SECTION VI - Regulatory Compliance

Compiled from the PHD Legal Manual Chapters Two, Three and Four

A. District Treasurer & District Auditor

District Treasurer
The PHD statutes assume that the treasurer of the county in which the district is located will serve as the treasurer of the district. However, the statute also allows the commissioners to appoint their own treasurer. Treasurer duties are set out in RCW 70.44.171. The primary responsibility of the district treasurer is to establish, maintain and control the public hospital district general funds and any special funds. All monies are paid to the general fund through the treasurer; all monies are dispersed out of the general fund by the treasurer.

Special funds may be established by resolution. Money may be directed into these funds also by a resolution. Examples of special funds created by districts are capital projects funds and bond payment funds.

Where the PHD Chooses its Own Treasurer
If the PHD chooses to have its own treasurer, that person must file a bond with a surety company that is authorized to do business in Washington. The commissioners should require a bond to adequately protect the district against loss. The commissioners must decide by resolution, the amount of the bond and address any other terms and conditions of the arrangement.

Where Funds are Deposited
If the county treasurer is also acting as the district treasurer then deposits are made in the county depositories under the “usual restrictions”, contracts, and security as provided for county depositories. If the county treasurer is not the district treasurer then a bank(s) must be designated by the commissioners in which the treasurer is to deposit funds. The bank must be authorized to do business in Washington and it must file and deposit a bond or other appropriate security with the district treasurer.

District Auditor
The district treasurer disperses funds on warrants issued by the district auditor. The district auditor is designated by the commissioner board. The post is intended to provide checks and balances on warrants presented to the district for payment and is different from a traditional in-house private auditor post. See RCW 70.44.171.

Bond Requirement
The commissioner board has the authority to require that any person handling monies or securities on behalf of the district be bonded. The commissioner board may choose to pay the premium on the bond.

B. State Audits

The State Auditor
The State Auditor is an elected official who is part of the executive branch of state government and under the state constitution is the auditor of all public accounts. The State Auditors Office (SAO) audits PHDs on an annual basis and ensures that districts are in compliance with auditing standards adopted by the SAO and any federal audit standards. The SAO also conducts a legal audit to ensure the district is in compliance with Washington State law. Finally, any inappropriate actions of the PHD are reported by the SAO to the Attorney General for enforcement, where necessary.

Filing Financial Reports
The SAO requires municipalities to file financial reports with the SAO 150 days after the close of each financial year. The report must contain accurate statements of all collections made, or receipts received, by the officers from all sources; all accounts due the public treasury but not collected, all expenditures for every purpose and by what authority authorized and other information. [RCW 43.09.230]

• RCW 43.09.260 requires the SAO to inquire about the following: the financial affairs of the PHD
  
  
• the financial condition and resources of the PHD
  
  
• legal compliance, including constitution, laws of the state, ordinances and orders of the local government and SAO requirements have been complied with
  
  
• the methods and accuracy of PHD accounts and reports
  

The Structure of the Audit
Although not statutorily required, generally the SAO approaches an audit in the following way:

-	A letter is written by SAO to the PHD stating when the audit will begin and the estimated costs.
-	The SAO begins to review the districts books and records.
-	An entrance interview is conducted where introductions are made and any particularities of the audit are discussed.
-	The audit is completed.
-	An exit interview is conducted where conclusions of the auditors are presented. A finding is a matter stated in the final report which is not in compliance with applicable laws and regulations. The SAO audit team may also document less serious incidences of noncompliance via a management letter. Generally, exit items are not matters of public record but may be of concern and will be reviewed again by the SAO.
-	A draft of the audit report is presented to the district and input and comments from the district are encouraged.
-	The final audit report is prepared.
-	The AG's Office may conduct a follow up to any audit findings concerning the district's intention of complying with the findings.

Contesting a Finding
The district may choose legal action if it strongly disagrees with a finding that has been taken up for review by the AG's Office. Under the Declaratory Judgments Act Ch. 7.24 RCW a PHD can petition the Superior Court for a declaratory judgment for a declaration as to whether the finding is proper.

C. Public Bid Law

A hospital district may want to develop real estate, which it already owns or is planning on purchasing. Some strict legal obligations apply to hospital districts in the area of public bidding and environmental protection, as discussed below. It should be noted at the outset of this section that a much more extensive discussion of property issues is contained in the Public Hospital District Legal Manual, Chapter 3.

Public Bidding Required
Construction projects for public hospital districts are complex legal affairs. The bidding requirements as well as the contracting, monitoring and release of funds necessitate a great deal of documentation, time and effort. PHDs must publicly bid “public works” projects and materials purchases the estimated cost of which is in excess of $75,000. A small works roster process may be used for projects under $300,000. An explanation of the small works roster process follows the discussion of the basic bidding process.

What Purchases Must Be Bid?
The public bid statute for hospital districts does not apply to equipment or supplies purchased by the hospital district. Thus, public hospital districts need publicly bid only permanent improvements, fixtures to be attached to its real estate, and materials purchased by the district. The small works roster process is an alternative to the public bid requirements for public works contracts estimated to cost under three hundred thousand dollars and for materials purchases up to seventy five thousand dollars.

In general, the term public works refers to “all work, construction, alteration, repair, or improvement other than ordinary maintenance executed at the cost of the... municipality.” [RCW 39.04.010] A public works project of less than seventy five thousand dollars invokes many of the same provisions as the public bid statute.

Exemptions to the Bidding Requirement
Competitive bidding requirements may be waived by the governing body of a hospital district for the reasons identified in RCW 39.04.280.

• Purchases clearly and legitimately limited to a single source of supply
• Purchases involving special facilities or market conditions
• Purchases in the event of an emergency
• Purchases of insurance bonds
• Public works in the event of an emergency

The exemption for purchases involving special facilities or market conditions may apply if a district has documented an attempt to publicly bid a project where there are no bidders willing to participate in the public bid process. The exemption for purchases that are clearly and legitimately limited to a single source of supply can be used by districts, although this exception is of limited benefit since they do not have to publicly bid equipment purchases, where the exemption would be most useful.

Waiver of the competitive bidding requirements may be made by resolution or by the terms of written policies adopted by the municipality. The contract and factual basis for the exception must be recorded and open to inspection. If a resolution is adopted to waive competitive bidding requirements for special facilities or market conditions, the resolution must recite the factual basis for the exception. [RCW 30.04.280]

Basic Bidding Process
Public bidding means that the board of commissioners requests “bids” or invites sealed proposals to perform the construction work based on plans and specifications on file with the district. In the alternative, the board of commissioners may, at the same time and as part of the same notice, invite bids for the work to be done upon plans and specifications to be submitted by the bidders. The district must publish a notice thirteen days prior to the last day upon which bids will be received. Either way, the notice must state generally the work to be done and call for proposals which are to be sealed and filed with the district on or before the day and hour contained in the notice. Bids must be accompanied by bid proposal security in the form of a certified check, cashier's check, postal money order or surety bond (bid bond) made payable to the order of the district for a sum not less than five percent of the amount of the bid. [RCW 70.44.140].

For all contracts in excess of $1 million all invitations to bid must require bidders to submit, as part of their bid or within one hour after the published bid submittal time, the names of certain subcontractors with whom the contractor will subcontract for performance of the categories of work designated on the list to be submitted with the bid. The subcontractors required to be named are those for whom the subcontract amount is more than ten percent of the contract price. If the contractor fails to specify a subcontractor as the party to be performing the designated categories of work, the bid shall be deemed nonresponsive and, therefore, void. [RCW 39.30.060]

At the time and date contained in the notice, the bids are to be publicly opened and read. The bid is to be awarded to the lowest responsible bidder upon the plans and specifications on file, or to the best bidder submitting his/her own plans and specifications. [RCW 70.44.140].

No contract may be awarded in excess of the estimated cost of the work. In addition, if the board of commissioners believes that all bids are unsatisfactory, they may reject them all and re-advertise, in which case the bid proposal security is to be returned to all bidders. [RCW 70.44.140].

If the contract is to be awarded, the bid proposal security must be returned to all bidders except that of the successful bidder, which shall be retained until a contract is entered into for the work and a performance bond satisfactory to the board of commissioners is posted. The performance bond is to be in an amount to be fixed by the board of commissioners (not less than twenty-five percent of the awarded contract). The bid proposal security may be forfeited if the successful bidder fails to enter into a contract with the district within ten days of the date that he/she is notified that he/she is the successful bidder. A low bidder who claims error and fails to enter into contract is prohibited from bidding on the same contract if a second or subsequent call for bids is made for the project. [RCW 70.44.140].

Requirement Of Commission Plan And Estimates
Public hospital districts are required to specify plans and dollar estimates for any additions to the facility. This must include the estimated cost, which must be distinguished from the bid cost. The estimated cost is usually developed at a much earlier point in time. [RCW 70.44.110]

Bids may be called for with alternative provisions. In other words, a district may not be certain that it desires to construct an entire project at a certain time, or it may feel that there are various cost alternatives. The bid can specify alternatives upon which the district can elect in awarding the bid.

On What Basis Must Contracts Be Awarded?
The bid statute does not require that the award be made to the “lowest bidder” but refers to the “lowest responsible bidder”. In determining “lowest responsible bidder”, in addition to price, the following elements shall be given consideration:

• The ability, capacity, and skill of the bidder to perform the work;
  
  
• The character, integrity, reputation, judgment, experience, and efficiency of the bidder;
  
  
• Whether the bidder can perform the contract within the time specified;
  
  
• The quality of performance of previous contracts or services;
  
  
• The previous and existing compliance by the bidder with laws relating to the contract or services;
  
  
• Other information which may have a bearing on the decision to award the contract.
  

The bid can and should request certain qualifications of contractors who are requested to submit bids. For example, if a public hospital district requires work to be done in a surgery suite, the district may specify that certain hospital construction experience is necessary. Obviously, the stated qualification requirements cannot discriminate unfavorably against otherwise-reputable contractors for reasons unrelated to bona fide qualifications.

Division Of Public Works
A public hospital district may not divide a project into several small phases of less than $50,000 each in order to avoid the public bid process. [National Electric Contractors Association, Puget Sound Chapter v. City of Bellevue, 1 Wn App. 81 (1969)]

Bidding: The Hospital District As A Tenant
Under lease of real estate to the public hospital district as a tenant, work performed by the landlord may not have to be publicly bid.

The following are suggested criteria for making a determination about whether the work must be publicly bid:

• The tenant improvements must not be paid for by the landlord in order to avoid the public bid statute (although in all likelihood, the landlord will charge the district the cost of the tenant improvements as rent). A lump sum payment reimbursing the landlord would trigger the public bid statute.
  
  
• If the lease is short-term, it is less likely to be viewed as improvements specifically for the public hospital district.
  
  
• If the useful life of the improvements exceeds the term of the lease, the improvements are less likely to be viewed as made on behalf of the public hospital district.
  
  
• If the tenant improvements are generic to any tenant (i.e., walls, painting, ceiling), even though the district has significant input into the design for its space, it is less likely to necessitate public bidding.
  
  
• The terms of the lease should state that all tenant improvements are the property of the landlord during the term of the Lease and upon termination of the lease.

Penalties
The remedy for violating the public bidding statutes is that any municipal officer who is responsible for any part of the entering of the contract in willful and intentional violation of the public bid laws for the district's own resolution, shall be held liable to civil penalty of not less than $300. They also may be held liable jointly and severally with any other municipal officers for all consequential damages to the district.

Small Works Roster Alternative To Public Bid Statute
State law provides an alternative to the extensive requirements of the public bid statute for public works contracts costing under three hundred thousand dollars [RCW 70.44.140; RCW 39.04.155]; and for materials purchases under fifteen thousand dollars. [RCW 70.44.140(3); RCW 39.04.190].

How to Create and Maintain a Small Works Roster for Public Works Contracts
As an alternative to the requirements for public works contracts, PHDs may create a small works roster for contracts under three hundred thousand dollars. [RCW 70.44.140] The basic requirements applicable to the roster are covered in RCW 39.04.155.

A PHD establishing a small works roster must adopt rules and pass a resolution implementing the requirements of RCW 39.04.155. If there is an interlocal agreement between local governments, establishing a small works roster to be used by parties to the agreement, the lead entity responsible for implementing the provisions must be clearly identified.

Small Works Roster Contents
The PHD may create one general roster or create a small works roster for different specialties or categories of work. Where applicable, the small works roster may make distinctions between contractors based upon different geographic areas served by the contractor. The roster(s) must consist of all responsible contractors who have requested to be on the list and if required by law, are properly licensed or registered to perform such work in this state. [RCW 39.04.155] A hospital district may require eligible contractors who wish to be placed on a roster to keep current records of any applicable licenses, certifications, registrations, bonding, insurance or other appropriate matters on file with the PHD as a condition of being placed on the roster.

At least once a year the PHD must publish in a newspaper of general circulation within the jurisdiction a notice of the existence of the roster or rosters and solicit the names of contractors for the rosters. Additionally, responsible contractors shall be added to an appropriate roster or rosters at any time they submit a written request and necessary records. A PHD may require contractors to sign master contracts that become effective upon a specific small works roster award being made.

Establishing Procedures for Small Works Rosters
If the RCW 39.04.155 small works roster is used, procedures must be established for securing telephone, written or electronic quotations from contractors on the appropriate small works roster to assure that a competitive price is established and contracts are awarded to the lowest responsible bidder as defined in RCW 43.19.1911. See discussion above under “On What Basis Must Contracts be Awarded?”

Invitations for quotations must include an estimate of the scope and nature of the work to be performed as well as materials and equipment to be furnished. Detailed plans and specifications do not need to be included in the invitation. Quotations may be invited from all appropriate contractors on the appropriate small works roster. Alternatively, quotations may be invited from at least five contractors on the appropriate small works roster who have indicated the capability of performing the kind of work being contracted. However, the quotations must be invited in a manner that will equitably distribute the work opportunity among the contractors on the appropriate roster. “Equitably distribute” means that a PHD soliciting bids may not favor certain contractors on the appropriate small works roster over other contractors on the roster who perform similar services. See RCW 39.04.155(2)(c).

Where the cost of the work is estimated to be over one hundred thousand dollars a PHD that chooses to solicit bids from less than all of the appropriate contractors on the appropriate roster must also notify the remaining contractors that quotations are being sought. The PHD has the sole option of determining whether this notice to the remaining contractors is made by: (a) publishing notice in a legal newspaper in general circulation in the area where the work is to be done; (b) mailing a notice to these contractors; or (c) sending a notice to these contractors by facsimile or other electronic means.

Immediately after an award is made the bid quotations obtained shall be recorded, open to public inspection, and available by telephone inquiry.

Improvements to Real Property Under the Small Works Roster Process
Any PHD using the RCW 39.04.155 small works roster process to award contracts for improvement of real property must make available a list of the contracts awarded under that process at least once every year. See RCW 39.04.200. Improvements include construction, building, renovation, remodeling, alteration or repairs. RCW 39.04.200 requires that the list contain the name of the contractor or vendor awarded the contract, the amount of the contract, a brief description of the type of work performed or items purchased under the contract, and the date it was awarded. The list must also state the location where the bid quotations for these contracts are available for public inspection.

Small Works Roster Manual
The Department of Community, Trade and Economic Development and the Municipal Research Services Center are now required to prepare a small works roster manual and periodically notify local governments authorized to use a small works roster process about this authority. See RCW 39.04.156.

How To Create And Maintain A Small Works Roster For Purchases Of Materials
Hospital districts are exempt from the public bid procedures when purchasing supplies and equipment. However, PHDs are required to follow specific procedures for contracting only with respect to any purchase of materials, supplies, or equipment, with an estimated cost in excess of forty thousand dollars, shall be by contract. “Any purchase of materials, supplies, or equipment, with an estimated cost of less than fifty thousand dollars shall be made using the process provided in RCW 39.04.190.” [RCW 70.44.140] The distinction between materials and supplies may not always be clear, however it is limited to a small range of the purchases of PHDs. Generally materials will only be goods purchased for in-house maintenance and repairs and include such items as gravel and plywood. To the extent that the purchase is not materials, it is exempt from the public bid process.

As an alternative to the bid requirements for materials purchases, PHDs may create a small works roster for material purchases under fifteen thousand dollars. [RCW 70.44.140(3)] As a practical matter, the usefulness of this option may be limited because there is no requirement for a hospital district to publicly bid materials purchases under $50,000.

The requirements applicable to the roster are discussed in RCW 39.04.190. In order to create the roster, the PHD must first publish in a newspaper of general circulation within the district a notice of the existence of the vendor list and solicit names of vendors. Thereafter, the PHD must publish notice of the list and solicit names of vendors at least twice a year. [RCW 39.04.190(2)] The second step for the PHD is to establish by resolution procedures for securing telephone or written quotations from the vendors to assure that a competitive price is established and to award contracts to the “lowest responsible bidder”, as defined in RCW 43.19.1911 and discussed above under “On What Basis Must Contracts be Awarded?”

PHDs that choose the small works roster alternative must post a list of the contracts awarded to vendors at least once every two months. The list must contain the name of the vendor, the amount of the contract, a brief description of the items purchased and the date it was awarded. The list must also state the location where the bid quotations for these contracts are available for public inspection. [RCW 39.04.200]

Invitations For Bids And Awards Of Contracts For Purchases Of Materials
When a contract is to be let for materials purchases, at least three vendors must be invited to submit bids, whenever possible, to assure that a competitive price is established. A contract awarded using this method need not be advertised. Immediately after an award is made, the bid quotations must be recorded, opened to public inspection and available by telephone inquiry. [RCW 39.04.190(2)]