N.C. Construction Industry First Fractures, Then Coalesces, Around Prequalification Legislation

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By a whopping 116-0 margin, the N.C. House of Representatives yesterday passed House Bill 1043 (“HB 1043”), aimed at bringing objectivity and uniformity to the prequalification of contractors on public construction projects in the Tar Heel State.

Don’t let yesterday’s vote tally deceive you, however; the legislation was not without its share of controversy.

In the weeks leading up to yesterday’s vote, certain industry stakeholders found themselves in disagreement about the bill’s treatment of construction management at-risk (“CM at-risk”) project delivery by public entities.  Early drafts of the bill included a provision that some CM at-risk contractors contended would have handcuffed their ability to buy-out first tier subcontracts, plus other language that CM at-risk proponents argued would have discouraged public entities from even considering the delivery method in the first place.  Various splinter groups formed, and several lobbyists were hired to advance the positions of their respective clients.

Fortunately for the industry, CM at-risk proponents and traditional design-bid-build contractors ultimately put their differences aside and rallied around a compromise bill that was reported out of the House Standing Committee on Government on Monday before passing the full House unanimously yesterday.

As the legislation heads to the Senate for consideration, here’s what you need to know about HB 1043:

(1)  It would create objective, uniform prequalification standards.  Public entities wishing to prequalify contractors for hard-bid procurements would have to first adopt “an objective prequalification policy applicable to all construction or repair work” to be awarded by that body.  The policy, at a minimum, would have to be “uniform, consistent and transparent to all bidders,” not require that bidders have previously been awarded a construction contract by the entity, permit bidders to submit their project histories, clearly state the assessment process of the criteria to be used, and establish a process for a denied bidder to protest the denial of prequalification before accepting bids for the project in question.  While each public entity’s process would likely contain its own unique features, the minimum standards that would be created if HB 1043 were to become law would ensure far more prequalification objectivity and uniformity across the State than currently exists.

(2)  It would require construction managers at-risk to utilize the public entity’s prequalification policy in the selection of first-tier subcontractors.  But in a late change representing a compromise sought by CM at-risk proponents, the legislation would allow public entities and their construction managers to “jointly develop the assessment tool and criteria for that specific project.” This additional language arguably would provide construction managers at-risk greater flexibility in buying out first-tier subcontracts, particularly on projects where expertise in fabricating and installing unique building systems is at a premium.

(3)  It would require public entities wishing to use CM at-risk to justify that choice.  The original bill would have required the public body not only to conclude that CM-at risk “is in the best interest of the project,” but also to compare the “costs and benefits” of using CM at-risk instead of the traditional single-prime, multi-prime and dual-prime hard-bid procurement methods.  The compromise bill would require the public entity to compare the “advantages and disadvantages” of CM at-risk as opposed to its “costs and benefits.”  Many observers believe the softened language would reduce the risk of pre-procurement litigation over the sufficiency of the public entity’s determination, without functionally affecting the public vetting the governmental body must conduct prior to construction manager selection.

(4)  It would establish a Blue-Ribbon Commission to study the building and infrastructure needs of the State.  With North Carolina facing as much as $6 billion in state facility repair and maintenance costs, this Commission is critical to identifying funding solutions to meet those needs.  It would also work to develop mechanisms to finance the construction of new State facilities that will be required to accommodate the estimated 1 million new citizens we can expect to welcome to North Carolina over the coming decade.

Bottom line?  I’m grateful the construction coalition held strong after initially fracturing.  As one CM at-risk proponent declared, the prequalification standards represent a “huge win,” and overall, the legislation represents “a solid compromise and a good bill.”  Similarly, an advocate for the interests of traditional hard-bid contractors has commented that Representative Dean Arp, one of HB 1043’s chief sponsors, has “worked with stakeholders to craft a consensus compromise” and has committed to making sure the CM selection process is not used “as an end-run around competitive bidding.”

Photo by Dwight Burdette via Wikimedia Commons

Photo by Dwight Burdette via Wikimedia Commons

Sure, the initial controversy revealed some cracks in North Carolina’s construction coalition, but that was to be expected: after all, the industry is not a monolith.  Plus, the final bill represents consensus legislation that works for multiple industry constituencies, which is a good thing.

Besides, you can’t make an omelet without first breaking a few eggs, and in this case, the final product is pretty darn tasty.

Anyone else hungry?

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Filed under Construction Management, Project Delivery Systems, State law, policy & news, Subcontractors

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