Budget Bill Changes Bidding on Public Projects

The 2013-15 Wisconsin budget bill significantly changed the bidding process for state construction. The goal of these changes is to streamline the process for bidding on large state projects, as well as streamline the relationships between the State and the general and subcontractors. It is important for general contractors and subcontractors to understand the process so they do not risk losing out on the chance to bid for these construction projects.

The new provisions create a certification process for contractors seeking to do business with the State. In order to be eligible for contracts going forward, contractors will have to comply with the new requirements of Wisconsin Statute § 16.855(9m). Once a potential bidder has been certified under this section, the certification is good for two years. Among other requirements, a certified bidder must have the necessary capacity to complete the construction project and be able to obtain 100% performance and 100% payment bonds. The goal of the certification process is to clearly establish which contractors are qualified to bid on State construction projects.

The biggest change in the process for bidding on projects is single prime contracting for projects which are estimated to be more than $185,000. The new process has very specific requirements for general contractors bidding under the new procedure.

The first step is that the Department of Administration (DOA) will identify all the mechanical, electrical and/or plumbing subcontractors that will be used on the project. These subcontractors—and their successful bids—must be included in the bid submitted by the general contractor and must be hired to complete the work. In order to do this, DOA will first accept bids from the subcontractors for the particular project. Within 48 hours of the deadline for those bids, the names of the contractors and their bids will be posted on the DOA website. No later than five days following the deadline, DOA will post the lowest qualified and responsible bidders. The general contractors will then have five days to submit their own bids, incorporating the bids of the successful subcontractors. If a general contractor fails to include the successful subcontractors, that general contractor will be disqualified from the project.

Once the lowest qualified general prime contractor has been identified, that general prime contractor must enter into contracts with the successful subcontractors identified by the DOA. The subcontractors will provide to the general prime contractor a 100% performance bond and a 100% payment bond. There is also a change that the state is not liable for any damage due to delay caused by any of the subcontractors if DOA takes “reasonable action” to require the contractor to comply with its contract. However, the affected contractor can recover damages against the non-complying contractor. The new statutes require certain clauses regarding prompt payment, insurance and bonds, indemnification, and retainage to be included in all contracts between the general prime contractor and each subcontractor.

Relating to retainage, the new statutes create procedures and payments to the general prime contractor as well as to the subcontractors. The newly created Wis. Stat. § 16.855(19)(a) and (b) provide for essentially identical payment procedures for work properly completed by both general prime contractors and subcontractors. For the most part, the procedures are the same as under current law. DOA will provide the general prime contractor with an estimate of the amount and value of work properly completed and pay the general prime contractor accordingly, less a retainage amount of up to 5% of the work completed. Once the project reaches 50% completion, however, no retainage may be withheld unless the job is not proceeding satisfactorily. This is where the new law is different from old law. Under the old law, the architect or engineer for the project was responsible for certifying that the job was proceeding satisfactorily, but under the new law, that responsibility now rests with DOA.

As mentioned, the new law also provides for a similar process for subcontractors to be paid for work properly completed. The major difference is that the general prime contractor is responsible for paying the subcontractor, and that the general prime contractor must do so upon request of the subcontractor. And all payments made by the general prime contractor will be made within 7 days of receiving payment for DOA. Otherwise, the process for retainage is identical to that for the general prime contractor.

Finally, it is important to point out that the procedures for general prime contracting are only for those projects estimated at greater than $185,000. However, the competitive bidding requirement for projects greater than $50,000 remains in place.

Special thanks to Axley Summer Law Clerk Micheal Hahn for his assistance with this article.

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