“WORKING ON PUBLIC PROJECTS”Prepared for

LEGAL ISSUES FOR ILLINOIS CIVIL ENGINEERS SEMINAR HOSTED BY HALF MOON LLC

Presented and prepared for educational purposes only by:G. A. Finch, Esq.Hoogendoorn & Talbot LLPChicago, Illinois312-786-2250 (W)312-513-7524 (C)gafinch@hoogendoorntalbot.com

© 2007 by G. A. FinchAll rights reserved.

PUBLIC BIDDINGFour Types of Procurements

Concerning Engineering Contracts

Request for Qualifications (RFQS)Request for Proposals (RFPS)

Small ProcurementsEmergency Procurements

OTHER KINDS OF CONSTRUCTION PROCUREMENTS NOT USUALLY INVOLVE

ENGINEERING FIRMS

– SOLE SOURCE – COMPETITIVE SEALED BIDS

RFQ

• RFQ probably used the most• Two statutes govern RFQs In Illinois

• State Government: Architectural, Engineering and Land Surveying Qualifications Based Selection Act (30 ILCS 535/1)

• Local Government: Local Government Professional Services Selection Act (50 ILCS 510/0.01)

• Statutes have many similar provisions and a few differences.

Notice

• State and local governments must publish notice

Notice

• State issues at least a 14-day advance notice published in a bulletin or advertised in official state newspapers the services to be procured and directs firms to send a letter of interest and/or statement of qualifications.

Notice

• Local Government allows firms to file an annual statement of qualifications.

-- If there is no existing satisfactory relationship with one or more firms, then local government must mail notice to firms whose names are on file or place an ad in a newspaper:

a) requesting letter of interest;b) requesting qualifications

statement; and, if applicable,c) requesting performance data of the

firms.

Evaluation Procedure

• State requires state agency to set up selection committee which may have public member.

Evaluation Procedure

• Local government statute does not have evaluation committee requirement; local governments typically have an internal committee made up of procurement, construction, user department, and legal personnel to evaluate firms.

State and local government evaluation criteria are the

same:• Ability of professional personnel• Past record and experience• Performance data on file• Willingness to meet time requirements• Location of firm• Workload of firm• Any other applicable qualification set out

in writing

Selection ProcedureBoth State and local governments use evaluations, discussions, and presentations to select at least three qualified firms and rank them in order to provide services to a particular project.

Contract Negotiation The State agency or local government must then prepare “a written description of the scope of the proposed services to be used as a basis for negotiations and shall negotiate a contract with the highest qualified firm the government entity determines to be fair and reasonable.”

Contract Negotiation In making its decision on

compensation to the selected firm, the State agency or local government must take into account:

• Estimated value• Scope• Complexity• Professional nature of services to be

rendered

Contract Negotiation If negotiations break down with

preferred firm, then government entity goes to the next preferred firm to negotiate, and so on.

If can’t negotiate a contract, then it must re-evaluate the services requested including, again,

Contract Negotiation • estimated value,• scope,• complexity,• and fee requirements,• and then compile a top three list of

qualified firms and then begin negotiations again.

RFPA public agency will publish notice or send solicitations to a list of firms asking for proposals for a particular project

E.G., Will County Forest Preserve RFP for Professional Engineering Services as a model

RFPThis Project was the Messenger Marsh Development in Homer Township.

Messenger Marsh is a recreational area.

RFPThe Project involved an expansion and upgade of automobile and/or trailer parking, shelters, limestone screening trail, off leash dog area, latrines, walkways, drinking fountains, signage, primitive camp sites, wetland overlook, etc.

The RFP sets out scope of services

• Design development• Construction documentation

preparation and bidding• Construction observation• As-built drawings

and the RFP sets out

proposal submittals requirements :

• Statement of qualifications• References• Identification of project manager &

staff• insurance

• Presentation of costs (having not exceed amounts)

• Hourly rates• Cost for reimbursable items• Statement of work and schedule

The Will County RFP’s stated evaluation criteria are

• the perceived competence and expertise of the firm’s proposed project manager and team

• references

The Will County RFP’s stated evaluation criteria

are • past record in performing similar work

• ability to work with forest preserve district staff, and

• location of the firm

The criteria of past record in performing similar work and ability to work with governmental staff really are critical drivers in the selection process.

Experience in similar work is an objective criterion. Ability to get along with staff is a subjective standard – Does the staff like and respect the project team ? -is the real question

Negotiation Based on “responsiveness of proposal,” the Will County Forest Preserve District selects one or more firms to negotiate an acceptable agreement. The District can request written clarification and additional supporting materials.

The District can reject any, some, or all proposals.

Note: qualifications are critical, of course; as important are the pricing and creativity of the firm responding to the proposal.

Price is not necessarily paramount as in a sealed competitive bid model used in other construction procurement.

Under an RFP process, experience and track record often trump lower price in the evaluation and selection process.

Note well:

Certain subjective, unspoken criteria such as professional/personal relationships and familiarity with the firm undoubtedly can influence a selection outcome.

E.G., Another RFP Model

CHA has a two –step evaluation process in its RFP selection:

First round of evaluations to establish those firms within a “competitive range”

Those firms making the first cut then may be required to provide additional information, make presentations and conduct negotiations.

CHA then selects respondent whose proposal:

• conforms to solicitation• is most advantageous to CHA • has best value in cost, price and

other factors

SMALL CONTRACTS

Both the state and local governments exempt from their competition requirements, those engineering contracts with estimated professional fees of less than $25,000.

EMERGENCY CONRACTS

State and local governments also exempt from competition requirements those engineering contracts that are deemed emergency contracts.

An emergency is when there is no time to go through the normal procurement process, like the Loop flood or Hurricane Katrina or the initial occupation of Iraq.

The Illinois State statute sets out criteria for “emergency

services”: --Determination that it is in best

interest of State to proceed with immediate selection of a firm

-- Or emergencies requiring immediate services to protect public health and safety such as, but not exclusively

• Earthquake,• Tornado, • Storm, or• Natural or man-made disaster.

SOLE SOURCE PROCUREMENT

• Service or product is unique• Only one available firm can provide

it • Mostly used in supply contracts• Not ordinarily applicable to

engineering contracts

COMPETITVE SEALED BIDS

Most familiar procurement concept

Determined by lowest price from a responsible bidder

A “responsible bidder” is one that has the financial resources and basic skill sets to complete the performance for a locked-in price

Not used typically with professional engineering services

An engineering firm that is part of general contractor joint venture making a lump sum bid would encounter this type of procurement.

MBE/WBE/DBEMINORITY OWNED BUSINESS

ENTERPRISE

Definition usually includes a business with at least a 51% majority ownership by one of the following racial and ethnic groups: African-American, African, Hispanic, Asian, Native American, Eskimos/Inuit

WOMAN OWNED BUSINESS ENTERPRISE

Obviously defined by gender

Also requires at least 51% female ownership

DISADVANTAGED BUSINESS ENTERPRISE

More often used by federal government and usually defined by social and economic disadvantage.

For example the U.S. Dept. of Transportation

“presumes certain groups are disadvantaged, including women, Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian-Pacific Americans, or other minorities found to be disadvantaged by the U.S. Small Business Administration (SBA). Persons who are not members of one of the above groups and own and control their business may also be eligible if they establish their "social" and "economic" disadvantage.”

CONSTITUTIONALITY OF SET ASIDE PROGRAMS

The 1989 Supreme Court Case of City of Richmond v. J. A. Croson Co. set out the constitutional standards for affirmative action in public construction contracts.

Court invalidated a City of Richmond ordinance that required prime contractors who are awarded city contracts to subcontract at least 30% of the contract $ amount to MBE’s.

Key features of Chicago Ordinance:

Minorities defined as African-American and Hispanic racial/ethnic groups, and individual members of Asian-American, Arab-American, and Native American groups found to be socially disadvantaged by having suffered racial or ethnic prejudice or cultural bias.

MBEs and WBEs must respectively be at least 51% minority or female owned and such owners must be economically disadvantaged.

Economically disadvantaged” means having a net worth of less than $750,000.

The “aspirational goals” are 24% of the annual dollar value of all construction contracts to MBEs and 4% to WBEs.

The programs ordinarily have a waiver provision when the contractor cannot find sufficient MBEs and WBEs to meet its goals.

Penalties

The Penalities for non-compliance with MBE/WBE commitments range from suspension to termination to liquidated damages to disqualification of the bidder/proposer from future awards.

MISCELLANEOUS CONTRACT

PROVISIONS

PUBLIC VS. PRIVATE CONTRACT PROVISIONS

TERMINATION FOR CONVENIENCE

Frequently found in public contracts and allows public contracts to be terminated at any time for no reason at all by a governmental agency.

E.G., The Cook County Professional Architectural/Engineering Contract allows

the County to

• terminate for convenience the entire agreement

• terminate a portion of the services or

• reduce the scope of the Project• reduce the firm’s services, or • reduce both the firm’s services and the

scope of the Project.

The Cook County provisions do compensate the engineering firm for work already performed and for authorized reimbursable expenses already incurred.

The Chicago Housing Authority provides a more liberal compensation clause and will pay the Engineering firm for services completed and the cost of settling or otherwise liquidating any claims arising out of the termination of any subcontracts or orders for materials.

CONFLICT OF INTERESTSGovernment contracts ordinarily contain a conflict of interests provision.

The Cook County conflicts provision requires representations by the Engineering Firm that it has no or will not acquire any direct or indirect interest that would affect the performance or its services or employ anyone having an interest.

The CHA provision conflict of interests provison is dictated by federal regulations (24 CFR 85.36(b)) and is more stringent:

No employee, officer or agent of the CHA shall participate in the selection of a contractor, or in the award or administration of a contract supported by Federal funds if a conflict of interest, real or apparent, would be involved.

The conflict arises when the employee, officer or agent, any member of his family, his or her partner, or any organization that is about to employ the employee, officer, agent or member of his family, has a financial interest in the selected firm.

Also the CHA conflict of interests provision prohibits any CHA employee or officers from soliciting or accepting gratuities, favors or anything of monetary value from the Engineering Firm or its sub-consultants.

AVAILABILITY OF FUNDING/NON-APPROPRIATION

Some government contracts expressly provide that commencement or continuation of a contract is contingent upon the funding for the project being appropriated or granted.

PREVAILING WAGES

Because of federal funding, the CHA requires the Engineering firm not to pay less than the prevailing wages in the locality, as determined by HUD, to all architects, technical engineers, draftsmen, and technicians.

CERTIFICATE OF QUALIFICATION

Cook County requires the Engineering Firm to certify that it, as a person or business entity, has not been convicted of bribery or attempting to bribe a government official or made an admission of guilt of such conduct which is a matter of record.

PROMPT PAYMENT ACTS

TWO ACTS

State Prompt Payment Act (30 ILCS 540/)

Local Government Prompt Payment Act (50 ILCS 505/)

STATE ACT• Approved bills must be paid within

60 days of receipt of proper invoice

• Interest penalty of 1% per month and any fraction of a month until paid

• For construction-related invoices, a Notice of defective invoice must be given no later than 30 days after first submittal.

Notice must include

• nature of defect and• additional information needed to

remedy defect

Importantly: “If one or more items on a construction related invoice are disapproved, but not the entire bill or invoice, the portion that is not disapproved shall be paid.”

Note well:

A State official may not request a contractor to waive its rights under the Prompt Payment Act to recover interest penalty for late payments as a condition to enter into a State contract.

SubcontractorsWhen an agency submits a voucher for payment to a contractor, the agency shall promptly make available electronically the voucher information to subcontractors and material suppliers.

When a contractor receives a payment, the contractor is required to pay each sub or supplier in proportion to work completed by each, plus interest received under the Act, less any retention

Where contractor received reduced payment, then contractor must disburse funds on a pro rata basis amongst the contractor, subcontractors and suppliers.

Where State official is not releasing full payment because contractor has rejected work of certain subs and suppliers, then those rejected subs and suppliers shall not be paid for work rejected, and all other compliant subs and suppliers shall be paid in full with interest under the Act.

Where contractor delays payment to its subs and suppliers by 15 days, then contractor must pay interest in the amount of 2% a month.

Subs have the same interest obligations to their sub-subcontractors and suppliers.

Where contractor fails to pay his subs and suppliers within 15 days of receipt of payment, the subs and suppliers may file written notice of failure with the State official.

State Administrative Law Judge shall have a hearing and if the Judge finds no reasonable cause for failure to pay, then State official must direct Contractor to pay within 15 days.

If contractor does not pay, then contactor shall be barred from State public construction contracts for one year.

LOCAL GOVERNMENT ACT

Local official must approve or disapprove an invoice within 30 days after receipt of the invoice or after receipt of goods or services.

If one or more items on a constructed-related invoice is disapproved, then the portion that is not disapproved shall be paid.

Local official has 30 days after approval to pay invoice.

If approved bill is not paid, then there is an interest penalty of 1% of any amount approved and unpaid that shall be added for each month of delay.

Local official and contractor can agree to a longer time period for calculating the commencement of the penalty for late payment. (50 ILCS 505/6)

The Local Government Act provision for payment to subcontractors is like the State.

PUBLIC LIENS

Section 23 of the Mechanics Lien Act (770 ILCS 60/23) governs liens concerning public projects.

ON WHAT

• Lien on money, bonds, or warrants due or to become due the contractor

• CANNOT LIEN IMPROVEMENTS OWNED BY GOVERNMENT

• Private liens attach to the improvement themselves

• Important distinctions between Public & Private Liens and different procedure

• Lien is for value of what lien claimant furnished to project

• Lien attaches to that portion of the public funds against which no voucher or other evidence of indebtedness has been issued and delivered to the contactor by or on behalf of the entity

• If project funds have been fully paid to the contractor or the appropriated funds have lapsed, then there are no funds to attach the lien.

BY WHOM AND AGAINST WHOM

Who can file a lien?“Any person who shall furnish

material, apparatus, fixtures, machinery or labor to any contractor having a contract for public improvement…”

Under the public lien section of the Mechanics Lien Act, “Contractor” includes any sub-contractor and does not include general contractor.

Person filing lien could be an engineering firm who is a sub-contractor, sub-sub-contractor, sub-consultant, or sub-sub-consultant.

Conversely, an engineering firm contractor having a public contract, could have a lien filed against it by a sub-contractor.

ON WHOMSection 23 (b) of the Act allows a lien

against local governments:o Countyo Townshipo School District o Cityo Municipalityo Municipal Corporations

LOCAL GOVERNMENT LIEN REQUIREMENTS

NoticeSubcontractor must provide written notification to clerk or secretary of local government before payment is made to the Contractor having the public contract.

Notice must be sent to the local government clerk or secretary by certified/registered mail return receipt requested with delivery limited to addressee only or delivered to the clerk or secretary

Copy of notice must be sent or delivered in the same manner to Contractor having the public contract

Law Suit• A lawsuit called a Complaint for an

accounting must be brought within 90 days of notice of lien

• The clerk or secretary of the local government must be served with a copy of the complaint.

• Failure to commence law suit within 90 days results in NO LIEN

Delay by Lien Claimant• Contractor does not have to wait to

be paid because of possible lien claim.

• Contractor can serve written demand upon potential lien claimant and send a copy to the public official.

• Potential lien claimant then has 30 days to file written notice of lien claim and a sworn statement.

• Failure to file lien within 30 days results in forfeiture of the lien.

• The State lien section has a similar provision.

STATE LIEN REQUIREMENTS

A lien is created by giving notice of the lien claim to the director or official whose duty it is to let the contract.

State has two further requirements:

• written notice must contain a sworn statement of the claim

• statement of the claim must show with particularity the several items and the amount owed on each--“particularity” is not defined

Lapsed Funds• Where appropriations funding a

state construction project are about to lapse, a lien claimant must initiate suit and deliver a copy of the complaint at least 15 days prior to time of lapse.

• Lapsed funds means the appropriated money is zeroed in the particular project account and the funds are no longer available

Official’s Duty & Option• Under both the local government

and state public lien provisions, the officials who are notified of the lien must withhold from the contractor funds in the amount of the claim for a 90-day period and afterward when a suit has been filed.

• Both the local government and State provisions allow the official to pay the lien claim money to the clerk of the court upon the filing of the law suit.

• Amounts paid to the clerk of the court become a credit on the balance owed to the contractor

PUBLIC CONTRACTOR MISCONDUCT

STATUTEApplies to businesses who perform or seeks to perform public contracts in IllinoisThese are new provisions in the Illinois Criminal Code pertaining to misconduct by contractors.

“Public Contractor Misconduct” includes:

• Intentionally or knowingly making, using or causing to be made or used a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property

• Knowingly performs an act that he or she knows he or she is forbidden to perform

• With intent to obtain a personal advantage for himself or another, he performs an act in excess of his contractual responsibility

• Solicits or knowingly accepts for the performance of any act a fee or reward that he or she knows is not authorized by law

Note well: A violation of this Section concerning Public Contractor Misconduct constitutes a Class 3 felony under Illinois law

-- carries a sentence of penitentiary imprisonment of not less than two years and not more than five years