The Governor's Budget Bill radically changed the rules for public construction work in Ohio. Those construction reform rules have just been finalized. At this seminar, our presenters covered everything you need to know about these sweeping changes and the legal and practical implications it holds for owners, contractors, and subcontractors involved in public construction work in the state. The topics discussed included: • Alternative Contract Delivery Systems authorized, including Design-Build and Construction Manager At-Risk • Changes to the Multiple-Prime Contractor System • How to Compete in this New Environment • New Rules for Bonding, Subcontracting, Prequalification and Best Value

2. THE JUNE 2011 BUDGET BILL: WHAT DOES
IT MEAN FOR THE CONSTRUCTION
INDUSTRY?
Ohio Construction Reform Seminar
February 14, 2012

3. CONSTRUCTION REFORM
• Project delivery and the demise of multi-prime
contracting

4. MULTI-PRIME CONTRACTING HAS BEEN
AROUND FOR A CENTURY

5. MULTI-PRIME CONTRACTING
Advantages Disadvantages
• Direct Payment • No single source
responsibility
• No Mark-up
• Less Coordination
• Less Bid Shopping
• More Claims
Cheaper on Bid Day? Cheaper at end of job?

6. MULTI-PRIME HAS BEEN UNDER ATTACK
IN RECENT YEARS
by: AGC
Public Owners, particularly OSU

7. IT ALL STARTED WITH
CONSTRUCTION REFORM (2009)
Reform Defeated except for 3 test
projects
(including OSU‟s Project One)
Supposed to track costs and effectiveness

8. BUDGET BILL MAKES CHANGES
WITHOUT HEARINGS OR PUBLIC DEBATE

9. WHAT ARE THE MAJOR CHANGES
• No multi-prime requirement
• Authorizes design-build (DB) and
construction manager (CM) at-risk
• Authorizes competitive proposals rather
than bids for DB and CM at-risk work

10. WHAT DOES THIS MEAN FOR OWNERS?
• More flexibility in contractor selection
• Greater choice over contracting methods
• Less need for coordination or action
• Single source responsibility
• Less risk of claims?

11. WHAT DOES THIS MEAN FOR DESIGNERS?
• Loss of control on design-build work

12. WHAT DOES THIS MEAN FOR CM AGENTS?
• Less need for services if no multi-prime
contracting
• But not prohibited from serving as CM if made a
CM at-risk proposal that broke down over the
GMP. R.C. § 9.33(H)

13. WHAT DOES THIS MEAN FOR GENERAL
CONTRACTORS?
• Great advantages for large international firms
• More politics with no-bid selection
• Bonding capacity may become more critical
• Competitive disadvantages for locally owned
family construction companies

14. WHAT DOES THIS MEAN FOR
SUBCONTRACTORS?
• More Bid Shopping
• Loss of control
• No direct payment and less payment security
• Delayed payment (10 days)
• Worse contract terms

15. WHAT DOES THIS MEAN FOR INDUSTRY?
WINNERS LOSERS
- Owners - Subcontractors
- Large international - Family-owned
contractors contractors
- Architects

16. NEW PROJECT DELIVERY METHODS
• General Contracting
• Design-Build
• CM at-risk

17. GENERAL CONTRACTING

18. DESIGN-BUILD

19. CM AT-RISK

20. NO-BID CONTRACTS
• Design-Build
• CM at-risk
Competitive Proposal Process (like selecting A/E)

21. CM AT-RISK & DESIGN BUILD SELECTED
ON “BEST VALUE”
Based Upon Proposal

22. WHO WILL OWNER WANT TO CHOOSE?
• Safe Choice (“One of the Big Boys” or a “Known
Quantity”)
• Relationship
• Politics

23. WHAT LEVERAGE WILL AN OWNER
WIELD?
• Make Owner Happy or Never Work There Again

24. CM AT-RISK OR DESIGN-BUILDER MUST:
• Identify 3 prequalified bidders on each
subcontract
• Who are acceptable to owner
• Need not award to low sub

25. WHEN DO THE CHANGES BECOME
EFFECTIVE?
Tied to approval of DAS rules
(No later than 6-30-12)

26. SUBCONTRACTOR PREQUALIFICATIONS
• What does the Bill say about Subcontractor
Prequalification?

27. SUBCONTRACTOR PREQUALIFICATION
• Each CMAR and D/B firm “shall establish criteria” to
prequalify prospective subs.
– The prequalification criteria must be approved by the public
authority involved in the project. R.C. 153.502(A)
• DAS “shall adopt rules” setting standards CMARs and D/Bs
must follow when establishing their sub prequalification
criteria. R.C. 153.503(B).
– Unless specifically excused by the public authority, the CMAR or
D/B firm must identify at least three (3) prospective bidders who
are prequalified to bid on the subcontract. R.C. 153.502(B); and
– The solicitation and selection of subs must be under an “open
book” pricing method. R.C. 153.502(C).

28. DAS FINAL RULE ON PREQUALIFICATION
• Issued January 24, 2012

29. DAS RULE 153:1-7-01: SUB
PREQUALIFICATION
• Under final rule, the CM-At Risk or Design-Build
firm for each Project must establish
“prequalification” criteria and prequalification is
defined as:

30. DAS RULE 153:1-7-01: SUB
PREQUALIFICATION
• The CM-At Risk or Design-Build firm for each
Project is required to establish criteria that “shall”
include information on the bidding
subcontractor‟s:
– Financial condition;
– Conduct and performance on previous contracts;
– Facilities;
– Management skills; and
– Ability to “properly” execute the subcontract.

31. SUBCONTRACTOR PREQUALIFICATION
• DAS Rule further requires that the
prequalification criteria “shall:”
– Further any diversity “or inclusion” goals required by
law or the public authority; and
– Require prospective bidders to affirmatively state that
they “have not violated any affirmative action program
during the last five years preceding the date of the
prequalification application.”
• NOTE: For projects governed by Section 9.47 of the Ohio
Revised Code, subs may meet this requirement by
submitting a valid certificate of compliance.

32. FINAL PREQUALIFICATION RULE
• Criteria must also require the bidder to submit
proof of current licenses to perform the work as
required by a public authority or applicable law.
• The public authority has the right to:
– Require the CM-At Risk or Design-Builder to include
“additional criteria for specific trade contracts”
provided the additional criteria is “consistent with the
scope and needs of the project including, but not
limited to, knowledge of the local area and working
relationships with local suppliers.”

33. SUBCONTRACTOR PREQUALIFICATION
After all that, the prequalification criteria
established by the CM At-Risk or design-builder
(pursuant to the mandatory rule) are …
– “subject to approval of the public authority, who may
reject in whole or in part.” DAS Rule 153:1-7-01(D)

34. WHAT DOES THIS MEAN?
• Public Owners have a lot of discretion, if they
wish to exercise it, in guiding the final Project
subcontractor prequalification rules.
– Criteria could be set up to favor local businesses,
disadvantaged businesses, etc.
– It appears that owners can even reject pre-
qualification criteria the design-builder or CM At-Risk
included that were required by the Final Rule.
• Possibility of bid disputes if a pre-qualified
bidder is low but does not get the job?

35. WHAT ABOUT BONDS?
OSU Project One case – no need for Payment
Bond if project not bid.

36. PAYMENT BOND PROTECTIONS
• Under the Ohio Supreme Court‟s June 21, 2011
decision in State ex rel. Am.
Subcontractors Assn., Inc. v. Ohio State
Univ., Slip Opinion No. 2011-Ohio-2881,
payment bonds were not required under Ohio
law on public works projects that are not
awarded to a „bidder.‟
• The June 30, 2011 Budget Bill requires that
CMARs and DBs “shall provide a surety bond to
the public authority in accordance with rules
adopted by the director of administrative
services…” See § 9.33(B) and § 153.70(C), respectively.

37. PAYMENT BOND PROTECTIONS
• Current rule requires 100% performance and
payment bonds

38. SILVER LINING FOR SUBCONTRACTORS
Standard Subcontract Form on CM at-risk and DB
work:
• Cannot waive lien rights
• Must pay retainage as retainage released by
owner

39. DOES PROMPT PAY STILL APPLY
Yes.
CM at-risk and design-builder must comply with
ORC 4113.61

40. BEST VALUE SELECTION PROCESS FOR CM
AT-RISK AND DESIGN-BUILD
Two Step Process:
1. Qualification Phase
2. Request For Proposal Phase
An Evaluation Committee Shall Be Established By
The Public Authority.
– The Project‟s design firm or other independent
advisors can provide support but are not permitted to
participate as voting members.

41. QUALIFICATION PHASE
Prior To Announcing The Qualification Phase, A Public Authority Shall
Establish Criteria For Evaluating A Firms‟ Qualifications That At A
Minimum Shall Include:
1. Competence to perform required services.
2. Ability in terms of workload and availability of qualified personnel.
3. Past performance.
4. Financial responsibility.
5. History of meeting diversity goals.
6. Knowledge of local area, subcontractors, and suppliers.
7. For Design Build Proposals- use of licensed design professionals in
compliance with Ohio law.
– Rules Provide For Use of Stipends For Design Build Proposals

42. QUALIFICATION PHASE
• “Short-Listed Firms”
– No fewer than three unless Evaluation Committee
determines in writing that fewer than three are
qualified.

43. REQUEST FOR PROPOSAL PHASE
Pricing Proposal Technical Proposal
• A List of Key Personnel • Identity of the Proposed
• A Statement of General Team.
Conditions & Contingency • Project-Specific Plan
• A Fee Proposal that – Schedule
includes: – Approach & sequence to
the Work
– Preconstruction fee
– Approach to performance
– Construction fee
specifications
– At-Risk fee
– Plan for anticipated
– GMP if applicable procurement difficulties
– Plan for meeting diversity
goals

44. MINIMUM CRITERIA
Pricing Criteria Performance Criteria
• Preconstruction fee • Schedule
• Construction fee • Approach to work
• At-risk fee • Work sequence
• General Conditions • Performance history
• GMP proposal if • Approaches to
applicable performance specifications
• Plan for anticipated
procurement difficulties
• Plan for meeting
diversity/inclusion goals

45. INTERVIEWS
• Evaluation Committee Shall Interview Each
Short Listed Firm That Submits A Pricing and
Technical Proposal
– Interview Is Not To Be Included In The Scoring of The
Proposal

46. GMP PROPOSAL PROCEDURES
• Public Authority shall define GMP requirements, which
may include
– Total Cost of Work
– Allowances
– Assumption and Clarifications
– Project Schedule
– Scope of Work to be self-performed
• GMP shall be submitted in a sealed envelope
– Opened after interviews and Evaluation Committee‟s scoring of
performance and pricing criteria.

47. DETERMINATION OF BEST VALUE
• The Evaluation Committee shall evaluate each
Pricing and Technical Proposal utilizing the
performance criteria and pricing criteria.
– The performance criteria and pricing criteria shall be
evaluated separately.
– Evaluation Committee shall combine evaluations to
reach a final evaluation.
– Committee shall rank the short-listed firms based on
the final evaluation.

48. ANNOUNCEMENT AND CONTRACT
NEGOTIATIONS
• Public Authority shall announce the firm
determined to be the best value and shall enter
into contract negotiations.

49. PROPOSALS AND PUBLIC RECORDS
• Proposal and Other Records Shall Be Made
Available For Inspection AFTER Announcement
of the Best Value Firm.

50. FOR CM AT-RISK MULTIPLE
PRECONTSTRUCTION STEPS
Programming Schematic Design GMP Stage Construction
Verification Design Developme Document
Stage Stage nt Stage Stage

51. CONTINGENCY

52. SIMILAR ARTICLE 8 PROVISIONS
• 10 Day Notice Requirement
• Certified Claim To Be Submitted 30 Days After
Notice Is Made
• Architect/Engineer Provides Initial Review Claim
For CM at Risk
– For Design Build Contract – Criteria
Architect/Engineer Provides Initial Review of the
Claim.

53. CM AT-RISK AND DESIGN-BUILD
EXTENSIVE INSURANCE REQUIREMENTS
Includes Professional Liability
Applies To Subcontractors

54. NEW RULES FOR ELECTRONIC
ADVERTISING/BIDDING
• DAS has proposed new rules for electronic
advertising and bidding on projects.
• Effective February 2, 2012.

55. RULES FOR ELECTRONIC ADVERTISING
New rules allow a public authority to advertise a
project electronically in three ways:
• On the website of a newspaper in the project
county.
• On the state public notification website.
• On the public authority‟s website, or on a non-
official website (such as a trade association).

56. RULES FOR ELECTRONIC ADVERTISING
• Public authority can use electronic advertising to
reach out to diversity/inclusion programs.
• Public authority can us electronic advertising to
provide full description of project, and to provide
information on how to submit a bid.

57. RULES FOR ELECTRONIC BIDDING
What the state can require:
• All bids to be submitted through the state‟s
enterprise electronic bidding module.
• Bidders to register with state‟s enterprise
electronic bidding module.
• Fees: registration, maintenance, subscription
cost. (state can waive for diversity/inclusion
programs)

58. RULES FOR ELECTRONIC BIDDING
What the state can provide:
• Assistance or training in the electronic bidding
software/subscription service for interested
bidders.
• Access to a computer for interested bidders.
• Notice of availability of electronic bidding in any
advertisement for the project.
• Protection of submitted electronic information
prior to bid deadline.

59. RULES FOR ELECTRONIC BIDDING
• System will allow bidder to submit, resubmit, and
withdraw a bid prior to the published bid
deadline.
• State will consider all electronic bids submitted
before the published bid deadline.

60. RULES FOR ELECTRONIC BIDDING
BUT…the state is not liable if:
• An interested bidder can‟t submit a bid due to
“technical issues or obstructions.”
Technical issues are not sufficient grounds for a
bid protest.