On-Call Contracts Not Kosher

Editor’s note: Please see the followup post “Some On-Call Contracts ARE Kosher,” written to clarify the below article.

Over the past two to three years, there has been much interest and discussion about on-call contracts by local agencies, mostly related to prevailing wages for these types of contracts. Recently, the State Auditor’s Office (SAO) has determined that, because on-call contracts are not specifically authorized in state law, local agencies may not use them.

On-Call Contracts Defined

 What are on-call contracts? There is not an official definition, but MRSC has used this:

On-Call (Work Order) Contracts (OC/WO Contracts) are bid and awarded without a specific public works project or scope of work in mind, but rather are categorized around general types of anticipated work or trades. When a specific scope of work is identified, individual work orders are authorized based on either a not to exceed time and materials basis or on a negotiated lump sum amount, using the unit prices bid by the contractor and the contractor proceeds to complete the work.  Most typically, OC/WO Contracts are used for repair, renovation, and maintenance, of public facilities, all of which are included in the definition of public works in RCW 39.04.010, and as further defined by the courts and Washington Administrative Code. These contracts are typically on an annual basis, with optional renewals, (up to the maximum contract amount) although many agencies have multi-year contracts.

In contrast, the typical public works contract as envisioned in the public works contracting statutes has a fixed scope, estimated quantities that lead to a readily determinable project cost, and a specified time frame for completion.

MRSC “White Paper” Retracted 

In light of the SAO’s recent determination, MRSC has retracted a March 2011 “white paper” entitled On-Call (Task Order) Maintenance Contracts, which recommended best practices for on-call contracts, again mostly relating to prevailing wages.  As the SAO noted, these contracts can result in noncompliance with the public works contracting and prevailing wage statutes, even if there are obvious advantages to using them, such as:

  • Reducing the cost and time involved in bidding (either through advertising or through a small works roster) separate public works projects, especially with respect to very small projects that meet the technical definition of a public work, but that cannot be planned for ahead of time.
  • Having someone under contract at reasonable prices when the need arises, rather than having to pay sometimes inflated prices for last minute work.
  • Reducing the time required to administer very small projects as separate public works projects.

Where Do We Go From Here? 

New Legislation 

There is a distinct gap in statutes governing public works contracting between job order contracts (JOC), available to only certain public agencies, and typical public works contracts.  As Mike Purdy, a noted public works contracting consultant, notes in his blog:

Selecting a Job Order Contractor is a more complex process than bidding an on-call public works project, and it requires a level of effort that may not be possible for all agencies to pursue.  In addition, applying the Job Order Contracting process to very small public works projects, where most of the work must be subcontracted, may not be as efficient as an on-call contract that is based on unit prices specifically bid for the work required.

Legislation to address this gap is needed.  While MRSC does not lobby for new legislation, we can lend our collective expertise to provide sample and model policy/procedure documents, contracts, and other information to AWC, WSAC, WASWD, and other associations as requested.

In the Meantime 

So, what can agencies do with respect to these small projects and comply with state law? Well, each task (work) order that would, in a perfect world, have been under an on-call contract must be treated as a separate public works contract.  While this will create more paperwork, agencies should take advantage of every statutory and administrative shortcut available and develop short-form contracts.  I’ve developed a set of short form contacts and checklists for projects less than $5,000 and will provide them on request.

Note the following bond and prevailing wage matrix:

Estimated Contract Cost Bid Bond Required? P/P Bond Required? Prevailing Wages Notice of Completion
Over $300K Yes Yes Separate Paid I&A required Required
Under $300K and more than $35K and using small works roster Optional* Yes Separate Paid I&A required Required
Less than $35K at contractor’s option (RCW 39.08.010) No No Use Combined (Paid) Form but note restrictions at Alternate Processes Not Required
Less than $35K and not using limited public works (LPW) process No Yes Use Combined (Paid) Form but note restrictions at Alternate Processes (Option 2) Not Required
Less than $35K and using LPW process No No Use Combined (Paid) Form but note restrictions at Alternate Processes (Option 2) Not Required
Less than (say) $5,000 No Risk is Low. Require proof of payment for supplies and equipment rental. Use Combined (Paid) Form but note restrictions at Alternate Processes (Option 2) Not Required
Less than $2,500 No Risk is Low. Require proof of payment for supplies and equipment rental. Use Combined (Free) Form but note restrictions at Alternate Processes (Option 1) Not Required
*May wish to require bid bonds for all projects over, say, $100K

For projects with an estimated cost below agency bid limits, neither competitive bids nor the small public works roster use is required for these projects.  And, (theoretically) only one quote is required.  MRSC does not recommend single quotes for anything but really small projects, such as those costing less than $5,000.

System-Wide Maintenance/Repair Contracts

There is another type of contract that is often characterized as “on-call,” but is really not.  These are system-wide maintenance activities or repairs that are planned in advance and budgeted.  These contracts are usually on an annual basis, with optional renewals, but multi-year contacts are also common.  The project scope can be determined by the use of alternate bids or by reference to an annual work plan for system maintenance or a master plan for improvements, but the actual work performed depends on the budget amount available in relation to the bid prices.   Examples include:

  • Sewer or storm drain “jetting” (cleaning) up to a certain budget amount, but not an exact number of linear feet
  • Sidewalk/trail construction or reconstruction in relation to a agency’s pedestrian master plan, not necessarily a fixed quantity and up to a certain budget amount
  • Street lighting and signal maintenance and repair in relation to an annual, system-wide work plan.

With appropriate language defining the project scope (see Practical Applications for SAO Audit Findings), these projects can be structured so that they qualify as projects that have readily determinable quantities (and therefore costs) related to a fixed scope, which are what the basic public works statutes (Chs. 39.04, 39.08, 39.12, and 60.28 RCW) envision.

While system-wide contracts are more like traditional public works contracts, some elements of these contracts may resemble on-call contracts if emergency repairs are included in the contract scope.  For this reason, an agency should not include emergency repairs or task (work) order language in these contracts.

If your agency or agency association has an interest in working on this issue, please contact Mike Purdy (mpurdy@mpurdy.com) or myself (jcarpita@mrsc.org).

About John W. Carpita, PE

Public Works Consultant John is MRSC’s resource for engineering design, purchasing and bidding issues, contract document preparation, construction contract issues, local improvement districts, sewer, water, storm drainage and solid waste issues, as well as resource conservation. He’s a registered professional engineer and has had a widely varied 42-year career as a consultant, county engineer, city engineer and project manager.
This entry was posted in Public Works. Bookmark the permalink.

10 Responses to On-Call Contracts Not Kosher

  1. Gretchen Johnson says:

    Hi John, maybe you could clarify a bit to reduce confusion – from what you and Mike Purdy said, this only applies to on-call construction/maintenance contracts, not to on-call consultant contracts, right? This is a very important distinction.

  2. Gary Hess, PE says:

    John, Thank you for again helping us find our way through the legal morass of public works contracting. Question; Does the SAO ruling apply to on call/work order consultant contracts such as those for engineering services?

  3. John W. Carpita, PE says:

    The SAO “ruling” DOES NOT apply to on-call consultant contracts.

  4. John,
    Thank you for the clarification. As an architect with several on-call consultant contracts, I was quite concerned reading your article. And, I am quite relieved reading the clarification. We appreciate the service you provide.

  5. John W. Carpita, PE says:

    From Gary A. Rowe, P.E., Managing Director, Washington State Association of County Engineers (WSACE)
    Q
    I’ve been getting a lot of questions about the recent SAO decision regarding on-call contracts. It has led to some confusion about what type of work it affects. My interpretation is that it doesn’t affect any maintenance work being done by contract. The question, I guess, is whether there has to be an explicit authority in statute to use on-call purchasing for work or services not defined as public work.

    In my research it looks like there are limits on when you have to obtain bids for work or services, but I can’t see anything that specifically says how a contract can, or can’t be structured. The authority or prohibition to use on-call contracting, as near as I can tell, is not addressed.
    A
    Here are my thoughts:
    • While there is room for discussion on whether maintenance performed by contract is a public work or not, the safest thing to so is to consider it a public work.
    • If you consider maintenance performed by contract a public works project, the SAO decision applies.
    • The decision does not affect annual contracts for pavement maintenance work such as crack-sealing, chip seals, overlays, etc., as those can be considered system maintenance contracts as I have defined them in my blog.
    • Every public works contract is different, of course, but the typical contract envisioned in the public works contracting statutes (Chapters 39.04, 39.12, 39.06, 39.08, and 60.28 RCW, among others) has a fixed scope, estimated quantities that lead to a readily determinable project cost, and a specified time frame for completion.
    • The decision applies to contracts such as emergency pothole repairs where a county (or other agency) contracts with someone to do these on as-needed basis.
    • As onerous as it seems, an agency should issue a short form contract for each pothole repair or other task (work) order.

    John Carpita

  6. Tammy Rowlan says:

    Can you direct me to the full context of where the SAO’s office says,
    “Recently, the State Auditor’s Office (SAO) has determined that, because on-call contracts are not specifically authorized in state law, local agencies may not use them.”
    I would really like to read the full version of this discussion an couldn’t find it on the website. Thanks!

  7. Good Morning Tammy, I need to refer you to John Carpita, (of MRSC) regarding on-call contracts. “On-Call Contracts Not Kosher.” I only commented on his article.

  8. Kate Berens says:

    At the recent WSAMA (Washington municipal attorneys) conference in Spokane, representatives from the SAO indicated that they had not made a blanket determination that on-call contracts were impermissible. They clarified that they had seen instances in their audits where the contracts did not appear to comply with prevailing wage and other requirements, but acknowledged that if a jurisdiction had a process for ensuring compliance with the applicable provisions, that the fact that the contract was on-call was not fatal. There was some discussion about working with the SAO to develop some best practices and a clarification of their communication that led folks to believe we suddenly couldn’t use on-call contracts. Would encourage you to contact the SAO to follow up if you currently use on-call contracts.

  9. John W. Carpita, PE says:

    I’ve written another blog post clarifying and answering some of these questions, which you can read here: http://insight.mrsc.org/2012/10/30/some-on-call-contracts-are-kosher/

Comments are closed.