?

According to the Commonwealth’s Office of Administration, the answer is no.  In a recent protest, the OA issued a letter which took the remarkable position that  “‘Award’ under an RFQ merely results in a Purchase Order under an existing multiple-award contract; therefore an RFQ is not the solicitation or award of a contract, and cannot be protested.”

Needless to say, this position is not supported by a fair reading of section 1711.1 of the Commonwealth Procurement Code which allows an aggrieved bidder or prospective bidder to protest the solicitation or award of a state contract. Certainly, a purchase order that is part of a multiple-award contract is nonetheless a contract; indeed, without issuance of a purchase order, the multiple-award contract is essentially meaningless. Likewise, an RFQ is a solicitation for a quote which may result in a contract – i.e., the purchase order.

Read more

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Com. of Pa., Procurement Code Leave a comment

Public Works Payment 101: Final Payment

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Payment issues dominate the world of the public works contractor in Pennsylvania.  When must progress payments be made?  When can the government withhold payment? Is interest due on late payments? When is final payment due? How much retainage can be withheld and when must retainage be reduced and fully released?

Generally, payment obligations on public works contracts are set forth in Part II, Chapter 39, of the Pa. Procurement Code, 62 Pa.C.S. § 3901, et seq.  These provisions control the public owner’s payment obligations, as well as contractors’ obligations for payment to its subcontractors.

This post is the first in a planned series on the payment requirements for public works contracts in Pennsylvania.  Under the Commonwealth Procurement Code, 62 Pa.C.S. § 3941, the public owner’s obligations for final payment are strict.

When retainage is withheld, the public contract must require the architect or engineer to make final inspection within 30 days of receipt of the contractor’s request for final inspection and final payment. If the work is substantially completed, then

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. [Emphasis added]

Under the terms of the section 3941, once the punch list items are completed, the public owner must make final payment of the amount that was withheld for completion of the punch list .

What does all of this mean in plain English?

Once “substantial completion” is achieved, (1) an inspection must be performed within 30 days after a contractor’s request, (2) the architect must issue a certificate of completion and for payment, (3) the architect must prepare a punch list and assign a value for the punch list items, and (4) payment, less one and a half times the punch list value, must be made to the contractor within 45 days.  Final payment must then be made once all of the punch list items are completed.

If you are public works contractor, it is imperative that you request a final inspection after substantial completion. This request triggers the final payment obligations of the public owner. This request also triggers the public owner’s obligation to release retainage. Contrary to popular practice, a public owner is not permitted to hold 5% retainage (or more) until the literal final completion of the work.

If you need assistance on a public works payment issue, call or email me for a no-cost consultation.  I’ll be happy to assist in anyway possible.

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Posted on by Christopher I. McCabe, Esq. in Procurement Code, Public Works Payment Rules Leave a comment

Public Bidding 101: Emergency Bidding

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Emergency contracting for repairs, maintenance, and public safety are a routine occurrence with public owners across the Commonwealth. A building in danger of collapse needs to be torn down on an immediate basis to ensure public safety.  A system fails in a public building requiring an emergency repair to restore the system to proper working order. A roadway or bridge is washed out during a storm mandating immediate action to restore access for the public and emergency vehicles. In such dire situations, can a public owner bypass the normal rules of competitive bidding and award a contract an expedited basis? The answer is yes, with some caveats.

Where an emergency threatens the health, welfare, or safety of the citizenry, and does not permit a delay in response, a public owner can dispense with the formal rules of public bidding such as timing of award and public notice. On the other hand, even in an emergency, the public owner cannot simply award a contract without competition.  An emergency may relax the requirement for notice and advertising, but it doesn’t eliminate competition. After all, if a public owner can invite pricing from one contractor in an emergency, there is usually no good reason why it can’t also invite pricing from other contractors at the same time.

This principle is aptly illustrated by the emergency bidding section in the Commonwealth Procurement Code, at 62 Pa.C.S. § 516, which provides:

The head of a purchasing agency may make or authorize others to make an emergency procurement when there exists a threat to public health, welfare or safety or circumstances outside the control of the agency create an urgency of need which does not permit the delay involved in using more formal competitive methods. Whenever practical, in the case of a procurement of a supply, at least two bids shall be solicited. A written determination of the basis for the emergency and for the selection of the particular contractor shall be included in the contract file.

Thus, the Procurement Code recognizes that, even in the face of an emergency, competition and transparency are still required.

Likewise, the Public School Code, at 24 P.S. § 7-751, also allows for emergency contracting but still requires competition:

… Provided, That, if due to an emergency a school plant or any part thereof becomes unusable, competitive bids for repairs or replacement may be solicited from at least three responsible bidders, and, upon the approval of any of these bids by the board of school directors, the school district may proceed at once to make the necessary repairs or replacements in accordance with the terms of said approved bid or bids. …

In Upper Darby Twp. v. Ramsdell Construction Co., a 1943 trial court decision, the court noted that “statutory requirements that municipalities must have contracts in writing and advertise for bids have been held not to apply to a situation where there is an emergency.” But the court also added: “The important thing, therefore, in these cases would seem to be the determination as to whether or not there was an emergency.”

The bottom line is that, in a documented emergency requiring immediate attention, a public owner can dispense with the normal rules of public bidding while still having to seek competition.

If you need assistance on a public bidding issue, call or email me for a no-cost consultation.  I’ll be happy to assist in anyway possible.

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Posted on by Christopher I. McCabe, Esq. in Procurement Code, Public Bidding 101, Public School Code Leave a comment

Bad Faith Finding Does Not Mandate Award Of Attorney Fees And 1% Penalty

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If a public owner breaches its payment obligations to a public contractor and acts in bad faith in doing so, is the public contractor automatically entitled to an award of its attorney’s fees and a 1% penalty under section 3935 of the Procurement Code?

In a recently published opinion, the Supreme Court of Pennsylvania has ruled that such an award is discretionary, not automatic, reversing a 2014 Commonwealth Court decision which had held that a bad faith finding entitled the contractor to recover its attorney’s fees and the 1% penalty. Read more

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Leave a comment

Procurement Code Protest Allowed Where Late Filing Was Due To Extraordinary Circumstances

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Under the Pa. Procurement Code, a protest must be filed within seven days after the protestant knew or should have known of the facts giving rise to the protest.  If the protest is untimely, it will be rejected. Recently, in a published opinion and in a departure from the usual rule, the Commonwealth Court decided that equitable principles would allow a late-filed protest to be considered.

The case concerned Pa. Department of Transportation (PennDOT) inspection contracts on which Bureau Veritas (BV), the protestant, had submitted a statement of interest.  PennDOT ranked BV fifth in its statement of rankings.  BV learned of the rankings on November 13, 2014.  Seven days later, on November 20, 2014, BV filed a protest, but the email of its protest was rejected by PennDOT’s computer server due to improper formatting of the file attachment.  On November 21, 2014, BV learned of the email rejection and promptly re-sent the email with the proper formatting of the file attachment, eight days after the publication of the rankings.  PennDOT rejected BV’s protest as untimely and on the merits.  BV then argued that it should be allowed to file its protest nunc pro tunc (literally, “now for then”). PennDOT issued a final determination rejecting the protest, as well as the request that the protest be considered nunc pro tunc.  BV appealed to the Commonwealth Court. Read more

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, PennDOT, Procurement Code Leave a comment

Participation By Awardee In Bid Protest Hearing Not Improper Under Procurement Code

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In two, not-so-recent decisions involving bid protests filed under the Pa. Procurement Code, the Commonwealth Court of Pennsylvania has held that it was not improper to allow the awarded vendor to actively participate in the protests.

In the two cases, the aggrieved bidders filed protests with the Pa. Department of Corrections challenging awards for a contract for a secure telephone system for inmates housed at Department facilities.  In each case, the Secretary permitted the contract awardee to participate in the bid protest.  In one protest, the awardee was permitted to file a reply to the bid protest.

On appeal, the bidders argued in each case that the contract awardee’s participation in the protest and hearing was unlawful because, under section 1711.1 of the Procurement Code, the only proper parties to a protest are the protestant and the contracting officer, and the awardee may not participate because, under the statute, it is not an enumerated party to a protest.

The Commonwealth Court flatly rejected this argument, finding that there was no abuse of discretion in allowing the contract awardee to participate in the protest. This decision makes perfect sense.  The Procurement Code itself, at section 1711.1(e), provides that the person deciding the protest “may request and review such additional documents or information he deems necessary to render a decision and may, at his sole discretion, conduct a hearing.”  This could certainly include information from the vendor who has been awarded the contract.  In addition, as the Court noted, the Department of General Service’s Procurement Handbook permits such participation where “substantial issues are raised by the protest.”  Furthermore, by comparison, in an equity action filed to protest and enjoin a local contract award, the contract awardee is deemed to be an indispensable party and must be included in the proceeding.

So, if you intend to protest a bid or contract award under the Procurement Code, you are hereby forewarned: be prepared to fend off arguments by both the agency soliciting your bid and the entity who has been awarded the contract.

The two Commonwealth Court decisions can be found here and here.

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Posted on by Christopher I. McCabe, Esq. in Bid Protests, Court Decisions, Procurement Code Leave a comment

Commonwealth Court Again Holds That Penalty Award Is Mandatory On Finding Of Bad Faith

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[NOTE: The Commonwealth Court decision reported in this post has been overruled by the Supreme Court. See my new post on the Supreme Court’s July 2016 ruling that a finding of bad faith does not mandate an award of fees and penalties.]

In a recent, unpublished opinion, in the case of Klipper Construction Associates, Inc. v. Warwick Township Water and Sewer Authority, the Commonwealth Court of Pennsylvania affirmed its recent holding in A. Scott Enterprises, Inc. v. City of Allentown (Oct. 2014), and has held again that a finding of bad faith on the part of a public agency in withholding payment from a public contractor mandates the award of a penalty.  This is from the Court’s decision:

Contractor’s assertion that the trial court erred in failing to award any penalty is correct. As noted above, a finding of bad faith requires the trial court to make a penalty award under Section 3935(a) of the Prompt Pay Act. A. Scott Enterprises, Inc., __ A.3d at __, 2014 WL 5335358 at *7. We must therefore reverse the trial court on this issue.

What is “bad faith”?  Section 3935(a) of the Procurement Code has this to say about bad faith:

An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. An amount shall not be deemed to have been withheld in bad faith to the extent it was withheld pursuant to section 3934 (relating to withholding of payment for good faith claims).

The takeaway? If you are a public contractor denied payment by a public entity and can show bad faith – arbitrary or vexatious conduct – on the part of the public entity, then you will be awarded a penalty which might be as high as 1% per month on the amount owed.  If you are the public entity and are withholding payment from the contractor, then you must fully comply with section 3934 of the Procurement Code to avoid a finding of bad faith.

The Commonwealth Court decision can be found here.  My earlier post on the A. Scott Enterprises case can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Leave a comment

Commonwealth Court Rules That Award Of Fees And Penalty Is Mandatory On Finding Of Bad Faith

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[NOTE: The Commonwealth Court decision reported in this post has been overruled by the Supreme Court. See my new post on the Supreme Court’s July 2016 ruling that a finding of bad faith does not mandate an award of fees and penalties.]

In a recently published opinion, the Commonwealth Court has held that a finding of bad faith by a public entity in refusing to make payment to a public contractor mandates the award of attorney’s fees and the statutory penalty of 1% per month.

In 2009, the City of Allentown (Allentown) awarded a road paving contract to A. Scott Enterprises (Scott).  After mobilization, the job was suspended when a pile of contaminated dirt was discovered at the job site.  Scott resumed some of its work and then left the job site while the parties negotiated Scott’s costs.  The parties were unable to agree on payment for the additional costs to deal with the job suspension and the contaminated soil.

Scott then filed suit to recover its losses on the project, and was awarded damages of $927,299.  The jury also found that Allentown breached the contract and acted in bad faith in refusing to make payment to Scott for its contract damages and suspension costs.  However, despite the finding of bad faith, the trial court refused to award Scott attorney’s fees, the statutory penalty of 1% per month, and pre- and post-judgment interest.  Scott appealed to the Commonwealth Court.

On appeal, Allentown argued that an award of fees and penalties was discretionary with the trial court.  The Commonwealth Court rejected Allentown’s arguments, and held that the jury finding of bad faith mandated an award of fees and penalties to Scott:

The purpose of the Procurement Code is to “level the playing field” between government agencies and contractors. See Pietrini Corp. v. Agate Construction Co., 2006 PA Super. 140, 901 A.2d 1050, 1055 (Pa. Super. 2006). It advances this goal by requiring a government agency that has acted in bad faith to pay the contractor’s legal costs, as well as an interest penalty. Otherwise, the finding of bad faith is a meaningless exercise with no consequence for the government agency found to have acted in bad faith. We conclude that Section 3935 of the Procurement Code requires the imposition of attorney’s fees and the statutory penalty upon a jury’s finding of bad faith. See City of Independence v. Kerr Construction Paving Company, Inc., 957 S.W.2d 315, 321-23 (Mo. Ct. App. 1997) (holding that Missouri’s procurement code’s use of “may” regarding penalty interest and attorney’s fees means “shall” and upon finding of bad faith by jury, trial court must award such damages, even though the extent of damages is a matter for the discretion of trial judge).

On the question of when the public agency must make payment to the contractor, the Commonwealth Court had this to say:

There was conflicting evidence on the exact amount the City owed Contractor.  However, the City had an obligation to make a good faith effort to pay for Contractor’s suspension costs and to pay those invoices it did not challenge. 62 Pa. C.S. §3932. If the City disputed the amount of a suspension invoice, it was required to so notify Contractor, withhold the disputed amount and pay the remainder of the invoices. Instead the City paid nothing.

While the Commonwealth Court held that an award of fees and penalties was mandatory, the amount to award is within the trial court’s discretion.  The case was remanded to the trial court for a hearing to determine the award of reasonable attorney’s fees.

The takeaway from this decision is that public agencies have a clear duty to determine what is owed to a contractor and to pay that amount.  They cannot simply throw up their hands and refuse to make any payment because there is a dispute over some items of work.  The Commonwealth Court’s holding strengthens the hand of public contractors in Pennsylvania, and puts public agencies on notice that the Procurement Code has real teeth and that they will be held accountable for bad faith conduct in refusing to make proper and timely payment to their contractors

The Commonwealth Court’s opinion can be found here.

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Posted on by Christopher I. McCabe, Esq. in Court Decisions, Procurement Code, Public Works Payment Rules Leave a comment