$500K Settlement for Ohio Contractor in DBE Case on Cleveland Airport Project

Federal prosecutors in Ohio recently announced that an Ohio contractor has agreed to pay the U.S. Justice Department $500,000 to settle complaints that the contractor improperly claimed credit for minority contractors on a $130 million runway expansion at Cleveland Hopkins International Airport.

Federal prosecutors accused the contractor of submitting false claims that made it appear that the contractor was in compliance with the U.S. Department of Transportation disadvantaged business enterprise program, which was required for the contractor to obtain and keep its contract. The contract was funded by the U.S. DOT.

A Cleveland Plain Dealer article on the complaints and the settlement can be found here.

This settlement is proof, once again, that contractors who evade the DBE rules on federally-funded transportation contracts are at serious risk for significant civil sanctions and potentially criminal penalties, including enforcement action under the federal False Claims Act. Rather than seeking to meet DBE goals by using questionable “pass-through” entities, contractors should remember that the U.S. DOT DBE rules require only good faith efforts to meet the specified contracting goals. The DBE goals cannot be enforced as quotas, and a contractor’s failure to meet the goals should not disqualify it from receiving a contract, so long as the contractor can show that it has expended reasonable and good faith efforts to meet the goals. A denial of the contract for failure to meet the goals, in the face of good faith efforts, could subject the public entity to an equal protection claim.

Posted on May 21, 2012 by Christopher I. McCabe, Esq. in DBE/MBE/WBE, General Comments Off

What is the PA Unified Certification Program?

The Pennsylvania Unified Certification Program (PA UCP) was created as a result of a change in the Disadvantaged Business Enterprise (DBE) regulations issued by the U.S. Department of Transportation, and is designed to provide “one-stop shopping” for firms seeking certification as a DBE in accordance with 49 CFR Part 26 and as an Airport Concession DBE (ACDBE) in accordance with 49 CFR Part 23. These regulations are issued by the US DOT and governn its DBE program which mandates disadvantaged contractor goals in federally-funded contracts. Information on the US DOT program can be found here.

The PA UCP is comprised of all Pennsylvania recipients of funds from the Federal Aviation Administration (FAA), the Federal Highway Administration (FHWA), and the Federal Transit Administration (FTA).

The PA UCP makes all certification decisions on behalf of all agencies and organizations in Pennsylvania with respect to participation in the DBE and ACDBE Programs. In other words, firms certified as a DBE or ACDBE with the PA UCP are eligible to participate on any FAA-, FHWA-, or FTA-funded contract as a DBE or ACDBE.

The PA UCP website can be found here. Click here to learn how to become certified as a DBE or ACDBE.

Posted on May 16, 2012 by Christopher I. McCabe, Esq. in DBE/MBE/WBE Comments Off

Philadelphia Revokes Certification Of MBE Supply Firm; Second Action In 12 Months

In January, the City of Philadelphia’s Office of Economic Opportunity revoked the 25-year-old certification of a minority-owned supply firm and announced that it would seek to bar another contractor from receiving City contracts for three years. The OEO’s action was reported in The Philadelphia Inquirer. The OEO’s revocation was the second time in 12 months that the OEO took enforcement action stemming from abuses in the City’s minority-contracting efforts.

The OEO alleges that the MBE supply firm acted essentially as a “pass-through” entity – contending that a prime contractor agreed to use the MBE supply firm for materials, but instead bought materials from a second firm and paid a 3% fee to the MBE supply firm. The Inquirer further reported that City investigators found that the prime contractor and the non-DBE firm had generated false invoices to cover their tracks. The City alleges that the non-DBE firm had used the MBE supply firm as a sham minority contractor on at least fourteen other city contracts.

Last year, in May 2011, the OEO had announced the voluntary 20-month debarment of a significant locally-based general contractor for failure to comply with the City’s contracting requirements. The Philadelphia Inquirer article on this suspension can be found here. The suspension in May 2011 was the first time the City had suspended a contractor, but it certainly won’t be the last.

The City’s enforcement actions mean that City contractors can no longer evade the OEO requirements on City contracts. The OEO will closely monitor contractors for compliance, and serious sanctions may be imposed on contractors for non-compliance.

Posted on May 14, 2012 by Christopher I. McCabe, Esq. in City of Phila., DBE/MBE/WBE Comments Off

Renegotiation Of Prices For Contract Extension Held Unlawful; Competitive Bidding Required

Recently, in Hanisco v. Township of Warminster, the Commonwealth Court ruled that Warminster Township improperly negotiated new pricing for an extension of a waste services contract. The Court held that the township should have let the new contract by competitive bidding.

While the general rule is that a municipality may extend and renew public contracts without the need for competitive bidding, to do so the municipality must specify in the original bid requirements that the contract can be renewed or extended and under what terms. If the specifications do not spell out this allowance, then the contract must be competitively bid again when it expires.

The problem in Hanisco was that, while the original 5-year waste contract allowed for two 1-year extensions, the prices for the two 1-year extensions were already set by the contract. But in 2009, rather than adhering to these fixed prices, the township and the contractor, knowing that the prices were higher than in the marketplace, privately negotiated more favorable pricing for the two 1-year extensions in the form of a “rebate.” This new pricing required an amendment to the contract to reflect the better pricing and to permit the township to exercise the renewal option.

In Hanisco, the Court framed the issue as follows:

The issue before this Court is whether the prices for the waste services provided by [the contractor] set forth in the 2005 Contract for the two, one-year options for 2010 and 2011 could be privately renegotiated by the parties or whether such a renegotiation required public, competitive bidding pursuant to Section 3102(a) of the [Pennsylvania Second Class Township] Code.

The Commonwealth Court held that the conduct of the township and the contractor was improper:

… the option in the instant case contained the essential terms, including price, and was a part of the competitive bidding process. This price term was definite and not open for future negotiation. Indeed, the option here was even more definite than that in Bevilacqua, where the term of the option remained open for negotiation based on the value of the improvements the concessionaire made. Here, because the Township did not exercise the option in accordance with its terms but, instead negotiated a new price, the Township and [the contractor] entered into a new contract that became subject to the Code’s mandatory public bidding requirements.

The evil which the Commonwealth Court addressed in Hanisco is the opportunity for favoritism when a municipality negotiates in private for a contract that should be competitively bid. While the township officials may have believed that they were acting in good faith, in order to get the best deal they could for their constituents, in reality by not putting the contract out for bid the township would not know if it could have achieved even greater savings.

As the Commonwealth Court stated:

The overarching public policy encompassed by the public bidding requirements must take precedence to ensure the integrity of the process, its transparency and fairness, and to engender a greater sense of trust in government among the citizen taxpayers. While we understand that the Township wanted to provide savings to its constituents, the decision not to advertise its waste services contract for competitive bidding has prevented the parties from knowing whether greater savings could have been achieved had the contract been rebid pursuant to the Code.

The Hanisco decision can be found here.

Posted on May 9, 2012 by Christopher I. McCabe, Esq. in Court Decisions Comments Off

Should The Prevailing Wage Act Be Amended?

The Pa. Prevailing Wage Act mandates the payment of specified wages for publicly-funded public works contracts of $25,000 or more. The wages are typically tied to the wages established by area collective bargaining agreements.

Currently, there are a number of proposed amendments to the Act which would alter application of the Act to different public contracts.

House Bill 709, or the “School Construction Cost Reduction Act,” would exempt school districts as a public entity required to pay prevailing wages, unless the school board votes to be subject to prevailing wage.

House Bill 1329 would raise the contract monetary limit from $25,000 to $185,000. The $25,000 limit was set in 1961.

There are opposing viewpoints on the various proposed amendments to the Act as well as to the general concept of payment of prevailing wages on public contracts. Viewpoints in favor of the amendments and against the Act can be found here and here. Viewpoints in favor of the Act and opposing the proposed amendments can be found here and here.

For a non-partisan viewpoint from an economist with the nonpartisan Keystone Research Center, click here.

Needless to say, the proposed amendments would radically alter the landscape of public contracting in Pennsylvania. Whether such an altered landscape would actually result in lower construction costs for public entities and taxpayers, without a reduction in decent, middle class wages for workers on public works projects, is an open question. In all likelihood, the possibility of significantly lower costs on public contracts is probably just an illusion, and something touted by politicians looking for votes.