Public Contracting Code Reminders

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The Oregon Public Contracting Code is a detailed, often-amended statute with many moving parts, and these complexities pose a challenge for public agencies and private developers working with agencies on public projects. Here are four facets of public contracting to note.

Not all bonds are created equal
With limited exceptions, contractors are required to obtain performance and payment bonds for public improvement contracts. But because contractors often don’t have significant liquid assets, and their insurance policies often contain terms that make claims recovery difficult, bonds can be the best method for recovery of losses due to contractor default. The forms of bonds, however, are not specified in the Public Contracting Code, and off-the-shelf bond forms are often not protective of the public agencies or other bond beneficiaries. For example, a performance bond may severely restrict the time to file bond claims, or the bond may contain onerous notice provisions that make it unnecessarily difficult to file claims. Public agencies should assess the terms of their bond forms to ensure the forms will serve their intended purposes, and agencies should include their preferred bond forms with bid or RFP advertisements. On the flip side, contractors who want to avoid their sureties paying on a bond should look for broad insurance with adequate limits. 

Alternative contracting methods
The traditional low-bid method of hiring a contractor, after the project design is complete, is becoming less and less common. More often, owners want their contractors involved on the project team during the design process, before construction pricing can be estimated with reasonable accuracy. The Public Contracting Code allows public agencies to hire using alternative methods, most notably the “CM/GC” method, in which the contractor is hired before the project is designed so the owner can benefit from the contractor’s advice about value engineering, product selection, sequencing, constructability, schedule-building, and the like. Before putting projects out to bid, public agencies should consider whether alternative contracting is a good fit.

Bid exemptions
With few exceptions, public improvement contracts must be awarded based on competitive bids. Under the Public Contracting Code, however, a public agency can exempt a public improvement contract and select a contractor through a competitive proposal process. To qualify for an exemption, the public agency must find that (1) the exemption is unlikely to encourage favoritism or substantially diminish competition and (2) awarding the contract under the exemption will likely result in substantial cost savings and other benefits to the agency. The Public Contracting Code includes a list of potential factors to satisfy the “benefits” requirement, including the public benefits from granting the exemption, the specialized expertise necessary for the public improvement, and others.

Feasibility and cost analysis
For certain procurements with an estimated contract price of more than $250,000, the Public Contracting Code requires public agencies, with some exceptions, to either (1) demonstrate that performing the services with their own personnel is not feasible or (2) demonstrate, through cost analysis, that they’d incur less cost hiring a private company to perform the services than using their own personnel and resources. The feasibility/cost analysis requirement doesn’t apply to many services related to public projects, but it does apply to contracts for construction other than public improvements, such as ordinary repair or maintenance of public improvements. A public agency should take care when performing the cost analysis. In a recent decision, the Oregon Court of Appeals determined that a school district failed to conduct a proper cost analysis of the use of a private bus company in lieu of public personnel. The court found that, in preparing her cost estimate, the district manager didn’t obtain information to estimate salary or wage and benefit costs for private busing contractors; instead, she assumed that a private contractor would have the same wage, salary, and benefit costs as the district. If required, a public agency should take care to perform a well-supported and well-documented assessment of public and private options.

Poring over the Public Contracting Code and a public agency’s procurement rules can be a headache, but knowledge of procurement requirements can help the public agency avoid landmines on the road to a project’s success and make the procurement process run more efficiently and effectively for the benefit of the public.

"Public Contracting Code Reminders" was originally published in the Daily Journal of Commerce on October 16, 2015.

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