IMPORTANT FACTS ABOUT PUBLIC PROJECTS UNDER IOWA LAW

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1 IMPORTANT FACTS ABOUT PUBLIC PROJECTS UNDER IOWA LAW Can payments be withheld for warranty items? Industry professionals need to help owners understand the difference between warranty items and punch list items; money cannot be retained for warranty items. Punch list items are those items that have yet to be completed, need touch-up, or did not comply with the contract documents when originally done. Warranty items, on the other hand, are those items that have developed problems after being installed. As for punch list items, only a reasonable amount can be retained, not the entire outstanding balance. What is the maximum allowable retainage on public projects? This issue of retainage on public projects is governed by the provisions of Iowa Code Chapter 573 (except for the Board of Regents, which is governed by Chapter 262). A public owner shall hold up to five percent of each progress payment until 30 days after completion and final acceptance. Normally, completion and final acceptance is acknowledged in a resolution passed at a public meeting of the public entity, such as a school board or city council. The reason they have to wait 30 days is because this is the cutoff time for claims to be filed by subcontractors and suppliers. At the end of 30 days, the public owner holds twice the amount of any claims which have been filed with it and releases the balance, if any, to the general contractor. The general contractor may bond off the claims separately from the bond provided at the beginning of the project, which would then allow the public owner to release any retainage held pursuant to the statutory requirement for claims. As for projects let by the Board of Regents, they can, if they choose, pay the entire amount of each progress payment until 95% completion, then hold the remaining 5% as above. It should be noted that the retainage requirement is at the discretion of the public owner. It is up to five percent, so they could choose not to hold retainage if they so desired, or an amount less than five percent, but once they choose to hold retainage, they are obligated not to release it until 30 days after completion and final acceptance. The other point is they cannot hold more than five percent, even if there are more claims than retainage. A general contractor cannot hold more than five percent against a subcontractor or supplier. Are lien wavers required on public projects? On public projects, lien waivers are not required, and just to add to the paper work everyone has to attend to. A mechanic s lien cannot be filed against a public project. If a claim is filed under Iowa Code Chapter 573, the owner is projected by the retainage (up to 5% of the contract amount) and the payment bond that is mandatory on public projects over $25,000. Can a public entity reserve the right not to award to the lowest responsible bidder? A public entity must award a contract for construction of a public improvement to the responsible bidder with the lowest responsive bid. This cannot be changed by adding language in the information to bidders which attempts to reserve the right to award a contract in the best interest of the public entity.

2 Can a construction manager be retained without the need for public bidding? Yes, as a professional service provider a CM can be retained without the necessity competitive bid. However, this does not change the requirement that all contracts for construction in excess of $25,000 are subject to Iowa s competitive bidding laws. Are LOL clauses for contractors prudent? Owners and design professionals should not attempt to limit design liability as to the general contractor through the use of limited liability clauses (LOL) or similar devices. This issue should be between the owner and design professional only. Is the design-build method of construction legal under Iowa law? No, under current Iowa law requiring public projects to be competitively bid, public entities are prohibited from utilizing the design-build project delivery system.

3 The following are commonly asked questions regarding public bidding in Iowa. This information is designed to serve as a guide to contractors, public officials and letting authorities. Q. What bid must a public authority accept? A. Public improvements, other than highways, must be let to the lowest responsible bidder. Highway letting authorities may take into account the price of the bid, financial ability, experience and equipment. Q. What does lowest responsible bidder mean? A. It does not mean the lowest dollar figure. The amount of the bid is only one factor in determining the winning bid. A public authority has wide discretion in determining who is a responsible bidder, but it must have a valid reason for determining whether a bidder is responsible or not responsible. Q. When is the determination made that a bidder is responsible? A. Generally, that decision is made after the bid opening, but before the contract is awarded by the public authority. There is no state law requiring that this determination be made before bids are solicited or opened by the public authority. Thus, just because a potential bidder is sent a bid proposal by a public authority, does not mean the public authority has made a determination that potential bidder is qualified to bid or is a responsible bidder. However, bid proposals may contain requirements, such as net worth or bonding capacity, which are such that a potential bidder is precluded from submitting a bid because of its inability to satisfy those requirements. Q. Under what circumstances may a public authority reject bids? A. Generally, a public authority may reject all bids for any reason, including the fact the bids were all above its estimate of the cost of the project. It may reject any bid not conforming to the request for bids. Q. If a public authority rejects all bids, must it relet the bids? A. Highway letting authorities (state or county) may reject all bids and let the award to a private contractor or construct the project itself using day labor, but the cost of the project may not exceed the lowest bid received. It need not relet the bid. Other public authorities may reject all bids, but must relet the project. It may not reject all bids and negotiate a price with a private contractor. Q. Can a public authority give a preference to local contractors? A. A public authority (state or local) must give a preference to an in-state contractor equal to any preference give by the state in which the out-of-state contractor comes from.

4 A local public authority (city, county, school district) may not give a preference to a local contractor over another in-state contractor. Q. If I make a mistake in my bid, can I withdraw it? A. A bidder has an absolute right to withdraw a bid for any reason prior to the bid opening. After the bid opening, there may be a penalty, often in the amount of the bid bond. Whether the public authority allows a bidder to withdraw a bid after opening without penalty depends on whether the mistake was merely a clerical mistake (i.e. someone miscalculated or left out a critical component) which is obvious on the face of the bid and whether the public authority has changed its position because of the bid. Generally the earlier the attempted withdrawal, the more likely the chances it can be done without penalty. Q. What types of construction services don t need to be bid? A. Generally, professional services such as architects, engineers and construction managers on a project need not be bid. Q. May a public authority award a project to a bid which does not conform to the request for bids? A. No. The public authority may not award a project to a bidder whose bid does not conform to the request for bids, not may it negotiate with that bidder to change its bid to be in conformance with the request. Q. What are my options if I am the low bidder but I am not awarded the bid or I am the second low bidder, but I don t think the low bidder is qualified or made a bid in conformance with the request for bids? A. Like withdrawing a bid, the quicker a protest is made to the public authority about its award of the bid, the greater the chances are of successfully convincing it to set aside the bid, if your reason is valid. If the public authority has made a mistake in awarding the bid, it may reject all bids and relet the project or award the bid to the lowest responsible bidder who has submitted a valid bid. Q. What are my options if the public authority denies my protest and awards the bid to another? A. You may sue in district court (or if a state agency is involved, through the state s administrative appeals process), but your damages are generally limited to the cost of preparing your bid. You may also sue to enjoin the award of the bid, but you must act extremely quickly in this case, before the project is started. Furthermore, generally only a taxpayer of the public entity awarding the bid has the right to sue to enjoin the letting of the bid. Being the losing bidder does not give a contractor standing to

5 bring such an action, unless the contractor is a taxpaying entity of that public authority. CAVEAT: These questions and answers are designed to give the contractor a thumbnail sketch of common issues arising regarding state and local bidding laws. They do not address federal procurement requirements for federal projects because of the complexity of those rules and regulations. Also the exact answer to any legal question will always depend on the specific facts.