On June 30, 2011, Ohio Governor John Kasich signed into law HB 153, the biennial budget legislation, which includes significant reforms to Ohio’s public construction laws. Although the construction reforms set forth in HB 153 will take effect September 30th, there are a number of rules that the Department of Administrative Services (“DAS”) must issue pursuant to HB 153. And it will be difficult to fully appreciate the impact of HB 153 until those rules have been issued. Below is a summary of significant provisions from the legislation:
- Eliminates Multiple-Prime Contracting Requirement. Under current law, public authorities undertaking a public improvement project must utilize a multiple-prime contracting method. HB 153 no longer requires multiple-prime contracting and now allows alternative delivery methods such as construction manager-at-risk (“CMAR”), design-build (“D/B”) or single-prime contracting (“Single Prime”), in addition to multi-prime contracting.
Construction Manager at Risk. A CMAR is a company with substantial discretion and authority to manage all phases of a construction project. A CMAR holds and manages the contracts with subcontractors. Under HB 153, a public authority will evaluate proposals from CMARs will select at least three companies to rank and will enter into negotiations with the company it determines to be the best value (considering both proposed cost and qualifications). Under HB 153, a CMAR must provide the public authority with a guaranteed maximum price using an open-book pricing method. The CMAR must also provide a fee proposal broken down into a pre-construction fee, construction fee and the portion of the construction fee to be at risk in the guaranteed maximum price. The guaranteed maximum price is the total amount to be paid by the public authority to the CMAR including the cost of all work, the cost of general conditions, the contingency and the proposed fee.
Design-Build Firm (“D/B Firm”). A D/B Firm provides both the design and the construction services for a project. Under HB 153, a public authority will evaluate statements of qualifications from D/B firms, will select at least three firms to rank and will enter into negotiations with the firm it determines to be the best value (considering both proposed cost and qualifications). Best value is determined based on the pricing proposal divided into a design services fee, preconstruction fee and design-build services fee. The D/B Firm must provide the public authority with a guaranteed maximum price, which is the total amount to be paid by the public authority to the D/B Firm including the cost of all design and construction work, the cost of general conditions, the contingency and the fees contained in the pricing proposal.
- Increase of Project Cost Threshold for Complete Specifications. HB 153 increases the minimum project cost threshold from $50,000 to $200,000 before detailed specifications are required in order to put a state public improvement contract to bid. This applies to any institution supported in whole or part by the state of Ohio. In determining project costs, the following expenses must be included: professional fees and expenses incurred in preparing plans, permit costs, testing costs and other fees associated with the project, project construction costs and a contingency reserve fund. However, this requirement of complete specifications does not apply to public projects where CMARs or D/B Firms are used.
- Minimum Thresholds for Bidding. Under the original statute, minimum thresholds determined whether a public project would be subject to the public bidding statutes ($5,000 minimum to determine if separate bids are required; $25,000 to determine if schools are required to bid prime contracts; $50,000 to determine if other public entities are required to bid prime contracts). Under HB 153, these minimum thresholds have been eliminated except for schools, which retain a $25,000 threshold. There has already been debate as to whether any thresholds now exist for public projects (other than the $25,000 school threshold which still exists). While some read HB 153 as eliminating all thresholds other than for school projects (the $5,000 and $50,000 thresholds have been deleted in their entirety), others maintain that the $200,000 threshold for requiring detailed specifications also implies that public bidding is required for all public projects in excess of $200,000 as well. As the DAS develops rules governing these projects, clarification may shed light on what was really intended. In the meantime, public owners are well-advised to approach this issue on a case by case basis.
- New Contract Forms/Requirements. HB 153 requires the DAS to establish form contracts to be used by public authorities with a CMAR or D/B Firm and form contracts to be used by the CMAR or D/B Firm with subcontractors. HB 153 does not address whether these requirements apply to single source general contractors; however it would appear that this will be resolved by revisions to the statute or rules imposed by the DAS.
- New Forms of Advertising. HB 153 allows advertising by traditional methods (newspapers of general circulation) and by electronic means pursuant to rules to be adopted by the DAS.
- Subcontracting. HB 153 requires a CMAR or D/B Firm to establish criteria for the prequalification of prospective bidders on subcontracts based on standards to be created by the DAS. HB 153 requires a CMAR or D/B Firm to identify at least three prospective bidders who have been prequalified. Once the bidders are deemed acceptable by the public authority, the CMAR or D/B Firm must solicit proposals from each bidder and evaluate each based on an “open book” pricing method. However, a CMAR or D/B Firm is not required to award a subcontract to the low bidder. HB 153 does not address whether these requirements apply to single source general contractors; however it would appear that this will be resolved by revisions to the statute or rules imposed by the DAS.
- Exempts CMARs and D/B Firms from Bid Guaranties. CMARs and D/B Firms are now exempted from the requirement to submit bid guaranties under O.R.C. Section 153.54.
- Obligation to Provide Surety Bonds. In addition to other surety bond requirements for contractors, HB 153 requires CMARs and D/B Firms to provide a surety bond in accordance with rules to be adopted by the DAS.
- Includes CMARs and D/B Firms in Prompt Pay Law. HB 153 specifically defines “contractor” to include CMARs and D/B Firms under the prompt pay law, which requires interest to be paid when a contractor does not pay a subcontractor in a timely manner.
The public construction reforms ushered in by HB 153 and the rules to be imposed by the DAS will significantly alter the landscape of public construction projects for both construction/design firms and public entities.