Construction & Public Contract Law Section Blog: Proposed Legislation Could Mean Big Changes to Public Contracting in Wisconsin:

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  • Construction & Public Contract Law Section Blog
    September
    08
    2017

    Proposed Legislation Could Mean Big Changes to Public Contracting in Wisconsin

    Patrick Whiting

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    Two proposed state Assembly bills would significantly impact how public works contracts are awarded. Patrick Whiting reviews how construction contracts are awarded in Wisconsin, and outlines the changes in the proposed bills.

    Two bills currently circulating at the Capitol could significantly impact how public works contracts are awarded in Wisconsin. Assembly Bills (AB) 307 and 456 contain several provisions that would alter some of Wisconsin’s long-standing public contracting laws.

    With change in the air, it is a good time to review how construction contracts are awarded in Wisconsin and consider how these two bills would change that landscape if enacted into law.

    Competitive Bidding in Wisconsin

    In general, Wisconsin public bodies must competitively bid contracts for construction projects.

    Contracts with the state for construction work estimated to cost over $50,000 must be competitively bid. Pursuant to Wis. Stat. section 16.8551, contracts must generally be let by the Department of Administration (DOA) to the “lowest qualified responsible bidder.” Among other requirements, the DOA must advertise for proposals and publicly open and read aloud all bids.2

    For state highway improvements, the Wisconsin Department of Transportation (DOT) must award contracts to the “lowest competent and responsible bidder” following public bidding, subject to certain exceptions.3

    Patrick Whiting org whiting agcwi Patrick Whiting, Minnesota 2006, is the general counsel for the Associated General Contractors of Wisconsin, Madison, where he advises members on legal matters involving the construction industry and their businesses.

    Political subdivisions (i.e., cities, villages, towns, and counties)4 have their own bidding requirements. A public contract advertised by a political subdivision must be awarded to the “lowest responsible bidder” when a project’s cost is expected to exceed $25,000.5 In such a case, bidding shall be by sealed competitive bids6 and shall comply with the procedural requirements of Wis. Stat. section 66.0901. Of note, political subdivisions cannot use a bidding method that gives a preference based on the geographic location of the bidder, nor may they use criteria “other than the lowest responsible bidder” when awarding a contract.7

    School districts are a notable exception to the requirement that public projects be competitively bid, thanks to a 1960 decision by the Wisconsin Supreme Court.8 While school districts must comply with the requirements of section 66.0901 if they decide to competitively bid a project, there is no requirement that they competitively bid such projects in the first place. Accordingly, school districts can – and do – hire contractors of their preference without competitive bidding.

    Design-bid-build Project Delivery Method

    Wisconsin construction projects are almost exclusively awarded via the traditional design-bid-build project delivery method. Under this process, the public owner first contracts with a designer to develop a construction plan, or develops the plan in-house. The public owner then solicits bids from contractors to construct what has been designed.

    Although this is the traditional method of designing and constructing public projects, Wisconsin is the rare state that has not explicitly authorized the use of other, nontraditional project delivery systems.9 In fact, the use of one such nontraditional delivery system – design-build – has been authorized in 47 other states.10

    AB 307: Higher Thresholds and No More School Exceptions

    A pair of bills currently at the Capitol could significantly change Wisconsin’s public contracting laws.

    Introduced in early May, AB 307 would have two distinct impacts on the public contracting framework.

    First, AB 307 raises the minimum estimated value of projects that political subdivisions are required to competitively bid. Currently, all political subdivision projects estimated to cost more than $25,000 must be competitively bid. The new bill raises that number to $75,000. The result would be that a group of projects that are currently competitively bid – i.e., those estimated to cost more than $25,000 but no more than $75,000 – would no longer need to be competitively bid. It should be noted that the bill would exempt public roads from this higher threshold; they would still need to be competitively bid if they are estimated to cost more than $25,000.

    Second, AB 307 gets rid of the long-standing public bidding exemption for school projects. If enacted, school districts and school boards would need to advertise projects and award them to the lowest responsible bidder, just as political subdivisions have long been required to do. In effect, the days of school districts having unfettered discretion in awarding contracts for school projects would be over.

    Additionally, school districts and school boards would no longer be able to give a “hometown advantage” to contractors based on their geographic location, as the bill would now subject them to Wis. Stat. section 66.0901, subd. 1m(b).

    AB 456: Four Alternative Project Delivery Methods

    While AB 307 is a relatively small, focused bill, AB 456 (the “DOT Reform Bill”) is a larger bill with numerous and varied implications. Within the bill is language relating to funding and auditing the DOT, eliminating the payment of prevailing wage on state and highway projects, and regulating the implementation of wheel taxes.

    One aspect of AB 456 is particularly notable for the purpose of this article, however. As drafted, the bill establishes four new alternative project delivery methods that both the DOT and local government units (counties, towns, cities, and villages) could implement when contracting for public projects.

    The four alternative project delivery methods are:

    • Design-build: where the design and construction services are provided by a single entity;
    • Design-build-finance: where design and construction services are provided by a single entity, and that entity also provides some or all of the project’s funding;
    • Construction manager-general contractor: a two-phase project for which all services unrelated to construction are provided in the first phase by a contractor who, subject to approval, also provides construction services in the second phase; and
    • Fixed-price variable scope: where a contractor provides the maximum amount of work at a cost not to exceed the price fixed by the governmental unit.

    When a public body uses an alternative project delivery method on a given project, AB 456 requires the establishment of a technical review committee to “evaluate and assign a technical score to each (bidder’s) proposal.”

    Among other considerations, the bill provides that the committee shall award “not less than 5 percent of available points to each proposal that uses contractors based in this state for not less than 50 percent of the dollar value of the contract.” After the committee determines a proposal’s technical score, it would then divide the bid price by the technical score to produce an overall score. The lowest overall score would be awarded the contract.

    The Significant Implications of AB 456

    The implications of implementing the alternative project delivery methods in AB 456 are significant.

    First, the availability of these four new contracting methods would represent a sea change from Wisconsin’s traditional design-bid-build framework. Rather than a project being awarded to the lowest responsible bidder, such projects would be awarded based on the “best value” – a term that does not always mean lowest price.

    For example, a project with a bid price of $100,000 and a technical score of 200 would have an overall score of 500 (i.e., $100,000 / 200). Meanwhile, a project with a bid price of $80,000 and a technical score of 100 would have an overall score of 800 (i.e., $80,000 / 100). So, while the $100,000 bid has a heftier price tag, it has a lower overall score, thus making it a better value – and the winning bid.

    Second, the geographical preference that would be given to local contractors by the technical review committee could have repercussions. Many states have reciprocal preference statutes that essentially provide that “if another state gives a preference to its state contractors, we will do the same.”11 So, for Wisconsin contractors that bid on projects in other states, the enactment of AB 456 could mean that they will be at a competitive disadvantage if those other states invoke their reciprocal preference statutes.12

    Finally, the bill makes clear that the legislature would want these alternative delivery methods to be utilized. As written, the bill requires the DOT to award a rising percentage of contracts via alternative methods over time, with at least 20 percent of the DOT’s construction costs awarded via alternative delivery methods by June 30, 2023. (The bill contains no such mandate for other public bodies.)

    It remains to be seen if these any of these proposed changes to Wisconsin’s public bidding laws will be enacted. But to the extent that they are, they will undoubtedly have a significant impact on how both public bodies and contractors go about their business.

    Stay tuned.

    Endnotes   

    1 All references to Wisconsin statutes are to their 2017 versions, unless noted otherwise.

    2 Wis. Stat. § 16.855(2).

    3 Wis. Stat. § 84.06(2)(a).

    4 Wis. Stat. § 66.0901(1)(bm).

    5 Wis. Stat. § 66.0910(1m). The statutory language requiring competitive bidding for projects estimated to cost over $25,000 differs from one political subdivision to the next. Cities and villages must let “public construction” by contract to the lowest responsible bidder when the project’s cost is expected to exceed $25,000. See Wis. Stat § 62.15; § 61.15. Meanwhile, towns must let a “public contract” and counties must let “public work” in these situations. See Wis. Stat. § 60.47(3); § 59.59(29)(a). It should be noted that political subdivisions’ contracting for public road work is not always subject to these thresholds. See, e.g., Wis. Stat. § 59.52(29)(a) (“This subsection does not apply to highway contracts which the county highway committee or the county highway commissioner is authorized by law to let or make.”). For purposes of this article, we do not even attempt to summarize the various statutes and rules that dictate when local road work must be competitively bid.

    6 Wis. Stat. § 66.0901(1m)(a).

    7 Wis. Stat. § 66.0901(1m)(b). It should be noted that not all work on construction projects needs to be awarded via competitive bidding. A 1987 opinion of the Wisconsin Attorney General stated that architectural and engineering services need not be advertised and competitively bid, since these are “professional services” that are not within the definition of public work. 76 Wis. Op. Att’y Gen. 182 (Aug. 21, 1987). A subsequent Attorney General letter stated that the role of a construction manager is such a “professional service,” and therefore need not be advertised and awarded via competitive bidding, either. See Informal opinion of the Wis. Att’y Gen., I-04-08 (July 30, 2008) (“Because the construction management services are professional services, the county is free to seek a construction manager outside of [competitive bidding] restraints.”). This exception for construction managers – who are hired to assist public bodies with coordination and oversight – is regularly utilized, as public owners often having scant experience supervising large construction projects themselves.

    8 Consol. Sch. Dist. v. Frey, 11 Wis.2d 434, 439 (Wis. 1960) (“No statute requires a school district to advertise for proposals for construction.”). See also, 64 Wis. Op. Att’y Gen. 100, 101 (Sept. 26, 1975) (“Unified, common and union school districts are not required to construct by advertising and competitive bids.”).

    9 The rare exception to Wisconsin’s strict reliance on design-bid-build is contained in Wis. Stat. section 13.48(19)(a), which authorizes the State Building Commission to implement “innovative types of design and construction processes” if doing so is “in the best interest of the state.”

    10 See Design-Build Institute of America, “State Advocacy.”

    11 See, e.g., 30 Ill. Comp. Stat. 500/45-10 (2016); Iowa Code § 73A.21 (2017).

    12 To be clear, AB 456’s language giving preference to Wisconsin contractors would only apply when alternative project delivery methods are being utilized. There would still be a prohibition against granting preference to in-state bidders for all other public construction contracts, per Wis. Stat. section 66.0901, subd. (1m)(b).





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