Real property includes land and any attachments to it, including buildings and things evolving from the course of nature, such as trees. Hospital districts generally must acquire real property as would any organization. However, hospital districts do possess a few advantages and also face several procedural requirements not encountered by private organizations. For one, hospital districts have the significant governmental power of “eminent domain.” Also, there are some tax laws which may favorably affect the purchase price of the property, as discussed below. In developing real estate, hospital districts have some special obligations with respect to public bidding of construction projects and environmental protection. Finally, as hospital districts move to dispose of real property, they must follow rules relating to the sale and lease of surplus real property.

Eminent domain is the taking of private property for public use without the owner’s consent, conditioned upon payment of fair compensation to the owner. It is a power granted to the federal government and the states, and through them, to various local governments and even private organizations (such as the railroads). Eminent domain is an inherent political right to acquire property from individuals in order to benefit the community at large. The basic hospital district power of eminent domain is established in RCW 70.44.060. Article I, section 16 of the Washington State Constitution then sets limitations on that right.

The exercise of eminent domain is a complicated undertaking. This manual provides a brief overview of major issues in this legal area. The exercise of this power should not be pursued without the advice of legal counsel.

Washington law grants a specific power of eminent domain to hospital districts by authorizing the power:

The RCW also conveys a general power of eminent domain:

While the power of eminent domain is not used very often by hospital districts, it should be recognized as a significant grant of power by the state legislature. In conjunction with the power of taxation discussed in Chapter Four, the granted power of eminent domain establishes hospital districts as a primary form of local government in the State of Washington.

Hospital districts must initiate using eminent domain through a resolution adopted by the hospital district commissioners. Further procedural requirements are derived through reference to city eminent domain laws. [See Title 35 RCW and city statutes.]

In general, the power of eminent domain cannot be exercised where the alleged use is “private” rather than “public.” However, the boundaries between these two terms is by no means clear. For example, some cases hold that the public use is achieved only by having a right of the public to use the property after it is condemned. A more liberal view, adopted in other cases, is that only a public “advantage” is required. Under the latter view, anything which benefits or conveniences the public, whether or not they have direct use of the property, is enough to justify the taking.

The power of eminent domain for public hospital districts is limited in that it shall not apply “against any health care facility.” Thus, a hospital district may not in any circumstances condemn another hospital, clinic, nursing home, or other health care facility within its geographic boundaries. [RCW 70.44.060(3)]

Practical Consideration

The exercise of the power of eminent domain can be a tricky matter. Frequently, it is cheaper and more expeditious to negotiate and buy property. In many cases, this should be the first approach taken. Hospital districts should not exercise the power of eminent domain without first consulting with legal counsel.

Public hospital districts have the general statutory authority to purchase real estate. [RCW 70.44.060]

They are also authorized to enter into conditional sales contracts for the purchase of real property. This authorization includes personal property which is discussed later in this chapter. If a proposed conditional sales contract would result in a certain amount of indebtedness to the district, then the proposal must be submitted to the voters for approval or rejection in the same way bond issues for capital purchases are submitted to the voters. [RCW 70.44.260]

Tax laws may also provide some advantages to hospital districts in negotiating the purchase price of real estate. Hospital districts should be aware of these as they enter into purchase negotiations.

Further Legal Background

For example, section 1033(g) of the Internal Revenue Code states that if real property held for productive use in trade or business or for investment is condemned or sold under threat of condemnation and, as a result, the property is converted into similar property or converted into money and replaced by similar property within two years of the condemnation or threat of condemnation, no taxable gain will be incurred as a result of the conversion. Thus, an owner of real property can experience a significant tax savings if his/her property is transferred to the district under these conditions. Thus, a hospital district can use this as a negotiating technique in purchasing real property by either condemning the property or purchasing the property in lieu of condemnation and, therefore, allow the seller to take advantage of the provisions of Section 1033 of the Internal Revenue Code.

Practical Consideration

Because of the potential benefits of such tax laws, hospital districts should consult with tax attorneys before entering into any contract for the purchase of real estate and attempt to use these advantages in negotiating a lower price for the property.

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.

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. This area of the law also changes frequently and hospital districts must be alert to new requirements and opportunities.

Hospital districts must publicly bid "public works" projects and materials purchases the estimated cost of which is in excess of $50,000. [RCW 70.44.140] 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] The public bid statute for hospital districts does not apply to equipment or supplies purchased by the hospital district. The distinction between materials (the purchase of which does have to be publicly bid) and supplies (the purchase of which does not have to be publicly bid) may not always be clear. However, it is limited to a small range of the purchases of public hospital districts. 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. Thus, public hospital districts need publicly bid only construction projects, permanent improvements and fixtures to be attached to its real estate as well as purchases of materials estimated to cost in excess of $50,000. A public works project of less than $50,000 still invokes the same provisions as the public bid statute, including the prevailing wage law.

Competitive bidding requirements may be waived by the governing body of a hospital district for the reasons identified 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 legimately limited to a single source of supply can be used by districts, although this exemption is of limited benefit since they do not have to publicly bid equipment purchases, where the exemption would be most useful.

The default public bidding process for projects estimated to cost in excess of $50,000 requires that the board of commissioners publish a thirteen day notice requesting “bids” or inviting sealed proposals to perform the 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. 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]

Public hospital districts are required to specify plans and dollar estimates for any additions to the facility at the time that it publishes notice of its plan to award a construction contract. This must include the estimated cost, which is not the same as the bid cost. If all the bids for the contract are in excess of the estimated cost of the project then they must be rejected and the project must be re-bid. [RCW 70.44.110]

Practical Considerations

A public hospital district may retain a construction manager to assist in the planning and preparation of the bid package. The construction manager may prepare the public bids for the component parts of the construction contract for the subcontractors. However, the construction manager may not enter into a contract for any actual construction. [AGO 1984 No. 17]

he bid statute does not require that the award be made to the “lowest bidder” but refers to the “lowest responsible bidder” or to the "best bidder" submitting his or her own plans or specifications. Although not specifically referenced by the hospital district statute, RCW 43.19.1911 provides the best definition of the term "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 award must be given to the lowest bidder who meets the above criteria.

Practical Considerations

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.

A public hospital district may not divide a project into several 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)]

Bids may be called for with alternative specifications. 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.

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. This is a gray area and a hospital district should consult an attorney before making a determination about whether the work must be publicly bid.

Further Legal Background

The following are criteria the hospital district may want to consider in making that determination:

• 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.

The remedy for violating the public bidding statutes is that any municipal officer who is responsible for any part of the making of a contract in willful and intentional violation of the public bid laws shall be held liable to civil penalty of not less than $300. The municipal officer also may be held jointly and severally liable with any other municipal officers for all consequential damages to the district. [RCW 39.30.020]

Further Legal Background

See, however, [Edwards v. City of Renton, 67 Wn 2d 598 (1965)] In Edwards, the City of Renton entered into an ultra vires (unauthorized) agreement with a private entity where the private entity paid a contractor to have a traffic light installed and the city subsequently integrated the light into its traffic system and planned to reimburse the private entity for the cost. The agreement was determined to be ultra vires because the installation of the traffic signal, which was part of the city's traffic infrastructure, should have been publicly bid. Despite the fact the agreement between the city and the private entity was determined to be ultra vires, the private entity sought recovery for the installation of the light. The court admonished the plaintiffs that it is "commonly recognized that one dealing with a municipality is chargeable with knowledge of the extent of the municipality's authority". However, it never analyzed the extent to which the municipal officers from the City of Renton were responsible for knowing the law and ensuring the public works statutes were followed.

Contracts for public works must contain the following provisions:

• The contractor must be a licensed contractor. In addition, a search must be conducted, based on the contractor’s unified business identifier account number, in order to determine whether the contractor has violated certain public works laws. If it is discovered that the contractor has violated any of these laws within the last two years, starting from the date the violation is finally determined, the district may not execute a contract with that contractor. [RCW 39.06.010]

• The contractor must agree to pay prevailing wages, in accordance with Chapter 39.12 RCW. Prevailing wages are established by the Department of Labor and Industries for the locale in which the work is to be performed.

Whenever the board makes a contract with a person to do work for the district it must ensure the person has a "good and sufficient bond". It is the obligation of the contractor to secure the bond. The contractor’s performance bond must comply with Chapter 39.08 RCW.

The conditions of the bond must be that the general contractor shall faithfully perform all the provisions of the contract and pay all laborers, mechanics, subcontractors and material-men, and all persons who supply such person or persons or subcontractors with provisions and supplies for the carrying on of such work. The bond must also cover persons performing such services or furnishing material to any subcontractor as if the work or materials were furnished to the original contractor. On contracts of $25,000 or less, at the option of the contractor, the district may, in lieu of the bond, retain 50 percent of the contract amount for a period of 30 days after date of final acceptance or until receipt of all necessary releases from the Department of Revenue and the Department of Labor and Industries and settlement of any liens. For contracts of $100,000 or less the district may accept a full payment and performance bond from an individual surety or sureties. The surety must agree to be bound by and subject to the jurisdiction of the State of Washington.

Public hospital districts are required to pay contractors on the date specified in the contract or no more than 30 days after receipt of a proper invoice, or receipt of the goods or services, whichever is later. If the project is funded by a grant or other federal funds, the hospital district must make payment within 30 days of receiving the grant money, provided payment is due. If payment is withheld for unsatisfactory performance, the PHD is required to notify the contractor within 8 days of receiving the invoice. [ RCW 39.76.011] If payment is wrongly withheld, interest is payable at the highest rate allowed under state law. [RCW 39.04.250]

In making payment to the contractor the hospital district must reserve a contract retainage not to exceed five percent of the moneys earned by the contractor as a trust fund for the protection and payment of (1) claims of any person arising under the contract; (2) the state with respect to taxes imposed under Title 82 RCW which may be due from the contractor. [RCW 60.28.011(1)] Every person who performs labor or furnishes supplies for a public works project has a lien against the moneys reserved by the district. However, notice of the lien must be provided within 45 days of completion of the contract work.

At any time, the contractor may request the contract retainage be reduced to 100 percent of the value of the work remaining on the project. Once all the contract work has been completed, with the exception of the landscaping, the contractor may request the district release and pay in full the amount retained during the contract's performance. The district must release the funds 60 days after the request and pay in full the amount that was retained, other than continuing retention of five percent of the moneys that will be earned for landscaping. Subject to Chapters 39.12 and 60.28 RCW, 60 days after the contract is completed the district must release and pay in full the amounts retained during the peformance of the contract.

The money that is reserved by the district during the performance of the contract shall be, at the option of the contractor:

• Retained in a fund by the district;

• Deposited by the district in an interest bearing account in a bank, mutual savings bank, or savings and loan association, and interest is paid to the contractor;

• Placed in escrow with a bank or trust company by the district. [See RCW 60.28.011 for more details.]

A contractor may submit a bond for all or any portion of the contract retainage in a form acceptable to the district and from a bonding company meeting standards established by the district. The district must accept a bond meeting the requirement unless it can demonstrate good cause for refusing to accept it. The bond is subject to all the same claims and liens as for the retained percentages. The district must release the bonded portion of the retained funds to the contractor within thirty days of accepting the bond from the contractor.

• The 45 day period for giving notice of a lien provided in RCW
  60.28.011(2) must have expired;

• The hospital district must have received the Department of Revenue's certificate and be satisfied that the taxes certified by the Department of Revenue as "due" or "to become due" are discharged;

• The claims of material-men and laborers who have filed claims must be paid along with a sum sufficient to both defray the cost of foreclosing the liens of such claims and to cover attorney's fees.
  

• in its fund; or

• in an interest bearing escrow account; or

• in escrow

Some gray areas exist regarding whether compliance with public works laws, particularly the prevailing wage law, is required when a hospital district leases land to a private entity and that private entity wishes to have improvements constructed on the property. RCW 39.04.260 states that where a hospital district causes any work, construction, alteration, repair or improvement (other than ordinary maintenance) to be performed by a private party and the district then contracts, rents, leases, or purchases at least 50 percent of the project the district shall comply with Chapter 39.12 RCW, the prevailing wage law.

In addition, the Attorney General's Office has concluded that if the lease to the private entity is short term and the improvement will be used exclusively or nearly exclusively for public purposes, the construction project to make the improvement is a "public work" and prevailing wage and other public works law must be followed. [AGO 1988 No. 17]

On the other hand, projects that are constructed partly for public and partly for private purposes must be analyzed on a case by case basis to determine whether construction projects must be completed in accordance with public works laws. If a long-term lease to a private entity is involved and the benefit of the construction project will be substantially exhausted by the time the property reverts to the public hospital district's use, it is less likely that public works laws would have to be followed. [AGO 1988 No. 17]

State law provides alternatives to the extensive requirements of the general public bid statute contained in RCW 70.44.140 or certain types of contracts. Public works contracts costing under $200,000 may be bid using simplified procedures. [RCW 70.44.140; RCW 39.04.155]. The hospital board may waive competitive bidding requirements for public works in certain circumstances. [See discussion above.] For large public works projects, the hospital district may opt to use the design-build or the general contractor/construction manager procedure. The law also provides an alternative contracting procedure for materials purchases under $15,000. [RCW 70.44.140(3); RCW 39.04.190] However, the usefulness of this option is questionable since hospital districts are not required to publicly bid public works projects estimated to cost under $50,000. Finally, the law provides a specific competitive bidding process for contracts involving building engineering systems. [RCW 39.04.290]

Hospital districts have two alternatives to the traditional public bid law when contracting for public works projects under a certain dollar amount. Both can be found at RCW 39.04.155. First, the small works roster process, which applies to public works projects estimated to cost under $200,000, provides a simplified alternative to the traditional public bid statute. (Remember that public works projects estimated to cost under $50,000 do not have to be publicly bid. Public works projects costing over $200,000 must be bid using the traditional bid process described earlier.) Second, the limited public works process, which applies to public works projects estimated to cost under $35,000, provides a contracting approach that is even further simplified. However, the usefulness of this option is questionable since hospital districts are not required to publicly bid public works projects estimated to cost under $50,000. The statute describing the use of these alternative processes warns that breaking any project into units or phases is prohibited if it is done for the purpose of avoiding the maximum dollar limit of a contract that may be let using either the small work roster process or limited public works process.

As an alternative to the requirements for public works contracts, PHDs may create a small works roster for contracts be estimated to cost under $200,000. [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. [See the model small works roster resolution at the end of this section.] 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.

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 shall 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 such 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.

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 $100,000 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 alegal 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

As noted under "How to Create and Maintain a Small Works Roster for Public Works Contracts", a PHD establishing a small works roster must adopt rules and pass a resolution implementing the requirement of RCW 39.01.155. This model small works roster serves as a template for meeting those requirements.

MODEL SMALL WORKS ROSTER RESOLUTION

Public Hospital District No. ___,
_________ County, Washington

Resolution No. ____

A RESOLUTION OF THE BOARD OF COMMISSIONERS OF PUBLIC HOSPITAL DISTRICT NO. _____,_____________COUNTY, WASHINGTON, ON THE SUBJECT OF ESTABLISHING A SMALL WORKS ROSTER PROCESS TO AWARD PUBLIC WORKS CONTRACTS.

WHEREAS, the Washington State Legislature in Chapter 138, Laws of 2000, amended the laws regarding contracting for public works by municipalities, allowing certain contracts to be awarded by a small works roster process; and

WHEREAS, in order to be able to implement small works roster processes, the district is required by law to adopt a resolution establishing specific procedures;

NOW, THEREFORE, THE BOARD OF COMMISSIONERS OF PUBLIC HOSPITAL DISTRICT NO. _____, _______________ COUNTY, WASHINGTON, HEREBY RESOLVES AS FOLLOWS:

Section 1. Resolution No. __________ is hereby repealed.

Section 2. The following small works roster procedures are established for use by the district pursuant to RCW 70.44.140 and chapter 39.04 RCW.

1. Cost. The district need not comply with formal sealed bidding procedures for the construction, building, renovation, remodeling, alteration, repair, or improvement of real property where the estimated cost does not exceed $200,000, which includes the cost of labor, material, equipment and sales and/or use taxes as applicable. Instead, the district may use the small works roster procedures for public works projects as set forth herein. The breaking of any project into units or accomplishing any projects by phases is prohibited if it is done for the purpose of avoiding the maximum dollar amount of a contract that may be let using the small works roster process.

2. Number of Rosters. The district may create a single general small works roster, or may create a small works roster for different specialties or categories of anticipated work. The small works rosters may make distinctions between contractors based upon different geographic areas served by the contractor.

3. Contractors on Small Works Roster(s). The small works roster(s) shall consist of all responsible contractors who have requested to be on the roster(s), and where required by law are properly licensed or registered to perform such work in this state. Contractors desiring to be placed on a roster or rosters must keep current records of any applicable licenses, certifications, registrations, bonding, insurance, or other appropriate matters on file with the district as a condition of being placed on a roster or rosters.

4. Publication. At least once a year, the district shall 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 such roster or rosters. Responsible contractors shall be added to an appropriate roster or rosters at any time that they submit a written request and necessary records. The district may require master contracts to be signed that become effective when a specific award is made using a small works roster. An interlocal contract or agreement between the district and other local governments establishing a small works roster or rosters to be used by the parties to the agreement or contract must clearly identify the lead entity that is responsible for implementing the small works roster provisions.

5. Telephone or Written Quotations. The district shall obtain telephone, written or electronic quotations for public works contracts from contractors on the appropriate small works roster to assure that a competitive price is established and to award contracts to the lowest responsible bidder, as defined in RCW 43.19.1911, as follows:

(a) A contract awarded from a small works roster need not be advertised. Invitations for quotations shall include an estimate of the scope and nature of the work to be performed as well as materials and equipment to be furnished.However, detailed plans and specifications need not be included in the invitation. This paragraph does not eliminate other requirements for architectural or engineering approvals as to quality and compliance with building codes.

(b) Quotations may be invited from all appropriate contractors on the appropriate small works roster. As an alternative, 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, in a manner that will equitably distribute the opportunity among the contractors on the appropriate roster.

If the estimated cost of the work is from one hundred thousand dollars to two hundred thousand dollars, the district may choose to solicit bids from less than all the appropriate contractors on the appropriate small works roster but must also notify the remaining contractors on the appropriate small works roster that quotations on the work are being sought. The district has the sole option of determining whether this notice to the remaining contractors is made by:

(i) Publishing notice in a legal newspaper in general circulation in the area where the work is to be done;

(ii) mailing a notice to these contractors; or

(iii) sending a notice to these contractors by facsimile or other electronic means.

(c) For purposes of this resolution, “equitably distribute” means that the district may not favor certain contractors on the appropriate small works roster over other contractors on the appropriate small works roster who perform similar services. At the time bids are solicited, the district representative shall not inform a contractor of the terms or amount of any other contractor’s bid for the same project;

(d) A written record shall be made by the district representative of each contractor’s bid on the project and of any conditions imposed on the bid. Immediately after an award is made, the bid quotations obtained shall be recorded, open to public inspection, and available by telephone inquiry.

(e) At least once every year a list of the contracts awarded under that process is to be furnished to the Board of Commissioners and made available to the general public. The list shall 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 shall also state the location where the bid quotations for these contracts are available for public inspection.

6. Determining Lowest Responsible Bidder. The Board of Commissioners shall award the contract for the public works project to the lowest responsible bidder provided that, whenever there is a reason to believe that the lowest acceptable bid is not the best price obtainable, all bids may be rejected and the Board of Commissioners may call for new bids. In addition to price, the Board of Commissioners shall take into account the following:

(a) the ability, capacity, and skill of the bidder to perform the contract;

(b)whether the bidder can perform the contract within the time specified by the district;

(c) the quality of the bidder’s performance of previous con tracts or services;

(d) the previous and existing compliance by the bidder with laws relating to the contract or services.

7. Award. All of the telephone bids or quotations shall be collected and presented at the same time to the Board of Commissioners for consideration, determination of the lowest responsible bidder, and award of the contract.

OR [If the Board of Commissioners delegates the authority to award bids of certain amount(s) to an officer of the agency.]

7. Award. The superintendent or his designee shall present all telephone quotations/bids and recommendation for award of the contract to the lowest responsible bidder to the Board of Commissioners. However, for public works projects under $___________, the superintendent shall have the authority to award public works contracts without Board of Commissioner’s approval, provided that the Board of Commissioners shallmissioners meeting by means of the consent agenda. For public works projects over $___________, the Board of Commissioners shall award all public works contracts by resolution.

ADOPTED AND APPROVED by the Commission of Public Hospital District No. ____, ____________ County, Washington, at a regular open public meeting thereof held this ____ day of ____________, 2000, the following Commissioners being present and voting in favor of this resolution.

______________________________
President and Commissioner
______________________________
Commissioner
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Commissioner

Hospital districts may use the limited public works process in lieu of the small works roster process for public works projects estimated to cost under $35,000. [See RCW 70.44.140; RCW 39.04.155 However, the usefulness of this option is questionable since hospital districts are not required to publicly bid public works projects estimated to cost under $50,000. If the hospital district uses the limited public works process, it is exempted from the requirements of the small works roster process described above and exempt from the requirement that contracts be awarded only after advertisement.

To use the limited public works process the hospital district must solicit electronic or written quotations from at least three contractors from the appropriate small works roster. The district must award the contract to the lowest responsible bidder (see discussion of criteria used to determine the lowest responsible bidder above).

- name of the contractor;
- the contractor's registration number;
- the amount of the contract;
- a brief description of the type of work performed; and,
- the date the contract was awarded.

A “design-build” contract is used when the hospital district wants a firm to both design and build the public works project, whether it is an entire facility, a portion of a facility or other “item.” [RCW 39.10.051(1)]

A GC/CM contract is used when the hospital district wants a firm to provide services during both the design and construction phases of a public works project. In the design phase these services may include life-cycle cost design considerations, value engineering, scheduling, cost estimating, constructability, alternative construction options, forecast savings, and sequencing of work. During construction the firm will act as the general contractor and construction manger. [RCW 39.10.061]

The architect and builder/general contractor can work together before construction begins. This should reduce the number of changes needed during construction, allow construction to proceed more efficiently, and ultimately result in a less-costly project.

The hospital district knows what the project will cost before construction begins. During the schematic and design development phases, the architect and builder/general contractor work together to design a project to the district’s budget. Because the builder/contractor must provide a guaranteed construction cost by the end of the design development phase, the district knows—at a relatively early stage—if the project can be built within its budget; if the budget is exceeded, the project can be redesigned before construction documents are prepared. With a design-bid-build project, there can be a large number of changes that are needed during construction because the architect and general contractor did not work together earlier. This can result in significant cost overruns and/or a scaling-back of the project during construction.

The hospital district can select a builder/general contractor with the skills and experience to deliver a project of the quality desired by the district. When the design-build or GC/CM procedure is used, the hospital district chooses the builder/general contractor based on the firm’s experience and reputation. With design-bid-build, there is more opportunity for less experienced and less skilled general contractors to submit bids because the hospital district must award the contract to the low responsive responsible bidder. (Another advantage of the GC/CM procedure is that the GC/CM can solicit bids from “pre-qualified” subcontractors—firms whose abilities and experience already have been evaluated. In addition, the GC/CM, itself, may perform up to 30% of the cost of the subcontract work.)

Before using of either these contracting alternatives, the hospital district must go through the following steps: (1) the commissioners of the hospital district must make a preliminary determination that the project meets certain statutory criteria and use of the alternative “will serve the public interest by providing a substantial fiscal benefit, or that use of the traditional method of awarding contracts in lump sum to the low responsive bidder is not practical for meeting desired quality standards or delivery schedules;” (2) the public must be allowed to review and comment on the preliminary determination; and (3) the commissioners, after considering the public’s comments on its preliminary determination, must make a final determination to use the contracting procedure. [RCW 39.10.030 (1)-(3)]

In addition, a hospital district desiring to use the GC/CM contracting procedure must obtain the approval of the Public Hospital District (PHD) Project Review Board. [RCW 39.10.117]

Only after the commissioners have issued a final determination can the hospital district use either alternative contracting procedure. Once the project is built, a report, which reviews the use and performance of the design-build or GC/CM contracting procedure, must be submitted to the commissioners and made available to the public. [RCW 39.10.030(4)]

Unless the Legislature takes additional action, a hospital district cannot enter into a contract for either design-build or GC/CM services after June 30, 2007. This means that these contracts must be signed before July 1, 2007. [RCW 39.10.120(1)]

The design-build procedure is available only to those hospital districts with total revenues greater than $15 million dollars per year. Furthermore, the project itself has to meet certain criteria before a district can enter into a design-build contract.

In general, the value of the project must be over $10 million. When pre-engineered metal buildings or prefabricated modular buildings are to be constructed or erected, however, the cost of the project is not to be taken into account. [RCW 39.10.051(3)(a)]

For projects valued at over $10 million that are not pre-engineered metal buildings or pre-fabricated modular buildings, the hospital district also must determine that one of the following criteria is met before the design-build procedure can be used:

(a) The construction activities or technologies to be used are highly specialized and a design-build approach is critical in developing the construction methodology or implementing the proposed technology; or

(b) The project design is repetitive in nature and is an incidental part of the installation or construction; or

(c) Regular interaction and feedback from facilities users and operators during design is not critical to an effective facility design. [ RCW 39.10.051(2)(a)-(c)]

For pre-engineered metal buildings or pre-fabricated modular buildings, both (b) and (c) must be met. [RCW 39.10.051(3)]

The hospital district’s commissioners formally initiate the design-build process by making a written preliminary determination that the criteria listed above have been met. [RCW 39.10.051(1)] It is suggested that the commissioners, as part of this determination, make a finding that use of a design-build firm “will serve the public interest by providing a substantial benefit” or “that use of the traditional method of awarding contracts in lump sum to the low responsive bidder is not practical for meeting desired quality standards or delivery schedules.” [RCW 39.10.030(1)] The commissioners then must give the public an opportunity to review and comment on its preliminary determination. [RCW 39.10.030(2)] (See “Public Comment on the Preliminary Determination to Use the Design-Build or GC/CM Procedure” later in this chapter.)

Once the public has had an opportunity to review and submit comments on the preliminary determination and hospital district’s commissioners must issue a final determination that the design-build procedure will be used. (See “Making a Final Determination to Use the Design-Build or GC/CM Procedure” later in this chapter.)

After the commissioners have made a final determination to use the design-build procedure and before publicly soliciting proposals, the hospital district must prepare the following request for proposal (RFP) documents:

· A detailed description of the project including programmatic, performance and technical requirements and specifications, functional and operational elements, and minimum and maximum net and gross areas of any building.

· The reasons for using the design-build procedure.

· A description of the qualifications to be required of the proposer including, but not limited to, submission of the proposer’s accident prevention program.

· A description of the process the district will use to evaluate qualifications and proposals including evaluation factors and the relative weight of factors. Evaluation factors must include, but are not limited to: proposal price; ability of professional personnel; past performance on similar projects; ability to meet time and budget requirements; ability to provide performance and payment bond for the project; recent, current and projected workloads of the firm; location; and concept of the proposal.

· The determination of a maximum allowable construction cost (MACC).

Note: The design-build statute does not define “maximum allowable construction cost (MACC).” However, MACC is considered to be the amount of direct costs of the project and does not include such items such as the architect’s fees, attorney’s fees, bond costs and other administrative costs.

· Form of the contract to be awarded.

· The amount to be paid to finalists submitting best and final proposals who are not awarded a design-build contract. (This amount, which is designated as an honorarium, must be “sufficient to generate meaningful competition among potential proposers.”)

· Other information relevant to the project. [RCW 39.10.051(4)]

Notes:
(1) The hospital district, at its discretion, may also prepare preliminary engineering and architectural drawings.

(2) RCW 39.10.070(2) allows hospital districts to provide incentive payments to contractors for early completion, cost savings, or other goals if such payments are identified in the RFP.

(3) In setting project costs, the hospital district must provide for “reasonable budget contingencies totaling not less than five percent of the anticipated contract value. [RCW 39.10.070(1)(b)

The hospital district also must establish a committee to evaluate the proposals. [RCW 39.10.051(5)]

Finally, the hospital district—to the extent practicable—is to provide for an independent review of the contract documents through value engineering or constructability studies prior to proposal solicitation. [RCW 39.10.070(1)(c)] (A district also needs to be aware that RCW 39.10.070(1)(f) requires all district contract documents to include alternative dispute resolution procedures that are to be used before the initiation of litigation.)

In the event that all proposals exceed the hospital district’s available funds for the project, the district is authorized to negotiate an adjustment to the lowest bid or proposal price based on agreed changes to the contract plans and specifications only if all of the following conditions are met:

· An appropriate fiscal officer certifies that all responsive bids or proposal prices exceed the available funds; and

· The apparent low-responsive bid or proposal does not exceed the available funds by the greater of $125,000 or two percent for projects valued over $10 million; and

· The negotiated adjustment will bring the bid or proposal price within the amount of available funds. [RCW 39.10.080(1)-(3)]

The hospital district must begin negotiations with the firm submitting the highest scored best and final proposal. If the district is unable to execute a contract with that firm, it may suspend or terminate negotiations and then negotiate with the next highest scored firm. The district is to continue to use this procedure until a contract agreement is reached or the district terminates the selection process. [RCW 39.10.051(5)(a)]

However, if the hospital district determines that all finalists are capable of producing plans and specifications that adequately meet project requirements, it may award the contract to the firm that submits the responsive best and final proposal with the lowest price. [RCW 39.10.051(b)]

Additional project management and contracting requirements for the hospital district include:

· The preparation of appropriate, complete and coordinated design documents that are consistent with design-build;

· On-site architectural or engineering representatives—to the extent practicable—during major construction or installation phases; and

· The employment of staff or consultants with expertise and prior experience in the management of comparable projects. [RCW 39.10.070(1)(a), (d) and (e)]

The GC/CM Procedure [RCW 39.10.061 and RCW 39.10.068]

RCW 39.10.061 and RCW 39.10.068 authorize any hospital district—regardless of size or annual revenues—to use the GC/CM procedure as an alternative method of contracting. However, the project itself must be of a certain value and meet other criteria before a contract for GC/CM services can be awarded.

Note: The GC/CM statute does not define “demonstration project” and the PHD Project Review Board is currently establishing guidelines for this term.

In addition to the project meeting a “threshold” value, at least one of the following conditions must be present before a hospital district can consider using the GC/CM procedure:

(a) Implementation of the project involves complex scheduling requirements; or

(b) The project involves construction at an existing facility that must continue to operate during construction; or

(c) The GC/CM’s involvement during the design stage is critical to the success of the project. [RCW 39.10.061(2)(a)-(c)]

The hospital district also needs to take into account the statutory admonition of RCW 39.10.061(3): “Public bodies should select general contractor/construction managers early in the life of public works projects, and in most situations no later than the completion of schematic design.” Note: The PHD Project Review Board is currently establishing guidelines for how late a GC/CM can be brought into the project and still be beneficial.

The hospital district’s commissioners formally begin the GC/CM process by issuing a written preliminary determination that the project meets the criteria listed above and the district intends to use the services of a GC/CM. As part of this determination, the commissioners should make a finding that use of a GC/CM “will serve the public interest by providing a substantial fiscal benefit” or “that use of the traditional method of awarding contracts in lump sum to the low responsive bidder is not practical for meeting desired quality standards or delivery schedules.” [RCW 39.10.030(1)]

Then the commissioners must give the public an opportunity to review and comment on its preliminary determination. [RCW 39.10.030(2)] (See “Public Comment on the Preliminary Determination to Use the Design-Build or GC/CM Procedure” later in this chapter.)

After the preliminary determination has been made, the hospital district must submit an application to the PHD Project Review Board, which evaluates the project and approves those projects that qualify to use the GC/CM procedure. (An application packet is available from the Washington Health Care Facilities Authority, P.O. Box 40935, Olympia, Washington 98504-0935; (360) 753-6185.) The members of this board, who are gubernatorial appointees, have public works or commercial construction experience. [RCW 39.10.117(1)]

Note: The GC/CM statute is silent on whether the PHD Project Review Board must approve the project before or after the public has had the opportunity to review and comment on the district hospital commissioners’ preliminary determination to use the GC/CM procedure. (See “Public Comment on the Preliminary Determination to Use the Design-Build or GC/CM Procedure” later in this chapter. It is suggested that the PHD Project Review Board only needs to approve the application before the district’s commissioners make a final determination.

Once the public has had an opportunity to review and submit comments on the preliminary determination and the PHD Project Review Board has approved the district’s application to use the GC/CM procedure, the district’s commissioners must issue a final determination that they will use a GC/CM for the proposed project. (See “Making a Final Determination to Use the Design-Build or GC/CM Procedure” later in this chapter.)

After the commissioners have made a final determination to use the services of a GC/CM and before publicly soliciting proposals, the hospital district must prepare the following request for proposal (RFP) documents:

· A description of the project including programmatic, performance and technical requirements and specifications when available.

· The reasons for using the GC/CM procedure.

· A description of the qualifications to be required of the proposer including submission of the proposer’s accident prevention program.

· A description of the process the district will use to evaluate qualifications and proposals including evaluation factors and the relative weight of factors. Evaluation factors must include, but are not limited to: ability of professional personnel; past performance in negotiated and complex projects and ability to meet time and budget requirements; the scope of work the GC/CM proposes to perform itself and its ability to perform it; location; recent, current, and projected workloads of the firm; and the concept of the firm’s proposal. [RCW 39.10.061(4)]

Note: The district cannot use as an evaluation factor “whether a contractor submitting a bid for the approved project has had prior GC/CM procedureexperience.” [RCW 39.10.117(4)]

· The form of the contract to be awarded.

· The estimated maximum allowable construction cost (MACC).

· Bid instructions to be used by the GC/CM finalists.

Hospital districts may provide incentive payments to contractors for early completion, cost savings, or other goals if they identify those payments in the RFP. [RCW 39.10.070(2)]

In addition, the district, in setting project costs, must provide for “reasonable budget contingencies totaling not less than five percent of the anticipated contract value." [RCW 39.10.070(1)(b)]

The hospital district also needs to establish a committee to evaluate the proposals. [RCW 39.10.061(4)]

Finally, the district—to the extent practicable—is to provide for an independent review of the contract documents through value engineering or constructability studies prior to proposal solicitation. [RCW 39.10.070(1)(c)] (It should be noted that RCW 39.10.070(1)(f) requires all hospital district contract documents to include alternative dispute resolution procedures that are to be used before the initiation of litigation.)

The “most qualified finalists” must submit final proposals, which include sealed bids for the “percent fee” and the fixed amount for the detailed specified general conditions work. (The “percent fee” is the percentage amount to be earned by the GC/CM as overhead and profit on the MACC.)

From these finalists, the hospital district, using the evaluation factors and relative weight of factors published in the public solicitation of GC/CM proposals, must select the firm submitting the highest scored final proposal. [RCW 39.10.061(4)]

Should all proposals exceed the hospital district’s available funds for the project, the district is authorized to negotiate an adjustment to the lowest bid or proposal price based on agreed changes to the contract plans and specifications only if all of the following conditions are met:

· An appropriate fiscal officer certifies that all responsive bids or proposal prices exceed the available funds; and

· The apparent low-responsive bid or proposal does not exceed the available funds by the greater of $125,000 or two percent for projects valued over $10 million; and

· The negotiated adjustment will bring the bid or proposal price within the amount of available funds. [RCW 39.10.080]

The contract may include an incentive clause for savings of time and/or cost from what was originally negotiated. However, no incentives may exceed 5% of the negotiated MACC. As an aside, if the project is completed for less than the negotiated MACC, the district gets any savings that are not in the incentive clause. If the project is completed for more than the negotiated MACC, then the GC/CM is responsible for the additional costs—unless the increases were due to district-approved change orders. [RCW 39.10.061(8)]

If the hospital district is unable to negotiate a MACC that it determines to be “fair, reasonable and within the available funds,” it must formally terminate negotiations with that firm and go on to the next highest scored firm. This process will continue until an agreement is reached or the district terminates the process. [RCW 39.10.061(5)]

Other project management and contracting requirements for the hospital district include:

· The preparation of appropriate, complete and coordinated design documents that are consistent with the use of a GC/CM;

· On-site architectural or engineering representatives—to the extent practicable—during major construction or installation phases; and

· The employment of staff or consultants with expertise and prior experience in the management of comparable projects. [RCW 39.10.070(1)(a), (d) and (e)]

Subcontracting Under the GC/CM Procedure [RCW 39.10.061(6) &(7)]

When subcontracting under the GC/CM procedure, hospital districts must follow the processes set out in RCW 39.10.061(6) and (7).

Three basic subcontracting requirements are:

· All subcontracting work is to be competitively bid with public bid openings;

· All subcontractors who bid work over $300,000 must post a bid bond; and

· Each subcontracting bid package must comply with the requirements of RCW 39.30.060.

(1) Adequate financial resources or the ability to secure such resources.

(2) History of successful completion of a contract of similar type and scope.

(3) Project management and project supervision personnel who have experience on similar projects and their availability for the project.

(4) Current and projected workload and the impact of the project on the subcontractor’s current and projected workload.

(5) Ability to accurately estimate the subcontract bid package scope of work.

(6) Ability to meet subcontract bid package shop drawing and other coordination procedures.

(7) Eligibility to receive a subcontract award under applicable laws and regulations.

(8) Ability to meet subcontract bid package scheduling requirements. [RCW 39.10.061(6)(a)-(h)]

The hospital district and GC/CM, after weighting these criteria, must determine a minimum acceptable score to be considered as an eligible subcontract bidder.

At least 20 days before requesting qualifications from interested subcontract bidders, the district and GC/CM must publish a notice of intent to determine bidder eligibility. (It is suggested that this notice contain a declaration that establishing qualifications for subcontractors is “critical to the successful completion of a subcontractor bid package.”) This notice must be published in a legal newspaper of general circulation published in or as near as possible to that part of the county in which the subcontract work is to be done. After publication, the district and GC/CM must provide the evaluation criteria and weighting to all subcontractors requesting eligibility.

Once the hospital district and GC/CM have determined eligible subcontract bidders, all subcontractors requesting eligibility must be given the results and scoring of the determination.

The GC/CM or its subsidiaries may bid on subcontract work if all of the following conditions are met:

· The GC/CM customarily performs the work within the subcontract bid package.

· The hospital district manages the bid opening.

· Notice of the GC/CM’s intent to bid is included in the public solicitation of bids for the subcontract bid package.

However, the value of the subcontract work to be performed by the GC/CM cannot exceed 30% of the negotiated MACC. [RCW 39.10.061 (7)]

· All responsive bids exceed the available funds (an appropriate fiscal officer must certify this circumstance); and

· The apparent low responsive bid does not exceed the available funds by the greater of $125