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

Disappointed Bidder Lacks Standing To Challenge P3 Contract Award By Non-Commonwealth Entity

In a recent case of first impression, the Commonwealth Court of Pennsylvania has affirmed a lower court ruling that a disappointed bidder lacked standing to challenge a contract awarded by a non-Commonwealth entity under the Public-Private Transportation Partnership Act (P3 Act). In Read more

City Of Allentown Permitted To Use RFP Process For Waste Services Contract

In a decision issued on July 20, 2017, the Commonwealth Court of Pennsylvania upheld the City of Allentown's use of the Request for Proposals (RFP) process in a contract award. In 2015, Allentown issued an RFP for the award of a Read more

Are RFQs Immune From Protest Under The Procurement Code?

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. Read more

Pennsylvania Initiates Disparity Study For Small Diverse Business Program

In June 2017, the Commonwealth of Pennsylvania initiated a disparity study that will provide information to help the Department of General Services (DGS) implement the Pennsylvania's Small Diverse Business Program. The expected completion date for the disparity study is Read more

Public Contracting 101: Retainage

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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.

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Posted on by Christopher I. McCabe, Esq. in Public Contracting 101, Retainage Leave a comment

Public Bidding Hall of Fame: Kratz v. Allentown

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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.

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Posted on by Christopher I. McCabe, Esq. in Hall of Fame Decisions Leave a comment

Free Training for Prevailing Wage Requirements on Federal Contracts

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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.

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Posted on by Christopher I. McCabe, Esq. in Prevailing Wage Leave a comment

Bridge Contractor Found Guilty in 15-Year DBE Scheme

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Once again, the U.S. Department of Transportation’s DBE program is in the news, with a warning for contractors who might think they can evade the DBE rules applicable to federally funded public contracts.  In April 2012, the owner of Schuylkill Products, Inc., a Pennsylvania bridge contractor, was found guilty on 26 of 30 charges in an indictment including conspiracy to defraud the U.S. DOT in a DBE fraud scheme.

Joseph W. Nagle, the contractor-owner, was convicted of participating in a 15-year-long scheme, where he and other executives at his firm diverted over 300 PennDOT and SEPTA construction contracts to the firm and a subsidiary firm that were reserved for DBE’s.  The contractor owner and his co-conspirators executed the scheme by using Marikina Construction Corporation, a small Connecticut highway construction firm, as a “front” company to obtain these lucrative government contracts.

This prosecution is Exhibit A on why contractors should be especially wary of trying to circumvent the strict DBE rules on U.S. DOT-funded public contracts.  If you happen to be caught, the penalties – both criminal and civil – can be severe, including jail time.

According to the press release issued by the United States Attorney’s Office for the Middle District of Pennsylvania, this recent prosecution is just one salvo in the federal government’s continuing battle to shut down DBE fraud schemes:

 “Preventing and detecting DBE fraud are priorities for the Secretary of Transportation and the USDOT Office of Inspector General,” said Doug Shoemaker, OIG Regional Special Agent in Charge. “This significant conviction, in what is the largest reported DBE fraud case in USDOT history, will serve as a clear signal that severe penalties await those who would attempt to subvert USDOT laws and regulations. Prime contractors and subcontractors are cautioned not to engage in fraudulent DBE activity and are encouraged to report any suspected DBE fraud to the USDOT-OIG. Our agents will continue to work with the Secretary of Transportation, the Administrators of the Federal Highway and Transit Administrations, and our law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes throughout Pennsylvania and the United States.”

The full press release explaining the prosecution and its background can be found here.  This case has some similarities to the recent prosecution of an Ohio contractor which I commented about here.

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Posted on by Christopher I. McCabe, Esq. in DBE/MBE/WBE, PennDOT Leave a comment

Public Bidding 101: Bidder Responsibility

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This is one in a continuing series of posts on the basic tenets of public bidding in Pennsylvania.  The subject of today’s post is bidder responsibility.

“Responsibilty” refers to the qualifications, including competence and experience, of a bidder to perform a public contract.  Whether a bidder is responsible or qualified to receive a contract award is ordinarily left up to the discretion of the government officials in charge of awarding the contract.  The courts are extremely reluctant to overrule government decisions to disqualify a bidder as non-responsible.

The standards for bidder responsibility have been established for many years.  The criteria include financial responsibility, integrity, efficiency, industry, experience, promptness, and ability to successfully perform and complete the contract.  While some may believe that the ability to secure and post a bond is proof of their responsibility, a bond is not a substitute for the failure of a bidder to satisfy qualification criteria.  Furthermore, a bidder cannot be rejected as non-qualified unless the government officials have also first conducted an investigation into all bidders’ respective qualifications.

Bidder responsibility can be determined before bids are received, via a pre-qualificaiton process, or after the bids are received.  All bidders must be judged according to the same criteria.  A pre-qualification process may be used only if one is mandated or allowed by statute or ordinance.  Where there is no prescribed pre-qualification process, a municipal official may not exclude certain persons from bidding under the guise of a pre-qualification program.

In Harris v. City of Philadelphia, 299 Pa. 473, 149 A. 722 (1930), the Supreme Court of Pennsylvania had this to say about responsibilty determinations:

We again lay down the rule that all bidders on a municipal contract must be accorded the same treatment, for not otherwise can the requirements of the statute be complied with.  The city may … accept and schedule all bids, and then, if acting in good faith, refuse to award the contract to one who is the lowest bidder, because he is not the ‘lowest responsible bidder.’  Or she may … determine in advance who are responsible bidders, and refuse to receive bids from those who, after treating all alike, she determines are not in that class.  But she may not impose conditions on one prospective bidder, which are not imposed upon all; nor may she enforce a method by which, through favoritism, one person may be conclusively authorized to bid on a pending contract, while another, equally as responsible and perhaps more so, is wholly excluded from even submitting a bid.

This rule of public bidding is as applicable today as it was in 1930.

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