Tag Archives: construction

State Construction Project Terms (Guest Post)

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Eileen Youens

Eileen Youens

Today’s Guest Post is from Eileen R. Youens.  Eileen is  Assistant Professor of Public Law and Government at the UNC School of Government, where her areas of interest include public contract law, including purchase contracts, construction contracts, conflicts of interest, and disposal of property.

 The ABCs of IFBs, ITBs, RFPs, RFOs, and RFIs

What’s the difference between an IFB, and RFP, and an RFQ, and what are they anyway?  As I’ll explain in more detail in this post, what name you give a solicitation document—the document you use to solicit bids or proposals—is not as important as the process you use to award the contract.  And the North Carolina General Statutes usually dictate which process you’re required to use.

The Four Types of Documents

There are four main types of solicitation documents: (1) those used for bidding, where price is the primary factor; (2) those used to request proposals focusing on factors other than price; (3) those used to ask for someone’s qualifications; and (4) those used to gather information from potential bidders or proposers before starting the bid or proposal process.  I’ll explain below when local governments can use each of these four types of documents.

The First Type: Bids

Under North Carolina law, local governments are required to bid out purchases of “apparatus, supplies, materials, and equipment” (what I like to refer to as “stuff”) costing $30,000 or more, and contracts for construction or repair costing $30,000 or more.  (Local policies may require bidding on other types of contracts or for contracts costing less than $30,000.)  The bidding statutes, G.S. 143-129 (formal bidding) and G.S. 143-131 (informal bidding), require that these contracts be awarded to the lowest responsive, responsible bidder.  This “award standard” is what distinguishes bidding from other contracting methods.  To solicit bids, public entities usually use Invitations to Bid (ITBs) or Invitations for Bids (IFBs). For informal bids or for purchases or construction costing less than $30,000, local governments may also use a request for quotes (“RFQ” – not to be confused with another RFQ: the request for qualifications, discussed below).

The Second Type: Requests for Proposals

North Carolina local governments have the option of using a request for proposal process for the purchase of information technology goods and services (G.S. 143-129.8).  This process allows local governments to establish their own evaluation criteria (i.e., evaluating vendors based on how well their product meets your entity’s needs, rather than focusing primarily on price), and award the contract to the vendor “that submits the best overall proposal.”  I say that this is an option because if you’re purchasing IT “stuff” that costs $30,000 or more, you can either (1) bid it out (formally or informally, depending on the cost), or (2) use the request for proposal process described in G.S. 143-129.8.  On the other hand, if you’re contracting for IT services, those services don’t fall under the bidding laws, so you can either (1) use the request for proposal process described in G.S. 143-129.8, or (2) use any process you want to use, or no process at all (simply selecting the firm you’d like to work with), unless your local policy requires a specific process for the procurement of services.  Note that if you’re using grant funding, you must comply with the terms of the grant.  (For example, if the grant requires you to bid out IT goods instead of using a request for proposal process, then you have to comply with the grant.)

The North Carolina statutes refer to requests for proposals in two other situations.  First, G.S. 143-64.17A requires that all public entities in North Carolina use a request for proposal process for the procurement of guaranteed energy savings contracts (GESCs).  The statutes governing GESCs (G.S. 143-64.17 through G.S. 143-64.17K [scroll down to “Part 2. Guaranteed Energy Savings Contracts for Governmental Units”]) set out a specific request-for-proposal process and specific evaluation criteria that must be used for these types of contracts.  Second, the statutes allow North Carolina local governments to use a request for proposal process for contracts for the construction, design, operation, and maintenance of solid waste management facilities and sludge management facilities.  The statute governing these contracts is G.S. 143-129.2.

As I mentioned above, local governments are not required to bid out services (aside from design services—discussed below).  In fact, the General Assembly has decided to let local governments choose how to procure services.  Many local governments use requests for proposals to procure services, as a way of seeking competition while considering factors in addition to price.  When a local government uses a request for proposals to procure services, the local government decides how the proposals are evaluated, what the timeline is, whether to advertise or not, and whether to open proposals in public or not.  In other words, when procuring services, it’s up to each government to decide what process will best balance its needs for (1) good quality services, (2) value, (3) transparency, (4) efficiency, and (5) fairness.  (As I mentioned above, if you’re using grant funding, you’ll need to comply with the terms of the grant; if the grant requires a competitive process for awarding contracts for services, you’ll have to comply with those terms.)

So the term “request for proposals” (RFP) covers a range of solicitation documents.

The Third Type: Qualifications-Based Selection

G.S. 143-64.31 (sometimes referred to as the “Mini-Brooks Act” because it’s based on a federal law called the “Brooks Act”) requires local governments to procure architectural, engineering, surveying, or construction-management-at-risk services—regardless of the contract amount—by focusing on qualifications rather than price.  (Note that local governments can exempt themselves from this process.) So when people solicit these services, they often use a “request for qualifications” (RFQ).

You can also use qualifications-based solicitation (or some variation thereof) for other types of services.  Again, since the general statutes don’t require the use of a specific process (or any process) for procuring services, the process you use is up to you (as long as you comply with your local policies or grant terms, if you’re using grant funding).

The Fourth Type: Information Requests

Another acronym you may see is RFI—a “request for information.”  RFIs are not used to procure goods or services directly, but instead are used to solicit information about purchases or projects you’re planning to procure in the future.  For example, if you know you’re going to have to buy some new police cars next year, and it’s been a while since you’ve bid out police cars, you could send out RFIs to several car dealers or manufacturers to find out what new features are available and what models might best meet your needs.

The Bottom Line

William Shakespeare really said it best:

“What’s in a name? That which we call a rose

By any other name would smell as sweet.”

In other words, the substance of the document is more important than what it’s called.  If you’re soliciting firms to perform architectural services, your solicitation document must ask for qualifications instead of price, even if you call it an IFB.  And if you’re bidding out a $1.2 million construction project, you have to award the contract to the lowest responsive, responsible bidder, even if you call your solicitation document a rose an RFP.

Eileen and I welcome your thoughts and questions in the comments section, below.

[hat tip to Mike Purdy, of Mike Purdy’s Public Contracting Blog, for bringing Eileen’s post to my attention]

New Energy Code for North Carolina (Tues Tip)

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energy efficient light bulbs

Did you know that new energy-efficient building rules will be required for commercial and residential construction starting in March 2012?  The new rules, passed by the NC Building Code Council last week,  are designed to promote green buildings, lower consumers’ energy bills and cut the state’s carbon emissions. 

The News and Observer reports the vote came with a highly unusual requirement – orchestrated by homebuilders and   Gov. Bev Perdue’s office – that the council make amendments to the residential code that will offset the cost of    achieving the higher standards for homes.

(Thanks to North Carolina Construction News for highlighting this new regulation).

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Photo: “Bright Idea”  by Mike Bitzenhofer via Flickr/Creative Commons license.

Lead Generation – Best Practices (Tues Tip)

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As 2010 is winding down, you may be ramping up your planning for a successful 2011.  If so, consider attending a free webinar tomorrow afternoon discussing “Best Practices” in lead generation.

  • What:  Best Practices in Lead Generation (by the Construction Marketing Association)
  • When:  Wednesday, December 15th at 1pm Eastern
  • How:  Register (for free) here

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Clipboard

 Also, if you have not yet had a chance to do so, please take my lightening quick, 10 question survey about this blog.  I’m closing the survey later this week, so this is your last chance to have your say!

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Photo “Clipboard” by Schzmo via Wikimedia.

Time flies: Construction Law in North Carolina is 1 year old today!

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candles on cake

One year ago today, I first put pen to paper fingers to keyboard and started this blog.  At the time, I had no idea of the magnitude of Pandora’s Box when I first opened it.  It has been a fun ride!  I’ve gotten to know many fine folks from across the country who share an interest in construction-related legal issues.

To my loyal readers– thanks for following along!  Please keep reading, and drop me a note to tell me what you like, what you dislike, what you wish I’d cover, and anything else.  I can take tough criticism, honest.

Here’s to making the second blogging year even better!

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Photo “Birthday Cake – Candles”  by jessica.diamond via Flickr/Creative Commons License.

Careful! Your contract may create uninsurable loss

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Kent Holland
Kent Holland

Today’s Guest Post is by  J. Kent Holland, a construction lawyer located in Tysons Corner, Virginia,  with a national practice representing design professionals, contractors and project owners.  He is also founder & president of ConstructionRisk, LLC, a consulting firm providing consulting services to owners, design professionals, contractors and attorneys on construction projects.    His guest post is very timely, considering last week’s post on insurance check-ups for your business.   

 

Agreeing to Pay Reasonable Attorneys Fees as Part of Indemnification May Create Uninsurable Loss

 A question that is asked with increasing frequency is whether attorneys fees incurred pursuant to an indemnity clause are insurable where they are not incurred due to a duty to defend (i.e., paid on behalf of the indemnitee) but are instead paid after the litigation is complete and the indemnitor (e.g., engineer) is found liable for damages due to its negligence.  The short answer is that unless the court would have awarded the attorneys fees against the engineer in the absence of the contractual obligation to pay attorneys that was created by the indemnification provision, the attorneys fees will not be covered by the professional liability policy.  The contractual liability exclusion of the policy applies to such contractually created attorneys fees obligation.

A typical indemnification clause that includes payment of attorneys fees as part of indemnification rather than as part of a duty to defend is the following:

INDEMNIFICATION

The Consultant shall indemnify and hold harmless Owner, its  parent,  affiliates and their respective directors, officers and employees (“Indemnitees”) from and against any and all claims, suits, actions, judgments,  demands,  losses, costs, liability, damages, and expenses, of any kind (including reasonable attorneys fees)   for  injuries  to  persons  (including but not limited to death) or damage to property to the extent any  of the foregoing are caused by any negligent act, error, or omission of Consultant, its officers, employees, agents, representatives, and  persons  for  whom  Consultant  is  legally responsible in  the performance of the Services.

Although this clause may look innocuous in that the indemnification is limited to negligence, it may nevertheless create uninsurable loss by virtue of the attorneys fees that are included in the indemnification.  Under American Jurisprudence, the courts do not award attorneys fees to the prevailing party unless the contract creates such a duty or unless there is some legal basis such as a civil statute that would establish the basis for the award of attorneys fees.

An insurance broker was recently asked by his client (an engineering firm) to consider the insurance ramifications of an indemnification clause somewhat similar to what was quoted above.  Instead of containing the reference to reasonable attorneys fee within its text, however, the clause included an additional sentence that stated:  “Consultant shall not have  an  obligation  to defend any person under this indemnity; however, Subconsultant  shall  have  liability  for reasonable  and necessary defense costs incurred by persons indemnified to the extent caused by Subconsultant’s  negligence.”

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To avoid contractual liability for legal fees under the above-quoted clause that would not be covered by insurance, the broker recommended that the final sentence be revised to read as follows: “Consultant shall have liability for reasonable and necessary defense cost incurred by persons indemnified to the extent caused by Consultant’s negligence herein and recoverable under applicable law on account of negligence.”

I agree with the broker that, unless the award is limited to the sum “recoverable under applicable law on account of negligence,” the indemnity of legal costs is not fully insured. Specifically, an award of legal costs in favor of the indemnitee against the engineer that is based on the contractual indemnity alone is excluded from coverage by the contractual liability exclusion of the policy. The amount of the award that is made under applicable law respecting recovery of plaintiff’s legal costs, apart from the contractual indemnity, could be covered under the policy depending upon terms and conditions of the policy.

In other words, if a state has a law for recovery of plaintiff’s legal costs against the engineer, an award under that law based upon negligence  might be covered under the professional liability policy, but any part of an award of attorneys fees that results only from a contractual indemnity obligation to indemnify a plaintiff’s legal fees will run afoul of the contractual liability exclusion of the policy and, therefore, be excluded from coverage.

As previously stated, in the United States, the laws of the individual states do not provide, routinely, for an award of plaintiff’s legal costs. That is the genesis of contractual indemnity of legal costs. Contractual indemnity “fills in” what the law does not otherwise order. Likewise, that is the reason the engineer would limit the contractual indemnity to the sum that state law would award. The “fill in” to enforce the contractual indemnity is not a liability that would have attached to the “insured” in the absence of such contract, warranty, guaranty or promise, to quote from the contractual liability exclusion contained in one insurance carrier’s policy.  For the reasons explained in this article, a party that agrees to indemnify another should beware that agreeing to reimburse the indemnitee for attorneys fees will likely create an uninsurable risk where those fees would not have been awarded by a court in the absence of the contractual obligation.

 

Questions, comments, thoughts?  Kent and I welcome your comments below.