Chapter 13 Public Contracts

• Library: Arkansas Construction Law Manual (2016 Ed.)

Public Contracts

Andrea Woods^* and Patrick Wilson^**© 2016

13.1 Scope of Chapter........................................ 13-2

13.2 Arkansas Public Construction Contracts...... 13-3

A. State.......................................................... 13-3

1. Arkansas Division of Building

Authority and Non-Regulated

State Agencies................................ 13-4

2. Quasi-Public Entities...................... 13-5

a. School Districts.................. 13-5

b. Arkansas Highway and

Transportation

Department....................... 13-6

c. Higher Education

Institutions........................ 13-6

d. Water Districts and

Utilities............................. 13-7

B. Counties and Municipalities........................ 13-7

1. Various Classes of Cities................. 13-8

C. Bid Process................................................ 13-8

1. Bid Mistakes.................................. 13-8

D. Payment and Performance Bonds................ 13-9

13.3 Alternative Delivery Systems..................... 13-10

A. Alternative Delivery Systems –

Construction Management........................ 13-10

B. Construction Management Selection

Procedures............................................... 13-14

C. County Use of Construction Management –

Agency “CM-Agency”................................ 13-15

D. Municipalities.......................................... 13-16

E. Design-Build............................................ 13-18

13.4 Other Considerations................................ 13-19

A. Liens and Publicly Owned Property............ 13-19

B. Immunity................................................. 13-19

C. Indemnity................................................ 13-20

D. Prompt Pay.............................................. 13-20

E. Retainage for Public Works Projects.......... 13-20

F. Non-Profits and Bonds............................. 13-23

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13.1 Scope of Chapter

This chapter covers public contracts in Arkansas. The first section discusses the basics of Arkansas public construction contracts, with subsections on contracts involving the state, counties, and municipalities. Performance and payment bonds are mentioned at the end of the section. The next section addresses alternative delivery systems for Arkansas public contracts, including construction manager and design-build situations. Each is described at the state, county, and municipality level. The final section covers other considerations often involved in public contracts.¹

13.2 Arkansas Public Construction Contracts

A. State

The general framework for public construction law is provided in §§ 22-9-203 and 22-9-204 of the Arkansas Code. However, it is important to note that the construction and maintenance of public highways, municipal utilities, and street improvements are excluded from these sections. If the cost of the contract exceeds $20,000 then the statutory procedure must be followed for obtaining bids for that contract.² No bid is required if the cost of the contract is less than $20,000.³ The bidding process, which is described in greater detail in Chapter 3, involves publication of notice and obtaining sealed bids. The contract must be awarded to the lowest responsible bidder unless the best interests of the taxing unit would not be served by awarding the contract to that bidder.⁴

If all bids submitted exceed the amount appropriated for the award of the contract, the state agency or representatives may negotiate with the apparent low bidder if it is within 25% of the appropriated amount.⁵ This same authority to negotiate with the apparent low bidder is also granted to counties, municipalities, school districts, higher education institutions, and other local taxing units.⁶

One condition of performing construction work for the State of Arkansas is that all prime contractors cannot use unlicensed subcontractors when the subcontractor’s portion of the project is $50,000 or more.⁷ Excluded from this rule are subcontractors that are licensed in the State and qualified to do mechanical, heating, air conditioning, ventilation, refrigeration, plumbing, electrical, or roofing work.⁸

The state or a township, county, municipality, village, or other political subdivision of the state is prohibited from engaging in capital improvement of public works without involving the professional services of an licensed engineer or architect.⁹

1. Arkansas Division of Building Authority and Non-Regulated State Agencies

The Arkansas Building Authority Division of the Department of Finance and Administration (“ABA”) is a public agency that is charged with, among other things, acquiring and constructing state facilities.¹⁰ The ABA is also responsible for the renovation, construction, and repair of new buildings, and capital improvements of buildings including prisons, state supported higher education sites, and other state-owned sites.¹¹ The ABA’s function is to serve various state entities in resolving problems relating to state-owned and leased buildings.¹² With the exception of identified institutions of higher education,¹³ all contracts for architectural, engineering, and land surveying services must first be submitted to the ABA for its recommendation and approval.¹⁴ Contracts that require ABA review must be submitted to the ABA before seeking recommendation for approval by the Office of Procurement.¹⁵ Almost every state agency has different statutes and regulations regarding its construction contracts.

2. Quasi-Public Entities

a. School Districts

A contract for a major repair or alteration, for the erection of buildings, or for other permanent improvements in excess of $20,000 is only permitted if notice is published of the school district’s intent to receive bids.¹⁶ A school district must publish notice of its intent to receive bids once a week for not less than two consecutive weeks in a newspaper of general circulation in the county or in a trade journal reaching the construction industry.¹⁷ However, school districts are permitted to acquire both design and construction services in the same contract without competitive bidding. This is discussed in greater detail in section 13.3 of this Chapter.

b. Arkansas Highway and Transportation Department

As discussed above, Ark. Code Ann. § 22-9-201 excludes the construction and maintenance of public highways. This exclusion exists because highway construction is under the authority of the Arkansas Highway and Transportation Department. The Arkansas Highway and Transportation Department and the State Highway Commission may purchase materials, supplies, and equipment where the cost is lower than $1,000 without advertising or taking bids.¹⁸ However, when making purchases over $1,000, the commission must advertise the project in a paper of statewide circulation at least seven days prior to the date of receiving bids.¹⁹ The contracts are awarded to the lowest and best bidder based on the price, quality, delivery cost, and time.²⁰

c. Higher Education Institutions

Higher education institutions are granted more leeway to accept bids that are not necessarily the lowest bid. For example, in Gatzke v. Weiss, the constitutionality of a statute allowing state construction projects to be entered into without competitive bidding was challenged. The court ruled that a state constitutional provision that requires contracts for erecting or repairing public buildings or bridges in any county to be given to the lowest responsible bidder applies only to county-funded contracts, not to state-funded contracts. Therefore, statutes allowing certain state construction projects to be entered into without competitive bidding did not violate the Arkansas Constitution.²¹

d. Water Districts and Utilities

Water districts and public utilities typically have the discretion to reject low bids so long as it is done in good faith and for good cause.²² In Conway Corp. v. Construction Engineers, Inc., a low bidder on a municipal construction contract sued the public utility alleging it wrongfully rejected its bid by awarding the contract to the second lowest bidder.²³ The Arkansas Supreme Court held that the public utility had the discretion to reject the low bid on the contract for the expansion of the water treatment plant, and it had done so in good faith.²⁴ The evidence indicated that the utility commission was concerned that improvements contemplated would not be completed in time to avoid an anticipated water shortage.²⁵ “Bad faith” for purposes of rejecting a low bid on a public improvement contract consists of dishonest and malicious or oppressive conduct with a state of mind indicating ill will.²⁶

B. Counties and Municipalities

Under Arkansas law, no county or agent of the county can enter into any contract on behalf of the county unless an appropriation has been previously made.²⁷ Therefore, when there is no appropriation to support a contract made by an agent on behalf of a county, the contract is deemed unenforceable.²⁸ No county shall allow a bidding preference for county or state firms in the awarding of a construction contract unless state law authorizes such preference.²⁹

1. Various Classes of Cities

A municipality, by two-thirds vote of its governing body, may choose an agency construction manager, at risk construction manager, or a general contractor construction manager as defined by statute.³⁰ For municipal projects that exceed two million dollars—excluding the cost of land—the Construction Manager and the city may choose the delivery method.³¹

C. Bid Process

1. Bid Mistakes

Under Arkansas law, “patent or provable errors” in bids may be corrected so long as it does not prejudice other bidders.³² Bids may also be withdrawn in accordance with regulations promulgated by the State Purchasing Director.³³ Moreover, certain public authorities may relieve a bidder from responsibility under the bid if it appears that the bid would create “a serious financial loss” to the bidder.³⁴ As previously noted, chapter 3 of this...