Possible bond threshold increase legislation: another consideration

I was at a trade association meeting today and the possible bond threshold increase legislation discussed in my earlier blog came up. Another aspect to increasing the threshold we discussed was that in addition to the payment bond implications I discussed in the earlier blog that there is also a performance bond aspect. That is that if the thresholds increase then it will open procurements to bidders or offerors that otherwise would not have the financial means to perform the work. While on the one hand this can open doors that might not otherwise exist to participate in public procurements, on the other hand those persons might not be capable of doing or financing the work, and if they cannot then it would leave the awardee governmental entities at significant risk. More thought for consideration on this pending legislation.

E-verify: coming to Virginia?

HB 1727 has been filed mandate the Federal "E-Verify" program to Virginia public procurements, and broadly expands the program to anyone seeking a publicly issued permit or license and having over 15 employees. Link to the proposed legislation follows:
http://leg1.state.va.us/cgi-bin/legp504.exe?111+ful+HB1727

This should be of interest to everyone involved or intending to become involved in public contracting in particular, but also to anyone involved in a business requiring licensure or permitting, and is legislation to which you should consider making your opinion known to your legislator and considering long term planning and cost implications moving forward.

Possible increasing public bond thresholds coming to Virginia

Two new bills have been filed in the current session of the Virginia General Assembly dealing with public project bonds; House Bill 1951 and Senate Bill 1126. HB 1951 proposes to raise the threshold for non-transportation related project bonds from $100,000 to $1 Million. SB 1126 proposes to raise the threshold on transportation-related projects from $250,000 to $500,000. In either instance, this will create a significant gap from the current thresholds in which many claims may fall. The losers in this could be the subcontractors and suppliers who would otherwise look to the protection of project payment bonds for payment in the even of non-payment as they cannot lien the public properties. It is unclear if this legislation will ultimately pass, but both are certainly important possible changes to keep eyes upon.

WOSB Regulations on the February Horizon

In October of 2010 the SBA issued amended regulations that may finally put into place the Women-Owned Small Business (WOSB) program established under Section 8(m) of the Small Business Reauthorization Act of 2000. Absent change, the Final Rule for this program will be effective February 4, 2011, and the SBA is in the process of working with the Federal Acquisition Regulatory Council to implement this program in the Federal Acquisition Regulations.

The assistance program is called the Women-Owned Small Business Federal Contract Assistance Procedure, or WOSBFAP, and is in 13 CFR Part 127. The program is self-certifying; however, there will also be an opportunity to certify through some third-party approved entities, including some Federal agencies. The program will provide contracting opportunities for Women-Owned Small Businesses, or WOSBs, and Ecumenically Disadvantaged Women-Owned Small Businesses, or EDWPSBs, under certain circumstances and in certain industries.

The NAICS codes have been extended and now include 84 industries as provided in Fed. Reg./Vol. 75 No. 194 (October 7, 2010). Also, the requirement that each Federal agency certify that it had engaged in discrimination against WOSBs in order for the program to apply to that agency has been removed, and thus expands the ability to use the program. Eligible concerns must be not less than 51 percent owned by one or more economically disadvantaged women, although the SBA may waive economic disadvantage for industries that are substantially underrepresented by WOSBs. In either instance, the women owner must actually control the WOSB (ownership does not always equal control, similar control questions applicable to other small business programs).

Contracting officers must have reasonable expectations that, in industries in which WOSBs are underrepresented, two or more EDWOSBs will submit offers for the contract or, in industries where WOSBs are substantially underrepresented, two or more WOSBs will submit offers for the contract. The anticipated award price of the contract must not exceed $5 million in the case of manufacturing contracts and $3 million in the case of all other contracts. Award prices must be estimated as being fair and reasonable before usage.

Competing concerns must be duly certified by a Federal agency, a State government, or a national certifying entity approved by SBA as an EDWOSB or WOSB, or must certify to the contracting officer and provide adequate documentation that it is an EDWOSB or WOSB. As with other similar programs, the statute imposes penalties status misrepresentation. In a statutorily mandated study, SBA determined the industries that have been identified as being industries in which EDWOSBs are underrepresented or substantially underrepresented or WOSBs are substantially underrepresented with respect to Federal procurement contracting.

Time will tell how this program progresses and is used, but for now it clearly looms on the very near horizon for next month.

Bond Claims: When the last day worked isn't always the last day for payment bond claims

Both federal and Virginia bond claim limitations periods to file suit for a bond claim that tie to the last day work or materials were furnished (both statutes have a one year limit). But the actual last day work or materials were furnished is not necessarily the last day for purposes of that one year limit, as confirmed in a recent Federal Court decision out of the Alexandria Division of the Eastern District of Virginia last month.

That case involved a subcontractor who sought to recover for alleged payments due from its general contractor, and the general contractor's surety, under the project's "Miller Act" payment bond. The subcontractor's last payment application was dated July 28, 2009, although its last certified payroll record date indicated work through August 26, 2009. The subcontractor did not file suit until over a year later, on September 24, 2010.

The subcontractor sought to avoid the limitations period by claiming that it returned to the site in June 2010 to replace a sidewalk. It claimed that work was part of the original subcontract work instead of warranty work, and that its last date for limitations period should accordingly run from June 2010. The judge disagreed and dismissed the subcontractor's payment bond claim.

In doing so the judge noted that the last certified payroll record was the August 2009 date, and that moreover it was not probable that the subcontractor would have redone the sidewalk at its own expense (it hadn't charged for the June work) unless it was warranty work. But the judge went on to note whether the work was characterized as warranty work or not wasn't dispositive; rather the keys in that case were that 1) the last pay application was July 2009, which showed 100% billing, and that 2) the June 2010 sidewalk work was done without protest or other suggestion that it was change work or otherwise somehow original subcontract work.

The overall result is not surprising because the basic principal has been that corrective or repair work does not extend the one year limit for Federal bond claims since 1983, but what was surprising is that the court dismissed the case at the initial pleading stage based on the information in the complaint itself, which the judge concluded confirmed that as a matter of law the last day of work did not include the claimed sidewalk work.

Lesson learned: In considering your payment bond rights, keep the one year limit in mind and only include original contract work; correction of defective work or repairs following inspection of the work do not count to extend the period in which you must act to preserve your claim. In that regard, payment applications and certified payroll records, and the information in them, can be used to establish the last day.