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Every day, public agencies do something most homeowners owners wouldn’t even consider: they select the contractor that submits the lowest bid rather than the one that offers the best value. Many public officials recognize that picking the cheapest rather than the best option increases the risk of delays, defects, injuries, cost overruns, and litigation. But they say their hands are tied by state procurement rules.
Even private construction owners can fall prey to low bidders that fail to keep promises. Fortunately, there are several steps public and private construction owners can take to protect their projects from non-responsible contractors.
Project Labor Agreements
Many public owners determine that the public’s interests are best served by requiring that construction work is performed under a Project Labor Agreement (PLA). In addition to providing guarantees against labor disruptions, a PLA can help to ensure that construction work is performed by skilled labor, and that the jobs created by the project go to local residents.
Project Labor Agreements are frequently used for very large, complex projects such as the Viking’s Stadium, but they have also been successfully applied to much smaller projects. Any contractor can participate in a PLA project as long as they sign the project agreement. But because the agreement requires use skilled labor and payment of union wages and benefits, the projects are not attractive to contractors that have to cut corners to make a profit.
Prevailing Wage Requirements
Prevailing wage requirements obligate contractors to show that they pay construction workers no less than rates commonly used for a given type of work in a given locality. When enforced, prevailing wage requirements have three primary benefits.
First, prevailing wage requirements help to ensure that contractors can take advantage of the local skilled labor pool rather than scraping the bottom of the barrel for those less-skilled workers who are willing to accept sub-standard rates.
Second, prevailing wage requirements force contractors to compete on project management, skilled workforce, and quality control rather than low pay.
Third, prevailing wage requirements can help owners identify contractors cut corners on quality and safety, since these are the contractors most likely to be caught trying to cheat on payroll.
Responsible Contractor Policies
A new Minnesota state responsible contracting statute that took effect on January 1, 2015, requires bidders on state and local public works projects to certify compliance with legal and contracting requirements, and bars contractors with a history of certain serious or repeat violations from being awarded public work.
The law sets a floor, not a ceiling, for the purpose determining whether a contractor is “responsible” and therefore eligible to be selected. State and municipal agencies – which include school districts, water districts, etc. – are free to set a higher bar. For example, a school district might want to establish a responsible contractor policy that bars contractors that have allowed minor children on construction projects, or failed to demonstrate satisfactory performance on past school projects.