PUBLIC WORKS ‑- CONTRACTS ‑- COMPETITIVE BIDDING ‑- CONTRACT FOR CONSTRUCTION OF WASHINGTON STATE CONVENTION AND TRADE CENTER
Under chapter 39.04 RCW, and consistent with public policy as expressed in judicial decisions regarding public works contracts, the concept of competitive bidding is applicable with regard to the awarding of a construction management contract by the Washington State Convention and Trade Center insofar as that contract would cover the construction phase of the Convention and Trade Center project.
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July 31, 1984
Mr. James Ellis
Convention and Trade Center
720 Olive Way, Suite 1515
Seattle, WA 98101
Cite as: AGO 1984 No. 17
This is written in response to your request for the opinion of this office regarding the legality of certain proposed procedures for the award of a construction management contract, by the Washington State Convention and Trade Center (WSCTC), in connection with its construction of the Convention and Trade Center facility provided for by chapter 34, Laws of 1982. Specifically, after describing the procedures thus to be followed, you have asked:
"If WSCTC decides that it is advisable to award a construction management contract of this kind using the procedure described above, would such an arrangement be permissible under Washington law?"
We respond to your question in the manner stated in the conclusion to our analysis below.
The critical issue raised by your request involves the necessity, under chapter 39.04 RCW, for some form of competitive bidding in connection with the award, by WSCTC, of the construction [[Orig. Op. Page 2]] management contract. For, under the approach described in your initial letter of April 20, 1984, that contract was to be awarded on a negotiated basis without a formal call for bids‑-with only the then estimated ten or more component contracts for specific aspects of construction then to be let by the construction manager, with the approval of WSCTC, on the basis of competitive bidding. Now, however, by subsequent letter dated July 17, 1984, you indicate that the proposal has been modified (on the basis of informal consultation with this office) to include a competitive bidding process for awarding the construction management contract (insofar as it covers actual construction of the project) as well.
By way of further explanation on that count, we here refer to, and quote from, pertinent portions of the two letters you have sent us in connection with your request. You have, in both letters, subdivided the services of the proposed construction manager into two phases. During Phase 1, which you label "preconstruction services," you state that the construction manager,
". . . would provide professional consulting services and serve as a member of the WSCTC project team. The construction manager's function would, for example, include: development of procedures for monitoring and controlling construction; preparation of constructability analyses and recommendations for simplified construction methods or reductions in construction time; cost estimating; analysis of market conditions; and development of procedures for meeting MWBE goals. . . ."
Then, by way of further explanation of this phase of the work‑-and as a bridge to what you refer to as Phase 2‑-you go on in your July 17, 1984, letter to say:
"An important part of the construction manager's services in Phase 1 would be to divide all of the actual construction work into a number of subcontract packages, each of which would be bid separately. Our A/E team estimates that approximately ten or more 'packages' would be developed. The contract between WSCTC and the construction manager would require that the construction work in each of the 'packages' be publicly advertised and competitively bid. WSCTC would have the right to accept or reject bids for each package, and would award the contract in each package to the lowest responsible and responsive bidder. The construction manager would not be [[Orig. Op. Page 3]] permitted to perform any actual construction work except for incidental labor, equipment and materials which cannot economically or reasonably be subcontracted, or unless no responsible and/or responsive bids on a subcontract package are received.
"The contract with the construction manager would require that when and if bids in the various packages have been received and are satisfactory to WSCTC, the construction manager must enter into subcontracts with the winning bidders designated by WSCTC. The contract would provide that the construction manager covenants and guarantees to WSCTC that all construction work necessary to build the center will be performed for a fixed price equal to the sum of the accepted bids in each package plus the construction manager's Phase 2 compensation. In other words, the winning bidder on each package would contract with the construction manager to do the work, and the construction manager would in turn contract with WSCTC, promising and guaranteeing that the work would be performed for a fixed price. Thus, at the construction stage, the construction manager would shift from a consultant role, and would perform the functions of a general contractor (including the function of contracting to build the overall project at a fixed price). The construction manager would not, however, perform the actual construction work."
Next, you describe the construction manager's functions during Phase 2 as follows:
"During Phase 2 (the construction phase), the construction manager would provide the expert services necessary to manage and direct the construction of the project, and would be responsible to WSCTC to see that the entire project is constructed on schedule and in accordance with the plans and specifications. The construction manager would manage, administer, coordinate and schedule the work, and perform all procedural and other work of a general nature. As examples of the kinds of Phase 2 services which would be involved, the construction manager would coordinate the work of the subcontractors; be responsible for construction phasing, scheduling, quality control, safety and MWBE compliance; provide WSCTC with a daily construction log of activity; maintain logs of WSCTC field directives, [[Orig. Op. Page 4]] change proposals, change orders and clarifications; participate in weekly and monthly project meetings; review and concur in monthly requests for payment from major subcontractors; maintain as 'as-built' drawings; and perform other management and other general requirements functions. The contract will contain a key personnel clause which will require the construction manager to assign to Phases 1 and 2 of the contract three key management employees whom the firm offered to commit to the project when submitting its qualifications."
In turn, the modified procedures (as above noted) for awarding the construction manager's contract are then outlined in your July 17, 1984, letter as follows:
"For its Phase 1 services the construction manager would be paid a fee based upon a multiple of the direct salary expense of the construction manager's personnel assigned to the project, subject to a maximum fee. For its Phase 2 services, the construction manager would be paid fee compensation consisting of two elements: (1) a Phase 2 fee, expressed as a percentage of the sum of all construction subcontracts; and (2) a Management Services Allowance equal to the actual personnel costs of the three key management employees who WSCTC will require be committed to the project. Except for the actual cost of the three key employees, the Phase 2 Fee will cover all costs, contingencies and risks of the construction manager. The contract would be awarded to the qualified firm which bids the lowest Phase 2 Fee. Since WSCTC will require the construction manager to assign specific key employees to the project, the Management Services Allowance was established separate from the Phase 2 Fee to avoid possible inequality of bidding opportunity due to differing key employee costs." (Emphasis supplied)
Finally, you conclude with the following further explanation:
"Because of the extremely complex and unique construction demands associated with the convention center project, WSCTC established a process for in-depth evaluation of the qualifications of potential construction management firms and their employees who would be assigned to the project prior to bidding. WSCTC publicly advertised that it would be contracting for construction management services and requested expressions of interest from [[Orig. Op. Page 5]] construction management and contracting firms. Those firms which expressed interest were provided a written request for qualifications which asked the firm to submit qualification information in response to stated criteria. A minimum qualification level was established. The information submitted by the firms was then reviewed and evaluated against the qualification criteria, and the firms with scores exceeding the minimum qualification level were preliminarily qualified. Those firms were then asked to participate in personal interviews to further examine their qualifications. Each firm was required to present, at the interview, the key management employees whom the firm would assign to the project if awarded the contract. A minimum qualification score was again established. Four firms had scores which exceeded the minimum qualification level and have been designated by WSCTC as qualified to submit bids for award of the contract.
"As noted, award of the contract will be determined by a competitive bidding process. Specifically, each firm will be required to submit a sealed bid proposing a Phase 2 Fee. The contract would be awarded to the lowest responsive bidder." (Emphasis supplied)
II. Necessity for Competitive Bidding:
Our previous informal advice to you (here confirmed) regarding the necessity for competitive bidding on the construction management contract‑-insofar as it covers the actual (i.e., Phase 2) work of constructing the subject facility‑-stems from the provisions of chapter 39.04 RCW and, as well, from court decisions involving public works projects in the State of Washington. We will next discuss, in order, those two related bases for our opinion.
(1)Chapter 39.04 RCW:
Without question, construction of the Washington State Convention and Trade Center is covered by chapter 39.04 RCW which pertains, generally, to the construction of public works by both state agencies and local municipalities or political subdivisions. RCW 39.04.010 expressly defines the term "public work" to include ". . . all . . . construction . . . executed at the cost of the state or of any municipality, . . ." And clearly, the convention center facility is to be constructed at state expense. Accord, RCW 67.40.030 [[Orig. Op. Page 6]] (codifying § 3, chapter 34, Laws of 1982,supra, as amended), which provides, in pertinent part, as follows:
"For the purpose of providing funds for the state convention and trade center, the state finance committee is authorized to issue . . . general obligation bonds of the state of Washington in the sum of ninety-nine million dollars . . ."1/
Having so concluded, however, we next acknowledge that chapter 39.04 RCW does not, itself, expressly require competitive bidding on all public works projects‑-in the same specific manner, for example, as does RCW 47.28.050,et seq., in the case of state highway construction projects or RCW 35.23.352 with respect to the construction of public works or improvements by cities or towns. Indeed, chapter 39.04 RCW is not, itself, a bid law in the same sense as are those other statutes which, unlike chapter 39.04, expressly require competitive bidding and then set forth all of the details normally involved in that process. Nor, for that matter, is there presently in existence any other specific bid law applicable to all public works projects executed by the state or its agencies‑-as distinguished from such laws as RCW 47.28.050,et seq., supra, regarding specific types of construction (i.e., there, highways).
Instead, the substance of chapter 39.04 RCW (which originated as chapter 183, Laws of 1923) is a set of alternative procedures to be followed by the state (and, as well, by its political subdivisions) when executing a "public work" (as above defined) (a) by contract or (b) by ". . . any means or method other than by contract, . . ." See, RCW 39.04.020. Those alternative procedures relate, primarily, to the preparation and formal publication of plans and specifications, the execution of the particular project in accordance with those plans and specifications, and the maintenance of records of account for the costs of the particular project.
Notably, however, the term "contract" is defined in RCW 39.04.010 as follows:
". . .
[[Orig. Op. Page 7]]
"The term contract shall mean a contract in writing for the execution of public work for a fixed or determinable amount duly awarded after advertisement and competitive bid.. . ." (Emphasis supplied)
Thus, the apparent contemplation of the legislature which first enacted this law back in 1923 was that public works contracts would be competitively bid. Conversely, the reference in RCW 39.04.020 to ". . . means or method other than by contract . . ." arguably referred only to some form of construction work by the public agency's own labor force. But there was, as well, something of an ambiguity on that point in the original version of the law. For, using the same express definition of "contract" as is above quoted, a counter-argument could be framed to the effect that the phrase ". . . by any means or method other than by contract . . ." in RCW 39.04.020 might also include a privately negotiated "contract" (in the ordinary sense of that term) as well as construction by the agency's own labor force. And indeed, some informal advice given by this office in the past has reflected that approach.
There are, however, two reasons for our rejection of that contrary argument, or analysis, at this time. The first of those reasons involves a recent, 1982 legislative amendment to chapter 39.04 RCW and the second stems from recurring and consistent statements of public policy in favor of competitive bidding which have been made over the years by the courts of our state‑-which we will discuss in more detail below.
The 1982 legislation to which we refer is contained in chapter 98, Laws of 1982. By that enactment the legislature provided for the creation of what it called a "small works roster" to be used by designated state agencies in awarding contracts for ". . .[c]onstruction, repair or alteration projects estimated to cost less than twenty-five thousand dollars . . ." Sec. 2, chapter 98,supra. And, as part of that legislation, the legislature did two things of note. First, it amended the third paragraph of RCW 39.04.010 (which defines the term "contract," as above quoted) to add the below underscored additional sentence to that paragraph:
". . .
"The term contract shall mean a contract in writing for the execution of public work for a fixed or determinable amount duly awarded after advertisement and competitive [[Orig. Op. Page 8]] bid. However, a contract which is awarded from a small works roster under the authority of RCW 39.04.150 need not be advertised."2/
And second, the legislature correspondingly included in § 2 of the act (a new section to be added to chapter 39.04 RCW, now RCW 39.04.150) the following express exemption from competitive bidding requirements:
". . .
"(4) Construction, repair, or alteration projects estimated to cost less than twenty-five thousand dollars are exempt from the requirement that the contracts be awarded after advertisement and competitive bid as defined by RCW 39.04.010. In lieu of advertisement and competitive bid, the agency shall solicit at least five quotations, confirmed in writing, from contractors chosen by random number generated by computer from the contractors on the small works roster for the category of job type involved and shall award the work to the party with the lowest quotation or reject all quotations. If the agency is unable to solicit quotations from five qualified contractors on the small works roster for a particular project, then the project shall be advertised and competitively bid. The agency shall solicit quotations randomly from contractors on the small works roster in a manner which will equitably distribute the opportunity for these contracts among contractors on the roster: PROVIDED, That whenever possible, the agency shall invite at least one proposal from a minority contractor who shall otherwise qualify to perform such work. Immediately after an award is made, the bid quotations obtained shall be recorded, open to public inspection, and available by telephone request.
". . ." (Emphasis supplied)
By this action it seems to us that the legislation, quite clearly, has now placed its own construction on chapter 39.04 RCW; i.e., as generally requiring competitive bidding by state agencies in connection with their public works contracts. And it is, of course, a well settled principle that where the legislature [[Orig. Op. Page 9]] has placed its own construction on a prior enactment, the courts are no longer at liberty to speculate on legislative intent. Accord,Anderson v. Seattle, 78 Wn.2d 201, 471 P.2d 87 (1970) and cases cited therein at page 203.
(2)Judicially Stated Public Policy:
In addition, as above noted, our advice to you that the concept of competitive bidding should properly be utilized in connection with the here contemplated WSCTC construction management contract is also based on repeated pronouncements by the courts of our state in favor of competitive bidding on public works projects as a matter of public policy. Moreover, those same statements by the courts would likewise bear upon the proper construction of chapter 39.04 RCW, supra, to the extent that any might still regard that law as ambiguous even after the above‑discussed 1982 amendments thereto.
In addressing this aspect of the matter we begin with the oft-cited case ofReiter v. Chapman, 177 Wash. 392, 31 P.2d 1005 (1934) which, ironically, has sometimes been cited for proposition that competitive bidding on a particular public works contract isnot required. Such a perception of the case seemingly comes from the Court's quotation, at page 396, of the following text statement from 19 R.C.L. 1068:
"'In the absence of special statutory provision there is no requirement of law that a municipal corporation about to enter into a contract for the construction of a public work advertise for bids and let the contract to the lowest bidder, nor will a statute providing that the municipal authorities may advertise for bids be construed as mandatory.'"
That, however, is not what the Court held in Reiter v. Chapman‑-and indeed it would have had no occasion to do so since a statute requiring competitive bidding was there actually involved. Rather, given the presence of such a bid law, what the Court truly did was toreject a proffered argument, based upon the above‑quoted text statement, that statutes requiring public advertising and competition
"'. . . are rather strictly construed and closely restricted to cases clearly falling within their express terms.'"
[[Orig. Op. Page 10]]
Moreover it is quite significant to note what the Court said, in rejecting that contention, at page 397 of its Opinion. Again, we quote:
"With this proposition, we are not in accord. While it is true that the courts may not amend a statute by adding words which do not appear therein, still, when a legislative policy clearly appears, in appropriate cases that policy will be considered in construing statutes presented for judicial interpretation.
"The principle of giving notice of proposed public contracts is, broadly speaking, in the public interest, and when the legislative authority has indicated, as has that of this state, that it has adopted the general policy of requiring that notice be given of proposed public contracts, the courts will not, by strict construction, narrow the scope of a statute and limit its application in cases where such a construction is apparently against the legislative policy."
"Statutes controlling the making of contracts by the officers of municipal corporations are laws for the protection of the public and those who support public agencies by the payment of taxes. Generally speaking, a sound public policy supports the proposition that a reasonable notice shall be given of the letting of public contracts, in order that, by competition in bidding, the public may receive the benefit of the greatest possible value for the least expenditure. Grace v. Fobes, 118 N.Y.Supp. 1062."
Thus, far from lending support to the awarding of public works contracts without competitive bidding, the Reiter case is more properly citable as a decision in support of competitive bidding. And at least, it clearly supports the proposition‑-apropos chapter 39.04 RCW‑-that any ambiguity in a statute relating to public works contracts is to be resolved in favor of utilization of a bidding procedure.
Next, along the same line, we take note of what our Court considers to be the purpose of competitive bidding, as explained in Edwards v. Renton, 67 Wn.2d 598, 602, 409 P.2d 153 (1965):
". . . the objects of statutory bidding requirements in connection with the letting of municipal contracts are to [[Orig. Op. Page 11]] prevent fraud, collusion, favoritism, and improvidence in the administration of public business, as well as to insure that the municipality receives the best work or supplies at the most reasonable prices practicable. 10 McQuillin, Municipal Corporations § 29.29 (3d ed. 1950); 1 Antieau, Municipal Corporation Law § 10.11, at 688 (1965).
"It should be axiomatic that plans, schemes, or devices which thwart or circumvent the wholesome objects and purposes of such statutory provisions are invalid."
Similarly, inGostovich v. West Richland, 75 Wn.2d 583, 452 P.2d 737 (1969) the Court said, at page 587:
"We appreciate fully that requiring public bidding on municipal contracts is 'to prevent fraud, collusion, favoritism, and improvidence in the administration of public business, as well as to insure that the municipality receives the best work or supplies at the most reasonable prices practicable.' Edwards v. Renton, 67 Wn.2d 598, 602, 409 P.2d 153, 157 (1965); 10 McQuillin, Municipal Corporations, § 29.29 (3d ed. rev. 1966).
"We are aware, too, thatthe requirement of public bidding is for the benefit of property holders and taxpayers, and not for the benefit of the bidders; and such requirements should be construed with the primary purpose of best advancing the public interest. 10 McQuillin, Municipal Corporations, § 29.29 (3d ed. rev. 1966).
"Although the primary purpose for the requirement of public bidding is for the protection of the general public, it is also recognized that another purpose is to provide a fair forum for those interested in undertaking public projects. . . ." (Emphasis supplied)
Other recent cases to the same effect include Savage v. State, 75 Wn.2d 618, 453 P.2d 613 (1969) andMiller v. State, 73 Wn.2d 790, 440 P.2d 840 (1968). Moreover, citing and relying upon those last two decisions, Division II of the State Court of Appeals has gone so far in a recent ruling as to express an analytical principle directly contrary to the R.C.L. statement in Reiter v. Chapman, supra. SeeManson Construction & Engineering Co. v. State, [[Orig. Op. Page 12]] 24 Wn.App. 185, 600 P.2d 643 (1979) in which the Court said, at page 190:
"We begin our analysis of this appeal by reasserting this jurisdiction's strong public policy that, except as permitted by legislation, public contracts shall be let only after competitive bidding procedures have been complied with. . . ." (Emphasis supplied)
In other words, under that approach the true function of legislative action would be to exempt given situations from competitive bidding‑-rather than to expressly impose a competitive bidding requirement in the first instance.
We can only speculate, of course, on whether the Washington Supreme Court might now also apply the same analysis, in an appropriate case, to the interpretation of such a general public works law as chapter 39.04 RCW. But clearly, if the Court were to do so, it would find nothing in that legislation which purports to exempt particular public works projects from competitive bidding‑-except, of course, the above‑noted 1982 exemption for contracts eligible to be awarded to contractors on the small works roster under RCW 39.04.150.
Based upon the foregoing considerations we advised you informally (in response to your initial letter) that the concept of competitive bidding should properly be adhered to by WSCTC in its award of the subject construction management contract. In turn, the proposal you have asked us to review has been modified to include that concept at the level of Phase 2 of the construction manager's services;i.e., those functions involving actual construction, under the construction manager's direction and supervision, of the convention center facility.
We are, at this time, satisfied with that modified approach. Only the construction phase of the contract falls within the definition of the term "public work" as set forth in RCW 39.04.010, supra. Moreover, since chapter 39.04 RCW is not, itself, a full-fledged bid law such, for example, as RCW 47.28.050, et seq.,supra, those responsible for awarding the contract in this instance have a bit more freeboard than if such a specific, detailed, bid law was here involved.3/ What is important, in this instance, is [[Orig. Op. Page 13]] that the concept be utilized‑-as is now proposed. It therefore is our opinion, in direct answer to your question, that the changes which you have made in the manner of awarding the construction management contract are sufficient to cause the formation of that contract to be in compliance with applicable state law as it relates to construction contracts for public works.4/
We trust that the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
PHILIP H. AUSTIN
Senior Deputy Attorney General
*** FOOTNOTES ***
1/Those bonds were, in fact, issued by the State Finance Committee in early 1983 and the funds thus provided are currently available.
2/Sec. 1, chapter 98, supra, amending RCW 39.04.010.
3/For example, unlike RCW 47.28.070, nothing in chapter 39.04 RCW purports to list the qualifications of bidders so as to impliedly restrict administrative prequalification, as in Manson Construction and Engineering Co. v. State,supra.
4/Having so concluded, however, we should also add a brief caveat, by way of a footnote, regarding the scope of this opinion. We have, in this response to your request, limited ourselves to the basic issue raised; namely, the necessity for competitive bidding on the construction phase of the contract. We are, on the other hand, unable to determine with certainty from the information contained in your letter whether the construction manager would also be performing architectural services as contemplated by chapter 39.80 RCW which, we have previously advised you, is, in our judgment, applicable to WSCTC. See, letter opinion dated July 20, 1982, to Mr. James G. Cairns as Chairman of the Board of Directors of the then newly formed Washington State Convention and Trade Center Corporation. Other possible issues, not involving the award of the contract itself, relate to the proper measure of the contractor's bond under chapter 39.08 RCW and the applicability of the retainage requirements of chapter 60.28 RCW to the project. We believe that those other matters should properly be referred to the center's own regularly assigned legal counsel if that has not already been done.