June 2014

On January 1, 2014, a series of changes to the City of Philadelphia’s licensing laws for construction contractors went into effect.  Moreover, on February 6, 2014 and May 14, 2014, Mayor Nutter signed additional changes into law, which will become effective in 2015.  Your immediate attention to these new rules is required because the penalties for non-compliance have increased significantly.

1.         Who is subject to the new laws?

The new laws require all general contractors, including owners that act as general contractors, and subcontractors of any tier that perform more than $500 of work to become licensed.

2.         Who is exempt from the new rules?

 The new laws grant an exemption to the following:

  • owners performing improvements to owner occupied properties or to properties they intend to occupy;
  • engineers and architects;
  • government employees performing work in their capacity as government employees;
  • contractors and subcontractors already licensed by the City; and
  • contractors and subcontractors performing less than $500 of work.

3.         What are the requirements for a license?

Contractors and subcontractors must complete an application prepared by the Department of Licenses and Inspections and pay a $100 fee.  Contractors and subcontractors must renew their license annually.  This is a change from the previous law that required renewal every three (3) years.

To obtain a license, contractors and subcontractors must:

  • obtain a commercial activity license and tax identification number (business privilege number) from the City.  This must be done before applying for a license.
  • certify under penalty of law that they (a) have complied with all City tax obligations, (b) are financial solvent, (c) are not debarred by any public body or government agency, and (d) are in compliance with all applicable laws of the Commonwealth relating to operation of their business.
  • provide proof that the new law’s insurance requirements are met (see point 4 below for information about insurance requirements); and
  • provide proof that one or more supervisory employees has completed OSHA 30 training within the last five (5) years[1].

4.         What are the new insurance requirements?

The new law has strict insurance requirements.  The new law requires that contractors and subcontractors maintain a minimum level of insurance. Proof that these minimum requirements are maintained is a prerequisite to obtaining a license.  Contractors and subcontractors must maintain the following:

  • workers compensation insurance at statutory limits (which is already required under state law);
  • a CGL policy with minimum coverage of $500,000 per occurrence;
  • products and completed operations coverage with minimum coverage of $500,000 per occurrence; and
  • motor vehicle liability insurance with minimum covered of $300,000 per occurrence.

Certificates of insurance must be submitted with the application.  Importantly, the certificate of insurance must: (a) describe the type of work the contractor and subcontractor performs, (b) the name and telephone number of the contractor’s insurance broker or agent, and (c) name the City of Philadelphia as an additional insured[2]

5.         What are the post-licensing requirements?

 The new law imposes several conditions on contractors and subcontractors post-licensing.  Contractors and subcontractors shall:

  • update the Department of Licenses and Inspections on changes to information supplied on their application;
  • secure all permits prior to beginning construction;
  • display their license number on all advertising, stationery, at their main place of business, at their job sites, on proposals and contracts, and vehicles;

(The numbers on vehicles must be at least two inches in height.  It is not clear what qualifies as displaying the license number at a place of business and at a job site.)

  • maintain complete financial and construction records (including plans) for each job performed, for four years, after the completion of the job; and
  • provide certain information to the Department of Licenses and Inspections regarding their subcontractors.

6.         What conduct is prohibited?

The new law specifically states that the following are prohibited:

  • performing work without a permit;
  • deviating from or disregarding in any material respect the plans and specifications approved by the Department of Licenses and Inspection, unless the change is approved by the Department[3];
  • assigning or transferring a permit to another contractor;
  • hiring an unlicensed contractor or subcontractor.

The law is clear that the prohibition on the hiring of unlicensed contractors and subcontractors applies to project owners and developers.

7.         What are the special notice requirements that apply to “prime contractors”?

The new law defines “prime contractor” as “any contractor that is identified on a permit application as the contractor responsible for the construction authorized by the permit.”  Therefore, the definition applies to traditional general contractors but also specialty trades that are required to pull permits for their respective trade, such as electrical and plumbing subcontractors.

The new law requires prime contractors to submit to the Department of Licenses and Inspection in writing within three (3) days of beginning work on the project the following:

  • the address of the project;
  • the prime contractor’s name, business address, and license number;
  • a list of all subcontractors of any tier used on the project with their respective license numbers;
  • proof that each contractor and subcontractor has all other licenses required by the Philadelphia Code (business privilege, tax, ect.);
  • the name of the property owner; and
  • such other information as the Department of Licenses and Inspections requires.

Furthermore, the new law requires the prime contractor to post this information at the project site in a place that is clearly visible to public view.  The Department of Licenses and Inspections is currently promulgating a uniform standard for signage that must be displayed and that contains the information required to be displayed.  What is unclear is whether there will be a sign for each “prime contractor” or only one sign that lists the name of the general contractor and the major trade subcontractors.

8.         What are the OSHA training requirements?

In addition to the OSHA 30 hour training for supervisory employees required in order to obtain a license, beginning in 2015 all construction workers regardless of position performing work on a project located in Philadelphia shall have completed OSHA 10 training or better and must carry proof that they have completed this training.

9.         What are the penalties for violating the new rules?

Contractors and subcontractors found to have violated the new rules can have their licenses revoked for a period of one (1) year and they shall be prohibited from pulling any permits during that one (1) year period.

Moreover, the law authorizes the imposition of fines and imprisonment of up to ninety (90) days for violators.

Starting in 2015, the Philadelphia Fire Department shall have concurrent enforcement with the Department of Licenses and Inspections to issue stop work orders in cases imposing an immediate threat to life or property.

 10.       What are the whistleblower provisions of the new rules?

One of the most significant changes in the law concerns the addition of a provision authorizing private individuals to bring a cause of action against a contractor or subcontractor who has allegedly violated the licensing rules and requirements.  Similar to the federal False Claims Act, the new law incentivizes citizens to bring complaints by permitting the Court to award the citizen up to thirty percent (30%) of any amount recovered on behalf of the City.  As an added incentive, the new law also permits the private plaintiff to be awarded attorneys fees and costs incurred in bringing the action.


[1] The OSHA training requirement was added to the law in a bill signed by Mayor Nutter on May 14, 2014.  However, the OSHA training requirements do not become effective until November 2015.

[2] Contractors should discuss the additional insured language with their brokers because it may result in an increased premium.

[3] It is unclear what impact, if any, this will have on scope related changes that happen in the field.

Since 2006, the number of bid protest filed with the Government Accountability Office (“GAO”) has nearly doubled from approximately 1,300 protest filed in 2006 to over 2,400 filed in 2012.

 Many, including the former head of the Office of Federal Procurement Policy, believe bid protests are worth it. Among chief factors that lead many to believe that a protests are warranted:

  1.  The relatively low cost to file a protest with Government Accountability Office (GAO);
  2. An over 40% chance of that the protester will obtain some form of relief; and
  3. The potential to receive a partial or full award of your attorneys fees costs incurred in bringing the protest.

Where: Disappointed bidders on a contract being let by a federal government agency have a choice of filing a bid protest in four different places: (1) the agency giving the award; (2) the GAO; (3) the Court of Federal Claims; and (4) the disappointed bidders local federal district court.

Each forum has it pros and cons. However, the GAO is by far the most popular forum for filing a bid protest on a federal contract award because of the detailed rules for hearing and the speed at which the matter is disposed of. Indeed, the GAO will rule on a bid protest within 100 days of a protest being filed with it. Moreover, with few exceptions, a claim filed with the GAO results in an automatic stay of award of the contract subject to the dispute.

When: A post-award bid protest must be filed with the GAO within ten (10) days. While there is no set time frame for filing a bid protest with either the Court of Federal Claims or a local federal district court, because bid protest filed there seek preliminary injunctive relief, they should be filed as soon as possible. In fact, any delay in filing a bid protest with the federal court may result in the claim being denied.

Sports fans are familiar with the scenario.  A team stands only seconds away from victory. It is so close many are already celebrating.  Suddenly, fate intervenes and a ball bounces off a glove, a half court shot swishes through the net, or a receiver catches a heaved touchdown pass.   That is what the losing team calls: snatching defeat from the jaws of victory.

Snatching defeat from the jaws of victory could also be used to describe the circumstances of a recently decided Pennsylvania Commonwealth Court decision in Allan A. Myers, LP v. Montgomery County.  The case involved the award of a county road paving contract.  Allan A. Myers was the apparent low bidder and winner of the contract.  In fact,  the County Commissioners passed a resolution announcing that Myers was the low bidder and awarded the contract to it.

However, before the paving contract could be formerly signed, the County entertained a bid protest from a disappointed bidder.  As a result of the protest, the County Commissioners adopted another resolution.  This one rescinded the prior resolution awarding the contract to Myers and awarding the contract now to the disgruntled bidder.

Not surprisingly, litigation ensued.  The trial court dismissed Myers’ case stating that as a matter of law “the mere act of awarding a public contract normally creates no binding obligation on the awarding entity without the proper contracting authorities going further and entering into and executing the contract.”

Myers appealed and argued that, under basic public contract principles, an enforceable contract existed when the County awarded the contract to Myers in the resolution.  The Commonwealth Court disagreed and affirmed the trial court’s dismissal of Myers’ action.  The Commonwealth Court explained that “where a statute prescribes the formal mode of making public contracts it must be observed, otherwise they cannot be enforced against the government agency involved.”

Looking to the statute governing the award of the paving contract, the Commonwealth Court reasoned that the language indicated that the Legislature intended that all contract be executed in order to be enforceable.

The take away.  Before you start celebrating a bid award, if the statute governing the award of your contract requires it to be executed to be enforceable, bird dog the government agency to get you that executed contract.

A recent Pennsylvania Commonwealth Court decision underscores how even a minor bid specification ambiguity can lead to a significant bid challenge.

In Greenstar Pittsburgh LLC v. Allegheny County, the Commonwealth Court considered whether the following section of a bid specification was ambiguous, thereby creating an uneven bidding playing field:

“The Contractor’s facility shall be located within a fifteen (15) mile radius from the City’s Department of Public Works … located at 30th and A.V.R.R.”

In the case, Greenstar, a disappointed bidder and individual taxpayer brought suit to enjoin the award of a contract for the processing of recycling materials.  Greenstar challenged the award of the contract to PRS, the apparent lowest responsible bidder, on the grounds that three sections of the bid specifications were ambiguous and gave PRS an unfair advantage in the bidding process.

In part, Greenstar claimed the term “facility” was open to two reasonable interpretations.  It claimed that facility could mean its home office or a processing site.  The trial court agreed and enjoined the award of the contract to PRS.  On appeal, the Commonwealth Court affirmed and the contract award remained enjoined.

The Commonwealth Court explained that “if a provision in bidding specifications denies the public the benefit of a fair and just competitive process by which the public authority can select the lowest responsible responsive bidder due to its ambiguity, the only remedy is to enjoin performance of the contract between the successful bidder and the public authority.”  The rationale underlying this principle is that “fairness lies at the heart of the bidding process, and all bidders must be confronted with the same requirements and be given the same fair opportunity to bid in free competition with each other.”

The definition of the term “facility” is not one that most bidders would likely seize on in attacking bid award.  Usually, contractors focus on ambiguities involving some portion of the bid itself, like a unit price or other line item.  Greenstar raises the question as to whether disappointed bidders should look elsewhere in the bid specification to challenge an award.  Surely, in every bid specification there exists one, if not several instances, of minor ambiguities that a disappointed bidder could use to challenge a bid award.

The lesson:  if you want to challenge a bid, look beyond the obvious ambiguities.

 

 

 

Greenstar Pittsburgh, LLC v. Allegheny Cnty., 1890 C.D. 2012, 2014 WL 346613 (Pa. Commw. Ct. Jan. 30, 2014)