Nuts and Bolts of Preparing for Public Works Contracting

 In these hard economic times, contractors currently  working exclusively in the private sector may wish to take a second look at public works construction in California.  The State of California along with the federal government has released billions of dollars to fund ongoing and new construction projects in California.  Local projects funded by bonds raised in years past offer opportunities to contractors as well.

For the resourceful and adaptable private sector contractor, public works construction offers opportunity in an otherwise distressed market.  This paper addresses some of the basics contractors need to know about the public works construction arena in California.  This paper offers a very broad discussion of various topics.  Readers should consult with a qualified professional for answers to specific issues.

I.            Public Bidding

Except in limited circumstances, public entities must competitively bid public works projects. A “public entity” is defined as the state, county, city, city and county, district, public authority, public agency, municipal corporation, or any other political subdivision or public corporation in the state.”  (Pub. Contract Code, section 1100.)

The State Contract Act and similar Public Contract Code sections governing counties, cities[i] and local agencies, mandate competitive bidding of public works contracts exceeding a statutorily defined threshold.  “Public works is defined in the State Contract Act as an agreement for the erection, construction, alteration, repair or improvement of any public structure, building, road, or other public improvement of any kind.”   (Public Contract Code, section 1101.)

The public entity must solicit the bids in writing and include in that invitation the contractor’s license classification necessary for the work at the time the contract is awarded.[ii] The public entity must then award the contract to the lowest responsible bidder, or reject all bids.

The Legislature’s stated objective in enacting the Public Contract Code was in part to “ensure full compliance with competitive bidding statutes” to protect the public from misuse of public funds, to provide qualified bidders with a fair opportunity to enter the bidding process, and to eliminate favoritism, fraud, and corruption in the awarding of public contracts.[iii]

A.            The Bidding Process

On a “conventional” competitively bid public construction project, the general contractor is contractually charged with the power and responsibility of directing, supervising, and managing the construction process.

Once a bid is submitted it may not be withdrawn and must be held open for acceptance for the period called for in the invitation for bids.  This “firm bid period” allows the owner time to review submitted bids, verify bid responsiveness and confirm bidder responsibility.[iv] Submitted bids may not be withdrawn except as allowed by law or for material mistake in the bid or other equitable basis for relief.[v]

B.            Owner’s Right to Reject Bids

Generally, a public entity must award a contract to the lowest responsible bidder or else reject all bids.[vi] In other words, a contract must be awarded to the lowest responsible bidder unless the owner finds the bidder is not responsible, i.e. not qualified to do the particular work under consideration, or that to award the project is not in the best interest of the public.^[vii]

When the public entity does not comply with the requirements that the contract be awarded to the lowest responsible bidder, the award must be set aside.  (Inglewood- L.A. County Civic Center Authority v. Superior Court (1972) 7 Cal.3d 861, 870.)

C.            The Non-Responsive Bid

A responsive bid is one that meets the terms of the invitation to bid in all material or substantial respects.  The bid must conform substantively to the advertised terms, plans, and specifications.  Public authorities, generally have the right to waive any immaterial or merely technical defects in a bid.

As an example, the San Francisco Airport Commission properly rejected as non-responsive the bid of MCM Construction for failing to state the dollar amounts of work to be performed by subcontractors.  This was a material defect that could not be waived.  (MCM Construction, Inc. v City & County of San Francisco (1998) 66 Cal.App.4th 359.)

On the other hand, the Commission  properly waived irregularity in the bid of Myers/Kulchin-Condon where Myers submitted its listing of subcontractors in the wrong envelope and at the wrong time, but that deviation did not affect the price or give a competitive advantage to the bidder and there was no evidence of favoritism.  (MCM Construction, Inc. v City & County of San Francisco (1998) 66 Cal.App.4th 359.)

D.            The Non-Responsible Bidder

The term “responsible” does not refer solely to trustworthiness, but also refers to quality, fitness, and capacity to perform the proposed work satisfactorily.[viii] Part of determining responsibility is a determination of whether the bidder is responsive to the call for bids, that is, whether the bidder promises to do what is demanded by the bidding instructions.  (D.H. Williams Constr., Inc. v. Clovis Unified Sch. Dist. (2007) 146 Cal.App.4^th 757.).

As an example, the court of appeal held that the City Council properly rejected the bid of the low bidder as not responsible when the bid called for an “A” license, but low bidder held only a “B” license.  (City Council of Beverly Hills v Superior Court (1969) 272 Cal.App.2d 876.)

F.            The Jilted Bidder

California does not have a comprehensive bid protest statute and the procedures adopted by public agencies vary widely throughout the state.  Many local agencies and charter cities use informal procedures that are not reduced to writing.  The state, on the other hand, has adopted detailed regulations and statutes requiring multiple notices, written submittals, and protest bonds and imposing severe penalties for filing frivolous protests.  (Public Contracts Code, section 10343 and 12125 et seq.)

Many written bid protest procedures require protests regarding defects or improprieties in the bidding documents to be submitted as soon as the basis is known but before the deadline for submittal of the bids.

II.            Prevailing Wages

All contractors performing work on state and local public works projects in California must  comply with all applicable provisions of the California Labor Code.  This means among other things, contractors must pay the general prevailing per diem wage rates for public work projects of more than one thousand dollars ($1,000).  Contractors must also comply with California Labor Code concerning the employment of apprentices. Willful failure to comply with these provisions may result in penalties, including loss of the right to bid on or receive public works contracts.

III.            Subcontractor Listing Laws

Contractors bidding on public works projects must comply with the Subletting and Subcontracting Fair Practices Act. (Public Contract Code, section 4100 et. seq.)  Contractors must identify by name and location the place of business of each subcontractor who will perform work or labor or render service in or about the construction of the work or improvement in an amount in excess of one-half of 1 percent of the Contractor’s contract price or ten thousand dollars ($10,000) whichever is greater.

As the court of appeal observed, the central purpose of the Subletting and Subcontracting Fair Practices Act is to protect both the public and subcontractors from practices of bid shopping and bid peddling in connection with public works projects.  (Valley Crest Landscape, Inc. v. City Council (1996) 41 Cal.App.4th 1432.)

IV.            Payment Bonds

Prime contractors performing work on public works projects in California on projects valued in excess of $25,000 must secure a  payment bond with a surety approved by the officer or public entity by whom the contract was awarded.

If the public entity requires a payment bond, it must state the bond requirement in its call for bids.  (Civil Code, section 3247)  A payment bond is designed to protect, in part, subcontractors on public works projects from a prime contractor’s failure to pay its subcontractors.

V.             Stop Notices instead of Mechanic’s Liens

 Contractors cannot lien public property.  Instead, contractors, suppliers, and materialmen on public works projects seeking payment must file a “stop notice” to secure payment.  A “stop notice” means a written notice, signed and verified by the claimant or his or her agent, stating in general terms all of the following:

(a) The kind of labor, services, equipment, or materials furnished or agreed to be furnished by such claimant.

(b) The name of the person to or for whom the same was done or furnished.

(c) The amount in value, as near as may be, of that already done or furnished and of the whole agreed to be done or furnished.

(d) The name and address of the claimant.

The notice, in the case of any public work for the state, shall be filed with the director of the department which let the contract and, in the case of any other public work, shall be filed in the office of the controller, auditor, or other public disbursing officer whose duty it is to make payments under the provisions of the contract, or with the commissioners, managers, trustees, officers, board of supervisors, board of trustees, common council, or other body by whom the contract was awarded.

Any stop notice may be served by registered or certified mail with the same effect as by personal service. (Civil Code, section 3103.)

VI.             Prompt Payment Statutes

 A wide variety of statutes have been enacted to protect contractors from slow and late payments for work performed.  For example, for public works of improvement, Public Contract Code, section 7107 requires public agencies to release retention within 60 days after completion.  This period may be increased to 90 days in the case of state agencies that choose to withhold “an amount equal to or less than 125% of the estimated value of the work yet to be completed.”

Section 7107(d) requires the original contractor to pay its subcontractors within seven days of receipt of funds from the owner.  The original contractor may withhold 150% of amounts in dispute.  The wrongful withholding of retention subjects the original contractor or the public entity to a charge of 2% per month and reasonable attorney’s fees to the prevailing party in any action to recover the retention.

VII.             How and Where to Begin?

Three useful resources for locating public entities and public construction projects in your area are: 

California K-12 schools:  http://www.cde.ca.gov/re/sd/;

California Community College Districts:  https://misweb.cccco.edu/mis/statlib/district.htm#district;

California Department of Transportation:  http://www.dot.ca.gov/hq/esc/oe/weekly_ads/index.php

For extensive resources on running a better construction company and qualifying for health care construction work:  http://www.cashcn.org

VIII.            Conclusion

Venturing into the public contracting arena in California can be an intimidating experience for the uninitiated, but in a construction market that is looking to find its way, public works construction offers opportunity to those contractors waiting for the private sector construction market to improve.

– Kimble R. Cook and Daniel F. McLennon

 

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[i] Pub. Contract Code § 20162.  (“When the expenditure required for a public project exceeds five thousand dollars ($5,000), it shall be contracted for and let to the lowest responsible bidder.”)

[ii] Public Contract Code § 3300(a).  (“Any public entity, as defined in Section 1100, the University of California, and the California State University shall specify the classification of the contractor’s license which a contractor shall possess at the time a contract is awarded.  The specification shall be included in any plans prepared for a public project and in any notice inviting bids pursuant to this code.”)

In its bid solicitation, the public entity must also prepare full, complete, and accurate plans and specifications, and estimates of costs, giving such directions as would enable any competent mechanic or builder to carry them out. (Pub. Contract Code, section 10120.)

[iii] Pub. Contract Code § 100.

[iv] Bruner & O’Connor on Construction Law (2002) Contract Formation, section 2:73, pp. 178-179.

[v] See e.g., Pub. Contract Code, section 5103, in order to establish a mistake, bidder must demonstrate:  1) a mistake was made; 2) written notice of the mistake was given to public entity within five (5) days of the opening of bids; 3) the mistake made the bid materially different than intended; and 4) the mistake was not the result of an error in judgment, carelessness in inspecting the work, or in reading the plans and specifications.

[vi] See e.g., Pub. Contract Code, sections 10180 and 10185: “…the department shall publicly open the sealed bids and award the contracts to lowest responsible bidders….”; if the director deems the acceptance of lowest responsible bid or bids is not the best interests of the state, …the director may reject all bids and proceed by day’s labor or advertise for other bids (state agencies); Pub. Contract Code § 20415: “ The Legislative body may reject any and all proposals or bids should it deem this for the public good, … and shall reject all proposals or bids other than the lowest regular proposal or bid of any responsible bidder, and may award the contractor said work or improvement to the lowest responsible bidder at the prices named in his bid …  (local agencies);  Public Contract Code, section 20111(a): “the contract shall be let to the lowest responsible bidder who shall give security as the board requires, or else reject all bids.” (school districts).

[vii] Competitive bidding statutes were not passed for the benefit of bidders but for the benefit and protection of the public.  Universal By-Products, Inc. v. City of Modesto (1974) 43 Cal. App.3d 145, 152.

[viii] Inglewood- L.A. County Civic Center Authority v Superior Court (1972) 7 Cal.3d 861, 870.

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