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Sunday, February 20, 2011

The uneasy fit of wage determination standards in the procurement process

The Guam Public Auditor issued a Decision recently (actually two decisions, but in parallel cases), once again wading into the thicket the legislature created when it tried to bolt on a labor law regulation to the procurement law, without proper appreciation of the limits and language of procurement law.

In this case, the legislature desired to ensure labor wage rates are paid on government contracts by putting some onus on the procurement system to do something about it. That something is not much, when analyzed, as the Public Auditor rightly did.

First, there is the labor issue. Consistent with certain Federal law, Guam law requires, in some instances, that wages be paid according to a scale determined from time to time by the Department of Labor. That is a labor law that the DOL is meant to police.

The procurement problem arises because the legislature seems to have found that the DOL was not entirely effective in enforcing the labor laws, so decided to place some of that onus on the procurement contracting process. In the Wage and Hour Determination Article 13 of the Procurement Act, the law requires: “In such cases where the government of Guam enters into contractual arrangements ... for the provision of a service to the government of Guam, ... then the contractor shall pay such employee(s)”, the required wage rates. (5 GCA § 5801.)

Having clearly made this a “contracting” issue, the legislature muddied the water by adding: “The Chief Procurement Officer shall require bidders to submit declarations ... to demonstrate their compliance with [§ 5801], if applicable”. (5 GCA § 5805.)

It has to be appreciated that bidders are not contractors. The obligation of Article 13 to pay wage rates is on contractors. Bidders should not be made to submit any declarations that they comply with Article 13 because they cannot: they are not contractors.

The simple way to read § 5805 us to say that bidders might have had to submit the declaration to demonstrate compliance, but they don’t have to because Article 13 is not applicable to them; by its own terms, § 5805 only applies to bidders if § 5801 applies, and it does not. Bidding is not one of those "cases where the government of Guam enters into contractual arrangements". Bidding precedes those arrangements.

The Public Auditor’s decision did not take that simplistic route, however. Her route was through jurisdiction. She rightly pointed out that enforcement of payment of the wage rate was the responsibility of the DOL (5 GCA § 5803). She concluded, her jurisdiction, regardless whether Article 13 applies to bidders, does not extend to enforcing the payment of wage rates, so she washed her hands of further consideration of that matter.

But the story does not end there.

Not content with Article 13, the legislature also meddled with the procurement process to require that IFBs contain “a recitation of the Wage Determination most recently issued ... including a demonstration of compliance with [Article 13], if applicable.”

In this case, the government did not put the most recent determination in the IFB, but did require the bidders to put a wage determination schedule in with their bids. It turns out, each of the three bidders submitted a different schedule, and that the lowest bid was traceable to the use of a wage determination schedule that was lower then the others.

The Public Auditor ruled that the failure of the government to specify “the most recent” wage determination resulted in the bidders basing their bids on differing criteria. The Decision held this defect in the bid specifications violated the rule that “those criteria that will affect the bid price and be considered in evaluation for award shall be objectively measurable.”

As a remedy, the Public Auditor negated the contract. That is a result I would have reached, also, but perhaps by emphasizing slightly different law and language than was used.

Taking first the language that was used, the Public Auditor found “that DOE's award of the contract to J&B is void.” (Decision, p 14.) That is an unfortunate use of the term “void”, and is a use inconsistent with what she said in her conclusion: “DOE's contract with J&B, arising from the IFB, is hereby terminated.” Whether a contract is void or terminated is an important distinction in the law; that is why I used the term “negated”, which is not a legal term of art but could include both a “void” contract and a “terminated” contract. (A void contract is treated as an empty act that never occurred, but a terminated contract raises the possibility of damages for a breach that is so material that it allowed the contract to be terminated.)

This is not mere semantics. The Procurement Law specifically allows a contract to be made “void” only if there is a showing of fraud or bad faith. (5 GCA § 5452(a)(2)(i).) Here, the Public Auditor made a specific finding there was no such fraud or bad faith. In this instance, as the Public Auditor also held, the appropriate remedy is to “terminate” the contract. (5 GCA § 5452(a)(1)(ii).)

As to the law used to reach the result, I would have relied more heavily on the government’s obligation to provide appropriate specifications, which it failed to do, leaving the IFB too vague to satisfy the law’s requirement for certainty.

“Purchase descriptions shall describe the salient technical requirements or desired performance characteristics of supplies or services to be procured....” (5 GCA § 5268(c).) “Specifications shall be drafted with the objective of clearly describing the territory’s requirements.” (2 GAR § 4102(a)(1).) “The Invitation for Bids shall set forth the requirements and criteria which will be used to determine the lowest responsive bidder.” (2 GAR § 3109(n)(1).)

Importantly, after bids are opened, all bids should be rejected if “ambiguous or otherwise inadequate specifications were part of the solicitation.” (2 GAR § 3115(d)(2)(A)(ii).) That was certainly the case here. It was the government’s inadequate specifications that were at the root of the bid dispute.

In my line of reasoning, I would start with the proposition that the government was required to provide the current wage determination schedule. Having failed to do so, it invited confusion with inadequate specifications, did not specify the performance pay standards it desired, and let itself be misled into evaluating the bids based on criteria not provided in the IFB.

I would not have paid any attention to what the IFB required the bidders to produce in terms of wage determination schedules, and I would consider any such requirement to be void as beyond the power of the government to compel. First, the law requires the government to provide the information, not bidders. Second, bidders are only required to comply with the wage determination laws “if applicable”, and the law is not applicable to them. And finally, the government cannot compel empty acts, and this case illustrates just how emptythe act is; how empty is it to require the bidders to do something that the government is already supposed to have done?

Now there’s one more small item, but one easily dismissed. 5 GCA § 5211(g) puts the onus on the government purchasing agency to award to the lowest responsive and responsible bidder “whose bid amount is sufficient to comply with Article 13". But how is the government to make such a determination if the bidder is content to come a bit out of pocket to pay any shortfall to get the contract for other reasons? The government is not given access to all internal information a bidder may have. The only information the government has to hand is the total bid price and the total possible wage expenditure, assuming it may accurately know the manning requirements. It is rare, if ever, that such information would be adequate to make such a calculation without resort to pure speculation.

Fortunately, that is a question that does not need an answer because, just like in Article 13, that determination is only required where the “bid amount is sufficient to comply with Article 13 ..., if applicable”. Awarding a bid is not “entering into a contractual relationship”, so Article 13 should not be deemed to be applicable to require any such indeterminable determination. The law does not require the impossible.

The companion cases are IN THE APPEAL OF JRN AIR CONDITIONING & REFRIGERATION, INC. OPA-PA-10-007 and 10-008, and the Decision in one is the same as the other.

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