Connecticut Seal

General Assembly

File No. 432

    February Session, 2018

Substitute House Bill No. 5270

House of Representatives, April 12, 2018

The Committee on Government Administration and Elections reported through REP. FOX of the 148th Dist., Chairperson of the Committee on the part of the House, that the substitute bill ought to pass.

AN ACT PROHIBITING BID SHOPPING.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective October 1, 2018) As used in this section, sections 2 and 3 of this act and sections 4b-91 to 4b-103, inclusive, of the general statutes, as amended by this act:

(1) "General contractor" means any contractor that submits a bid to an awarding authority, or to any construction manager at-risk pursuant to part II of chapter 60 of the general statutes;

(2) "Subcontractor" means any contractor that submits a bid to perform work for, or to supply materials to, a general contractor or another subcontractor in relation to a general contractor's bid on a construction project that is subject to any of the requirements established under part II of chapter 60 of the general statutes;

(3) "Bid submission" or "submit a bid" means, with respect to a general contractor, providing a bid package to an awarding authority or construction manager at-risk, and with respect to a subcontractor, submitting a sub-bid;

(4) "Sub-bid" means the bid submission of a subcontractor, made by writing and signing a sub-bid on a form provided by the Department of Administrative Services and providing such form to a general contractor or another subcontractor pursuant to part II of chapter 60 of the general statutes;

(5) "Higher-tier subcontractor" means any subcontractor that contracts with a general contractor;

(6) "Lower-tier subcontractor" means any subcontractor that contracts with a higher-tier subcontractor;

(7) "Bid shopping" means any effort by a general contractor after bid submission to obtain a lower price from a subcontractor that such contractor has previously solicited bids from with respect to the project for which such bid was submitted, including using one subcontractor's bid to coerce lower bids from other subcontractors, but excluding the substitution of a contractor in accordance with section 2 of this act; and

(8) "Awarding authority" has the same meaning as provided in section 4b-91 of the general statutes, as amended by this act.

Sec. 2. (NEW) (Effective October 1, 2018) (a) The Department of Administrative Services shall adopt regulations in accordance with the provisions of chapter 54 of the general statutes to set a threshold value for sub-bids and provide that any sub-bid that exceeds such threshold value is required to be delineated in the bid submission of a general contractor. For purposes of this section, "threshold value" means the threshold value determined by the Department of Administrative Services under such regulations.

(b) On and after the date the regulations required under subsection (a) of this section are effective, each invitation to bid on a contract under part II of chapter 60 of the general statutes issued by an awarding authority, including invitations issued by a construction manager at-risk, shall require bidders to: (1) List the name, location of the place of business and Connecticut business identification number of all subcontractors that are to perform any work on the project in an amount in excess of the threshold value; (2) list the dollar amount of each sub-bid; (3) submit the written sub-bids, signed by each subcontractor that is proposing to perform the work in an amount in excess of the threshold value, and if applicable, the subcontractor's prequalification certificate obtained in accordance with section 4a-100 of the general statutes; and (4) identify any portion of work in excess of the threshold value that the general contractor will self-perform and list such work in accordance with section 4b-95a of the general statutes, as amended by this act. The bid of any general contractor who fails to list a sub-bid in excess of the threshold value shall be rejected if the awarding authority or construction manager at-risk determines that it is unreasonable for such contractor to subcontract for less than the threshold value given the scope of the project and the bid specifications submitted in accordance with section 4b-93 or 4b-103 of the general statutes, as amended by this act.

(c) Each subcontractor shall submit all sub-bids to the prospective general contractor, including any bids in excess of the threshold value of lower-tier subcontractors to higher-tier subcontractors, prior to the general contractor's bid submission. All subcontractors submitting sub-bids in excess of the threshold value, including lower-tier subcontractors, shall write and sign their bids on a form prescribed by the Department of Administrative Services. If a general contractor obtains bids from multiple subcontractors with respect to a single project, the general contractor may select among the various bids, provided the general contractor does not unilaterally pair any higher-tier and lower-tier sub-bids together unless they were originally submitted together by the respective subcontractors.

(d) A general contractor executing a contract under part II of chapter 60 of the general statutes shall offer the listed higher-tier subcontractors a written subcontract not later than five business days after execution of the contract, consistent with any other applicable requirements set forth in section 4b-96 of the general statutes, as amended by this act. All subcontractors executing a contract under part II of chapter 60 of the general statutes shall offer the listed lower-tier subcontractors a subcontract not later than five business days after execution of the contract. No listed subcontractor may commence performing work on a project prior to signing a subcontract and filing such contract with either the awarding authority or construction manager at-risk.

(e) A general contractor or higher-tier subcontractor may not substitute any listed subcontractors after the submission of a bid, unless: (1) The subcontractor refused to execute a written subcontract not later than five business days after being offered the subcontract; (2) the value of the contract with the proposed substitute subcontractor (A) does not differ by more than one-half of a per cent than the listed sub-bid, or (B) differs by more than one-half of a per cent but is less than the listed sub-bid, in which latter case the general contractor or higher-tier subcontractor, as applicable, shall agree, in writing, that the savings from the substitute subcontractor shall be paid to the state by the general contractor or higher-tier subcontractor by check payable to the State Treasurer not later than thirty days after the completion of the project; (3) the general contractor or higher-tier subcontractor has good cause, as described in subsection (c) of section 4b-95 of the general statutes, as amended by this act, for requesting a substitute; (4) the general contractor or higher-tier subcontractor receives written permission from the awarding authority or construction manager at-risk to substitute a listed subcontractor; and (5) the general contractor or higher-tier subcontractor has otherwise met any applicable requirements set forth in section 4b-96 of the general statutes, as amended by this act.

(f) Any attempt by a general contractor to circumvent the requirements of this section by (1) listing another contractor who will subcontract portions of the contract in excess of the threshold value covered by the contract to an unlisted subcontractor, or (2) failing to comply with the requirements of subsection (e) of this section, shall constitute a violation of this section and may result in the disqualification of the contractor from bidding on projects under chapter 60 of the general statutes for up to five years after the discovery of the violation. The Department of Administrative Services shall provide thirty days' written notice to each contractor alleged to have violated this section that such contractor is subject to disqualification. The contractor may request a hearing by the department to contest such disqualification, provided such request is made in writing not later than twenty days after receipt of such notice.

Sec. 3. (NEW) (Effective October 1, 2018) (a) No contractor shall engage in bid shopping on any contract for the construction, reconstruction, alteration, remodeling, repair or demolition of any public building or other public work by the state, a municipality or other political subdivision of the state.

(b) The Attorney General, in the case of state projects, or the municipality or political subdivision, as applicable, may institute a civil action to recover the difference in value between a higher-price sub-bid used by a contractor in establishing a bid and the lower-price subcontract that the contractor subsequently obtained through bid shopping, as well as reasonable attorneys' fees and costs.

(c) Any subcontractor aggrieved by the bid shopping of a general contractor may institute a civil action against the general contractor that engaged in bid shopping to recover damages equivalent to ten per cent of the submitted bid value, as well as reasonable attorneys' fees and costs. In any such action, the subcontractor shall have the burden of proving, by a preponderance of the evidence, that the contractor engaged in bid shopping.

(d) In addition to the civil remedies set forth in this section, the Commissioner of Consumer Protection shall fine a contractor found to have engaged in bid shopping up to twenty thousand dollars for each violation and not less than five thousand dollars per violation.

(e) Any civil action instituted under this section shall be brought not more than two years after the alleged bid shopping occurred.

Sec. 4. Subsection (b) of section 4b-91 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

(b) The awarding authority shall determine the manner of submission and the conditions and requirements of such bids, and the time within which the bids shall be submitted, consistent with the provisions of this section, [and] sections 4b-92 to 4b-96, inclusive, and section 2 of this act. Such award shall be made not later than ninety days after the opening of such bids. If the general bidder selected as the general contractor fails to perform the general contractor's agreement to execute a contract in accordance with the terms of the general contractor's general bid and furnish a performance bond and also a labor and materials or payment bond to the amount specified in the general bid form, an award shall be made to the next lowest responsible and qualified general bidder, or, in the case of a contract awarded by the Department of Administrative Services under subdivision (5) of subsection (a) of this section, to the bidder determined in accordance with said subdivision if fewer than three bids are received. No employee of an awarding authority with decision-making authority concerning the award of a contract and no public official, as defined in section 1-79, may communicate with any bidder prior to the award of the contract if the communication results in the bidder receiving information about the contract that is not available to other bidders, except that if the lowest responsible and qualified bidder's price submitted is in excess of funds available to make an award, the awarding authority may negotiate with such bidder and award the contract on the basis of the funds available, without change in the contract specifications, plans and other requirements. If the award of a contract on such basis is refused by such bidder, the awarding authority may negotiate with other contractors who submitted bids in ascending order of bid prices without change in the contract, specifications, plans and other requirements. In the event of negotiation with general bidders as provided in this section, the general bidder involved may negotiate with subcontractors on the same basis, provided such general bidder shall negotiate only with subcontractors named on such general bidder's general bid form.

Sec. 5. Subsection (a) of section 4b-93 of the 2018 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

(a) Every contract subject to this chapter shall include plans and specifications detailing all labor and materials to be furnished thereunder. Such specifications shall have a separate section for each of the following classes of work if, in the estimate of the awarding authority, the class of work will exceed one hundred thousand dollars: (1) Masonry work; (2) electrical work; (3) plumbing; and (4) heating, ventilating and air conditioning work. Such specifications shall include a table of contents, chart or other means of identifying the portion of work, if any, comprising each class of work identified in the Department of Administrative Service's prequalification classifications determined in accordance with section 4a-100, that are expected to exceed the threshold value, as defined in section 2 of this act, in the estimate of the awarding authority. Such specifications shall also have a separate section for [each] any other class of work for which the awarding authority deems it necessary or convenient.

Sec. 6. Section 4b-94 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

In inviting bids, the awarding authority shall reserve the right to reject any or all such general bids, if (1) the awarding authority determines that the general bidder or bidders involved are not competent to perform the work as specified, based on objective criteria established for making such determinations, including past performance and financial responsibility, (2) the low bid price exceeds the amount of money available for the project, (3) the awarding authority determines that the project shall not go forward, (4) the general bidder fails to comply with the requirements of section 2 of this act, or [(4)] (5) the awarding authority finds cause to reject such bids. If the awarding authority rejects any or all bids pursuant to this section, it shall notify each affected bidder, in writing, of the reasons for such rejection.

Sec. 7. Section 4b-95 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

(a) The awarding authority shall furnish to every person applying therefor a form for general bid.

(b) Every general bid submitted for a contract subject to this chapter shall be submitted on a form furnished by the awarding authority. The form provided by the awarding authority shall provide a place for listing the names and prices of subcontractors (1) for the four classes of work specified in subsection (a) of section 4b-93, as amended by this act, [and] (2) for [each] any other class of work included by the awarding authority pursuant to said subsection, and (3) in accordance with section 2 of this act, and state that: [(1)] (A) The undersigned agrees that if selected as general contractor, [he] such bidder shall, within five days, Saturdays, Sundays and legal holidays excluded, after presentation thereof by the awarding authority, execute a contract in accordance with the terms of the general bid; [(2)] (B) the undersigned agrees and warrants that [he] such bidder has made good faith efforts to employ minority business enterprises as subcontractors and suppliers of materials under such contract and shall provide the Commission on Human Rights and Opportunities with such information as is requested by the commission concerning [his] such bidder's employment practices and procedures as they relate to the provisions of the general statutes governing contract requirements; and [(3)] (C) the undersigned agrees that each of the subcontractors listed on the bid form will be used for the work indicated at the amount stated, unless a substitution is permitted by the awarding authority. The awarding authority may require in the bid form that the general contractor agree to perform a stated, minimum percentage of work with [his] the bidder's own forces.

(c) General bids shall be for the complete work as specified and shall include the names of any subcontractors required to be listed under section 2 of this act for the four classes of work specified in subsection (a) of section 4b-93, as amended by this act, and for [each] any other class of work for which the awarding authority has required a separate section pursuant to said subsection and the dollar amounts of their subcontracts, and the general contractor shall be selected on the basis of such general bids. [It shall be presumed that the general bidder intends to perform with its own employees all work in such four classes and such other classes, for which no subcontractor is named. The] Where a general bidder indicates that he or she proposes to perform any portion of work with his or her own forces, the general bidder's qualifications for performing such work shall be subject to review under section 4b-92. Every general bid which is conditional or obscure, or which contains any addition not called for, shall be invalid; and the awarding authority shall reject every such general bid. The awarding authority shall be authorized to waive minor irregularities which [he] the awarding authority considers in the best interest of the state, provided the reasons for any such waiver are stated in writing by the awarding authority and made a part of the contract file. No such general bid shall be rejected because of the failure to submit prices for, or information relating to, any item or items for which no specific space is provided in the general bid form furnished by the awarding authority, but this sentence shall not be applicable to any failure to furnish prices or information required by this section or section 2 of this act to be furnished in the form provided by the awarding authority. General bids shall be publicly opened and read by the awarding authority forthwith. The awarding authority shall not permit substitution of a subcontractor for one named in accordance with the provisions of this section or substitution of a subcontractor for any designated subtrade work bid to be performed by the general contractor's own forces, except for good cause or pursuant to subsection (e) of section 2 of this act. The term "good cause" includes, but is not limited to, a subcontractor's or, where appropriate, a general contractor's: (1) Death or physical disability, if the listed subcontractor is an individual; (2) dissolution, if a corporation or partnership; (3) bankruptcy; (4) inability to furnish any performance and payment bond shown on the bid form; (5) inability to obtain, or loss of, a license necessary for the performance of the particular category of work; (6) failure or inability to comply with a requirement of law applicable to contractors, subcontractors, or construction, alteration, or repair projects; (7) failure to perform his or her agreement to execute a subcontract under section 4b-96, as amended by this act.

(d) The general bid price shall be the price set forth in the space provided on the general bid form. No general bid shall be rejected (1) because of error in setting forth the name of a subcontractor as long as the subcontractor or subcontractors designated are clearly identifiable, or (2) because the plans and specifications do not accompany the bid or are not submitted with the bid. Failure to correctly state a subcontractor's price shall be cause for rejection of the general bidder's bid.

(e) Any general contractor who violates any provision of this section shall be disqualified from bidding on other contracts that are subject to the provisions of this chapter for a period not to exceed twenty-four months, commencing from the date on which the violation is discovered, for each violation. The awarding authority shall periodically review the general contractor's subcontracts to insure compliance with such provisions, and shall after each such review prepare a written report setting forth its findings and conclusions.

Sec. 8. Section 4b-95a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

If a general bidder customarily performs any class of work valued in excess of the threshold value, as defined in section 2 of this act, any of the four classes of work specified in subsection (a) of section 4b-93, as amended by this act, or any other class of work included by the awarding authority pursuant to said subsection, the general bidder may list himself or herself as a subcontractor together with his or her price in the space provided in the bid form. A listed sub-bid so submitted by the general bidder shall be considered on a par with other listed sub-bids, and no such sub-bid by a general bidder shall be considered unless the general bidder can show to the satisfaction of the awarding authority, based on objective criteria established for such purpose, that he customarily performs such subtrade work and is qualified to do the character of work required by the applicable section of the specifications.

Sec. 9. Section 4b-96 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

(a) Within five days after being notified of the award of a general contract by the awarding authority, or, in the case of an approval of a substitute subcontractor by the awarding authority, within five business days after being notified of such approval, the general bidder shall present to each listed or substitute subcontractor responsible for the four classes of work specified in subsection (a) of section 4b-93, as amended by this act, or any other separate section identified by the awarding authority: (1) [a] A subcontract in the form set forth in this section, and (2) a notice of the time limit under this section for executing a subcontract. If a listed subcontractor fails within five business days, [Saturdays, Sundays and legal holidays excluded,] after presentation of a subcontract by the general bidder selected as a general contractor, to perform his or her agreement to execute a subcontract in the form [hereinafter] set forth in this section with such general bidder, contingent upon the execution of the general contract, the general contractor shall select another subcontractor, with the approval of the awarding authority and in accordance with the requirements of section 2 of this act. When seeking approval for a substitute subcontractor, the general bidder shall provide the awarding authority with all documents showing (A) the general bidder's proper presentation of a subcontract to the listed subcontractor, and (B) communications to or from such subcontractor after such presentation. The awarding authority shall adjust the contract price to reflect the difference between the amount of the price of the new subcontractor and the amount of the price of the listed subcontractor if the new subcontractor's price is lower and may adjust such contract price if the new subcontractor's price is higher, consistent with the general contractor's obligations under section 2 of this act to pay any savings to the state. The general bidder shall, with respect to each listed subcontractor or approved substitute subcontractor, file with the awarding authority a copy of each executed subcontract within ten days, Saturdays, Sundays and legal holidays excluded, of presentation of a subcontract to such subcontractor.

(b) The subcontract shall be in the following form:

SUBCONTRACT

THIS AGREEMENT made this .... of 20.., by and between .... a corporation organized and existing under the laws of .... a partnership consisting of .... an individual doing business as .... hereinafter called the "Contractor" and .... a corporation organized and existing under the laws of .... a partnership consisting of .... an individual doing business as .... hereinafter called the "Subcontractor",

WITNESSETH that the Contractor and the Subcontractor for the considerations hereafter named, agree as follows:

1. The Subcontractor agrees to furnish all labor and materials required for the completion of all work specified in Section No. .... of the specifications for .... (Name of Subtrade) .... and the plans referred to therein and addenda No. ...., and .... for the (Complete title of project and the project number taken from the title page of the specifications) .... all as prepared by .... (Name of Architect or Engineer) .... for the sum of .... ($....) and the Contractor agrees to pay the Subcontractor said sum for said work. This price includes the following alternates:

Supplemental No. (s) ...., ...., ...., ...., ...., ...., ...., ....

(a) The Subcontractor agrees to be bound to the Contractor by the terms of the hereinbefore described plans, specifications (including all general conditions stated therein which apply to his trade) and addenda No. ...., ...., ...., and ...., and ...., and to assume to the Contractor all the obligations and responsibilities that the Contractor by those documents assumes to the .... (Awarding Authority) ...., hereinafter called the "Awarding Authority", except to the extent that provisions contained therein are by their terms or by law applicable only to the Contractor.

(b) The Contractor agrees to be bound to the Subcontractor by the terms of the hereinbefore described documents and to assume to the Subcontractor all the obligations and responsibilities that the Awarding Authority by the terms of the hereinbefore described documents assumes to the Contractor, except to the extent that provisions contained therein are by their terms or by law applicable only to the Awarding Authority.

2. The Contractor agrees to begin, prosecute and complete the entire work specified by the Awarding Authority in an orderly manner so that the Subcontractor will be able to begin, prosecute and complete the work described in this subcontract; and, in consideration thereof, upon notice from the Contractor, either oral or in writing, the Subcontractor agrees to begin, prosecute and complete the work described in this Subcontract in an orderly manner in accordance with completion schedules prescribed by the general contractor for each subcontract work item, based on consideration to the date or time specified by the Awarding Authority for the completion of the entire work.

3. The Subcontractor agrees to furnish to the Contractor, within a reasonable time after the execution of this subcontract, evidence of workers' compensation insurance as required by law and evidence of public liability and property damage insurance of the type and in limits required to be furnished to the Awarding Authority by the Contractor.

4. The Contractor agrees that no claim for services rendered or materials furnished by the Contractor to the Subcontractor shall be valid unless written notice thereof is given by the Contractor to the Subcontractor during the first forty (40) days following the calendar month in which the claim originated.

5. This agreement is contingent upon the execution of a general contract between the Contractor and the Awarding Authority for the complete work.

IN WITNESS WHEREOF, the parties hereto have executed this agreement the day and year first above-written.

T1

SEAL

 

T2

ATTEST

 

T3

….

…. (Name of Subcontractor) ….

T4

 

By: ….

T5

SEAL

 

T6

ATTEST

 

T7

….

…. (Name of Subcontractor) ….

T8

 

By: ….

Sec. 10. Subsection (b) of section 4b-103 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2018):

(b) Except as provided in subsections (c) and (d) of this section, the Commissioner of Administrative Services shall not enter into a construction manager at-risk project delivery contract that does not provide for a maximum guaranteed price for the cost of construction that shall be determined not later than the time of the receipt and approval by the commissioner of the trade contractor bids. Each construction manager at-risk shall invite bids and give notice of opportunities to bid on project elements on the State Contracting Portal. Such invitation to bid shall also include a table of contents, chart or other means of identifying the portion of work identified in the Department of Administrative Services' prequalification classifications determined in accordance with section 4a-100, that the construction manager at-risk estimates will exceed the threshold value, as defined in section 2 of this act. Each bid shall be kept sealed until opened publicly at the time and place as set forth in the notice soliciting such bid. The construction manager at-risk shall, after consultation with and approval by the commissioner, award any related contracts for project elements to the responsible qualified contractor submitting the lowest bid in compliance with the bid requirements, provided (1) the construction manager at-risk shall not be eligible to submit a bid for any such project element, and (2) construction shall not begin prior to the determination of the maximum guaranteed price, except for the project elements of site preparation and demolition that have been previously put out to bid and awarded.

This act shall take effect as follows and shall amend the following sections:

Section 1

October 1, 2018

New section

Sec. 2

October 1, 2018

New section

Sec. 3

October 1, 2018

New section

Sec. 4

October 1, 2018

4b-91(b)

Sec. 5

October 1, 2018

4b-93(a)

Sec. 6

October 1, 2018

4b-94

Sec. 7

October 1, 2018

4b-95

Sec. 8

October 1, 2018

4b-95a

Sec. 9

October 1, 2018

4b-96

Sec. 10

October 1, 2018

4b-103(b)

Statement of Legislative Commissioners:

In Section 1(1) "submitting" was changed to "that submits" for consistency, in Section 2(a) the definition was reworded for clarity, in Section 2(e)(2)(B) "of a" was added after "one-half" for accuracy, in Section 2(e)(3) "defined" was changed to "described" for accuracy and references were changed throughout the bill for gender neutrality.

GAE

Joint Favorable Subst. -LCO

 

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.


OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 19 $

FY 20 $

Dept. of Administrative Services

GF - Cost

215,000

225,000

Consumer Protection, Dept.

GF - Cost

136,000

136,000

State Comptroller - Fringe Benefits1

GF - Cost

127,500

131,500

Consumer Protection, Dept.

GF - Potential Revenue Gain

See Below

See Below

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill requires the Department of Administrative Services (DAS) to develop new procedures and contract documents revolving around prohibiting bid shopping, or contractor auctioning subcontractor work, after a construction contract has been awarded. Under the bill, DAS will need to revise prequalification classifications, bid forms, and various procedure manuals.

DAS would need to hire three positions (an Architect, a Staff Attorney, and a Paralegal Specialist) at a cost of $215,000 in FY 19 and $225,000 in FY 20 (plus fringe benefits of $78,000 in FY 19 and $82,000 in FY 20) to handle the requirements.

The Architect position will review and confirm that there are separate plans and specifications for each of the listed subcontractors and identify the scope of work within each classification. The Staff Attorney and a Paralegal Specialist would be dedicated to drafting regulations, developing new procedures, revising contract documents and reviewing bids to determine if the prospective contractor meets the revised criteria.

Current computer or software systems will need to be upgraded to develop and maintain a centralized structure to gather and maintain subcontractor data. Consultant costs may be necessary to assist in upgrading systems to improve on the reporting requirements necessary due to the revisions in the contract award process.

The bill requires the Department of Consumer Protection (DCP) to investigate allegations of bid shopping and results in a cost to the state and a potential revenue gain. DCP does not currently oversee these violations and would need to hire a Lead Special Investigator ($63,215 salary and $22,966 fringe benefits) and a Staff Attorney I ($72,786 salary and $26,443 fringe benefits) to investigate violations and prosecute cases. To the extent that bid shopping occurs, this bill results in a potential revenue gain to the state from fines of between $5,000 and $20,000.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

OLR Bill Analysis

sHB 5270

AN ACT PROHIBITING BID SHOPPING.

SUMMARY

With certain exceptions, this bill prohibits general contractors from post-award auctioning subcontract work (i.e., bid shopping) for state construction, reconstruction, alteration, remodeling, repair, or demolition contracts (i.e., public works projects). In doing so, it requires the Department of Administrative Services (DAS) to develop regulations requiring construction contractors to include in their bid responses additional information about their proposed subcontractors, regardless of whether such subcontractor will be self-performing the work or subcontracting with lower-tier subcontractors (i.e., sub-bids).

Under the bill, "bid shopping" means any effort a general contractor makes after submitting a bid, to obtain a lower price from a subcontractor from whom the general contractor previously solicited bids with respect to the project that was put out to bid by the awarding authority (this, generally refers to DAS, and in some cases, Legislative Management, a constituent unit of higher education, or the Military Department). Bid shopping includes using one subcontractor's bid to coerce lower bids from other subcontractors, but does not include the substitution of a contractor for good cause.

The bill establishes several procedural requirements governing the solicitation of sub-bids on public works projects. The bill requires (1) DAS to adopt regulations to set a threshold value for sub-bids and (2) a contractor responding to an invitation to bid on a public works contract issued by an awarding authority to submit specific additional information with regard to any sub-bids that exceed this threshold value.

The bill requires the awarding authority to reject any bid by a general contractor who fails to list a sub-bid in excess of the threshold value if the authority or construction manager at-risk (CMR – see BACKGROUND) determines that it is unreasonable for such contractor to subcontract for less than the threshold value given the project's scope and the submitted bid specifications. With certain exceptions, the bill prohibits a general contractor or higher-tier subcontractor from substituting any listed subcontractors after the submission of a bid. The general contractor must pay any savings resulting from a permitted substitution of subcontractor to the state. A general contractor who attempts to circumvent the sub-bid listing requirements may be disqualified from bidding on future DAS projects, subject to civil action, and fined up to $20,000.

For design-bid-build contracts, the bill requires additional information regarding the portion of work, if any, which the awarding authority expects will exceed the threshold value. Finally, the bill expands the conditions under which the awarding authority can reject bids under competitive bidding.

The bill also makes minor, technical, and conforming changes.

EFFECTIVE DATE: October 1, 2018

2 — SUB-BID LISTING REQUIREMENTS

Threshold Value

The bill requires (1) DAS to adopt regulations to set a threshold value for sub-bids and (2) a general contractor to delineate any sub-bid exceeding such threshold when submitting a bid.

Under the bill, once the required regulations are effective, each invitation to bid on a public works contract, including invitations issued by a CMR, must require bidders to:

The bill requires each subcontractor to submit all sub-bids to the prospective general contractor before bid submission. This includes any lower-tier subcontractor bids to higher-tier subcontractors (e.g., subcontractors contracting with a general contractor) that exceed the threshold value. All subcontractors submitting sub-bids in excess of the threshold value, including lower-tier subcontractors, must write and sign their bids on a form prescribed by DAS. The bill allows a general contractor who obtains bids from multiple subcontractors for a single project to select from among the various bids, but prohibits the general contractor from unilaterally pairing any higher-tier and lower-tier sub-bids together unless they were originally submitted as a pair.

Subcontract Execution

The bill requires a general contractor awarded a public works contract to offer the listed higher-tier subcontractors a written subcontract within five business days after the contract's execution, consistent with any other applicable statutory requirements. It requires such subcontractors to, in turn, offer the listed lower-tier subcontractors a subcontract within five business days after executing the subcontract. The bill prohibits any listed subcontractor from performing any project work before executing a subcontract and filing it with either the awarding authority or CMR.

Post-Bid Subcontractor Substitutions

Under the bill, a general contractor or higher-tier subcontractor is prohibited from substituting any listed subcontractors after bid submission, unless:

Risk of Contractor Disqualification

Any attempt by a general contractor to circumvent the bill's requirements by (1) listing another contractor who will subcontract portions of the contract in excess of the threshold value covered by the contract to an unlisted subcontractor or (2) failing to comply with the bill's requirements, constitutes a violation and may result in the disqualification of the contractor from bidding on public works projects for up to five years after the discovery of the violation.

The bill requires DAS to provide 30 days' written notice of such potential disqualification to each contractor alleged to have violated the requirements. The contractor may request a hearing by the department to contest such disqualification, provided the request is made in writing within 20 days after notice receipt.

3 — CIVIL REMEDIES & PENALTIES FOR BID SHOPPING

The bill prohibits contractors from engaging in bid shopping on any state or municipal public works contract. It permits the attorney general or the municipality to initiate a civil action within two years after the alleged bid shopping to recover the difference in value between a higher-price sub-bid in a contractor's submitted bid and the lower-price subcontract that the contractor subsequently obtained through bid shopping, as well as reasonable attorneys' fees and costs. It also allows any aggrieved subcontractor, who carries the burden of proof, to recover damages equivalent to 10% of the submitted bid value, as well as reasonable attorney's fees and costs.

In addition, the bill requires the commissioner of consumer protection to fine a contractor found guilty of bid shopping $5,000 to $20,000 for each violation.

5 — DESIGN-BID-BUILD CONTRACTS

Generally, the awarding authority must award public works contracts estimated to cost over $500,000 to the lowest responsible, qualified, and prequalified general bidder on the basis of competitive bids. However, the commissioner may require that design-bid-build projects be accomplished on a total cost basis. These contracts are awarded through a single contract with a private developer for acquisition, architectural design, and construction.

Existing law requires that state public works contracts using this design-bid-build delivery method include plans and specifications detailing all labor and materials to be furnished under the contract which must separately list (1) masonry; (2) electrical; (3) plumbing; and (4) heating, ventilating, and air conditioning classes of work if the awarding authority estimates that such work will exceed $100,000.

The bill requires such specifications to include a table of contents, chart, or other means of identifying the portion of work, if any, comprising each class of work identified in the DAS prequalification classifications that the awarding authority expects to exceed the threshold value defined by the bill.

6 — REJECTION OF BIDS

The bill expands the conditions under which the awarding authority can reject any or all general bids under competitive bidding. Under current law, it may do so if it determines that:

Under the bill, an awarding authority may also reject a bid if it determines that a general bidder has failed to comply with the bill's requirements.

BACKGROUND

Construction Manager At Risk (CMR) Projects

In a CMR project, the owner (e.g., DAS) hires a firm with construction experience (the construction manager or “CM”), usually during a project's design phase, to manage the entire construction process. The CM provides pre-construction services such as estimating costs, budgeting, reviewing constructability and suggesting construction alternatives, and scheduling. Once the design is finalized, the CM seeks competitive bids from subcontractors for each project element (e.g., electrical, mechanical, carpentry, and roofing).

Once the subcontractors' bids are received and verified for compliance with project requirements, scope, and specifications, the CM and the project owner negotiate and set a guaranteed maximum price (GMP) for construction including the CM's fee, the cost of the work, and contingency funds for the project. The CM assumes the risk to complete the project within the GMP, excluding any work not included in the final GMP that the owner authorizes through a change order process.

COMMITTEE ACTION

Government Administration and Elections Committee

Joint Favorable

Yea

9

Nay

8

(03/23/2018)

TOP

1 The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated active employee fringe benefit cost associated with most personnel changes is 36.33% of payroll in FY 19 and FY 20.