NC Association of County Attorneys Winter Conference Recent Developments in Contracting Law Eileen Youens, UNC School of Government February 9, 2008

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1 NC Association of County Attorneys Winter Conference Recent Developments in Contracting Law Eileen Youens, UNC School of Government February 9, 2008 I. Legislation Affecting All State and Local Government Entities 1. Increase in the Formal Bid Threshold for Construction or Repair Work Legislation: Session Law (H 73) Amends * : G.S Effective date: Applies to projects funded on or after July 1, 2007 Increases formal bid threshold for construction or repair work from $300,000 to $500,000 Implicitly increases informal bid range for construction or repair contracts: now $30,000 to $500,000 (Under state law, bids in this range do not require advertisement, three bids, or bid bonds, and bids in this range may be withheld from public inspection until the contract is awarded.) Cautions: Performance and payment bonds are still required for construction or repair projects over $300,000 (for each contract over $50,000), under G.S. 44A-26. For building construction projects worth more than $300,000 but less than $500,000, local governments must use one of the construction methods listed in G.S (a1) (separate prime, single prime, dual, or construction manager at risk), even when using the informal bid process. Minority participation requirements in G.S for building construction projects still apply to all state funded projects of $100,000 or more and all locally funded projects of $300,000 of more. o Overlap for locally funded projects worth more than $300,000 but less than $500,000, and for state funded projects worth more than $100,000 but less than $500,000, between the informal outreach requirements requirements in G.S (b), which apply to projects between $30,000 to less than $500,000, and the specific requirements in , which apply to projects worth more than $300,000. For locally funded projects worth more than $300,000, and for state funded projects worth more than $100,000, be sure to use the more detailed requirements of , even when using the informal bid process, but also document outreach efforts as required in (b). Remember that your local policies may still require the use of some or all formal bid requirements for bids in the informal range. 2. New Provisions Regarding Retainage in Public Construction Contracts Legislation: Session Law (S 1245) Amends * : G.S (Interest on final payments due to prime contractors; payments to subcontractors) Effective date: applies to contracts entered into on or after January 1, 2008

2 February 9, Page 2 Projects costing than less than $100,000: retainage (funds withheld from payments due to contractors pending satisfactory completion of the project) is prohibited. Projects costing $100,000 or more: o Maximum retainage per periodic payment is 5%; o at 50% completion, no further retainage is allowed as long as the contractor performs satisfactorily; o if performance after 50% is unsatisfactory, retainage up to maximum of 5% may be reinstated. Requires the same limitations for retainage provisions in subcontracts. Requires release of all retainage at certificate of substantial completion, or upon beneficial occupancy or use of the project, except that up to 2.5 times the value of remaining work may be retained in order to secure completion of remaining work to be completed or corrected. Provides for line-item release of retained funds for subcontractors who complete their work before 50% completion if subcontracted trades and the requirements for accepting the work are listed in the bid documents. Subsection (e) of the statute allows the contractor to withhold greater amounts of retainage for unsatisfactory job progress, defective construction not remedied, disputed work, or third-party claims filed against the owner or reasonable evidence that a third-party claim will be filed. Allows public agencies to comply with requirements of federal contracts and grants that conflict with those of the statute. Bid documents must specify when federal preemption applies. 3. Statewide Uniform Certification of Historically Underutilized Businesses (HUBs) Legislation: Session Law (S 320) Amends * : G.S (also enacts G.S , and affects and ) Effective date: applies to state and local government contracts starting July 1, 2009 Requires the State Department of Administration (DOA) to develop and administer a statewide program to certify Historically Underutilized Businesses (HUBs) for use by state and local agencies. Requires DOA to create and maintain a statewide database of certified HUBs. Requires all state and local entities to use only certified HUBs (i.e., HUBs listed in the DOA s database) for minority business purposes. As of July 1, 2009, state agencies and local governments will be required to consider only state-certified firms when applying the state requirements for outreach to and participation by historically underutilized businesses under G.S and G.S

3 February 9, Page 3 4. Increase in Size of Buildings Requiring State Insurance Commissioner Approval Legislation: Session Law (H 735) Amends * : G.S (b) Effective date: for plans submitted on or after October 1, 2007 Increases the size of buildings that must be submitted to the Insurance Commissioner for approval as to fire safety from 10,000 to 20,000 square feet. 5. Use of Electronic Signatures Authorized Legislation: Session Law (S 211) Amends * : G.S Effective date: June 21, 2007 Specifies that public agencies may use as well as accept electronic signatures (before amendment, statute provided only that agencies may accept electronic signatures). There is broad authority for local governments to use electronic signatures and contracts, but there are no general requirements for board approval or specific procedures for implementation of electronic contracting procedures. Two situations do require specific approval by the governing board: (1) in order to use electronic advertisements instead of newspaper advertisements for formal bids (see G.S (b)); and (2) in order to use a facsimile (which would include an electronic) signature rather than an original signature for the preaudit certificate required in G.S (a) for all written contracts (see G.S ). 6. Exception for Purchasing from GSA or Other Federal Contracts Legislation: Session Law (S 492) Amends * : G.S (e) Effective date: June 20, 2007 Creates a new exception for purchases in the formal or informal range from contracts established by the federal government or any federal agency if the contractor is willing to extend the same or more favorable prices, terms, and conditions. 7. Contractor License Changes Legislation: Session Law (H 1338) Amends * : G.S , , Effective date: October 1, 2007 Raises value limits for license classifications applicable to electrical and general contractors.

4 February 9, Page 4 8. Small Business Contractor Act Legislation: Session Law (H 1181) Amends * : n/a, Enacts a new Small Business Contractor Act as Article 10, Chapter 143B Effective date: January 1, 2008 Creates an agency that will provide various kinds of financial assistance to North Carolina small businesses as defined in the statute. Assistance includes guarantees and loans for contract performance and surety bond guaranty. II. Legislation Affecting Local Governments 1. Local Government Property Donations Legislation: Session Law (H 1060) Amends * : G.S. 160A-280 Effective date: August 1, 2007 Authorizes local governments to donate surplus personal property to another unit of government within the United States, a sister city in another country, or a nonprofit organization. Sister city relationship must be evidenced by a formal written agreement establishing such a relationship. Donation must be approved by the governing board. Local school units are probably unable to exercise this authority. III. Legislation Affecting the State (and Departments, Institutions, and Agencies Funded by the State) 1. Department of Transportation Contracting Authority Legislation: Session Law (H 802) Amends * : G.S , , 143B-350 Effective date: August 1, 2007 Authorizes the Department of Transportation to contract with the North Carolina Turnpike Authority, private entities, and authorized political subdivisions to finance the cost of acquiring, constructing, equipping, maintaining, and operation transportation infrastructure in the State. Authorizes the Department of Transportation to enter into two pilot contracts for public/private participation in providing litter removal from State rights-of-way, using a best value procurement process. Authorizes the Department of Transportation to enter into two pilot contracts for public/private participation in providing real-time traveler information at Stateowned rest areas, using a best value procurement process.

5 February 9, Page 5 IV. Legislation Affecting Schools/UNC/Community Colleges 1. Lease/Installment Purchase of School Food Service Equipment Legislation: Session Law (H705) Amends * : G.S. 115C 528(a) Effective date: July 24, 2007 Adds food service equipment to the list of items that may be financed by local school units though lease-purchase or installment-purchase contracts. 2. University System Efficiency Measures Legislation: Session Law (H 749) Amends * : G.S , , 138 6, , , , , , ; repeals ; enacts Effective date: July 19, 2007 Pursuant to recommendations of the UNC President s Advisory Committee on Efficiency and Effectiveness (PACE), makes a number of changes to statutes affecting construction and procurement by constituent institutions of the university system. The changes increase the scope of university discretion in contracting for construction repairs and renovation, including increased authority for the use of force account labor, and for the leasing and acquisition of property. 3. Limitation on Number of State-funded Contracts for Community Colleges Legislation: Session Law (S 613) Amends * : G.S. 115D Effective date: October 1, 2007 Limits the number of ongoing State-funded contracts for community colleges under G.S. 115D (lease-purchase and installment purchase contracts for equipment) to five in effect at one time.

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