City of Phila. Local Business Entity Preference

Are you a contractor located in the City of Philadelphia and doing business with the City? If so, you may qualify for a bidding preference that could help you land even more City contracts.

A well-known secret of City contracting is the local business entity (LBE) preference. Under the LBE preference, the bid price of a certified LBE is adjusted downward by 5% so that a bid price of $100,000 is treated as $95,000 for purposes of determining the lowest bid price for contract award. After contract award, the LBE is still paid its full bid price.

A contractor can become certified as an LBE if, in the preceding 18 months, (a) it has had its principal place of business in the City, or (b) it has had an office in the City and either more than 1/2 of the contractor’s full-time employees, or more than 50 of the contractor’s full-time employees, have worked in the City at least 60% of the time. The contractor must also have a valid business privilege license for the same preceding 18 months and must have filed a business privilege tax return in the preceding 12 months. The City’s LBE certification is good for 5 years, but is subject to an annual recertification.

It is critical that a contractor awarded a City contract due to its LBE status maintain its LBE status during the term of the City contract. The failure to do so will result in revocation of the LBE status, the imposition of liquidated damages, and a 3-year debarment. The City’s LBE regulations provide that:

The certification made by an LBE in its bid … shall be deemed incorporated into any contract resulting from the bid for which a preference is granted. If the Procurement Commissioner determines that the LBE fails to comply with its certification at any time during the term of its contract, the LBE certification will be revoked and the LBE shall be deemed in substantial breach of such contract, shall be required to pay liquidated damages of 10% of the awarded contract amount, and may be debarred by the Procurement Commissioner in accordance with the Procurement Department Debarment Regulation for a period up to three years.

The City will enforce this regulation and penalize those who abuse the LBE preference. In September 2010, the Philadelphia Inquirer reported on the imposition of liquidated damages for an LBE which could not establish the bona fides of its LBE status.

The City’s LBE regulations can be found here. The City’s LBE application can be found here.

As for whether the LBE preference has benefited the City and its taxpayers economically, this remains an open question. Business columnist Joseph N. DiStefano of the Philadelphia Inquirer recently commented on the City’s LBE, highlighting a large construction contract that the City awarded last year to an LBE. His column can be found here.

Posted on September 13, 2012 by Christopher I. McCabe, Esq. in City of Phila. Comments Off

Public Contracting 101: Surety Bonds

This post is another in a series on the basic concepts and tenets of public contracting in Pennsylvania. Today’s post concerns surety bonds and surety claims. This topic is of critical importance to subcontractors and suppliers on public works projects.

Under the Pa. Public Works Contractors Bond Law of 1967, all public contracts for public works (defined as the construction, reconstruction, alteration or repair of any public building or other public work or public improvement, including highway work) in excess of $5,000 must be accompanied by both a performance bond (at 100% of the contract price, to protect the owner against non-performance) and a payment bond (at 100% of the contract price, to protect subcontractors, suppliers, and laborers against non-payment).

The surety bonds must be issued by a surety company authorized to do business in Pennsylvania. They must also be filed with the public entity awarding the contract.

Payment bonds protect subcontractors and suppliers who have performed labor or furnished materials on a public project. The protection extends to those with direct contracts with the prime contractor and those with direct contracts with a subcontractor or supplier to the prime contractor.

Claims against payment bonds are governed by the Pa. Bond Law. Direct subcontractors and suppliers can bring a claim 90 days after the last date work was performed or materials were supplied. Second tier subcontractors or suppliers must first give written notice of non-payment to the prime contractor, by registered or certified mail, within 90 days from the last date work was performed or materials were supplied.

If a prime contractor has paid its subcontractor in full, but the subcontractor has not paid its subcontractor or supplier, the second tier subcontractor or supplier is out of luck on a claim against the payment bond. In Trumbull Corp. v. Boss Contruction, Inc., 768A.2d 369 (Pa. Cmwlth. 2001), the Commonwealth Court ruled that in such a case the unpaid second tier subcontractor or supplier is barred by a “safe harbor” provision of the Pa. Procurement Code from bringing a payment bond claim. The “safe harbor” provision states as follows:

“Once a contractor has made payment to the subcontractor according to the provisions of this subchapter, future claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor which has been paid shall be barred.”

The public entity is required to provide a copy of payment bond to a subcontractor or supplier who has not been paid upon submission of an affidavit to that effect.

Posted on September 6, 2012 by Christopher I. McCabe, Esq. in Public Contracting 101, Surety and Bonding Comments Off

Pa. Attorney General Sues Public Contractor for Violation of Pa. Steel Products Procurement Act

As I noted in my recent post on the Pa. Steel Products Procurement Act, and as evidenced by recent enforcement action by the Pennsylvania Attorney General, the Act remains as relevant today as when it was first enacted in 1978.

On August 2, 2012, the Pennsylvania Attorney General filed suit against Ryco, Inc., and related Ryco businesses, claiming that they used hundreds of fittings made with foreign steel in fire sprinkler systems installed on a pubic works project at Indiana University of Pennsylvania and a public works project at the Blairsville-Saltsburg School District. The suit also names individual officers, owners, and directors of the Ryco businesses.

The official press release announcing the lawsuit noted that the Attorney General’s investigation into the possible use of lower-cost foreign steel products on Pennsylvania public works projects is “active and ongoing.” The lawsuit asks the Commonwealth Court to order civil penalties of up to $1,000 for each violation and other relief, along with recovery of any payments that were made to Ryco under the contracts and the cost of the investigation. In addition, the lawsuit seeks to prohibit Ryco and the other defendants from submitting bids or supplying materials to any public agency in Pennsylvania or on any state contract for a five year period.

The lawsuit against Ryco is proof positive that the Act is alive and well, and that public contractors supplying steel on public works projects in Pennsylvania, and the owners of these companies, must be extremely careful to know and comply with the Act’s requirements. The failure to do so could result in drastic penalties not only for the companies but for the owners themselves.

The official press release can be found here.

Posted on September 4, 2012 by Christopher I. McCabe, Esq. in Steel Products Act Comments Off

Bid Thresholds for Pa. Borough Contracts Increased

In November 2011, Act No. 92 was signed into law, increasing the monetary thresholds for public contracts awarded by Pennsylvania boroughs.

Sealed competitive bidding is now required with appropriate advertisement for all contracts in excess of $18,500 (an increase from $10,000). Written or telephonic quotes from at least three bidders is now required for all contracts in excess of $10,000 (an increase from $4,000), but not more than $18,500. The Act provides for adjustments to these threshold amounts due to inflation per the “Consumer Price Index for All Urban Consumers” (CPI-U).

The Act became effective January 1, 2012. The full Act can be found here.

Posted on August 28, 2012 by Christopher I. McCabe, Esq. in General Comments Off

Public Contracting 101: Steel Products Procurement Act

This post is one in a series on the basic concepts and tenets of public contracting in Pennsylvania. Today’s post concerns the Pa. Steel Products Procurement Act, a virtual relic of public contracting in Pennsylvania, one that has been around for more than 30 years, but is still of important relevance today.

The Act was passed in 1978 with a stated purpose to protect the U.S. market for steel production and supply. The Act provides that any steel products used or supplied on a Pennsylvania public works contract must be made in the U.S. If the steel product contains any foreign steel, it is a U.S. product only if 75% of the cost of the product has been mined, produced, or manufactured in the U.S.

A public works contract is one for the construction, reconstruction, alteration, repair, improvement, or maintenance of public works. In turn, “public works” has a broad definition as follows:

Any structure, building, highway, waterway, street, bridge, transit system, airport or other betterment, work or improvement whether of a permanent or temporary nature and whether for governmental or proprietary use. The term includes, but is not limited to, any railway, street railway, subway, elevated and monorail passenger or passenger and rail rolling stock, self-propelled cars, gallery cars, locomotives, passenger buses, wires, poles and equipment for electrification of a transit system, rails, tracks, roadbeds, guideways, elevated structures, buildings, stations, terminals, docks, shelters and repairs to any of the foregoing.

Contractors performing general construction work for public entities in the Commonwealth must be especially vigilent in their compliance with the requirements of the Act. There are grave consequences for a violation of the Act, including the withholding of payment and, in the case of a willful violation, a 5-year debarment. An exception in the Act exists where the head of the public agency, in writing, determines that steel products are not produced in the U.S. in sufficient quantities to meet the requirements of the contract.

PennDOT has issued new guidelines for compliance with the Act for PennDOT contracts. The website of Associated Pennsylvania Constructors has a link to the new PennDOT guidelines here.

Recently, in Mabey Bridge & Shore, Inc. v. Schoch, 666 F.3d 862 (3d Cir. 2012), the Act withstood a federal constitutional challenge from a contractor who had to cancel four contracts for temporary bridges on PennDOT projects, and who has been barred from giving future quotes. The contractor had supplied PennDOT with temporary bridges for more than 20 years on 50 different PennDOT projects. But, in 2010, PennDOT notified the contractor that its temporary bridges were prohibited by the Act. In Mabey Bridge & Shore, the contractor claimed that the the Act was unconstitutional and that it was preempted by the federal Buy America Act. The U.S. Court of Appeals for the Third Circuit rejected the contractor’s challenges, found that the Act was not preempted, and upheld PennDOT’s decision.

The Third Circuit’s decision in Mabey Bridge & Shore can be found here.