Procurement Questions and Answers

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Insurance_Requirements

Limited_Solicitations

Prevailing_Wage

Contractor_Withholding

Contractor_Performance_Security

Ethical_Obligations

RFP_Q&A


Insurance Requirements

In an effort to allow greater flexibility in establishing appropriate insurance requirements, State Procurement has partnered with the Risk Management and Tort Defense Division (RMTD) to develop the following guidelines for selecting insurance requirements for bids and proposals issued under the Montana Procurement Act:

STEP ONE: Determine what type of insurance should be required.

There are three separate types of insurance requirements that agencies should evaluate to fit specific insurance needs: Commercial General Liability, Automobile Liability, and Professional Liability. Agencies should work with the SPB or agency legal counsel to determine which insurance types should be included in the solicitation document. The SPB will contact the RMTD if questions arise about coverages, endorsements, and/or certificates of insurance. The three insurance types are:

Ø    Commercial General Liability Insurance should be required when contractors perform work on state premises or property, other than the routine delivery of supplies. This coverage should be required where supplies or services are procured that may seriously damage information technology networks or other important, critical, or complex systems or processes and thereby damage or create liability for the State.

Ø    Automobile Liability Insurance should be required if the contractor will be transporting state employees, state guests, state clients, or state personal property as part of the contract.

Ø    Professional Liability Insurance should be required for anyone who gives advice or provides services on which others have reason to rely and may be subject to legal action if the advice or service proves faulty.

STEP TWO: Evaluate the risk associated with the contract.

The RMTD recommends that state contracts require limits of $1,000,000 per occurrence/$2,000,000 per aggregate for Commercial General Liability insurance and Professional Liability insurance. For Automobile Liability insurance, the State is offering only the intermediate limit choice set out below that allows split limit coverage or a combined single limit of $1,000,000 per occurrence. The reason is that these limits most closely coincide with the State’s tort damage caps. However, RMTD recognizes that the State enters into contracts in which the standard levels of coverage may be excessive with certain contracts. Agencies should work with agency legal counsel to determine if the level of risk associated with the contract is low, moderate, or high. The size of the contract in and of itself should not determine coverage limits. Any questions should be directed to RMTD (444-2421). If exceptions are made to the $1,000,000/$2,000,000 recommended levels, RMTD must be notified.

RMTD has developed the following guideline as an aid in determining appropriate insurance requirements for various risk levels:

  LOW RISK MODERATE RISK HIGH RISK

CGL

(commercial general liability)

$300,000 per occurrence

$600,000 aggregate year

$500,000 per occurrence

$1,000,000 aggregate year

$1,000,000 per occurrence

$2,000,000 aggregate year

AUTO

(automobile liability)

Split limits of $500,000 per person (personal injury), $1,000,000 per accident occurrence (personal injury), and $100,000 per accident occurrence (property damage), OR combined single limits of $1,000,000 per occurrence to cover such claims as may be caused by an act, omission, or negligence of the Contractor or its officers, agents, representatives, assigns or subcontractors.

PL

(professional liability)

$300,000 per occurrence

$600,000 aggregate year

$500,000 per occurrence

$1,000,000 aggregate year

$1,000,000 per occurrence

$2,000,000 aggregate year

Please note that the level of risk may vary within the same contract if more than one type of insurance is required.


Limited Solicitations

1.         What is the purpose of limited solicitation? 

The “limited solicitation process” permits an agency to make purchases of services between $5,001 and $25,000 and purchases of supplies between $5,001 and $50,000, with only limited competition. This option is designed to be an intermediate step between "small purchase" procedures and the formal Invitation for Bid or Request for Proposal. A second objective of limited solicitation is to increase purchasing efficiency by allowing field and program staff to process most of their own procurements.  (By administrative rule, the State Procurement Bureau (SPB) does not require competition for purchases under $5,000.)

2.         What are the required procedures?

Agency personnel must obtain a minimum of three viable quotes, if available. Quotes can be oral, written, faxed, or e-mailed. Agencies must use SPB’s Limited Solicitation Forms, available on our website Procurement Forms section. Documentation is required, including vendors contacted, quotes received, complete product description and/or service requirements, and all award conditions (e.g., delivery requirements, sole brand, and packaging). If the purchase is based upon “sole brand,” a “Sole Brand” Procurement Justification Form, available on the above-listed website, is also required as documentation for the purchase. The contract must be awarded to the lowest acceptable quote if cost is the only consideration.

3.         Can factors other than cost be used?

Yes. It is allowable to use criteria other than cost (e.g., qualifications, available staff, references, etc.) in making an award. Vendors must be provided with all the criteria and their relative importance. The evaluation criteria must be completed prior to accepting responses. This method of limited solicitation must be done in writing.

4.         What does “viable quote” mean?

It means asking the appropriate and responsible vendors for quotes.

5.         What if three vendors are not available?

This may happen occasionally. If three are not available, include a short explanation why. Remember, you have to justify how you selected your vendors, so use good judgment.

6.         Should agencies include a list of standard terms and conditions with a limited solicitation?

In some cases, terms and conditions should be attached to the solicitation and the contract. This will require the solicitation to be done in writing. The minimum terms and conditions the State Procurement Bureau recommends are found on the backside of the SPB’s Limited Solicitation Form. Agencies should evaluate the service or product to determine if additional terms should be included, such as commercial general liability insurance, workers’ compensation insurance, and payment and shipping terms. Please contact the SPB at 444-2575 if you have any questions.

7.         Is it okay to fax a quote page to vendors rather than calling each one?

Yes. This may be more time efficient than calling because all of your conditions will be in writing with less chance for misinterpretation.

8.         What if I estimate the product to be under $25,000, and all quotes come in above $25,000?

If the lowest acceptable quote is significantly higher than anticipated, make no award and re-bid using other methods (sealed bid or proposal). If the lowest quote is slightly higher, contact the SPB at 444-2575.

9.         Do I need to issue a purchase order?

The State Procurement Bureau recommends using a written agreement for all purchases, but it is not required.

10.       Can I use a state procurement card for payment?

Yes, pro-card can be used as a payment method for any purchase. Just remember that use of pro-card is not a replacement for a competitive procurement method.

11.       If I use criteria other than cost, do I need to assemble a committee to review responses?

No, one person can perform the analysis.

12.       Can I use a limited solicitation process if I want the ability to renew the contract?

Maybe, however, if the total cost, including both the initial contract period, plus any possible renewal(s) exceeds $25,000, agencies must use either a formal sealed bid or proposal process. Limited solicitation is designed for one-time or small-dollar purchases that do not exceed a total contract value of $25,000.

13.       Can protests be filed on a limited solicitation purchase?

No. Per section 18-4-242, MCA, vendors may not file a protest on limited solicitations or small purchases.


Prevailing Wage

If you have a question about complying with the prevailing wage regulations (occupations, payroll forms, payment of fringe benefits, travel, or per diem, etc.), contact the Labor Standards Bureau Wage and Hour Unit. Call (406) 444-5600 and ask to speak to a Prevailing Wage Compliance Specialist.

Prevailing Wage Rates are revised and adopted yearly.

If you have questions regarding contracting, contact the State Procurement Bureau at (406) 444-2575 to speak to a Contracts Officer.

DISCLAIMER: THIS INFORMATION IS PROVIDED FOR THE PURPOSE OF GENERAL INFORMATION AND SHOULD NOT BE CONSIDERED AS LEGAL ADVICE OR COMPLETE COVERAGE OF THE TOPIC.

1.         What contracts issued under the Montana Procurement Act are subject to the prevailing wage requirements?

Generally, all public works contracts, whether for “construction” or “nonconstruction” services, which exceed a total contract value of $25,000, are subject to payment of prevailing wages. A “public works contract" is defined in 18‑2‑401(11)(a), MCA, as "a contract for construction services...or for nonconstruction services let by the state, county, municipality, school district, or political subdivision in which the total cost of the contract is in excess of $25,000.”

As defined in 18-2-401(3)(a), MCA, "construction services" means, “work performed by an individual in building construction, heavy construction, highway construction, and remodeling work.”  Contracts excluded from construction services are, "engineering, superintendence, management, office, or clerical work on a public works project; or consulting contracts, contracts with commercial suppliers for goods and supplies, or contracts with professionals licensed under state law." 18-2-401(3)(b), MCA.

Payment of prevailing wages is required in public works contracts for “nonconstruction services”, defined in 18‑2‑401(9), MCA, as, “...work performed by an individual, not including management, office, or clerical work, for:

(a) the maintenance of publicly owned buildings and facilities, including public highways, roads, streets, and alleys;

(b) custodial or security services for publicly owned buildings and facilities;

(c) grounds maintenance for publicly owned property;

(d) the operation of public drinking water supply, waste collection, and waste disposal systems;

(e) law enforcement, including janitors and prison guards;

(f) fire protection;

(g) public or school transportation driving;

(h) nursing, nurse's aid services, and medical laboratory technician services;

(i) material and mail handling;

(j) food service and cooking;

(k) motor vehicle and construction equipment repair and servicing; and

(l) appliance and office machine repair and servicing.”

2.         What is a "contract term" or "period" for purposes of applying the prevailing wage requirement? Is it only the initial contract term, or does it include possible renewal periods the State may employ?

It is the initial contract term plus any possible renewal periods the State may exercise.  A contract with renewal periods that could make the total contract value exceed $25,000 must include application of the prevailing wage rates. Administrative Rules of Montana (ARM) 24.17.141 and 24.17.144 address the requirement to pay the prevailing rate of wages on public works contracts.

3.         On occasion, the State of Montana issues bids from which multiple contracts to multiple vendors may be awarded. If the individual contracts issued as a result of a bid do not each exceed $25,000 in total contract value, must the requirement for the payment of prevailing wages be included?

In accordance with 18-2-401(11)(a), MCA, and ARM 24.17.501, the requirement to pay the prevailing wage rates is determined by the total value of the contract or contracts resulting from a solicitation issued by the State. Thus, if the State issues a bid with the intent of issuing multiple contracts, all contracts awarded under that bid are subject to payment of prevailing wages if the total value of all the contracts awarded exceeds $25,000.

4.         If multiple contracts are issued under a single solicitation, and the contracts are awarded in multiple districts, does that affect the wage and benefit rates?

Yes. All contracts must use the highest wage and benefit rates applicable to the relevant occupation [ARM 24.17.144 (2)].

5.         At times, a state agency may issue a bid for nonconstruction services for field sites around the state. Taken alone, none of the work at these sites would exceed the $25,000 per year mark. However, if added together in the bid, the sum of the potential contracts would exceed $25,000 per year. Should prevailing wages be required?

Again, if the State issues a single bid for multiple contracts which total in excess of $25,000, all contracts are subject to payment of the prevailing wages, as it is considered one contract regardless whether the bid is for field sites around the state.

6.         Must business owners pay prevailing wages to family members in their employ?

Yes. There is no exemption for family members of owners for the purposes of paying prevailing wages.

7.         Must prevailing wages be paid when contracting with Sheltered Workshops for services such as janitorial or mail handling?

To be exempt from paying the applicable prevailing rate of wages when contracting with Sheltered Workshops, the contractor must meet the requirements of 18-2-403(5), MCA, which states that, “An employer who, as a nonprofit organization providing individuals with vocational rehabilitation, performs a public works contract for nonconstruction services and who employs an individual whose earning capacity is impaired by a mental, emotional, or physical disability may pay the individual wages that are less than the standard prevailing wage if the employer complies with the provisions of section 214(c) of the Fair Labor Standards Act…, and the wages paid are equal to or above the minimum wage require{ments}.”

8.         Does the specific prevailing wage rate or rate book have to be attached to the bid document or can it simply reference DLI's website?

Section 18-2-422, MCA, and ARM 24.17.144 clearly require that all public works contracts and bid specifications contain a provision stating for each job classification the standard prevailing wage rate, including the fringe benefits, the contractors and employers are obligated to pay. The appropriate wage rate booklet must be attached to the contract/bid documents. Simply referencing DLI's website is not acceptable. Both the IFB and RFP templates contain standard language for including the current prevailing wage rates.

9.         When prevailing wage requirements apply to a contract, do the requirements apply to all disciplines within that contract, with the exception of management, office, or clerical work?

Not necessarily, as it depends on what work is called for in the contract. There may be services for a particular craft, trade, or occupation that are not nonconstruction services. However, when there is some question whether any portion of the work to be performed constitutes nonconstruction services, it is advisable to contact the Department of Labor and Industry (ARM 24.17.124) for a new job classification and commensurate rate of wages and benefits for a particular craft, trade, or occupation.

10.       What if a project includes several job categories and some of these categories are not listed in the rate books, e.g., boat or snowmobile operation? Do we assume that prevailing wage rates do not apply to these categories? How do we determine which rate should apply?

The absence of specific job categories within a rate booklet does not necessarily imply payment of prevailing wages is not required. If there are job categories not listed in the rate books, you will need to contact DLI's Labor Standards Bureau Wage and Hour Unit. Under ARM 24.17.124, a public contracting agency has the option to request establishment of a special job classification and commensurate rate of wages for a particular craft, classification, or type of worker needed for a particular project. Such a request must be made at least 30 days prior to advertising for bids or letting a contract.

11.       Section 18-2-417, MCA, requires any public works contract that exceeds 30 months to be fully performed include a provision requiring an adjustment of a 3% increase to the prevailing rate of wages. When is this adjustment effective? Is it the State's responsibility to pay the adjusted rate?

For a public works contract with an initial term greater than 30 months, the prevailing wage rate must be adjusted 12 months after the contract is effective and must be applied every 12 months for the term of the contract. Any increase in the standard rate of prevailing wages for workers is the sole responsibility of the contractor and any subcontractors, and not the contracting agency.

Although not required for this situation, the contracting agency may choose to include in the contract the requirement to pay increased wages and benefit amounts following each 12-month anniversary date of the contract.

12.       What constitutes a 30-month contract? Is a one-year contract with three one-year renewals considered a 30-month contract?

A contract becomes subject to the 3% rate increase when the contract length becomes more than 30 months. In the case of a one-year contract with three one-year renewals, if the initial 12-month contract is renewed annually, the 3% rate increase becomes effective upon the second renewal, and the 3% is paid starting in the third year of the contract, beginning with the 25th month.

13.       A contract is issued for a three-year period. The contractor is required to pay the prevailing wage in effect at the time the solicitation was issued with 3% increases every 12 months. What rate should the contractor pay if after the initial three-year period, the contract is renewed for a new two-year period?

If the initial contract provides for an extension of the contract at the same negotiated compensation rate originally agreed on, this constitutes a "renewal" that would utilize the same prevailing wage rates (base and fringe benefits) in effect at the time of the initial solicitation.

An increased or decreased compensation rate for the contractor during the agreed extension of the contract constitutes a "renegotiation" and the prevailing wage rates in effect at the time of such renegotiation would apply. In addition, the 30-month period restarts.

14.       If a one-year contract with three one-year renewals is considered a 30-month contract, does the original wage rate specified in the solicitation need to be adjusted to the then-current wage rate, and then be adjusted by 3%?

A contract which has the potential to exceed 30 months in duration will use the original wage rate (base and fringe benefits) throughout its duration unless the compensation rate for the contractor is renegotiated. See question 13.

If the original solicitation contemplates either an original contract term which exceeds 30 months, or periodic renewals which could cause the term of performance to exceed 30 months, the solicitation should, but is not required to, mention the requirement for a 3% increase in wages to be paid by the contractor.

15.       If at time of renewal, the State has established new prevailing wage rates and the new prevailing wage rate represents a decrease, is a contractor responsible for adding 3% to the new lower prevailing wage rate?

If the contract is renewed with no change in the compensation rate paid to the contractor, then the prevailing wage rate remains based on the rates in effect for the original contract, and the contractor must calculate increases on the original rates.

If the contract is renegotiated, with an increase or decrease in the compensation rate paid to the contractor, then the wage rate is based on the rates in force at the time the renegotiated contract is effective. This change in the compensation rate restarts the 30-month period.

A contract renegotiation restarts the 30-month period AND implements use of the current prevailing wage rates.

In the case of a contract renewal with no renegotiation, after 30 months, the 3% increase applies. The 3% increase continues to apply every 12 months as long as the contract is renewed without renegotiation.

 

EXAMPLES

GREATER THAN 30-MONTH CONTRACT

12-MONTH CONTRACT

12-MONTH CONTRACT

18-MONTH CONTRACT

3% must be applied

every 12 months

1st 12 months

NO 3% INCREASE

1st 12 months

NO 3% INCREASE

1st 18 months

NO 3% INCREASE

A renegotiation at the end of the contract restarts the 30-month period,

AND current prevailing wage rates APPLY

2nd 12 months with

NO renegotiation in contract

NO 3% INCREASE

2nd 12 months WITH

a renegotiation in contract

3% INCREASE

DOES NOT APPLY, but current prevailing wage rates APPLY

(30-month period restarts)

2nd 18 months with

NO renegotiation in contract

3% INCREASE APPLIES starting in the 19th month

(reached 30-month threshold)

A renewal at the end of the contract continues the 3% increase

3rd 12 months with

NO renegotiation in contract

3% INCREASE APPLIES starting in the 25th month

(reached 30-month threshold)

3rd 12 months with

NO renegotiation in contract

3% INCREASE

DOES NOT APPLY

3rd 18 months with

NO renegotiation in contract

3% INCREASE APPLIES

 

4th 12 months WITH a renegotiation in contract

3% INCREASE

DOES NOT APPLY, but current prevailing wage rates APPLY

(30-month period restarts)

4th 12 months with

NO renegotiation in contract

3% INCREASE

DOES NOT APPLY

4th 18 months WITH

a renegotiation in contract

3% INCREASE

DOES NOT APPLY, but current prevailing wage rates APPLY

(30-month period restarts)

 

5th 12 months with

NO renegotiation in contract

3% INCREASE

DOES NOT APPLY

5th 12 months with

NO renegotiation in contract

3% INCREASE APPLIES

 

 

6th 12 months with

NO renegotiation in contract

3% INCREASE APPLIES starting in the 25th month

(reached 30-month threshold again)

6th 12 months with

NO renegotiation in contract

3% INCREASE APPLIES

 

 

7th 12 months with

NO renegotiation in contract

3% INCREASE APPLIES

7th 12 months with

NO renegotiation in contract

3% INCREASE APPLIES

 

16.       Section 18-2-421, MCA, requires that a notice of acceptance and the completion date of the project must be sent to the Department of Labor and Industry when a public works project in the amount of $50,000 or more is accepted by the public contracting agency. Does the acceptance and completion date notice requirement of 18-2-421, MCA, apply to nonconstruction services? If so, when would the notice be issued?

Yes, the notice applies to nonconstruction services including service contracts. The notice must be issued when all the terms of the contract have been satisfactorily performed, and when the initial contract and any permitted extensions have expired. The completion date of the project for nonconstruction services is the last date services were rendered. The notice should state the agency's approval and final acceptance of the project and provide the date of acceptance.

In addition, should a warranty period exist, the beginning and completion dates should be included. This notice then triggers DLI's 90-day audit period to determine whether the contractor has paid workers less than the standard prevailing wage. A sample Completion Notice is available at the following link: Procurement Forms section.

17.       Is the required 3% wage increase a 3% increase of the per-hour wage only or would it also require a 3% increase in the benefit rate?

Section 18-2-417, MCA requires an adjustment to the “standard prevailing rate of wages.” The standard prevailing rate of wages is defined as wage rates including all fringe benefits. Therefore, the 3% adjustment would apply to the total of the per-hour wage plus the benefit rate.


Contractor Withholding

1.         Who is responsible for notifying the Department of Revenue (DOR) that a “public     works” contract over $5,000 has been issued?

The agency issuing the contract is responsible for notifying DOR that the 1% withholding requirement will apply to the project. The issuing agency completes DOR’s “Contractor Withholding Award Report,” which is available on the State Procurement Bureau's (SPB) website at the following  Procurement Forms section. The SPB will complete the form if it conducted the procurement on behalf of a state agency.

2.         Who is the “awarding party” for the purposes of the DOR forms?

The “awarding party” is the agency that the contract is being issued for – in essence, the “responsible party.” If the SPB conducted the procurement, a SPB contracts officer will sign it as the “Preparer” on behalf of the state agency.

3.         How is DOR’s “Gross Receipts Withholding Report” completed?

If the SPB conducted the procurement, a SPB contracts officer will fill out sections 1, 2, 3, 4, 5, and 11 and then forward the form to the state agency for completion. Again, this form is available on the SPB website at: Procurement Forms section

4.         What types of contracts are covered by the contractor withholding tax?

First, it applies to all public contracts at every level of jurisdiction. Second, pursuant to the DOR administrative rules, the term “construction” should be broadly construed. "Public construction work" includes any work requiring the installation, addition, placement, replacement, or removal of any equipment, parts, structures, or materials exceeding $5,000 whether or not such contracts require performance of service, maintenance, repair, or any other type of work in addition to, or as part of, the work as stated above. (See ARM 42.31.2101.) Therefore, this tax applies to anything related to construction, repair, maintenance, etc. However, it does NOT apply to “services” associated with maintaining buildings, such as janitorial services or elevator maintenance (unless it involves structural changes to accommodate new equipment). It does apply to things like carpet installation (if over $5,000), carpet removal (because it typically goes with some sort of improvement/replacement of floor treatment), retrofit of heating, ventilation, and air conditioning systems, removal of phone cables (if it involves conduit removal or wall repair, but not if it just involves pulling wires through conduit), installation of telephone or IT cable (unless it is just an upgrade through existing conduit), etc. If you need assistance in determining whether the contractor withholding tax applies, contact the Department of Revenue at (406) 444-3500.

5.         Does DOR have a position on how information about the tax is reflected in bids?

No. DOR suggests that it be left up to bidders as to how they bid their jobs. The SPB and agencies will still award to the low bidder. Whether the tax is paid out of that amount or paid separately is up to the bidder.


Contractor Performance Security

1.        What is “contract performance security”?

“Contract performance security” is a financial guarantee that is available to the State should a contractor fail to faithfully perform a contract or pay workers, subcontractors or material suppliers who have worked on the contract.

2.         Does the State have an option on whether or not to require contract performance security?

For contracts issued under the authority of the Montana Procurement Act, the State has an option on whether or not to require contract performance security. In fact, under section 18-4-312, MCA, the State has three choices to make concerning contract performance security:

·  Should contract performance security be required for this contract?

·  If so, in what amount?

·  And if so, what types of security should be accepted?

For contracts issued for construction projects, contract security equal to at least the contract sum is required for all projects over $50,000 (Mont. Code Ann. § 18-2-201).

3.        What does the contract performance security cover?

Under section 18-4-312(1), MCA, of the Montana Procurement Act, two things are covered by contract performance security:

·  the faithful performance of the contract and

·  the payment of all laborers, suppliers, mechanics, and subcontractors.

This means that if a contract is breached, the contract security should cover the additional cost of getting the contract completed by a different contractor and the payment of any outstanding wages or payments owed to workers, subcontractors, or suppliers.

4.        What types of security are allowed?

Under the Montana Procurement Act, the following types of security may be accepted by the State: a bond with a licensed surety company; a letter of credit; cash; a cashier’s check; certified check; bank money order; certificate of deposit; money market certificate; or bank draft that is drawn on a federally or state chartered bank or savings and loan association or that is drawn and issued by a credit union. Personal checks are not accepted. See section 18-4-312, MCA, for full details. It is important to note that the State is not required to accept all types of security and retains the option of only accepting certain types of security, such as a surety bond.

Please note that any security must be in a form that the State can utilize without any further approval of the contractor. For example, all certificates of deposit must be assigned only to the State of Montana and must not require the signature of the contractor.

5.         Is one type of security preferable to another?

Yes! Surety bonds are much more valuable to the State as contract security than other security options (letter of credit, certificates of deposit, etc.) for the following reasons:

·  Surety bonds cover 100% of the value of the contract even if the State only required “25% of the contract value” for instance. On the other hand, letters of credit or certificates of deposit are only for a specified amount. If, therefore, the State needs to recover costs due to a breach of contract, the letter of credit will only cover costs up to a certain dollar amount. In contrast, a bond makes the State “whole” and the State will more likely not be left with unpaid costs due to a breach of contract.

·  Letters of credit are issued for a particular length of time and could expire before a problem is discovered. In contrast, a surety bond remains in effect until the contract is complete.

Agencies need to be aware that surety bonds are harder for some businesses to obtain and that the cost of the business obtaining the surety bond is typically passed along to the State in the form of higher contract costs. 

6.        What factors should an agency consider in making a decision on whether contract performance security is required and if so, what type of security should be acceptable?

First, an agency needs to decide if contract performance security should be required based on several factors:

·  The nature of the contract;

·  The potential cost of completing the project if there is a breach of contract;

·  Whether the agency can afford to self-insure the risk;

·  Will numerous workers, subcontractors and material suppliers likely be involved;

·  Whether other contract management tools can be used to help control any risks in contract performance such as liquidated damages, retainages, deliverables, etc.;

·  Performance history of similar contract endeavors.

If a decision is made to require contract security, the next step is to decide what types of contract security instruments should be accepted. Agencies should consider accepting only surety bonds for contract security in the following instances:

·  If the contract involves software development;

·  If there is a risk that the State would be left with great expense in getting a contract completed in the event of a breach of contract midway through a project;

·  The contract involves many workers, subcontractors, or material suppliers that might be left unpaid by the contractor in the event of a breach of contract.

Agencies should consider accepting all forms of lawful contract security (surety bonds, letters of credit, money market certificates, certificates of deposit, or cash) in these instances:

·  If the risk to the State of a breach of contract is minimal;

·  If the costs associated with completing a contract in the event of a breach of contract will not be great; or

·  If the contract is for a small dollar amount.

7.        Does the State Procurement Bureau have Standard Statements to address situations where an agency might want to limit the types of contract security it requires?

The State Procurement Bureau has two Standard Statements available regarding contract security. One is for the situation where only surety bonds will be permitted and the second is available for those instances where contract security will be required, but forms of security other than surety bonds would be acceptable (see the Standard Contract template located at Procurement FormsSection 15.3, “Contract Performance Security.”)

8.        Are there times when contract security should always be required?

Other than in construction contracts, no. Each case must be looked at to determine the State’s monetary risk coupled with the additional costs or inefficiencies of security. If the task is important and risky, an array of incentives, payment timing, retainages, and other strategies should be put in place to help insure contract completion, in addition to contract security. The key thing to understand is that we don’t really want damages; we want performance.

9.         How much security should be required?

Under the Montana Procurement Act, the State has the option of deciding how much contract performance security to require. The first thing to note is that the courts will not allow the keeping of any more security than it takes to make the State “whole.” Security should be no more than the amount the State could possibly lose on a contract. Often the measure of damages is how much it would cost to replace the failed contract with another one and how much it would take to pay off workers and subcontractors if the contractor failed to pay them. However, the amount of damages should be balanced against the risk of a breach of contract versus the increased cost of the contract due to a contractor passing along the costs associated with obtaining the required security.

If there are times within a contract period where more or less is at risk, the requirement can be for differing levels of security. You can also require retainages or pay only after certain mileposts have passed. Coupling liquidated damages with security requires consulting with your legal counsel because often you forego getting both actual and liquidated damages unless the contract is crafted very carefully.

NOTE CONCERNING CONSTRUCTION CONTRACTS: If the contract in question is for “construction over $50,000” (as defined in section 18-2-101, MCA), contract security must be required for at least 100% of the value of the contract.

10.      What are “liquidated damages” and when should this be required instead of contract performance security?

Where actual damages would be very difficult to determine after a breach of contract, we are allowed to set the presumed amount of actual damages as “liquidated damages.” To do so, you must use your best efforts to determine this amount accurately. This requirement for liquidated damages must be stated in the RFP or IFB document. Once you have agreed to take your damages in this form, you forego actual contract damages even if they are much greater. Be forewarned that the courts tend to frown on the use of liquidated damages (see section 28-2-721, MCA).

To require both liquidated damages and contract performance security, you must be very specific in your contract since they both can’t cover the same thing. Liquidated damages might be for only some types of deliverables and it must be clear that the intent is to not limit other damages, such as payment of workers and subcontractors. If this becomes an issue, see your attorney.

11.      What should be done to collect on a surety bond or letter of credit?

First, read your contract on the subject of “notice to cure” provisions. Second, contact your attorney. After consultation with your attorney, contact the surety company or banking institution to inform them of the situation. Be ready to provide extensive documentation concerning the breach of contract and your ensuing damages.

12.      What is “notice to cure”?

It is a requirement that the parties give notice to the other when there is a problem. A time to “cure” or fix the problem is usually given. If there is a failure to fix or cure the problem, the parties move to the next level, which will involve collecting on a surety bond or letter of credit in order to complete the project.

Agencies are now required to use the State’s forms for accepting irrevocable letters of credit or surety bonds. These forms do not contain provisions for “notice to cure” requirements. If, however, other forms of bonds or letters of credit were accepted by an agency or are already on file, the documents may contain mandatory “notice to cure” requirements. Be sure to read the fine print of these documents before terminating or threatening to terminate a contract!

NOTE: Be sure to read the contract as soon as any problems develop and certainly before starting to terminate a contract. The contract may have “notice to cure” requirements that have to be met first.

13.      What is the difference between a “performance security” or “contract security” and “bid security” or “RFP security”?

“Performance or contract security” typically insures performance of the contract and payment of workers and is usually referred to as “contract security.” “Bid or RFP security” just insures that a bidder or offeror is willing to enter into a contract after award.

14.      What is the difference between a “performance, labor, and materials bond” (PLM), a “contract bond” and a “payment bond”?

Different terms have been used interchangeably for many years, but the differences need to be paid attention to. “Performance, labor, and materials (PLM) bonds” are typically used for construction projects and are referred to in state construction law (Mont. Code Ann. §§ 18-2-201 and 60-2-113). A PLM bond is issued to insure that the contractor and subcontractor labor and material suppliers are paid should the contractor be unable to pay and to cover the cost of completing or “performing” the contract.

A “contract bond” is generally meant to cover the same things as a PLM bond – the faithful performance of the contract and any unpaid wages or invoices left behind due to a breach of contract. Sometimes however, the requirements for a bond are broken out by a “payment bond” which is designed to pay any unpaid wages and invoices, and a “performance bond” which is issued to cover the costs of finishing or “performing” the contract.

Contracts issued under the Montana Procurement Act require a “contract bond” that covers both the unpaid wages and invoices and the faithful performance of the contract.

15.      Is the State liable for unpaid wages and invoices left behind by a contractor if we don’t require contract security?

Under state construction law in section 18-2-202, MCA, an agency is considered liable for unpaid workers, material suppliers, and subcontractors if it didn’t require the necessary PLM bond. If construction is not involved, the requirements for “contract security” are governed by the Montana Procurement Act in section 18-4-312, MCA. In this instance, the law permits the agency to decide if security will be required and if so, in what dollar amount. A statement similar to the liability requirement in section 18-2-202, MCA, for construction does not exist in the Montana Procurement Act.

16.      What does it mean that contract performance security should be “in effect for the entire contract period”?

When you request contract performance security it must be in place for the entire contract term. “Entire contract term” means the initial contract period, not including possible renewals. This means that if a contract runs for a three-year period, the contract security has to cover all three years. If a vendor wants to get security for shorter periods there is no guarantee they can get it for later. In essence, the vendor who cannot get security for the entire period has not met the solicitation requirements and may be not considered a “responsible” or “responsive” bidder or offeror as defined in section 18-4-301, MCA.

If your vendors cannot get security for the entire period, you may have asked for too much or maybe the vendor, in the financial institution’s mind, has a high risk of failure. If time allows, you might try providing the vendor with a list of other financial institutions that have supplied bonds or letters of credit for similar procurements to other contractors before you move on to the next vendor, or suggest that they contact the federal Small Business Administration “Surety Bond Guarantee Program” at (406) 441-1081 in Helena. On rare occasions, you may be faced with a situation of needing to accept contract security for a time period less than the full contract period. If this is unavoidable, be sure to have language in the contract that requires at least a 90-day notice to you stating that the contractor has obtained security for the following time period. If you don’t receive this assurance of security coverage, you will need to take steps to terminate the contract and then proceed to solicit a new contractor.

NOTE: Contracts must not be renewed until new or renewed contract security is in place covering the entire period of the renewal.

17.      Can contract performance security requirements be altered after the contract has been awarded?

No.  The State has a duty to award contracts based upon the specifications that were set out. An amendment to specifications before signing a contract should not be allowed.

18.      What should we do if a vendor is having a hard time getting contract performance security?

First and foremost, every vendor should have checked out his or her ability to get contract performance security before submitting a bid or offer. Obviously the cost of obtaining security needs to be figured into their submitted prices and we would question the reliability of any company not considering this.

In the event a vendor does discover that they are having difficulty in getting the required security, your agency can assist the vendor in considering other options. Can they go to another bond company or financial institution? Can they put up sufficient collateral to secure a bond or loan? Did they consider putting up personal property as collateral? Have they contacted the federal Small Business Administration “Surety Bond Guaranteed Program”? If all fails, go to the next vendor or cancel and reconsider your specifications before you go out again. Do not risk state resources by waiving a security requirement!

19.      Are there any special forms to be used when accepting a surety bond or irrevocable letter of credit?

Yes, pursuant to ARM 2.5.502 the Department of Administration will supply the forms required to submit a surety bond or an irrevocable letter of credit for either contract performance security or for bid/proposal security. These forms can be found at http://emacs.mt.gov/AgencyProcurementForms. This requirement to use these forms must be included in any solicitation requiring contract performance security or requiring bid/proposal security, unless the State Procurement Bureau approves an alternative form. The specific forms are: “Contract Performance Bond,” “Bid or Proposal Bond,” and “Irrevocable Letter of Credit.”

20.      What if there is a conflict between the language in a bond and the requirements of an RFP?

The State now requires that contractors use the State’s Contract Performance Bond form or Irrevocable Letter of Credit form to submit bonds or letters of credit as security. Before an RFP is drafted, be sure that nothing in the RFP conflicts with the required forms.

21.      What is the approximate cost of a vendor obtaining a bond for $100,000 for instance?

Bonds are like insurance. It depends on the level of risk of the activity, the soundness of the insured, and the knowledge of the insurer. The cost of a bond for $100,000 can range from $250 to $10,000. “Prime clients” may be required to only pay $250 per $100,000, while a “weak company” in the eyes of the surety company, will be charged the higher rates in order to be comfortable in providing the risk.

Where there are renewal periods, each extension should be treated as a new bond with a new cost by the bonding company. Sometimes the total cost of a bond may increase if there are renewals based on other agreed-to formulas.

Sometimes a potential contractor will overstate the importance of this cost in order to test your resolve in requiring a certain amount. Or sometimes, a vendor may have a business history that is uninsurable and clearly the State should not be contracting with them. At other times, however, the security requirements may make a project unreachable for small businesses and the State should consider this and examine the risks associated with a specific project before setting a required security amount.

22.      What is the difference between “contract performance security” and general liability insurance?

“Contract performance security” is a bond that insures that the vendor will carry out its part of the contract. “Liability insurance” is insurance that covers an array of personal and property damages the vendor may cause to others, including the State, while carrying out their part of the contract. Liability insurance does not cover a breach of contract.

23.      Are there major pitfalls concerning contract performance security?

Yes! First, understand that bonding companies are not in business to pay you. They plan on keeping their money. You may well have to litigate with the bonding company and the contractor who has somehow breached the contract to recover any of your costs. Remember, contract performance security is not a “fine,” but rather a way to recover the expenses of a getting a new contract in place if the first one fails, and paying unpaid workers, subcontractors, or material suppliers.

Unfortunately, sometimes even if the State does have the right to recover some costs, the vendor may already be bankrupt. Expect claims on any money from everywhere – the federal government, other state governments, creditors, laborers, and material suppliers. All will be claiming some sort of priority and it may take years to clear up.

Second, one key to a successful project is developing specifications and evaluation factors that lead to a qualified vendor in the first place. Another crucial key for the State is contract monitoring. Agencies must be prepared to devote the resources necessary to monitor the contract to assure that performance standards are met so we don’t have to ever claim any security.


RFP Q&A

RE:     PUBLIC MEETINGS

1.         How do Montana's public meeting laws apply to RFP procurement?

Section 2-3-103, MCA, directs agencies to develop procedures that ensure adequate notice and assist public participation before a final agency action is taken that is of "significant interest to the public." The award of a contract is considered to be such an agency action. Therefore, all RFP evaluation committee meetings involving the award of a contract must be open to the public and public notice must be given.

2.         At what point in the procurement process do we have to post notice of evaluation committee meetings?

Only meetings that involve an evaluation process or competing offers where the award of a contract is considered must be posted. A meeting to discuss a “best and final offer” with a company would need to be posted since the evaluation committee is still “evaluating” competing offers in considering the award of a contract. However, meetings involving the following do not need to be posted: (a) meetings to discuss and/or draft an RFP; (b) meetings to discuss a “Request for Information” unless it involves an “evaluation” or “prequalification” process; (c) meetings involving contract negotiations since the highest scoring offeror has been selected and the evaluation process is over; (d) meetings to discuss extending/renewing a contract; (e) meetings to discuss canceling an RFP or contract; and (f) meetings to review a sole source situation.

3.         How much public notice must be given?

72 hours.

4.         When does the clock start running on the 72-hour notice requirement?

Once it is posted. What is important is that the information be accessible to the public for 72 hours; it is considered accessible once it is posted electronically. Whether the time involves working days or calendar days does not matter.

5.         Are we required to specifically invite people (vendors, press) to every meeting?

No, posting the meeting notice is sufficient.

6.         Do evaluation committee meetings need to be advertised in a newspaper?

No. Section 2‑17‑532, MCA, only requires that agencies use electronic access systems such as the internet to communicate information regarding upcoming public meetings.

7.         Can offerors make a recording of the evaluation committee meetings and oral presentations?

Yes, anyone can.

8.         Should we have a sign‑up sheet at every oral presentation and meeting of the evaluation committee?

Yes, in order to document attendance. However, the public is not required to sign it.

9.         Can public comment be accepted at an RFP evaluation committee meeting?

No, it is not a public hearing. The public may observe the deliberations pursuant to the “right to know” provision of Montana’s Constitution, Article II, § 9, and section 18-4-304, MCA, but not participate because the award of a contract must be made to the responsible and responsive offeror whose proposal best meets the evaluation criteria. Other factors or criteria may not be used in the evaluation. However, members of the public present at an RFP evaluation committee meeting may request a public hearing on the matter if so desired.

10.       Can vendors offer suggestions and/or information during meetings of the evaluation committees?

No, not unless the vendor is specifically involved in a meeting to clarify parts of its own proposal.

11.       Can evaluation committee members ask questions of the vendors who might be present at an evaluation committee meeting?

No, not unless representatives from every submitted proposal are present and available to answer questions, and then only if the chairman of the evaluation committee feels the questions would provide critical information to the committee. The exception to this rule is noted in Question 10.

12.       Do we need a procedure concerning which vendor has to give their oral presentation first?

Yes. We suggest that you consider drawing names and then allowing the first vendor to have the first pick of available time slots and so forth.

13.       Do we have to release the names of the evaluation committee members?

Yes, if asked.

14.       Are we required to appoint an evaluation committee for every RFP we issue?

No, there is no law or rule requiring it, but ARM 2.5.602(4) allows for it.

15.       Can an interested party “listen in” to the evaluation committee meeting via a conference call?

Yes, unless the interested party is not willing to bear the cost of the phone call or if the agency is technically unable to honor the same request from multiple vendors.

16.       Does it matter where the evaluation committee meets?

Yes, all evaluation committee meetings must be held in facilities that comply with the requirements of the Americans with Disabilities Act.

17.       Do we have to keep minutes of evaluation committee meetings?

Yes, per section 2-3-212, MCA, minutes must be kept and available to the public. The statute lays out what must be included in the minutes.

18.       Are on-site visits to a vendor’s business location considered a “public meeting”?

Yes. If a quorum of the evaluation committee will be participating in an on-site visit to a business location, the meeting must be treated as a “public meeting” and it must be open to the public and notice of the on-site visit provided.

19.       Must a 72-hour notice be given to cancel an evaluation committee meeting?

No, all meeting times and places are subject to change. Interested parties should call the contact person to verify the time and location of the meeting.

20.       Can an evaluation committee meeting be “continued” the next day without additional public notice?

Yes, if the evaluation committee was not able to complete its agenda for the originally posted date.

RE: OPEN RECORDS

21.       When are proposals open for public inspection?

Only after the formal time/date set for opening of proposals, and then only after the proposals have been reviewed by a procurement officer to locate and remove any trade secrets.

22.       Are draft documents open to the public?

Drafts do not need to be open unless the documents will be retained as part of the permanent procurement file. Generally, preliminary drafts of any report, letter, memorandum, or worksheet are considered “non-record” material that can be destroyed when they have served their purpose. See sections 2-6-202 and 2-6-401, MCA. However, if litigation is involved, all documents are “discoverable.”

23.       Are individual scoring sheets open to the public?

Yes, the individual scoring sheets will be retained as part of the permanent procurement file.

24.       Are draft scoring sheets open to the public?

Yes, if they are retained in the permanent procurement file.

25.       Where is the final procurement file kept?

For all procurements managed by the State Procurement Bureau, the final procurement files are located in their office. If an agency handles its own proposal process (as spelled out in a delegation agreement with SPB), then the final file will be located at the agency’s purchasing office.

26.       When are “best and final offer” documents available for public inspection?

The documents are available only after the time/date set for opening of the offers.

27.       If a price sheet is requested to be submitted separately from the rest of the proposal, can the public inspect that information anyway?

No, only when it is “opened” will it become public information, and then only after the procurement officer has had time to review and copy the information for distribution to the committee members.

28.       Should we request extra copies of proposals for public inspection?

Yes, one extra set should be requested for public inspection and copying.

29.       Should we have a copying policy in place in the event interested vendors would like copies?

Yes. According to ARM 2.5.602(12), interested parties are responsible for making their own arrangements for making copies of proposal materials. The State Procurement Bureau allows interested parties the use of a small photocopier at a charge of $.10 per page. Interested parties may also bring their own photocopier into the SPB office to make photocopies.

30.       Should interested parties be required to make appointments to see the documents?

Making appointments is encouraged to ensure that no one else will be trying to review/copy the documents at the same time or that the photocopier is not tied up.

31.       Do we need to inform the public about who was mailed a copy of the RFP?

Yes, if asked.

32.       Can we tell the public who responded to the RFP?

Yes, but only after the time/date set for receipt of proposals.

33.       Can we suggest that vendors follow a “gentlemen’s agreement” to not sit in on their competitors’ oral presentations?

No, but we can convey the wishes of a vendor that everyone should agree to not attend their competitors oral presentations or clarification sessions.

34.       Are evaluation matrices considered “public documents”? If so, when can they be released?

Yes. Evaluation matrices are public documents once they have been reviewed and approved by the procurement officer and the proposal responses have been released to a committee to begin its review.

35.       What should evaluation committee members do with copies of bona fide trade secret information that they reviewed in the course of their evaluation of a proposal?

A master set of the information should be placed in a sealed envelope and retained in the official agency file. All other copies should be returned to the procurement officer to be shredded and discarded.

36.       Can a company request that financial information be withheld from public inspection?

Yes, financial information can be withheld from public inspection provided that the information is not already publicly-released. The information must be properly marked, separated and documented to signify the vendor’s intent to withhold it from public viewing.

RE: RFP PROCESS

37.       Should we retain the “single point of contact” policy?

Yes, it is very important that one person address all of the questions and information releases.

38.       How many “best and final” offers should we permit?

Only one.

39.       Can procurement officers provide information on the phone to vendors about a competitor’s proposal, such as the prices and the business practices of another vendor?

It depends. First, it could only be disclosed after the time set for opening of proposals and trade secret matter has been removed. Second, all information requests should always be channeled through the established point of contact. Third, the vendor has the right to see that information, but that does not imply that the agency must spend inordinate amounts of time responding to these requests when the documents are available for public inspection in the procurement office. Fourth, the procurement officer must be mindful of the need to be fair and equitable to all vendors and not neglect to promptly return calls from all inquiring vendors. The issue needs to be addressed on a case-by-case basis by the agency.

40.       Can we require proposals be submitted via iPads or other tablet devices?

Only under very limited circumstances. Calling for response submissions to be made via tablet devices requires prior approval by the SPB Chief. When making a request for approval, justification must be provided as to why utilizing a tablet device would be beneficial to BOTH the agency and the vendor and, if possible, what vendors the agency anticipates will be submitting responses to the proposal. If approved, any necessary device-specific training is the responsibility of the requesting agency. Once the evaluation is complete, the agency is responsible for scrubbing each device of all information pertaining to the RFP and resetting the device to its original factory settings. Agency IT departments should be consulted for specific instructions on how to effectively scrub the device(s).

All tablet devices MUST be returned to the offeror at the conclusion of the RFP process. The vendor will be responsible for the return-shipping cost.


Ethical Obligations

 1.         I just received a gift from a vendor with whom our agency does frequent business. Should I accept it?

First, let’s look at the law. Section 2-2-104, MCA, provides that we may not accept something of substantial economic benefit “that would tend improperly to influence a reasonable person … to depart from the faithful and impartial discharge of the person’s public duties; or … that a reasonable person in that position should know … is primarily for the purpose of rewarding the person for official action taken.”

A “gift of substantial value” is defined in statute as something with a value of $50 or more for an individual. It does not include food or beverages that you consume while participating in a charitable, civic, or community event which is related to your employment or that you are attending in an official capacity.

What does all that mean for procurement officials? Unfortunately, as we have all learned, sometimes painfully, perception is reality. A business lunch with one vendor may easily be misconstrued by competing firms in the public procurement “fishbowl” in which we operate. Even nominally valued advertising gifts such as coffee mugs and pens can convey a powerful public message and may be interpreted as an endorsement of the business. In the end, we suggest that nonacceptance of any gift or meal is the best policy.

2.         I need to select an evaluation committee for an RFP in my department. What do I need to be aware of concerning potential conflicts of interest?

Again, everything we do should be guided by the principle of trying to avoid any potential appearance of a conflict of interest. Evaluation committee members need to be free of any involvement with the offerors. Once the RFP is released, committee members must particularly avoid any contact with the potential offerors with regard to the particular RFP and refer all questions posed to them by an offeror to the procurement officer in charge of the process. Department policies are now also requiring that even just an offer of a gift in any form must be

reported to the department. Once evaluation committee members are selected, they are asked to sign a “Non-Conflict of Interest Statement.” If there is a question about a possible conflict, agency counsel should be consulted.

 3.        What if I get offered a job or a board position from an offeror?

First, if an offer of that nature occurs before or during the evaluation process, you should immediately report the situation to the procurement officer. If you are even contemplating taking such an offer, you should immediately disqualify yourself from the evaluation process.

If a job-related offer occurs after the contract is awarded, you need to check into section 2-2-105, MCA, concerning the state ethics law and its impact on voluntary termination.

4.        Montana is kind of a small place ... I’m bound to have some sort of conflict of interest with some people or businesses.

Admittedly, it is hard not to accidentally bump into an offeror or to not develop a relationship with a vendor you have frequent contact with. All the laws, rules, and policies can’t possibly address every potential situation, nor is it inevitable that every kind of involvement with a vendor is bad. What we need to always keep in mind is the weight of public trust that is put on us as procurement officials. More and more, the topic of standards of conduct is being debated in the public arena, from offices and courtrooms to legislative committee rooms. As we have said, appearance is everything and any erosion of honesty, integrity, and openness is more injurious to public procurement than most other public pursuits. A shadow of doubt can be as harmful as misconduct itself.

5.         I often meet with vendors prior to developing an RFP or IFB just so I know what supplies or services are available. Is this okay?

Yes, normally. Obviously it is critical for procurement officials to know what is available in the marketplace. Gathering information for the development of specifications or the content of RFP/IFB is different than evaluating a vendor’s proposal. But agencies using certain federal funds need to be aware of federal regulation 45 CFR Subtitle A Section 74.43 that prohibits contractors from competing for projects in which they were involved in developing. We suggest agencies work with legal counsel if this situation arises.

6.         What are the repercussions for violation of an ethics policy?

Between the statutes (primarily section 2-2-121, MCA) and state and department policies, enforcement of ethics violations can range from disciplinary action by the department to civil or criminal actions in court. Agencies should refer to their department’s policy on the subject.