In the public sector, most governmental jurisdictions are subject to laws mandating competitive bidding for construction contracts. Competitive bid laws can and do save taxpayer money and enable contractors to compete for public contracts on a level playing field – but only if the implementation of these laws includes a reliable mechanism for qualifying contractors. Obtaining the best value for the public dollar requires that public agencies award contracts only to qualified contractors.

All contractors bidding on public building projects subject to M.G.L. c. 1491 must first be certified by the Division of Capital Asset Management (DCAM). Thousands of state and local agencies and governments across Massachusetts rely on DCAM to prequalify their contractors for public building contracts. The success of building construction projects to provide essential public facilities such as public safety buildings, schools, libraries, and prisons depends heavily on DCAM’s ability to screen out unqualified contractors and to certify qualified contractors in a timely manner.

In September 1997, the Office of the Inspector General initiated a review of deficient construction projects in three municipalities undertaken by a contractor that had been deemed qualified to bid by DCAM and by the three municipalities. The Office’s investigation identified weaknesses in the current system for qualifying public building contractors, including inadequate review of contractors’ financial conditions, overly generous limits on the dollar value of public work that contractors may undertake, and understaffing of the Commonwealth’s contractor certification function.

In August 1998, the Office issued a report, Qualifying Contractors for Public Building Projects: A Case Study & System Review, August 1998 , summarizing its findings and setting forth detailed recommendations for systemic reform. After the report was issued, the Inspector General filed legislation incorporating the legislative reforms recommended in the report.

In November 1997, the Executive Office for Administration and Finance convened a Construction Reform Task Force to review the Commonwealth’s public construction procurement and management practices. The Office participated on Task Force subcommittees and was a member of the Construction Reform Advisory Board, whose other members included representatives of private companies, industry groups, professional associations, and public authorities. The Advisory Board advised the Task Force that contractor prequalification standards were too low, that too few contractors were debarred, and that fear of personal liability made it difficult to obtain accurate contractor evaluations from municipal officials. The Construction Reform Task Force issued its final report in May 1998. The Task Force’s final report provided specific recommendations for strengthening contractor prequalification. Chapter 159 of the Acts of 2000, enacted in July 2000, incorporated many of the revisions recommended by the Inspector General and the Task Force.

In February 2000, the Office initiated a follow-up review of the contractor certification system. The purpose of the follow-up review was to identify and evaluate the adequacy of changes to the contractor certification system that had been instituted since 1998. In conducting the follow-up review, the Office reviewed documents and information provided by DCAM. The Office also interviewed officials from DCAM’s contractor certification office and legal department. The Office appreciates DCAM’s cooperation and assistance with this review. The report findings are summarized below.

Finding 1. Recent procedural improvements in the contractor certification system have strengthened safeguards against unqualified contractors.

In recent months, DCAM has instituted changes to the contractor certification system that will strengthen DCAM’s capacity to reject applicants and reduce the vulnerability of the contractor certification system to inaccuracy, bias, and fraud. Improvements made by DCAM include:

  • The Contractor Qualification Statement and Update Statement now require contractors to disclose demands for direct payment filed by their subcontractors.

  • The Contractor Qualification Statement and Update Statement now require contractors to disclose family and financial relationships with owners and designers of current and completed projects.

  • Contractors are now required to sign the Contractor Qualification Statement under the pains and penalties of perjury, as required by M.G.L. c. 149.

  • DCAM has reportedly instituted safeguards for certification extensions.

Finding 2. The contractor certification system continues to lack stringent standards for evaluating applicants’ financial condition and capacity to undertake public work.

Other needed reforms to the contractor certification system have not been instituted. Although both the Inspector General and the Administration’s Construction Reform Task Force called for more stringent contractor eligibility standards in 1998, DCAM’s financial eligibility standards continue to be inadequate. Contractors that are financially unstable, undercapitalized, or overextended pose substantial risks to Massachusetts awarding authorities in the form of project delays, corrective construction work, and legal fees. According to a national Dun & Bradstreet study, the business failures of more than 80,000 construction contractors between 1990 and 1997 left $21 billion in unfinished work on public projects.2 The Commonwealth has an obligation to protect Massachusetts awarding authorities by raising eligibility standards in this area.

  • Current standards for assessing each applicant’s financial condition continue to be vague and unreliable.

  • Contractor certification limits continue to be excessively generous.

Finding 3. The Commonwealth’s investment of resources has been inadequate to ensure an effective contractor certification system.

To date, the Administration has not devoted the necessary resources to institute meaningful reform of the contractor certification system.

  • DCAM’s contractor certification function continues to lack sufficient staff resources to process the certification workload.

  • DCAM continues to lack sufficient resources to provide awarding authorities with computerized access to important contractor certification information.

The following recommendations, many of which were first recommended by the Inspector General in 1998, are aimed at addressing the remaining areas of vulnerability through systemic improvements.

  1. DCAM should develop clear, reliable standards for assessing each contractor’s financial capability.

  2. DCAM should develop more restrictive methods for calculating contractor certification limits.

  3. DCAM should revise the contractor evaluation form to solicit information on contractor failure to pay subcontractors and to identify biased references.

  4. DCAM should revise the written contractor certification procedures to include specific protocols governing all significant decisions affecting the evaluation process.

  5. The Administration should invest sufficient resources to ensure an effective contractor certification system.

Implementing these recommendations will require the commitment of additional resources and expertise to ensure that the contractor certification system serves its intended purpose: to screen and prequalify contractors for public building projects. Such an investment is long overdue. Massachusetts awarding authorities and citizens deserve an efficient, effective contractor certification system.

Endnotes

  1. M.G.L. c. 149 governs all contracts estimated to cost more than $25,000 for the construction, reconstruction, installation, demolition, maintenance, or repair of a building by a public agency. [M.G.L. c. 149, §§44A-M]
  2. Ryan, Jessica. "Surety’s Role in Public Construction." American City and County, February 1999, vol. 114, p. 8.