Government construction contracts can be a great source of revenue, but they also come with more regulations than private projects do. From registrations to bidding, to bonding, to retainage, there’s plenty to keep track of when the government is your client. Let’s look at some of the key considerations for government construction contracts.
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Registration & Bidding
As with all things – getting started is half the battle! Here are some things to keep in mind when pursuing government construction contracts.
First-time government contractors will need to register for specific company codes and databases to qualify for public works. These registrations may include, but are not limited to:
- North American Industry Classification System (NAICS). This is a classification system as the standard for use by the Federal government to classify a business’ economic sector, industry, and country of business.
- Data Universal Numbering System (DUNS). This is a numbering system used to identify all types of business organizations and is a requirement for bidding on federal projects — your DUNS number ties directly to your company’s credit profile.
- System for Award Management (SAM) Registration. This is the federal government’s primary database of vendors and contractors they do business. Registration with SAM is a requirement under the Federal Acquisition Regulation (FAR). Once registered, you will be assigned a Commerical & Government Entity (CAGE) code.
- The SBA size standards define the largest size your business can be, to participate in government contracting programs. The federal government sets aside about 23% of contracts for small businesses. This allows you to compete for these set-aside contracts. This number is determined by the number of employees or total annual receipts.
That’s it! You are technically ready to start bidding on government construction contracts. Still, you’ve got to figure out what opportunities might be available. Luckily, there are some tools available.
Finding Government Contracting Opportunities
Federal Biz Opps is an excellent starting point for finding federal government contracts. This is a database where contracting officers post contract opportunities over $25,000. Not only does it post currently available contracts but upcoming opportunities as well.
For free information and counseling on how to compete for government contracts, you can also visit the Association Procurement Technical Assistance Center website. They have over 300 local offices and are procurement professionals working specifically to help local businesses compete for local, state and federal government contracts.
Help Securing Bonding
For most government construction contracts, a number of bonds will be required. This may include bid bonds, payment bonds, performance bonds – or even all 3! The SBA offers a Surety Bond Guarantee Program to help small businesses obtain bid, performance and payment bonds for federal, state and local contracts. The SBA provides participating sureties a guarantee of 70-90% of the bond. Thereby reducing the surety’s risk to get contractors bonds they wouldn’t otherwise qualify for.
Procurement Methods for Government Construction Contracts
There are numerous different procurement methods used to secure government construction contracts. The two most common ways are Invitations to Bid and Requests for Proposals.
Invitations to Bid
This method is designed to ensure fair and open competition. It eliminates the ability of the contracting agency to influence the bidding and evaluation process.
The typical process includes a public invitation for bids posted by the contracting entity. The invitation should leave ample time to submit bids before the deadline expires. Submissions are then sent in sealed envelopes and opened at a predetermined time and place. Once opened, the bids will be made public, evaluated by the contracting entity and awarded based on the lowest price.
There is another form of sealed bidding which involves a “two-envelope” system. Bids are submitted in the same fashion. However, instead of all the bidding information in one envelope, it is split into two: one envelope containing all the technical information, and the second containing all the financial information. The technical information is evaluated and ranked, before opening the financial bid estimates. This is a form of prequalification. Those that don’t pass muster under the technical requirements are weeded out before considering the price.
Requests for Proposals (RFPs)
This method is used when the best value for the project is determined, at least in part, by non-price factors. Requests for Proposals will be commonly used for larger/complex projects that may need some modification or developmental work. This process begins with the publication of a request for proposals.
The RFP will outline the agency’s requirements and all the significant factors that will be taken into consideration when evaluating the proposals. The contracting agency may even invite prospective bidders to a pre-bid conference to gather more information. Initial bids are submitted and evaluated by the agency. At this point, some bidders are rejected, and the others enter into negotiations on pricing and technical details. The bidders then submit a best and final offer before the contract is awarded.
The government is given broad discretion to determine their approval criteria and procurement method, but there are certain principles that the bidding process must meet. These principles include transparency, integrity, economy, openness, fairness, competition, and accountability.
But what happens when the contracting agency fails to meet these standards? Prospective bidders do have some recourse – bid protests. These can occur before the award or after the contract has been awarded.
Pre-award protests are used to challenge the selection criteria used by the public entity. Regardless of whether the procurement method is sealed bids or RFPs, the selection criteria cannot go against the principles described above. Typical issues that arise in pre-award protests are that the solicitation is unduly restrictive, contains ambiguous requirements, or unnecessarily favors one bidder over others.
To bring a pre-award protest, you must be an “interested party.” This means that you either an actual bidder or would have been, had you been eligible. The protests are typically filed before the submission deadline and will force the agency to stay the award pending the resolution of the claim.
Post-award protests challenge the agency’s actual contract award decision. These protests can implicate any aspect of the decision-making process. Contractors can allege that there was an error in evaluating their own company or the company that was awarded the contract. Some of the more common issues involve deviation from the evaluation criteria, unequal treatment, organizational conflicts of interest, cost and price inconsistencies, and more.
Again, to bring a post-award protest, you must be an interested party. In the post-award arena, this only includes actual bidders on the project. These protests are typically filed within ten days of the contract award. Once submitted, the agency will be required to suspend contract performance while the claim is being resolved.
There’s one more aspect of bidding that contractors might not be privy to, and it’s a requirement not present on private jobs: bid bonds. Contractors bidding on public projects are required to post what’s called a bid bond. A bid bond acts as a guarantee that every party who has placed a bid will perform the contract, as bid, if their bid is selected. If the contractor backs out of the contract, the contracting agency can initiate a claim against the bid bond.
When governments are requesting bids, they must be sure that the bidders are genuine and capable of performing the work they’ve bid. With a bid bond in place, contractors cannot bid a job then retract their bid without facing severe consequences. The thought being, only those contractors who are serious about their bids will jump through the hoop of securing a bid bond to bid on the project.
The procedural work isn’t over just because a bid has been accepted. No, public projects require that certain bonds be obtained by contractors, and certain payment rules will apply.
The Federal Miller Act requires that GCs on any federal construction project over $100,000 to post a series of bonds. Specifically, a payment bond, a performance bond, and potentially a bid bond as well.
These bonds are often required on state and local government contracts as well. Each state has its own version of this law known as “Little Miller Acts.” Of course, the bond amounts and terms of each bond can vary quite a bit from state to state.
This type of bond guarantees the owner that the contractor will perform all its contractual duties in accordance with the plans and specifications. If the contractor is unable to fulfill its duties, the surety will step in to pay for the obligations of the contractor. This will often require bringing in another contractor to see the project through to completion.
Why Are They Required?
A performance bond ensures that the public entity who’s contracted for the work doesn’t get left SoL. If a contractor can’t perform their duties for whatever reason, the performance bond guarantees that there’s money available to get the project back on track.
This type of bond will usually accompany a performance bond. Payment bonds guarantee that a contractor will pay the labor, material, and subcontractor costs on the project. The amount of money that a contractor must post varies depending on the project type and location. In some situations, subcontractors may also be required to post payment bonds – but that will generally be a requirement of the contractor, not the law.
Why Are They Required?
Mechanics liens aren’t available to secure payment on public projects. When mechanics lien rights are available, an unpaid subcontractor, supplier, or laborer will typically be able to secure their ability to receive payment by filing a lien on the project property. On public projects, the property can’t be liened – instead, a payment bond acts sort of like a pile of money against which a claim can be made. Like with a mechanics lien, an unpaid sub or supplier will be able to make a claim against the payment bond (pile of money) if they go unpaid. Like a performance bond, this also makes sure that money is available to other parties if the contractor can’t perform their duties.
Prevailing Wage Laws
The Davis-Bacon Act that contractors pay their subs and laborers no less than the local, prevailing wage rate. For federal projects, this applies to any government contract over $2,000. Prevailing wage laws set the minimum amount of compensation that should be paid based on a particular geographic region. The rationale behind this is to combat the use of cheap, unskilled laborers. At the state and local level, there are versions of this in effect as well. Currently, 32 different states have passed their own prevailing wages laws.
What’s the Point of Prevailing Wage Laws?
Essentially, prevailing wage laws require that workers on government projects are paid at about the same rate as those performing similar work on non-government jobs. By doing so, prevailing wage laws prohibit contractors and subs from undercutting local workers. There’s been a lot of argument lately about prevailing wage laws, and there have even been a few states that have gotten rid of them altogether.
Certified Payroll Requirements
Anytime a project is subject to prevailing wage laws; the contractor is required to verify what they are indeed paying prevailing wages. Ensuring this requirement is met is achieved through the submission of certified payrolls to the contracting agency. The form used on federal projects is known as a WH-347 form. Some states have elected to use this form, but most have specific state requirements or online submission procedures.
Prompt Payment Act
The Federal Prompt Payment Act was enacted to avoid slow payment problems on government construction contracts. The contracting entity must pay all proper invoices within a particular time after receipt. Missing their requirements can lead to interest payments and potential statutory penalties. In turn, GCs must pay their subs and suppliers within seven days of receiving payment form the contracting agency. When submitting a new payment application, the GC must certify that all the subs and suppliers have been paid.
Nearly every state has its own specific prompt payment requirements for public works. However, the timeline for payment can range anywhere from 7 to 30 days, depending on the state.
Why does this matter to you? There is typically a “flow-down” provision that imposes these requirements on everyone up and down the payment chain. This means that these provisions must be incorporated into the contracts of lower-tier subs and suppliers.
What’s the Point of Prompt Payment Laws?
The point is to keep the project moving forward and avoid any claims against the project. Construction payments move slowly, and prompt payment laws are an attempt to speed them up.
False Claims Act
To prevent fraud committed against the Federal Government, the False Claims Act was enacted. This legislation penalizes anyone who submits a false or fraudulent claim for payment. It applies regardless if the government entity approved the payment or not. All payment applications should be as accurate as possible because overbilling the government comes with a steep penalty. Additionally, failure to certify that your subs and suppliers are paid in a pay app, under the federal Prompt Payment Act, is also a violation. As for state and local projects: Currently, 31 states have their own versions of a false claims act.
What’s the Point of the False Claims Act?
The False Claims Act (and the counterparts in state governments) prevent private companies from taking advantage of the government. These bodies of law create extremely steep penalties for bad actors and incentives for those who report them – hopefully acting as a deterrent for would-be violators.
The end of the project can be a stressful time when working on government construction contracts (and really, any construction contract). While the bulk of work is done, scrambling to button up the punch list and to make sure everyone’s paid is the source of many headaches. Let’s look at a few aspects of closeout that are particularly important when working under government construction contracts.
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Inspection & Acceptance
Before the project can be considered complete, the contracting agency will likely do an inspection walkthrough to verify that the work has been completed according to the contract specifications. Once approved, the project will reach final acceptance. Federal projects are subject to the FAR’s Inspection of Construction clause states, “Acceptance shall be final and conclusive except for latent defects, fraud, gross mistakes amounting to fraud, or the government’s right under any warranty or guarantee.”
This process is similar to state and local projects. Once the contracting agency accepts the project, the contractor’s liability is limited to warranty rights and correction of any latent defects.
Retainage is allowed on most public works projects and may be withheld by the prime contractor, or the contracting agency themselves. Withholding retainage is not required but rather left to the discretion of the prime or agency. The amount withheld is typically somewhere around 5-10%. Once the project has been accepted, these funds will be the last to be released.
You can learn more about retainage, including each state’s requirements, here: Levelset Retainage Resources.
If you are faced with a non-payment scenario, and talking out the issue hasn’t worked, it may be time to file a payment bond claim. For federal projects, only first and second tier subs and suppliers have the right to file a bond claim under the Miller Act.
As for state and local projects, the procedures are roughly the same with slight variations. Once the claim is filed, the typical deadline to enforce the claim is around one year. Contractors should be sure to have a good understanding of the requirements under their state’s Little Miller Act, and that information can be found here – just pick your state!