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Top Industry Lawyers Shed Light on Transportation Project Legal and Regulatory Challenges
by Allison Klein[/et_pb_text][et_pb_image admin_label=”Image” src=”http://www.artba.org/wp-content/uploads/2014/10/lawforum.jpg” show_in_lightbox=”off” url_new_window=”off” animation=”off” sticky=”off” align=”left” force_fullwidth=”off” always_center_on_mobile=”on” use_border_color=”off” border_color=”#ffffff” border_style=”solid” use_overlay=”off”] [/et_pb_image][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [shareaholic app=”share_buttons” id=”5471715″]
For the past seven years, ARTBA’s annual Transportation Construction Law and Regulatory Forum has educated contractors, designers and suppliers about major issues that they could face on a project. Presenters include top construction attorneys and transportation professionals from around the country. In recent years, ARTBA has also put out a “Call for Presentations” so that members have the opportunity to help shape the topics on the forum’s agenda.
Unlike other law related events, the presenters meet in a discussion-oriented forum and break down the legal language into real world talk. Attendees ask questions and engage in an interactive discussion throughout the program.
To broaden the reach of last year’s program, and get ready for this year’s event in June, Transportation Builder’s editorial staff asked the forum’s speakers to write columns summarizing the key points in their presentations.*
On the following pages, you will find pieces from: Chad Theriot and Neal Sweeney of Jones Walker LLP on “Managing Projects with Funding Concerns”; Mark Berry and Jesse Keene of Peckar & Abramson, and Pat McGeehin of FTI Consulting, on “Contractor Certifications: What Am I Signing and Why Can It Get Me in Trouble”; Steve Henderson of Stites & Harbison on “OSHA Issued Your Company A Citation: Now What?”; Lorraine D’Angelo of LDA Compliance Consulting on “DBE Compliance”; and Joe McGowan of Rogers, Joseph & O’Donnell on “Brand Name or Equal Contract Clauses: A Contractor’s Risks and Rights.”
As you digest these articles, we encourage you to consider attending the 2016 forum, scheduled for June 1-2 at the ARTBA Building in our Nation’s Capital. Please contact me if you have questions, at firstname.lastname@example.org, or 202.289.4434.
*ARTBA is not liable for any information provided in these articles, which are intended for general informational purposes only, and not as a substitute for particular advice from a qualified professional. No warranty is made regarding these articles.
Alison Klein is ARTBA vice president of member services and manages all aspects of ARTBA’s annual law and regulatory forum.[/et_pb_text][et_pb_toggle admin_label=”Toggle” title=”MANAGING PROJECTS WITH FUNDING CONCERNS” open=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
by Neal J. Sweeney and Chad V. Theriot
Projects with funding constraints—like those created by the ongoing Highway Trust Fund crisis—carry additional risk for general contractors. One way general contractors account for that risk is to manage their subcontractors’ performance in the field. Another is to mitigate risks before work begins.
Subcontractors often perform a significant part of work on infrastructure projects, and other project participants are dependent on their work. A poor performing subcontractor, or one who defaults because of insufficient working capital, can bring a myriad of problems both before and after the actual default. For example, slow deliveries of materials as suppliers grow concerned about the subcontractor’s ability to pay can have a “ripple” effect.
Therefore, it is even more critical that a general contractor in an environment of limited—or even disruptive—funding do its due diligence before engaging a subcontractor. Here are three preventative measures a general contractor can take before starting its work.
First, a general contractor can avoid numerous headaches simply by investigating the subcontractor’s past performance record, rather than looking solely at its bid price. Unreliable subcontractors may initially be weeded out by dealing with reputable individuals who have a proven ability to perform, by running credit checks, and by inquiring about the experiences of other general contractors.
Even a cursory investigation can yield important clues. For example, engaging a subcontractor with a reputation for shoddy or defective work may result in the general contractor having to cash-flow and remedy unsatisfactory work. A litigious subcontractor may refuse to negotiate if a dispute arises, forcing the general contractor into costly arbitration or litigation.
Second, a general contractor must consider the subcontractor’s occupational licensing. State and local law generally prevent incompetent and inexperienced subcontractors from engaging in work that effect public health and safety. This is particularly true with the skilled trades—electrical, mechanical, etc. A general contractor may, however, benefit from additional investigation of a subcontractor’s experience on a particular type of project. For example, an interstate project likely requires different experience than that for an airport runway.
A general contractor must satisfy itself that the subcontractor fully understands the licensing laws and can do the required work.
Third, general contractors can insist that their subcontractors furnish payment and performance bonds. A general contractor, like an owner, needs reassurance that a subcontractor’s portion of the project will be timely and properly completed.
A performance bond is a financial guarantee that the subcontractor will perform the subcontract. It usually means that if the subcontractor defaults and fails to complete the project, the surety will complete performance or pay damages up to the limit of the penal sum of the bond.
A payment bond is a financial guarantee that the subcontractor will pay its sub-subcontractors and suppliers. This is particularly important where funding is a concern. If the subcontractor cannot adequately pay its suppliers, there is a risk the project could come to a grinding halt if materials are no longer delivered. A payment bond provides added assurance that sub-subcontractors and suppliers will continue to perform even if the subcontractor fails to pay since the surety will step in and pay for materials and sub-subcontractors up to the limit of the penal sum of the bond.
General contractors should consider separate payment and performance bonds from subcontractors. The premium for two separate bonds is generally no more than the premium for a single “payment and performance” bond. Also, the penal sum of the bonds—which provides the maximum liability of the surety—may be lower if the payment and performance bonds are not separate.
The choice of selecting a particular subcontractor may ultimately determine the project’s success or failure. Fortunately, a general contractor can avoid pitfalls with some up-front due diligence. By dealing with reputable individuals, by running credit checks, by inquiring about prior experiences, and by requiring separate bonds, unreliable subcontractors may be avoided at the outset, thereby minimizing owner-funding impacts to your project.
by Pat McGeehin, Mark R. Berry and Jesse S. Keene
The U.S. Department of Justice is investigating and prosecuting more cases of alleged fraud against the federal government. Attorney General Loretta Lynch has a history of focusing on fraud in the construction industry. In 2014, the government’s fraud collections reached $5.69 billion, including hundreds of millions of dollars in federal procurement and construction fraud penalties.
So it’s important for ARTBA members to pay attention to government regulations in order to avoid allegations of false claims. This article focuses on a few key certifications made daily on government construction projects. These include:
False Claims Act Summary The False Claims Act (FCA) prohibits government contractors from, among other things, “knowingly presenting a false or fraudulent claim for payment or approval” to the federal government. More than 30 states also have their own version of the Act.
Under the FCA, the government may assess fines of up to $11,000 per false claim and recover three times the government’s actual damage. The FCA can also result in administrative penalties such as suspension, debarment, or contract termination. And, perhaps most seriously, the FCA allows for criminal prosecution and imprisonment for up to five years for submission of a false claim.
The FCA and courts interpreting it have broadly defined a “claim” as any demand for money or property made directly or indirectly to the federal government.
Progress Payment Applications Progress payment applications are one of the more commonly submitted “claims” which can trigger the FCA. The certifications contained in a payment application contain fertile ground for potential FCA violations. In particular, the government has recently prosecuted contractors who falsely certified that they made all payments due to subcontractors from previous payments received from the government.
In The Liquidating Trustee Ester Duval of KI Liquidation, Inc. v. United States, 116 Fed. Cl. 338 (2014), the contractor had a firm fixed price contract with the government. The contractor paid money it received from progress payments to subcontractors and suppliers, but not all were paid in full. After contract termination, the government brought and prevailed on claims that the contractor falsely certified that subcontractors and suppliers were fully paid.
The rule is clear: the contractor has a duty to examine its records to determine what the government already has paid and whether payments are owed to subcontractors or suppliers. Failure to make a minimal examination of records constitutes deliberate ignorance or reckless disregard.
Takeaway: Review your payments to subcontractors and suppliers as part of your payment application process and ensure their accuracy.
Certified Payrolls Public projects generally require prevailing wages and submission of certified payrolls showing who worked on the project and how much they were paid. Accordingly, the contractor must certify that the payroll is correct and complete, the wage rates are not less than required, and the classification for each laborer is correct.
In United States ex rel. Wall v. Circle K Construction, LLC, 697 F.3d 345 (6th Cir. 2012), a contractor did not collect certified payrolls from a subcontractor for two years, despite certifying that all the subcontractor’s laborers were paid correctly.
When it finally collected the subcontractor’s payrolls, the contractor simply submitted them to the government without prior review. The payrolls were inaccurate, incomplete, and showed the subcontractor underpaid its workers. The contractor was held liable for not submitting payrolls from its subcontractor, and not reviewing them before submission.
Key takeaways include:
- filling out certified payrolls accurately;
- reviewing certified payrolls for errors before submission;
- correcting any errors;
- noting in your certified payrolls any information that you do not have which, if not disclosed, would make your payroll inaccurate; and
- spot checking your subcontractors’ payrolls to ensure accuracy and completeness.
Subcontractor Pass-Through Claims Because subcontractors cannot bring claims directly against the government, most subcontracts contain a provision under which the contractor agrees to “pass-through” subcontractor claims. A contractor cannot, however, be a mere rubber stamp. Rather, the Federal Acquisition Requirements (FAR) require the contractor to certify “in good faith” that the subcontractor’s claim is “accurate and complete” and that the contractor “believes the government is liable.” Contractors must make a minimal examination of the underlying records, reasonable under the circumstances.
Importantly, this does not mean that the contractor “believe the subcontractor’s claim to be certain.” It does, however, require belief that there are “good grounds” for the claim—i.e., made in good faith and not frivolously.
Pat McGeehin, FTI Consulting, Inc.; and Mark R. Berry and Jesse S. Keene, Peckar & Abramson, PC.[/et_pb_toggle][et_pb_toggle admin_label=”Toggle” title=”PRACTICAL TIPS FOR MANAGING OSHA INSPECTIONS & CONGESTING CITATIONS ” open=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
by Steven M. Henderson, P.E., Esq.
Sooner or later, all construction companies will be faced with a visit from an Occupational Safety and Health Administration (OSHA) inspector.
Whether this visit is expected or a surprise, it is imperative for your company to have a plan in place for OSHA inspections and possible citations. It also is critical to communicate the plan protocols to appropriate personnel so that everyone understands their responsibilities.
Here is an overview of what you should expect during an OSHA inspection and practical steps you should take if your company receives a citation.
The Inspector Arrives When an inspector arrives on your project, he or she should present his or her credentials and request to meet with the supervisor who is responsible for the jobsite.
The inspector should advise you of the purpose of the inspection such as whether it is a scheduled inspection or the result of a complaint. You have the right to refuse the inspection; however, it is usually not in your best interest to do so because this will prompt the inspector to obtain an inspection warrant or a subpoena for your records.
You should take a reasonable time to gather your safety director, managers and other appropriate personnel to attend the opening conference with the inspector.
The Opening Conference During the opening conference, your appointed representatives should take good notes and ask about the purpose and scope of the visit. If there has been a complaint regarding imminent danger, a fatality, or a catastrophe, the opening conference will probably be cut short, and the inspector will want to proceed directly to the scene of the accident. If the inspection is the result of a complaint, you are entitled to see it and should ask for a copy prior to going forward with the inspection.
Inspections are not always triggered by a complaint. They could be the result of referrals from other government agencies, programmed inspections, follow-up or abatement inspections, or monitoring inspections. Knowing the purpose and scope of the visit will help you determine the scope of the walk-around inspection. Since OSHA inspectors maintain the right to interview employees and review relevant safety documents, it is important during the opening conference to ask whether they plan to do so.
The Walk Around Inspection After the opening conference has concluded and you have determined the scope of the inspection, lead the inspector directly to those areas that he or she wants to see.
Listen carefully to the inspector’s comments and take detailed notes of any specific remarks. Your company’s safety director or a manager should accompany the OSHA inspector, and duplicate every measurement, photo and/or video taken during the inspection.
Consult Your Lawyer As soon as you learn that OSHA will conduct an inspection and you believe they may want to interview your employees as part of that inspection, ask your lawyer about any notes or reports that you will need to gather and prepare.
Notes or reports that your attorney directs you to prepare may be covered by the work product and attorney-client privileges. Any notes or reports that are created outside of the direction of your lawyer may be subject to production to OSHA.
Employee Interviews OSHA inspectors will almost always ask to interview your employees. If so, you should advise your employees to tell the truth, provide only basic facts and avoid speculation and guessing.
Keep in mind these rights and tips for talking with the OSHA inspector:
- Employees have the right to refuse the interview, though OSHA may proceed to get a subpoena to compel the interview.
- Employee interviews are generally conducted in private; however, employees can request a manager or their own personal lawyer to attend the interview. The interview should be rescheduled to accommodate this request.
- A company representative has a right to be present for interviews of managers and can end the interview at any time.
- The company can request signed or written statements that are given to the inspector.
- If time permits before the interview, ask your employees (without influencing their answers) about what they know, heard, and saw prior, during and after the accident.
- After your employees speak with an OSHA inspector, you should also interview them to learn what questions were asked, their responses to those questions, and whether they signed any written statements. This information will be very valuable to your attorney in contesting a citation if one is issued.
Records Review and Accident Reports While on the project, the inspector may ask to see certain records such as the OSHA 300 logs, safety manuals, first aid and medical records, training records, safety meeting minutes, inspection records, and accident reports. Keep a log of the documents requested by the inspector, and how and when they are provided to OSHA.
Accident reports should be reviewed by your attorney prior to providing them to the inspector. Accident reports should be limited to the facts and should not contain any speculative theories or guesses as to why an accident occurred or who was at fault. If your attorney has directed the preparation of the accident report, that report may be privileged and should not be produced to the inspector without consulting your attorney.
Closing Conference After the walk-around and employee interviews have concluded, the OSHA inspector will hold a closing conference. Depending on the nature of the investigation, the closing conference may not take place for several weeks until OSHA has concluded its investigation. Your safety director and appropriate management personnel should attend this meeting and take notes on what was conveyed. During this meeting, the inspector may provide a preliminary indication of potential citations that may be issued to your company.
Immediate Steps After Receipt of a Citation If you receive a citation with penalties from OSHA, you need to quickly decide to accept the citation and penalties or contest the citation, the penalty amounts, or both. There are many reasons you may want to contest the citation, including:
- your company did not violate the regulation cited;
- the multi-citation employer policy was improperly applied to your company (i.e., you are cited as an exposing employer when your own employers were not exposed to a hazard or you are cited as a creating employer when your company did not create the hazardous condition);
- the penalties are unreasonably high;
- the risk of a repeat citation is high given the regulation cited; or
- your company has a valid affirmative defense (i.e., employee misconduct defense, the citation is covered by the jurisdiction of another federal agency, you did not have fair notice that OSHA would interpret the regulation in the manner contained in the citation, or you are cited under the general duty clause and a specific standard applies).
If you want to contest the citation, a Notice of Contest must be filed within 15 business days after receipt of a citation or you will be deemed to have accepted the citations and penalties. The Notice should identify whether you are contesting specific citations, all citations, specific penalties, and/or all penalties. It is very important that you follow the regulations applicable in the jurisdiction that issues the citation.
When you receive a citation you will be given the option of scheduling an Informal Conference, which gives you an opportunity to ask questions about the citation and explain facts that the inspector misunderstood or did not previously have in an attempt to either eliminate or reduce the citations and penalties. But scheduling an Informal Conference does not extend the time you have to file a Notice of Contest. So schedule the Informal Conference early enough to file the Notice of Contest within 15 business days from the receipt of the citation if necessary.
Steven M. Henderson is a member of the Construction Law Service Group at Stites & Harbison, PLLC: 502.779.5826.[/et_pb_toggle][et_pb_toggle admin_label=”Toggle” title=”ARE YOU COMPLYING WITH THE DBE REGULATIONS? ” open=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
by Lorraine D’Angelo
One of the biggest challenges facing the construction industry is complying with requirements of the U. S. Department of Transportation’s Disadvantaged Business Enterprise (DBE) program.
Agencies such as the Federal Highway Administration, Federal Transit Administration and Federal Aviation Administration require a fixed percentage of the total contract value of a federally assisted project to be awarded to certified DBE firms. Such businesses are generally at least 51 percent owned and controlled by one or more minority persons, either African American, Hispanic American, Asian American, Native American, a woman or a disabled person.
The government expects contractors working on projects financed in whole or in part with taxpayer dollars to take all necessary and reasonable steps to ensure that DBE firms have an opportunity to compete and participate and that they meet the goal or prove their “good faith efforts.” The government knows that contractors may pay more money to use DBE firms, but has made the social policy goal of eliminating discrimination and leveling the playing field a top priority.
But it isn’t enough just to hire a DBE firm to reach the percentage of participation established by the federal agency for the contract. The DBE firm must provide a “commercially useful function,” an additional requirement of the regulations. DBE firms must perform, manage, and supervise a distinct element of the project using their own resources. A DBE firm does not provide a commercially useful function if their role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed to obtain the appearance of participation.
In recent years, the government has stepped up its efforts to detect and punish contractors who commit fraud in this area, often filing a civil or criminal action under the False Claims Act. Transportation Department Inspector General Calvin Scovel III has said that 29 percent of his staff attorneys’ time is spent investigating DBE fraud cases. Major contractors have paid millions of dollars to resolve DBE fraud complaints. A corporation accused of DBE fraud or who has paid a fine, with or without admitting liability, must continually prove it is acting responsibly to avoid suspension or debarment from government contracting work.
Suspension and debarment proceedings against companies have increased since 2009 under legislative pressure for the government to work only with those firms that exhibit integrity in their business practices. The U.S. Department of Justice is using civil and criminal prosecutions of individual corporate officers to “deliver the message” to private industry that they will be held accountable for illegal corporate activity. In addition, as part of a settlement, many corporations are required to implement compliance programs subject to third party scrutiny, hire additional compliance staff, or retain an independent monitor to review future corporate activities. All this adds to the company’s overhead.
It’s rare that a contractor uses a firm that is not on the government’s certified DBE list. Most trouble is related to monitoring a certified firm’s performance to make sure that amounts claimed to participation/attainment are in conformance with the regulation. Given the high level of scrutiny by law enforcement agencies on DBE programs, it is worth remembering Benjamin Franklin’s adage, “An ounce of prevention is worth a pound of cure.”
Here are some “best practice” measures to avoid problems:
- Review internal procedures and controls. Have a written DBE Compliance Program that specifies the company process in areas such as outreach, good faith efforts, verification, assurance reviews, commercially useful function and modifications to utilization plans.
- Understand the rules for what can or cannot be claimed for participation. Engage in training and education.
- Assign accountability and responsibility within your organization.
- Determine the capacity/capability of DBE firms in advance.
- Recruit aggressively for the DBE goal and avoid a “check the box” exercise.
- Engage agency representatives in the process. Be transparent.
- Monitor project performance and address any concerns or issues as they are noticed.
- Document your efforts. Remember, if you cannot show what you did, it didn’t happen.
- Consider retaining a neutral third party to provide an objective analysis of your current process and procedures. It could help to avoid big problems.
Lorraine D’Angelo is the principal of LDA Compliance Consulting, Inc.[/et_pb_toggle][et_pb_toggle admin_label=”Toggle” title=”BRAND NAME OR EQUAL CONTRACT CLAUSES: A CONTRACTOR’S RISKS AND RIGHTS” open=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
by Joseph C. McGowan, Jr.
Freedom of choice may not always be a good thing.
Contractors bidding transportation contracts these days are more frequently encountering “brand name or equal” clauses, giving bidders the choice of providing either the specified name brand product or service, or an “equal” product or service in place of the name brand.
Owners are inserting such brand name or equal clauses in specifications for products, materials and proprietary services, including work generally performed by subcontractors such as ground stabilization techniques and dewatering methods. Under federal and state laws, contracts specifying a particular brand name product or service, generally, must permit bidders to substitute the brand name with an “equal” product or service, subject to approval of this product or method by the project owner and engineer.
While these clauses are essential to maintain fair competition on government funded projects, the clauses also pose risks to both prime contractors and the suppliers and subcontractors that offer substitute products or services. To successfully perform a contract with one or more brand name or equal clause, parties must understand the risks, challenges and, perhaps most importantly, the rights of a contractor to substitute for a brand name, despite reluctance by owners representatives.
The public policy of brand name or equal clauses is to increase competition for government contracts. Federal laws such as the Competition in Contracting Act (“CICA,” 10 USC 2304(a); 41 USC 235(a)), federal regulations applying to transportation projects, and many state laws are intended to decrease government costs by allowing more competition between suppliers and subcontractors.
As one court wrote, “(t)he framers of the clause obviously thought that it was in the national interest to widen the area of competition, and to bar local procurement officials from choosing a particular source either out of favoritism or because of an honest preference.” Wismer & Becker Contracting Engineers DOTCAB No. 76-24, 1978 WL 1870.
There are exceptions to the brand name or equal rule. Sole sourcing to a particular entity or brand name is often allowed, depending upon the jurisdiction, where a designated matching product is necessary for technical reasons, testing purposes, or in the case of an emergency.
Even where brand name or equal clauses are expressly written into the contract, however, many owners arbitrarily deny requests for substitution. Contractors should bear in mind that such clauses are intended to allow contractors the legal right to supply a product other than the brand name specified. Contractors must fight to enforce this right to substitute a lower cost or better substitute product in the same way that contractors enforce their rights to additional compensation or additional time for additional work.
Perhaps the most common misperception by contractors bidding contracts is the belief that the term “equal” (in brand name or equal) means identical. If this were the case, owners would have the right to reject almost any substitute subcontractors or suppliers; particularly where the item or service specified is covered by a patent or other proprietary right. Substitute products do not need to be identical: they merely must provide the so-called “salient characteristics” of the brand name product.
In plain language, “meeting the salient characteristics” means that the substitute product or service must be the functional equivalent of the name brand specified in the project. What is the functional equivalent, however, depends in large part upon the intended use of the brand name product or service. For instance, the mere appearance of a name brand product is generally not considered a “salient characteristic” where the product is underground or otherwise not visible. On the other hand, the appearance of an item installed for aesthetic reasons would be critical to the item’s purpose, and the government would, therefore, have the right to demand a product with an appearance matching the brand name or equal.
In federal contracts, the government is required to explicitly identify the “salient characteristics” in the specifications so that bidders will know exactly which characteristics of the name brand product or service must be met, and which characteristics are insignificant details. Even where required, however, the government often does a poor job of identifying said “salient characteristics.” In requesting a substitution, be prepared to make an argument as to which elements the name brand are salient characteristics (that must be met), and which elements are mere inconsequential details. This task should not be treated lightly.
When you consider requesting a substitution, you should look for timing restrictions and other formal requirements set forth in the specifications. In California, for instance, Public Contract Code section 3400(b) allows the owner to specify in the instructions to bidder a time frame to request substitution either before or after the project bid and award. If no date is specified, the request can be submitted within 35 days of the award of the contract. A contractor who misses such a deadline for submitting a request for substitution would be left to the mercy of the owner in requesting relief from such a requirement.
It is also important to provide documentary evidence that your desired substitute meets the salient requirements. FAR section 52 211-6 requires that the request for substitution identify the brand name, make and model of the substitute item, as well as descriptive literature such as drawings and prior use of the requested substitute. One of my clients went so far as to provide a scientific paper comparing a specified proprietary method with a more generic substitute procedure. At the very least, a qualified expert should attest to the capabilities of the substitute product. The type of documentation to be included in your submittal depends in large part upon the type of item.
The contractor requesting the substitution is better off putting its maximum effort into the initial submittal requesting the substitution, as owners tend to harden their positions after rejecting the submittal. You may be prevented from submitting such evidence in a later claim or court proceeding if you do not submit documentation in your original request.
Do not give up if your initial request for substitution is rejected. Many times the owner’s representatives do not understand the contractor’s rights to substitute where its substitute meets the salient characteristics of the specified brand name. Such contracting officers may need to consult with their attorney to understand their discretion is limited. The contractor should be prepared to file a notice of intent to claim within the time frame specified for such claims.
A contractor’s success in obtaining the owner’s approval for a substitution of a brand name is particularly critical where approval for substitution is sought post-award. In a recent example, a prime contractor submitted a bid for a fixed price contract based upon the assumption that it could perform the soil stabilization for the project with traditional stone columns, as opposed to a proprietary method specified by name in the specifications. The difference in price between the brand name method specified and the substitute was to the tune of several million dollars. Had the owner denied the request, the prime contractor and the subcontractor who bid the substitute method potentially would have had to absorb a several million dollar loss—something that would have led to litigation between the subcontractor and the prime contractor.
For this reason, subcontractor/suppliers submitting bids with the expectation of substituting for a brand name need to clarify in their proposals which party (prime or sub) is responsible should the substitution be rejected by the owner. Prime contractors relying upon substitute subcontractor/suppliers should make sure that the bid submitted locks the subcontractor/supplier into meeting the requirements of a particular bid item—even if the intended substitute is ultimately rejected by the owner.
Perhaps more importantly, it is essential that the prime and subcontractor seek out as much clarification as possible about the proposed substitution prior to submitting their bid. This clarification generally takes place during the pre-bid question and answer process. Ideally, the owner will issue a pre-bid addendum on the suitability of alternatives to the brand name. Once the project is awarded, the prime contractor and supplier/subcontractor need to work together to make sure that the owner respects their right to substitute.
In sum, the freedom to substitute for a brand name—besides saving the government money—potentially gives a bidder an edge in competing for a contract. Contractors who avail of such right to substitute, however, need to be extremely diligent in reviewing the requirements for requesting a substitution or an equal product or service, and in building a strong case to persuade the government to accept the substitute. Owners also need to be made aware that the right to substitute for a brand name, where stated in the contract, is a contractual right, and cannot be denied arbitrarily.
Joseph C. McGowan, Jr. is a shareholder with Rogers, Joseph & O’Donnell, PC.[/et_pb_toggle][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [shareaholic app=”share_buttons” id=”5471711″] [/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” global_module=”21459″ orientation=”left” area=”sidebar-1″ background_layout=”light” module_id=”sidebar_ads” module_class=”sidebar_ads” saved_tabs=”all” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”section” fullwidth=”off” specialty=”off” transparent_background=”off” background_color=”#d1d1d1″ inner_shadow=”off” parallax=”off” parallax_method=”off”][et_pb_row admin_label=”row”][et_pb_column type=”1_3″][et_pb_text admin_label=”Past Issues” background_layout=”light” text_orientation=”left”]
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