Transcript CONTRACTS 101 SUPPLIES & EQUIPMENT

CONTRACT LAW 101
SUPPLIES & EQUIPMENT
&
LEGAL MECHANISMS FOR
SUSTAINABLE BUILDINGS
DOUGLAS N. YEOMAN
PARKER & COVERT LLP
(714) 573-0900
[email protected]
INTRODUCTION

The typical Purchasing or Facilities
Department is faced on a daily basis
with issues involving various types
of contracts. For each such contract,
the following questions should be
asked: (a) what is the authority for
entering into the agreement; (b) does
the contract contain adequate
protections for the district; (c) who
will be signing the contract and is
that person so authorized; and (d)
what procedures, if any, must be
complied with before the contract
can be approved.
OVERVIEW


During this workshop we will take a
closer look at public works contracts,
personal property and service
contracts, together with bidding
requirements and exceptions, and
general bidding principles.
We will also explore several legal
mechanisms available to public
entities for sustainable buildings
through
the
development
of
alternative energy sources.
COMPETITIVE BIDDING
REQUIREMENTS

Duty to publicly bid contracts.



Public Contract Code § 20111 (K-12)
Public Contract Code § 20651 (CC)
Purpose of competitive bidding is to
eliminate favoritism, fraud and
corruption; avoid misuse of public
funds; and stimulate advantageous
market place competition.
COMPETITIVE BIDDING
REQUIREMENTS – Cont.


Payment on contracts made in
violation of the competitive bidding
laws is prohibited.
1915 California Supreme Court case
of Reams v. Cooley ruled that when
a statute prescribes the method of
contracting, a contract made in
violation of the statutorily prescribed
mode is void.
EXCEPTIONS TO COMPETITIVE
BIDDING



Notwithstanding the competitive bidding
requirements, certain exceptions provide a
district with flexibility to enter into contracts
without lengthy procurement procedures.
Contract amounts less than statutory
threshold (Public Contract Code §
20111; 20651)
Emergency Contracting (Public
Contract Code §§ 20113; 20654; 1102)
 Section 1102 defines “emergency” as
“a sudden, unexpected occurrence
that poses a clear and imminent
danger, requiring immediate action to
prevent or mitigate the loss or
impairment of life, health, property, or
essential public services.”
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.

Sole Source (Case Law)


Where competitive bidding will produce
no advantage, will not affect the final
result, or it is practically impossible to
obtain what is required, then competitive
bidding may be dispensed with.
Day Labor (Public Contract Code
§ 20114; 20655)

May make repairs, alterations, additions
or painting or repainting or decorating
school buildings, repair or build
apparatus
or
equipment,
make
improvements on school grounds and
erect new buildings and perform
maintenance, provided total job hours
do not exceed 350 hours.
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.

Continuing Contract Exception (Case
Law)


Completion contractor may be retained without
competitive bid where contract provides for the
completion of work in the event of contractor
termination for substantial violation of contact.
Alternative Procurement Procedure
(Public Contract Code § 22010)


Applicable to public agencies who by board
resolution have elected to become subject to the
uniform construction cost accounting procedures
commencing with § 22010 and has notified the
State Controller.
Increases bidding threshold to projects over
$100,000; establishes an informal bidding
procedure for projects of $100,000 or less; and
authorizes projects of $25,000 or less to be
performed by employees of the district by force
account, by negotiated contract, or by purchase
order.
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.

Personal Property Purchases
(Public Contract Code § 20118;
20652)

If governing board has determined it to
be in the best interest of the district,
board may authorize by contract, lease,
requisition, or purchase order, any
public corporation or agency, to lease
data-processing equipment, purchase
materials,
supplies,
equipment,
automotive vehicles, tractors, and other
personal property for the district in the
manner in which the public corporation
or agency is authorized by law to make
the leases or purchases from a vendor.
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.

Personal Property Purchases – Cont.
 Upon receipt of the personal property
which complies with the contract
specifications, district draws a warrant in
favor of the public corporation or
agency, or may make a direct payment
to the vendor.
 So called “piggyback contracts” have
been abused by districts to include more
than incidental services along with
personal property acquisitions.
 January 24, 2006, Office of the Attorney
General issued an opinion requested by
SAB on use of piggyback contracts to
acquire factory-built modular building
components for installation on a
permanent foundation.
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.
AG concluded that school districts may
not use piggyback contracts for such
acquisitions, but left open the ability to
purchase “portable” and “relocatable”
classrooms through use of piggyback
contracts.
 The AG opinion also included a footnote
stating that section 20118 “provides no
authority for a school district contract
directly with a lessor or vendor.” In
response to the AG opinion, section
20118 was amended during the 2006
Legislative Term (A.B. 1967) to
specifically allows a district to make
payment directly to the vendor.

EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.


Ten Percent Limitation on Changes
(Public Contract Code § 20118.4; 20659)
 Changes permissible if cost does not
exceed the greater of the applicable
bidding statute or 10% of the original
contract price.
 Does 10% rule apply to each change
order or cumulatively?
Educational Material (Public Contract
Code § 20118.3; Ed. Code § 81651)
 May purchase supplemental textbooks,
library
books,
educational
films,
audiovisual materials, test materials,
workbooks, and periodicals without
taking estimates or advertising for bids.
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.


Perishable Foodstuffs & Seasonal Commodities
(Ed. Code § 38083; Public Contract Code §
20660)
Energy Service and Conservation Contracts
(Government Code §§ 4217.10 to 4217.18)


A closer look at the legal mechanisms
available to districts for the development
of alternative energy sources will be
explored later in the presentation.
Energy service contracts must only
include
“conservation
measures”,
meaning electrical, maintenance, load
management
techniques
and
equipment, or other measures to reduce
energy or make for a more efficient use
of energy.
EXCEPTIONS TO COMPETITIVE
BIDDING- Cont.

Contracts for Special Services
(Government Code § 53060)

District may contract for special services
and advice in financial, economic,
accounting, engineering, legal, or
administrative matters if such persons
are specially trained and experienced
and competent to perform the special
services required.
GENERAL BIDDING
PRINCIPLES


Conflict of Interest in Bids Where Bidder
Assists in Preparation of Specifications
 Consultant
assisting
district
in
preparation of bid documents or the
plans and specifications to be used in
the bid process should not bid on the
contract, in order to avoid violating
Government Code § 1090.
Request for Bids Versus Request for
Proposals
 Request for bids is a competitive
bidding process, with specific statutory
requirements, and where the district
publishes
bid
specifications
and
contractual provisions which all bidders
must meet.
GENERAL BIDDING
PRINCIPLES – Cont.


Request for Bids Versus Request for
Proposals – Cont.
 Request
for proposals is not a
competitive bid process.
District
normally will establish certain general
requirements and vendors are asked to
submit their own proposals to meet
these requirements. The RFP process
normally also includes the negotiation
between the district with one or more of
the proposers.
Award to Any of Three Lowest
Responsible
Bidders
for
Data
Processing Systems and Supporting
Software
(Public
Contract
Code
§20118.1; Ed. Code § 81645)
GENERAL BIDDING
PRINCIPLES – Cont.

Transportation
Code § 39802)


Contracts
(Ed.
Modified competitive bidding procedure
for expenditures in excess of $10,000,
allows the governing board to award a
transportation contract to other than the
lowest bidder, provided that the
prevailing bidder can supply the better
service.
Awarding
Bid
to
Lowest
Responsible Responsive Bidder

Responsive Bidder (Waiver of Minor
Variations). A bid in response to a
request for competitive bids must
substantially
conform
to
the
specifications in the proposal.
Awarding Bid to Lowest Bidder –
Cont.


Minor irregularities in a bid may be waived. What
constitutes a minor irregularity requires looking
at the following factors: whether the deviation
could be a vehicle for favoritism; affect the
amount of the bid; influence potential bidders to
refrain from bidding; or effect the ability to make
bid comparisons.
Responsible Bidder


Is the bidder qualified, e.g. possess the quality,
fitness and capacity to satisfactorily perform the
particular work under consideration.
If determined not to be a responsible bidder, the
1972 case of City of Inglewood – L.A. County
Civic Center Authority v. Superior Court, requires
that before rejecting its bid as a non-responsible
bidder, the district must notify the bidder of any
evidence reflecting upon its responsibility and
afford that bidder an opportunity to rebut such
adverse evidence and to present evidence that it
is qualified to perform the contract to the public
body.
Awarding Bid to Lowest Bidder –
Cont.


Rejection of All Bids
 Provided that the bid documents contain
an express reservation of the right to
reject all bids, the courts have routinely
upheld such decisions for any reason
and at any time before a district accepts
a bid.
Bid Security (Public Contract Code §
20111; 20651)
 All bids for construction work must be
accompanied by bid security in the form
of (1) cash, (2) a cashier’s check made
payable to the district, (3) a certified
check made payable to the district, or
(4) a bidder’s bond executed by an
admitted surety insurer.
Awarding Bid to Lowest Bidder –
Cont.

Bid Security – Cont.
 Bids for materials and supplies may, but
need not, require bid security.

Award of Multiple Contracts From
One Bid


If different portions of a project are
called out in a bid, the district cannot
reserve the right to divide the work after
the bids are received.
Substitution of Subcontractors
(Public Contract Code §4100 et
seq.)

Purpose is to prevent the practice of bid
shopping and bid peddling.
Awarding Bid to Lowest Bidder –
Cont.

Substitution of Subcontractors- Cont.




Subcontractors must be listed for subcontract
work, including fabrication and installation,
constituting more than one half of one percent of
the total bid.
If more than one subcontractor listed for the
same portion of work, prime contractor agrees
that it is fully qualified to perform that portion
itself and it shall perform that portion.
May only substitute a listed subcontractor if one
of nine circumstances exist as set forth in Public
Contract Code § 4107, and the procedure is
followed.
If general contractor violates the Subcontracting
Fair Practices Act, after a public hearing, the
district, pursuant to Public Contract Code §
4110, may either cancel the contract or assess a
penalty of not more than 10% of the amount of
the subcontract involved.
Awarding Bid to Lowest Bidder –
Cont.

Unit Price Bids



Caution should be exercised when considering
the use of unit price bids. Unit price bids have
historically been used by districts when the
exact amount of work or materials is not known,
so bids are called for at unit prices instead of
lump sum.
In Attorney General Opinion No 00-901 (2001),
the Attorney General’s Office concluded that
districts are not authorized to enter into “job
order contracts” which are competitively bid, firm
fixed price, indefinite quantity contracts for the
performance of minor construction, as well as
the renovation, alteration, painting, and repair of
existing facilities.
For unit price bids not to be considered a job
order contract, the contract needs to contain
sufficient information to identify the specific
projects or type of project, include a definite
scope of work, and restrict the duration of the
contract.
Awarding Bid to Lowest Bidder
– Cont.

Alternate Bids (Public Contract
Code § 20103.8)


If either additive or deductive alternate
bids are proposed for a project, the bid
solicitation must specify one or four
methods which the district will utilize for
determining the low bidder.
If no method is designated, the low
bidder is determined based on the base
bid without consideration of the prices
on the additive or deductive items.
Awarding Bid to Lowest Bidder –
Cont.

Limiting Bidding to Specified
Product or Manufacturer (Public
Contract Code § 3400)


Public
policy
requires
that
all
responsible
bidders
have
the
opportunity to compete, so calling for a
particular brand of product or trade
name restricts the competition among
bidders.
Public Contract Code §3400 contains
specific exceptions to the use of “or
equal” products.
Provided that the
invitation for bids makes one of the four
findings set forth in paragraph (b) of §
3400, a district is authorized to use a
specific brand or trade name.
Awarding Bid to Lowest Bidder –
Cont.

Identical Bids (Public Contract Code §
20117; Government Code § 53064)


Contract Entered Into After Competitive
Bidding


If two identical bids, the award is to be
determined by lot.
The contract entered into must be substantially
the same as the contract terms included in the
bid documents. Slight variances or incidental
changes in the proposed form of contract will not
require readvertisement for bids.
Purchasing
Consortiums/Cooperative
Purchasing Agreements (Government
Code § 6502 et seq.)

Districts are authorized to enter into joint powers
agreements whereby they combine their
purchasing requirements for supplies which are
common to their needs (e.g., office supplies and
custodial supplies.)
Awarding Bid to Lowest Bidder –
Cont.

Participation by Disabled Veteran
Business Enterprises (Military and
Veterans Code § 999 et seq.; Public
Contract Code § 10115 et seq.)


School districts utilizing Propositions 47 or 55
funding must comply with the 3% participation
goal for use of DVBEs.
Contracts Subject to Labor Compliance
Program Enforcement (Labor Code
§1771.7)

With the passage of AB1506 during the 2002
Legislative Term, any district public works
project where construction commenced on or
after April 1, 2003, and is financed with funds
from either Propositions 47 or 55, must initiate
and enforce, or contract with a third party to
initiate and enforce, a Labor Compliance
Program.
Legal Mechanisms for Sustainable
Buildings

With the ever increasing supply of funds
to encourage “green” building and the
development of alternative energy
sources, expanding opportunities exist
for consultants to assist districts.
During the next few slides, we will look
at:
 Alternative Energy Public Policy.
 4 different legal mechanisms that are
available to public agencies for the
development of alternative energy
sources.
Alternative Energy Public Policy


Employ
measures
to
reduce
wasteful,
uneconomical,
and
unnecessary uses of energy, thereby
reducing the rate of growth of energy
consumption, prudently conserve
energy resources, and assure
statewide
environmental,
public
safety, and land use goals.
Promote all feasible means of
energy and water conservation and
all feasible uses of alternative energy
and water supply sources, including,
but not limited to solar technologies.
California Solar Initiative

On August 21, 2006, Governor
Schwarzenegger signed SB1 into
law which establishes a goal in
California to install solar energy
systems with a generation capacity
of 3,000 megawatts, to establish a
self-sufficient solar industry in which
solar energy systems are a viable
mainstream option for both homes
and businesses in 10 years, and to
place solar energy systems on 50%
of new homes in 13 years.
Legal Mechanisms

Energy Management
Agreement.
Education Code sections 81660 –
81662
authorize
community
college districts to competitively
bid and enter into energy
management
agreements
for
energy management systems
involving solar energy or solar and
energy management systems.
 Maximum term of 15 years or

Energy Service Contract

Energy Service Contract and Facility
Ground Lease.
 Government
Code
sections
4217.10 – 4217.18 grant great
flexibility to public agencies in
structuring agreements for the
development
of
energy
conservation, co-generation and
alternate energy supply sources.
Competitive
bidding
is
not
required.
 Conservation
measures must
result in reduction of energy use
or more efficient use of energy.
Energy Service Contract – Cont.
Governing Board must determine
in noticed public hearing that
entering into the energy service
agreement will be in the best
interests of the public agency.
 Board must find (a) anticipated
cost
of
energy
from
implementation of conservation
measures will be less than
existing energy costs without
conservation measures, and if
applicable, (b) the difference, if
any, between fair rental value of

Energy Service Contract – Cont.
If facility financing agreement,
governing board must also
determine that entering into the
financing agreement is in the best
interest of the public agency.
 Board must make similar finding to
that
of
a
energy
service
agreement but in addition to
finding that energy savings are
projected to exist, board must also
find that the energy savings will be
sufficient to repay the financing or
the cost of design, construction
and operation of the energy
conservation facility.

Power Purchase Agreement


Government Code sections 5956 –
5956.10
authorize
governmental
agencies to utilize private investment
capital to study, plan, design, construct,
develop, finance, maintain, rebuild,
improve, repair, or operation, or any
combination thereof, of fee-producing
infrastructure facilities.
Agency must solicit proposals as part of
a competitive negotiation process, but
neither
competitive
bidding
nor
compliance with any procurement
provision in the Public Contract Code or
Government Code is required.
Purchase Power Agreement – Cont.


Purchase Power Agreement is
required
to
contain
certain
provisions which are listed in your
handout.
Lease of Photovoltaic System.

In
implementing
the
2006
California Solar Initiative, the Los
Angeles Department of Water and
Power has instituted a Solar
Photovoltaic Incentive Program.
As part of this program, DWP has
provided a lease alternative to
owning the photovoltaic system.
Photovoltaic System Lease – Cont.

LADWP has imposed the following
5 conditions to be eligible for the
$2.80 per installed watt incentive
payment:
Guaranteed for minimum of 20 years.
 System is operational and operated
at expected generation production for
20 year term.
 Customer ownership by end of 20
year term.
 Lease
payments not based on
energy production from equipment.
 Incentive payment made directly to
customer.

Treatment of Environmental
Incentives

Governmental
agencies
should
negotiate the ownership of as many
environmental
incentives
and
attributes as possible. A sample
environmental incentive provision is
described in your handout whereby
the agency owns all environmental
attributes and Solar Renewable
Energy Credits associated with the
solar generating facility.
CONCLUSION

As discussed today there are numerous bidding
requirements and exceptions and general bidding
principles which apply depending upon the type
of contract. No matter what time constraints a
district may be under, it is important to take the
time to ensure that all bidding requirements and
general bidding principles have been or will be
complied with, and that adequate protections are
included in each contract.

During the past 30 years of legislative activity in
California on the issue of alternative energy
resources, a number of legal mechanisms have
been initiated to encourage the development and
implementation of alternative energy sources.
We have examined a few such mechanisms
which will only increase with the many solutions
that solar power offers our global environment,
and ever increasing opportunities which will exist
for consultants desiring to assist school and