Four Procedures. Best Value Contracting Sealed Bids Direct Negotiation or Quotation Open Market. Contracting Requirements

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1 Southland School District Workshop for Broad Chairs Bid Law and Best Value Update in the Law, and What You Need to Know March 21, 2019 Mark Azman, Attorney, O'Meara, Leer, Wagner & Kohl, P.A. Wayne Kiefer, School Board Member, Southland School District; Denise Drill, Director of Financial/MSBAIT Services, Minnesota School Boards Association Introduction Minnesota Statute Uniform Municipal Contracting Law Minnesota School Boards Association Handbook Chapter 13, School Law Bulletin F Invitation for Bids: Transportation, Milk and Related Products Model contracts: Transportation, Milk and Related Products White House Office of Management and Budget OMB rules December 26, 2014, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards Vendors cannot play a role in helping to draft specifications for request for proposal, and districts cannot designate certain brand names, nor can they name geographical preferences for vendors in the specifications. Districts will be required to make independent cost estimates before receiving bids or proposals. Profit is a separate, negotiable element for each contract where no price competition exists. 1

2 Four Procedures Best Value Contracting Sealed Bids Direct Negotiation or Quotation Open Market Contracting Requirements If the contract is estimated to exceed $175,000: (Changed in the 2018 legislative session) 1-Sealed bids, solicited by public notice consisting of advertising in the official newspaper for two weeks 2-Best value contracting (for construction, alteration, repair, or maintenance work.) If the contract is estimated to be between $25,000 and $175,000: 1-Sealed bids, solicited by public notice consisting of advertising in the official newspaper for two weeks 2-By direct negotiation (by obtaining two or more quotations for the purchase or sale when possible and without advertising for bids or otherwise complying with the requirement of competitive bidding. Retain all quotations obtained for at least one year. 3-Best value contracting If the contract is estimated to be $25,000 or less, the contract may be made, in the discretion of the school board, either: 1-Quotation (based on at least two quotations as far as practicable) 2-Open market-direct negotiations 3-Best value contracting 2

3 Public Notice Competitive bidding generally requires public notice generally two weeks in the official newspaper Quotations may ordinarily be solicited without public notice Exceptions: (quote but require public notice) Contract for transportation of school children Contract for the purchase of group insurance coverage Contract for the purchase of petroleum heating fuel or fuel for vehicles Formality Competitive bidding Terms are fixed, not negotiable, and must be submitted in sealed written form Quotations Procedure is less formal and may allow certain terms to remain open for negotiation Written Quotations Quotations are required for the purchase of certain items, such as perishable foods other than milk, transportation services, group insurance coverage, or the purchase of petroleum heating fuel or fuel for vehicles 3

4 Offer and Acceptance A bid is an offer that creates a binding contract when the offer is accepted. A quotation may not constitute a binding offer, but is rather informational in nature, and may require additional negotiation, offer, and acceptance, before a binding contract is created. General Rules Apply 1. Contracts for the sale, purchase, or rental of new or used supplies, materials, equipment, furniture, or fixtures. 2. Contracts for the construction, alteration, repair, or maintenance of real or personal property. 4

5 General Rules Exceptions Competitive Bidding generally required: Standard requirement price contract (except for perishable food items other than milk) Contracts for work or labor Contracts Allowed upon Direct Negotiations after Obtaining Two or More Written Quotations Transportation Contracts Petroleum products Perishable food items (except milk) 5

6 Contracts Requiring Neither Bids nor Quotations - Exempt Employment Contracts Contracts for professional service of consultants or independent contractors Purchase of copyrighted books Purchase of Information Systems Software. (2017 change) Contracts for the lease, rental purchase, sale, or exchange of school rooms, school buildings, or school real estate Sale of building constructed by school class Contracts Requiring Neither Bids nor Quotations (continued) Contracts with other governmental units Contracts for the disposal of surplus school computers Group insurance contracts HITA Contracts for certain purchases made from student activities funds 6

7 Contracts Requiring Neither Bids nor Quotations (continued) Contract for property and liability insurance other than group insurance Qualified guaranteed energy savings contracts Emergency Contracts Minnesota law provides for a limited exception to the bidding requirements where, in the case of the destruction of buildings or injury thereto, where public interest would suffer by delay, contracts for repair may be made without advertising for bids. Repair vs. rebuilding 7

8 Miscellaneous Contracts Cost plus contracts school boards cannot accept Joint Powers contracts Cooperative purchasing Reverse auctions Electronic sale of surplus supplies, materials, and equipment Electronic bidding Electronic furnishing of bonds Situations Requiring Special Attention Sales Tax generally exempt Performance and Payment Bonds Contractors - $75,000 normally Contracts for the purchase of finished tangible products Transportation Contracts Sale of Bonds or Obligations 8

9 Bidding Procedure Authority to Contract Bid Specifications Publishing Requirements Alternative Dissemination Website Recognized Trade Journal The school board s right to reject any and all bids Acceptance of Bids Sales by School District Highest Bidder Lowest Responsible Bidder Adequacy of a bidder s experience and qualification Bidder s fitness and capacity to perform the contract Bidder s conformity to the specification Bidder s financial condition or performance history Character of a bidder s work on previous contracts Conformance with specifications Alteration of bid Number of bids received 9

10 Delegation of Authority, Record Keeping, and Formalities The school board may authorize the clerk to receive, open, and tabulate bids. A record must be kept of all bids, with names of bidders and amount of bids, and with successful bid indication thereon. All quotations must be kept on file for a period of at least one year after receipt. Void Contract Effect of Failure to Comply with Statutory Contracting and Bidding Requirements Damages by unsuccessful bidder Personal liability of school board members: A school board who votes to make a contract in violation of the competitive bidding statute may be personally liable for damages arising from the violation. 10

11 Prompt Payment Act Obligation Interest Subcontractors Application Conflicts of Interest Sale of School District Property to Employees Purchase from School District Employee Every public officer who violates this provision is guilty of a gross misdemeanor. 11

12 The BEST VALUE Process CONTRACTOR SELECTION FOR SCHOOL CONSTRUCTION PROJECTS DEFINITION What is Best Value? Best Value is a selection process used in the construction industry by Owners to select contractors for their project based off the contractors expertise and knowledge in lieu of the typical price based award process. This process can be used to select design teams and other project team members as well. 12

13 BEST VALUE vs PRICE BASED PRICE BASED (Sealed Bids) Award based on price alone LOWEST BID Contractors bid drawings as drawn (the drawings put together by the design team may not capture 100% of the owner s intent) Contractors not hired based on experience Possibility of higher change order costs BEST VALUE vs PRICE BASED BEST VALUE Award based on contractor expertise, best value documentation, and price Contractors thoroughly review the project drawings and site conditions as part of the bid process in order to identify possible risks and value enhancement opportunities Best value process uses a scoring system to select the contractor Best value process helps identify and reduce change orders at the time of bid due to the extensive review and collaboration of the project early in the bid process Schedule and change order deviation of contractor identified at time of bid 13

14 BEST VALUE Evaluation Criteria COST PROPOSAL The contractors price based on documents as drawn. VALUE ENHANCEMENT Plan devised by contractor to enhance the overall project based on their expertise, past experience, and knowledge of the owner s intent. This plan consists of a list of proposed improvements (with associated add & deductive costs). RISK ASSESSMENT Plan devised by contractor to identify potential risks on the project that are out of the contractors control. TEAM EXPERTISE Documented past performance for each contractor for review and comparison. INTERVIEW Owner interviews the contractor personnel (typically project manager and project superintendent). REFERENCES List of references provided by contractors from past projects. BEST VALUE Evaluation Scoring System The best value contractor is chosen based on points scored for each of the six (6) listed evaluation criteria. This point system may be adjusted by the owner. Below is a sample of a scoring system that could be utilized: Cost Proposal 300 Points Value Enhancement Report 100 Points Risk Assessment Report 200 Points Team Expertise Report 200 Points Interview 150 Points References 50 Points Total Possible Points 1,000 Points 14

15 BEST VALUE Cost Reasonableness To ensure the optimum use of school / public funds, the owner reserves the right to review cost reasonableness. The 10% highest or lowest bids can be thrown out If the highest ranked contractor is within 5% of the next highest ranked contractor (based on points scored), the owner reserves the right to invite the contractor with the lower cost to the clarification phase. BEST VALUE Clarification Phase CLARIFICATION PHASE Once the contractor is chosen using the best value scoring system, they are then invited to the Clarifications Phase. The Clarification Phase is a meeting moderated by the owner to accomplish the below items: Review and discuss items listed on the contractor s risk assessment report Review in detail each of the value enhancement items and decide which items the owner wants to accept Confirm that the chosen contractor has the project scope fully covered 15

16 BEST VALUE Value Enhancement Example Example of Value Enhancement Deduct Item 1 Claim: How will this add value? Documented Performance: The project drawings show fully ducted returns throughout the existing building and the new addition (a portion of this was addressed in the Addendum). The amount of return duct could be greatly reduced by using room to room or room to corridor transfers. If the project team would like to pursue this, we would work with the construction manager and engineer to modify the design and eliminate a significant amount of return ductwork. Removing a large portion of the return duct on the project would greatly improve the schedule related to the duct installation as well as provide a significant financial savings. The need for added structural steel and supports on the roof could be reduced as well if the return duct on the roof could be eliminated or reduced. We worked on another school project last summer that was identical to this existing building. Return air was handled with transfers in lieu of ducted returns. This work was completed last year with a 10 out of 10 customer satisfaction rating. Cost Impact (%): Deduct $85,000 Schedule Impact (%) 15% SAVINGS Example of Value Enhancement Add Item 1 Claim: Currently the project drawings show supply air for the gym only being supplied out of four (4) supply grilles on the north wall of the gym. We propose to install two (2) supply ducts with supply grilles installed along each of these ducts down the length of the gym. How will this add value? Installing the two duct runs down the length of the gym would provide more consistent and even heating and cooling for the gym. Documented Performance: We have worked with the design team on 3 previous school projects to enhance the design to ultimately provide better customer comfort and satisfaction. We have received a customer satisfaction rating of 10 out of 10 on each of these projects. Cost Impact (%): Add $12,000 Schedule Impact (%) 0 BEST VALUE Risk Assessment Examples Risk 1 Description: Solution: Documented Performance: The structural integrity of the roof steel may not be adequate to support roof duct and piping, as well as piping and equipment in the mechanical and boiler rooms hung from the structure. We will work with the GC and Engineer to confirm that the structure is adequate for the installations as shown. We have successfully coordinated and adjusted some structural components with the Engineer and General Contractor on several of our previous PIPS projects. We have received an approval rating of 10 out of 10 on these projects. Risk2Description: Solution: Documented Performance: Inreviewingtheprojectsite,wehavediscoveredthatthe Energy Recovery Unit ERU 5 that is shown to be installed in the mechanical room will not fit through the existing louver as shown on the drawings. We have included a Value Enhancement Proposal remove a section of the wall adjacent to the louver in order to rig the unit into the space. We have worked closely with general contractors to modify opening sizes on previous school projects we have worked on and have received approval ratings of 10 out of 10 on these projects. 16

17 PROJECT COMPARISONS Best Value vs. Price Based BEST VALUE PROJECT Original Contract: $2,639,500 Final Contract: $2,735,320 Percent Add By Change Order: 3.6% (Mostly Owner Requested Changes) PRICE BASED PROJECT Original Contract: $4,167,000 Final Contract: $4,484,257 Percent Add By Change Order: 7.6% (Mostly Changes Discovered During Project) QUESTIONS? 17

18 THANK YOU Your attendance and attention are appreciated. This presentation and corresponding materials are for informational use only. If legal advice is needed, the school district s legal counsel should be contacted. While current as of the date of presentation, the information contained in these materials may be superseded by legislative amendments, new rules and regulations, new cases, etc. If you have any questions or concerns about this presentation or the corresponding materials, please contact MSBA Minnesota School Boards Association. All Rights Reserved. 18