Bidder Prequalification For California Public Works Projects
William C. Last, Jr. Esq.
In California, private works construction spending is diminishing. While public works projects construction spending is slowing it still continues to fuel the construction industry. This is the result of the commencement of projects that were pre-approved during better economic times, and the passage of a $13.05 billion dollar public education facilities bond measure aimed at modernization of school buildings. While there have always been procurement related statutes that allowed public agencies to prequalify bidders, California public entities now have become more selective in the determining who is qualified to bid on a public works project. This article will discuss bidder prequalification.
As previous articles have discussed, California statutes generally mandate that California public works projects be competitively bid. Generally, the only work that is exempt from competitive bidding includes emergency work, small contracts (each agency sets it own dollar definition of “small”) and specialized personal services.
Three Basic Requirements For Award of Public Works Contracts
There are three requirements that must be met before the bid can be awarded to a contractor. Generally, the project can only be awarded to the lowest responsible bidder who submits the lowest responsive bid. A responsible bidder is one who has the appropriate licenses, the equipment, and skills necessary to perform the work in question, or who has a subcontractor who has those particular skills. A responsive bid is one which is an unconditional offer to provide the goods and services that are being bid upon, and complies with all of the bid procedures that are set forth in the requirements of the bid documents. Bidder prequalification can result in the rejection of a bidder because it is non-responsive or not responsible.
In establishing prequalification requirements, the California legislature found “that the establishment by public agencies of a uniform system to evaluate the ability, competency, and integrity of bidders on public works projects is in the public interest, will result in the construction of public works projects of the highest quality for the lowest costs, and is in furtherance of the objectives.”
Prequalification Requirements For Public Works Projects
Effective January 1, 1998, the California legislature expanded on the existing prequalification statutes by adding Public Contract Code §20101. This code section, that is independent of the section that applies to public schools, allows a public entity to require that each prospective bidder for a contract complete and submit to the entity a standardized questionnaire and financial statement in a form specified by the entity, including a complete statement of the prospective bidder's experience in performing public works.
This new legislation called on the Department of Industrial Relations, in collaboration with affected agencies and interested parties, to develop model guidelines for rating bidders, and draft a standardized questionnaire, that may be used by public entities. If a public entity decides to use the standardized questionnaire, it is required to adopt and apply an objective uniform system of rating bidders on the basis of the completed questionnaires and financial statements, in order to determine both the minimum requirements permitted for qualification to bid, and the type and size of the contracts upon which each bidder shall be deemed qualified to bid.
The criteria that are used by a number of public entities in their uniform system of rating bidders include: (a) similar projects that have been completed by the contractor within the last five years; (b) prior defaults by the contractor and/or prior bankruptcy filings; (c) the type of license the contractor holds; (d) disqualification on prior jobs; (e) assessment of liquidated damages on earlier projects; (e) prior terminations; (f) bondability; (g) insurability; (h) workers compensation experience; (i) violation of regulations and rules; and (j) financial strength. Typically, answers to the questionnaire are assigned a preset number of points. The bidder will be determined to be qualified if it has a minimum number of points
The statute allows for the public agency to prequalify prospective bidders on a quarterly basis. The prequalification can be valid for one calendar year following the date of initial prequalification.
Under the statute, the bidder has the right to dispute the public agency’s proposed prequalification rating prior to the closing time for receipt of bids. The statute provides that the “appeal process shall include the following: (1) Upon request of the prospective bidder, the public entity shall provide notification to the prospective bidder in writing of the basis for the prospective bidder's disqualification and any supporting evidence that has been received from others, or adduced as a result of an investigation by the public entity. (2) The prospective bidder shall be given the opportunity to rebut any evidence used as a basis for disqualification and to present evidence to the public entity as to why the prospective bidder should be found qualified.” It should be noted that if the bidder fails to make a timely objection, the proposed rating will become effective without further proceedings.
Generally, public agencies are limiting their prequalification process to general contractors, but the statutes do not preclude an agency from prequalifying or disqualifying a subcontractor. However, in the event a subcontractor is disqualified, it does not necessarily follow that the prequalified general contractor also no longer is qualified.
Prequalification Requirements for School District Projects
As previously stated, Public Contract Code §20101 generally is not applicable to school districts. There is a separate section of the Public Contract Code that applies to school districts. Public Contract Code §20111.5 provides that “the governing board of the district may require that each prospective bidder for a contract, as described under Section 20111, complete and submit to the district a standardized questionnaire and financial statement in a form specified by the district, including a complete statement of the prospective bidder's financial ability and experience in performing public works.”
As is the case of other public agencies, the questionnaire and financial statement must be verified under oath by the bidder. Similarly, if a school district uses a questionnaire, it is required to adopt and apply a uniform system of rating bidders on the basis of the completed questionnaires and financial statements, in order to determine the size of the contracts upon which each bidder shall be deemed qualified to bid.
If bidder prequalification is required, the district must also provide to the bidder a standardized proposal form that, when completed and executed, shall be submitted as his or her bid. Bids not presented on the forms so furnished shall be disregarded. The district cannot accept the required proposal form from “any person or other entity who is required to submit a completed questionnaire and financial statement for prequalification, but has not done so at least five days prior to the date fixed for the public opening of sealed bids or has not been prequalified, pursuant to subdivision (b), for at least one day prior to that date.”
Failure To Comply With Prequalification Requirements
As previously stated, a public works contract can only be awarded to the responsible bidder who submits the lowest responsive bid. The failure to submit a completed prequalification questionnaire and financial statement can result in a public agency’s determination that the bid is non-responsive.
The prequalification questionnaire, financial statement, and the uniform system of rating bidders are intended to determine, in advance, if a bidder is responsible to perform a certain type of job. In Taylor Bus Service, Inc. v. San Diego Board of Education (1987) 195 Cal.App.3d 1331, the appellate court held that a determination by a public agency that a contractor is not responsible, entitles that contractor to a hearing as that determination of nonresponsibility. Public Contract Code § 20101 provides that “the prospective bidder shall be given the opportunity to rebut any evidence used as a basis for disqualification and to present evidence to the public entity as to why the prospective bidder should be found qualified.” The appeal process can include: (a) the contractor providing a written explanation for any anomalies in its application; (b) meeting with the public entity staff; (c) meeting with the upper level public agency management; and (d) appealing to the governing board of the public agency.
However, the prequalification section that applies to school district projects, Public Contract Code §20111.5, does not have such a provision. If a contractor’s prequalification request is denied, it should contact an attorney who is familiar with applicable hearing and appeal rights to review the specific facts and determine a course of action.
The author has noted an increase in the number of public agencies that are requiring prequalification questionnaires and financial statements. Although the criteria for evaluating bidders are intended to be objective, there are occasions when the questions in the form do not allow for adequate explanation. There are also occasions when the questions are ambiguous.
However, a bidder’s application can be deemed to be non-responsive when the questions are not completely or properly answered. Thus, a bidder should always seek clarification of any vague or ambiguous questions before completion of the questionnaire and submission to the public entity. Finally, if a public agency makes a determination that you are not qualified, you should review and follow the appeal rights.
This article, ©2003, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.