By Richard Marks, Northern Regional Compliance Manager. -
CIFAC's mission is to ensure that State and local governments comply with the Public Contract Code to promote job opportunities, fair bidding, and transparency.
One avenue to achieve this goal is through partners out in the field who report possible violations to CIFAC Regional Compliance Managers for investigation. However, sometimes a report can come from a community member. Such was the case recently when a concerned tax watchdog citizen contacted me regarding a Northern California City Council Agenda item to approve a contract award for a grind out and paving project. The contract was to be awarded based on a reduction in overall work and cost from the original lowest bid submitted. The citizen wanted to know if the City needed to readvertise the project considering the substantial changes requested.
I was able to locate and review documentation showing that the project was advertised correctly for the solicitation of competitive bids and that the lowest bid received was $609,000. A staff report included with the council meeting agenda indicated that due to the COVID-19 shelter-in-place and business closure restrictions mandated by local health authorities, there was a decrease in projected revenues received, specifically gas tax revenues. The report went on to state that the shortfall of revenue had a direct impact on the availability of funds for needed road projects.
As this situation was unforeseen at the time bids were solicited, staff recommendation was to approve the award of the contract to the lowest bidder and then have the City Engineer work with the contractor on a unit price adjustment to fit the scope of work to a lesser amount of funding available of $348,186.
With regard to the bidding process for public works projects, it is CIFAC's position that the legislative intent regarding Public Contract Code §1100 is clear when it states that one purpose of the code is to provide all qualified bidders with a fair opportunity to enter the bidding process, thereby stimulating competition in a manner conducive to sound fiscal practices. And while Public Contract Code 20103.8 does allow for additives and deductives to be contained within a contract, thereby allowing an agency some flexibility to respond to budgetary concerns, the contract included no such a provision.
I contacted the City's Special Projects Manager and shared CIFAC's concerns regarding the proposed changes to the contract. I explained our position that since the original Request For Proposal did not contain any provision for deductions based on funding availability, this would violate the Public Contract Code. Further, since the change is substantial in the scope of work, it does not allow for a fair opportunity for other contractors to reconsider their bids based on the new work that would be required. I, therefore, recommended that the project needed to be readvertised for competitive bidding. The Special Project Manager agreed with CIFAC's reasoning and decided to support the idea that the project be rebid with a reduced scope of work to match their decreased budget availability. After listening to our position during public comments, the City Council decided unanimously to reject all bids and readvertise the project.
I also received a call from a City staff employee who asked me, "Is CIFAC coming across this very much in other cities and counties where COVID-19 related revenue reductions are affecting public works projects and bidding process?" To find out if this was just an isolated incident, I contacted CIFAC Regional Compliance Managers from different areas of the state and received information that many localities were experiencing the same situation. A comment received from a Southern California Compliance Manager was, "Some of the effects of COVID-19 will be silent, meaning that some agencies will just be postponing putting out projects for bidding right now. The downward loss of City revenue from local taxes and gas tax for transportation projects will be affected. However, there is still some funding earmarked to spend, and that will happen for the balance on the 2020 year, some tied to grants, matching funds, federal funding, SB-1, etc. Those projects will be completed, but going forward, agencies will be revising their budgets for the 2021 year, so I don't believe that we will see the real effects of the COVID-19 until 2021!"
I am currently tracking projects in my area to determine how many public works projects are scaled back in scope or eliminated directly affected by COVID-19 related funding shortages. According to an April 20, 2020 article in the San Jose Mercury News, California lost 11,600 construction jobs due to COVID-19 state and county health compliance restrictions in March of 2020.
Even though this economic downturn will bounce throughout each community's economy, CIFAC's watchful eye will continue to hold agencies accountable, such as this one in Northern California, to provide fair and transparent bidding opportunities for our partners.