Fall 2004

For over forty years the statutory process for building construction required a public authority to engage an architect to develop plans and specifications, to receive bids for the filed sub-trades and thereafter to receive bids from general contractors, with the award to the lowest, responsible and eligible general contractor. In recent years, there was a call for reform, much of which centered on the elimination of filed sub-bids without taking into account problems caused by inadequate design, project oversight and screening of general contractors.

In early 2003 the pressures created by the fiscal crisis in the Commonwealth led to a proposal by the Governor to eliminate filed sub-bids as a cost saving method for cities and towns. However, there was no evidence that the elimination of filed sub-bids would result in cost savings, and the proposal did not address other problem areas in the construction process, such as design and oversight. The legislative response was not to eliminate filed sub-bids but, instead, to create a special commission on public construction to review all aspects of the public construction process, to identify areas of concern and to suggest statutory changes to eliminate those areas of concern and modernize the process.

The commission was composed of members of the legislature, representatives of Massachusetts Port Authority (Massport), the Division of Capital Asset Management (DCAM), the Office of the Inspector General of the Commonwealth (IG) and representatives of all organizations having an interest in public construction including general contractors, subcontractors and architects. The commission reviewed the design process, methods of project oversight and the selection of subcontractors and general contractors and considered alternative methods of construction. In early 2004 the commission proposed legislation that was accepted by the legislature and the Governor and signed into law in July 2004.

The legislation modifies M.G.L. c. 149, §§44A-H, the existing statute relating to construction of public buildings, effective July 19, 2004, and creates a new statute, M.G.L. c. 149A, an optional alternative method of public construction based on Construction Management (or Manager) at Risk (CM at Risk), effective January 1, 2005. The goal was to balance the interests of all parties involved in the construction process, to ensure fair competition for general contractors and subcontractors and to ensure that public buildings are completed on time and within budget.

The reform centers around project oversight by public authorities, prequalification of subcontractors and general contractors, and the alternative method of construction, CM at Risk.

The remainder of this article is a summary of the new legislation. The legislation requires the IG and/or DCAM to promulgate regulations to implement the statutory requirements with respect to prequalification, certification and CM at Risk. These regulations are not yet finalized.

C. 149, §§ 44 A-H

Project Oversight
On projects over $1,500,000, all public authorities must retain an experienced and qualified Owner’s Project Manager (OPM) at the start of the project to advise and assist the public authority on all aspects of the project, including design selection, cost estimating, value engineering, prequalification of general contractors, prequalification of subcontractors, if required, scheduling, construction management, project closeout and evaluation. Certain public authorities that maintain in- house project management staff, such as Massport and DCAM, are exempted. The legislature recognized that the oversight burden for many cities and/or towns, acting through building committees, was too great and that a building committee acting with an architect who performed periodic site inspections and/or a clerk of the works did not guarantee proper oversight. The requirement that the public authority select an OPM at the start of the project is to ensure that a construction professional represents the public authority from design to completion of a project.

Bidding Thresholds
• Projects subject to the provisions of c. 149, §§44A-H are increased from $25,000 to $100,000. The threshold for trade filed sub-bidding is increased from $10,000 to $20,000.
• Projects between $25,000 and $100,000 are subject to competitive filed bids pursuant to c. 30, §39M.
• Projects between $10,000 and $25,000 are subject to public notification and written bids.
• Projects up to $10,000 are subject to a minimum of three written quotations.

Certification
The annual DCAM certification process used for general contractors now also applies to subcontractors. On all public building projects subject to c. 149, §§A-H and c. 149A, only subcontractors who are certified by DCAM will be eligible to submit bids for sub-trade work. Application forms are now available from DCAM (www.mass.gov/cam) and DCAM expects to finalize the regulations by year end.

Prequalification
In addition to certification, prequalification of general contractors and subcontractors is mandatory on all projects of $10,000,000 or more and optional on projects between $100,000 and $10,000,000. When prequalification applies, the public authority can only invite bids from prequalified subcontractors and general contractors. Prequalification is discretionary for Massport, DCAM, Mass. Water Resources Authority and the State College and University of Massachusetts Building Authorities.

The process for prequalification requires:

1. The establishment for each project of a prequalification committee to solicit requests for qualification from contractors and subcontractors through a public notice.
2. The request for qualification describes the project and schedule and requires information from the respondent based on statutory criteria including management experience, references, financial capacity and documentation of bond capacity. There is a statutory point system for each criteria.
3. The committee then evaluates the responses based only on the criteria and point system described in the request for qualifications. A minimum score of 70 is required for prequalification of a general contractor or subcontractor.

If a project requires prequalification of subcontractors, the subcontractor is required to furnish performance and payment bonds and carry that cost in its sub-bid.

C. 149A
C. 149A creates the alternative method of construction, CM at Risk. Public authorities can use this method on projects estimated to cost $5,000,000 or more. The public authority must receive approval from the Inspector General of the Commonwealth based on an application in which the public authority demonstrates it has the capacity and procedures to manage the project. Under this alternative method, instead of waiting until the design documents are complete to select a general contractor, the CM becomes a member of the project team with the architect and the OPM during design development. The project team works with the public authority on design, constructability, budget, value engineering and division of work among the trades.

In order to select a CM at Risk the public authority, through a prequalification committee, must first advertise by public notice requests for qualification to which a construction manager may respond. From those respondents, the prequalification committee selects a minimum of three firms. The prequalified firms are invited to respond to the public authority’s request for proposals. The public authority, through a selection committee, then selects a CM at Risk from the prequalified respondents. This process gives the public authority more flexibility and discretion in selecting the CM at Risk, especially since the public authority only has to select a minimum of three firms from the CMs at Risk seeking prequalification and the public authority also can base its final decision on factors such as reputation, record on controlling costs, meeting deadlines and past performance, and not solely on price or low bid.

Once the public authority selects the CM at Risk, they proceed to negotiate the contract except for the Guaranteed Maximum Price (GMP). The GMP is negotiated by an amendment to the contract when or after design development is sixty percent complete. The GMP is based on a fixed fee, a cost for general conditions, the cost of the work and, only if agreed to by the public authority, a contingency. The CM at Risk is responsible for all cost overruns. The CM at Risk must also furnish performance and payment bonds to the public authority. Any savings are returned to the public authority.

C. 149A also allows the public authority to take subcontractor bids and begin construction prior to establishing a GMP. Such work could include trades such as demolition, site development and utilities.

As to subcontractors, only subcontractors that are prequalified by the public authority are eligible to bid for project subcontract work. The filed sub-bid classes of work listed in c. 149, §44F must be designated as “Trade Contractors” along with other classes of work which the public agency decides to designate as Trade Contractors. The subcontract for a Trade Contractor must be awarded to the lowest bidder. All Trade Contractors are required to furnish payment and performance bonds. The provisions in other statutes, such as the use of the current statutory form of subcontract, direct payment and prevailing wages apply to c. 149A projects.

Design
All public authorities, including cities and towns, are allowed to use the architect performing the feasibility study as the architect for final design. Previously the same architect was not allowed to perform both phases.

Public Works
The use of Design Build is allowed on all road and bridge public works projects costing $5,000,000 or more, subject to approval of the IG.

Conclusion
The modifications to c. 149, §§44 A-H are now in effect. Even though it will take a period of time to fine- tune the new requirements, public authorities are already retaining OPMs and following the prequalification requirements notwithstanding that the IG/DCAM regulations are still in process.

As to CM at Risk, the use of this alternative method will start in 2005. It will require completion of a number of projects to gauge success and/or identify problems using CM at Risk. Also, the legislature recognizes that the procedure will require scrutiny and review since the statute requires the Inspector General to review public authority experience with the use of CM at Risk and submit a report to the legislature with recommendations, if any, by July 2009.

All participants in the public building process will have to show some patience as regulations are issued and everyone gets used to the new procedure. Both the DCAM and IG websites, www.mass.gov/cam and www.mass.gov/ig respectively, presently have FAQs as to the amendment to c. 149, §§ 44 A-H and c. 149A. Both websites will post the regulations when finalized.

This newsletter is intended to provide general information of interest to the construction industry. It is not intended to provide specific legal advice or to address fact specific issues. For that you should consult your legal counsel. Corwin & Corwin LLP assumes no liability in connection with the use of this newsletter. The Supreme Judicial Court may consider this material advertising.
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