PASBO Legal and Ethical School Purchasing Outline (D83383 ...



ATTORNEYS

SWEET ■ STEVENS

TUCKER & KATZ LLP

Practice Limited to Education and Employment Law

Outline on Legal and Ethical

Requirements for School Purchasing

Prepared for

Pennsylvania Association of

School Business Officials

Jeffrey T. Tucker, Esquire

March 10, 2004

331 E. BUTLER AVENUE ( POST OFFICE BOX 5069 ( NEW BRITAIN, PA 18901 ( (215) 345-9111 ( FAX (215) 348-1147

Copyright 2004 by SWEET, STEVENS, TUCKER & KATZ LLP

I. Introduction

In general, school purchasing occurs through solicitation of competitive bids after due advertisement or through negotiation. Pennsylvania statutes and case law manifest a preference for competitive bidding. Yohe v. Burrell, 418 Pa. 23, 208 A.2d 847 (1965). The preference for competitive bidding is intended to apportion awards fairly and economically and reduce the possibility of favoritism and fraud. Hanover Area School District v. Sarkisian Bros., Inc., 514 F. Supp. 697 (1981).

Purchasing practices by school districts are governed by the Public School Code of 1949, as amended and supplemented, and various other Pennsylvania statutes described below. School districts purchasing goods and services under programs funded directly or indirectly by the Federal government may be subject to additional procurement requirements imposed by the Federal funding agency.

II. Contracts

Section 5-508 of the Public School Code (24 P.S. §5-508) requires that all contracts, to include contracts for supplies, be approved by a majority vote of all members of the Board.

III. Purchase of Supplies

A. General

24 P.S. § 8-801 - requires school boards to purchase the necessary supplies and equipment to maintain educational environment.

B. Requirements to competitively bid – 24 P.S. § 8-807.1

1. Public bidding required for purchases of furniture, equipment, school supplies and other appliances costing $10,000 or more.

2. Requires three quotations for amounts more than $4,000 and less than $10,000.

3. Board can appoint a purchasing agent with authority to buy supplies costing less than $10,000.

4. Fragmentation - Illegal to separate portions of like items in order to avoid bid process.

5. Bidding not required for maps, music, globes, charts, educational films, filmstrips, prepared transparencies and slides, pre-recorded magnetic tapes and disc recordings (we interpret to include computer software for classroom use), textbooks, games, toys, prepared kits, flannel board materials, flash cards, models, projectuals and teacher demonstration devices.

6. Student Activity Accounts - $1,000 limit. 24 P.S. § 5-511.

C. Advertising

24 P.S. § 1-106 - Advertise bids three weeks in two newspapers of general circulation, or if not available, one newspaper and properly post the published notice.

D. Joint Purchasing

School districts, with the consent of the county in which situated, may purchase directly from vendors and suppliers off county contracts for goods, materials and equipment. 53 Pa.C.S.A. § 2309.

Purchasing materials, supplies and equipment jointly with other school districts and municipal government units and with private or parochial schools is permitted upon adoption of an appropriate resolution by the board of school directors; all purchases of more than $10,000 must be competitively bid. 24 P.S. § 5-521 and 53 Pa.C.S.A. §§ 2303-2308.

IV. Construction, Reconstruction, Repairs

A. Requirements to competitively bid – 24 P.S. § 7-751

Bids are required for all construction, reconstruction, repairs, maintenance or work of any nature, including the introduction of plumbing, heating and ventilating, or lighting systems...where the entire cost, value, or amount of such work, including labor and material, exceeds $10,000, except:

1. Prefabricated units may be purchased on basis of a single bid solicited by one advertisement;

2. Emergency repairs or replacement made necessary due to rendering school plant being unusable may be purchased on basis of competitive bids solicited from at least three responsible bidders and upon approval of any of these bids by the Secretary of Education regardless of cost;

3. Maintenance work may be performed by school district's own personnel irrespective of the cost or value;

4. Construction, reconstruction, repairs or work of any nature may be performed by school district's own personnel where the entire cost or value, including labor and material, is less than $5,000; and

5. Construction, reconstruction, repairs or work exceeding $4,000 and up to and including $10,000 may be purchased on basis of competitive bids solicited from at least three responsible bidders.

B. Contracts shall contain a provision requiring competent and first-class workers and mechanics; defined as workers duly skilled and paid wage rates equivalent to those of organized labor. 24 P.S. § 7-752.

C. Contracts shall contain provisions prohibiting discrimination by the contractor in hiring qualified and available persons. 62 Pa.C.S.A. § 3701.

D. Contracts shall contain a provision that only steel products, as defined in the "Steel Products Procurement Act," shall be used or supplied in the performance of the contract or any subcontracts thereunder. 24 P.S. § 7-751 and 73 P.S. § 1881, et seq.

E. Bid security is not expressly required by the Public School Code, however, it is customarily required to protect the school district from loss caused by either the failure of a low bidder to furnish performance and payment bonds or the refusal of a low bidder to enter into the contract.

F. Separate specifications and bids for (i) heating, ventilating and air conditioning, (ii) plumbing and (iii) electrical work are required for erection, construction or alteration of any public building when the entire cost shall exceed $4,000. 71 P.S. § 1618 and 53 P.S. § 1003.

V. Real Property

A. In general, real estate and buildings may be acquired by purchase, lease, gift, devise, agreement, condemnation or otherwise, and other buildings approved for school use by the Department of Education may be similarly acquired. 24 P.S. § 7-703.

Note: Cross Condemnation – If a school district and a local municipality both want the same piece of property and to initiate condemnation proceedings, a local court with jurisdiction most likely will resolve the dispute by weighing the competing interests between the two parties.

B. School districts are empowered to lease buildings or portions of buildings for an extended period of five (5) years or more, with or without provisions for acquisition of the same. 24 P.S. § 7-703.1.

VI. Professional Services

The School Code, unlike some municipal codes, is silent with respect to contracts with third parties for professional services. However, the Pennsylvania Supreme Court ruled in Malloy v. Boyertown Area School District, 540 Pa. 308, 657 A.2d 915 (1995) that there is no requirement to competitively bid or to solicit competitive proposals for professional services in connection with a building project. This applies to the hiring of an architect, engineer, construction manager, project manager, clerk of the works, or legal counsel.

VII. Other Pennsylvania Statutes

A. Public Works Contractors' Bond Law of 1967. As a condition precedent to award of any contract exceeding $5,000 for the construction, reconstruction, alteration or repair of any public building or other public work or improvement, the successful bidder must furnish a performance bond and a payment bond.

The performance bond and the payment bond must be in an amount equal to 100% of the contract amount. The performance bonds shall be solely for the protection of the school district and shall be conditioned upon the faithful performance of the contract in accordance with the plans and specifications. Payment bonds are solely for the protection of individuals, firms, partnerships, associations or corporations supplying labor or materials to the bond contractor or to any of his subcontractors and shall be conditioned for prompt payment of all such materials and labor furnished. 8 P.S. § 191, et seq.

B. Withdrawal of Bids After Opening. A bidder for the construction, reconstruction, demolition, alteration or repair of any public building or other public improvement or for the provision of services to or lease of real or personal property may withdraw the bid from consideration after the bid opening without forfeiture of the bid security if (i) the bid was submitted in good faith, (ii) the bidder submits credible evidence that the reason for the price bid being substantially lower was a clerical mistake as opposed to a judgment mistake, and (iii) the low price bid was actually due to an unintentional and substantial arithmetical error or an unintentional omission of a substantial quantity of work, labor, material or services in the compilation of the bid; provided (a) notice of a claim of the right to withdraw is made in writing within two (2) business days after the opening of bids and (b) the withdrawal of the bid would not result in the awarding of the contract on another bid of the same bidder or other entity in which he has a substantial interest. 73 P.S. § 1601, et seq.

C. Award and Execution of Public Contracts. Any contract exceeding $50,000 which is subject to the requirements of the Public Works Contractors' Bond Law of 1967 shall be awarded to the lowest, responsible bidder within sixty (60) days of the bid opening or all bids shall be rejected. However, if the award is delayed by a requirement of another government agency, the sale of bonds or the award of grant or grants, the contract shall be awarded or the bid rejected within one hundred twenty (120) days of the bid opening. Extensions of the date for award may be made by mutual written consent of the school district and the bidder.

Within sixty (60) days of the date of award, the contract shall be executed by the school district and the bidder, and the school district shall issue a notice to proceed. Such sixty (60) day period may be extended by mutual written consent of the school district and the bidder.

Failure of the school district to comply with the requirements for award or execution and notice to proceed described above shall release the bidder from any liability under its bid or contract, as the case may be, unless, however, the bidder waives such non-compliance by written notice to the school district. 62 Pa.C.S.A. §§  3902-3913.

D. Non-Receipt of Bids. If after advertisement no bids are received, the school district must rebid the item. If again after advertisement no bids are received, the school district may purchase or enter into contract for the item within forty-five (45) days of the date of the second ad therefore. 73 P.S. § 1641.

E. Retainage and Final Payment. To insure proper performance, the school district may include a provision for the retainage of a portion of the amount due the contractor, except the sum withheld shall not exceed 10% of the amount due the contractor until 50% of the contract is completed, and thereafter not in excess of 5%. When the contract is 50% completed, one half of the amount retained must be returned to the contractor if the architect or engineer approves the application for payment, the contractor is making satisfactory progress and there is no specific cause for greater withholding. Additional amounts may be retained in the event of disputes between prime contractors. All moneys retained may be withheld from the contractor until substantial completion of the contract.

Upon substantial completion, the school district, upon receipt of a certification of completion issued by the architect or engineer, shall make payment in full less only amounts held as a result of contractor disputes and one and one half (1-1/2) times the amount estimated as required to complete any then remaining, uncompleted, minor items. 62 Pa.C.S.A. §§ 3921 - 3941.

F. Reciprocal Limitations Act. This Act authorizes the imposition of preferential bidding limitations against non-resident bidders or suppliers of goods when the state of such non-resident imposes or applies preferential bidding limitations on Pennsylvania bidders or suppliers of goods. The amount of the preference shall be equal to the amount of the preference applied by the other state for that particular good, supply, equipment, material or printing.

All invitations to bid for the purchase of goods, supplies, equipment, materials and printing exceeding the amount established by the Department of General Services for small procurements shall include a list of all the states that have been found by the Department of General Services to have applied a preference and the amount of the preference. Further, all invitations to bid and notices issued for the purpose of securing bids for construction and for supplies shall include a list of all states that apply a prohibition against certain items and shall inform potential bidders that they are prohibited from using goods, supplies, equipment, materials or printing from those states. 62 Pa.C.S.A. §§ 107 & 514.

(See attached Reciprocal Limitations Act Guidelines)

G. Pollution Control Statutes. All invitations for proposals for construction contracts shall set forth those provisions of federal and state statutes, rules and regulations dealing with the prevention of environmental pollution and the preservation of public natural resources that affect the projects. 62 Pa.C.S.A. § 3301.

H. Steel Products Procurement Act. Every contract for the construction, reconstruction, alteration, repair, improvement or maintenance of public works must contain a provision that, if any steel products are to be used or supplied in the performance of the contract, only steel products, as defined in the Steel Products Procurement Act, shall be used or supplied in the performance of the work. 73 P.S. §§ 1881 - 1887.

I. Aluminum and Steel Products. It is unlawful to specify, purchase or permit to be furnished or used in any public works, aluminum or steel products made in a foreign country which has been determined as discriminating by the Commonwealth Court. All invitations for bids, forms of proposals or purchase orders issued for public works shall include a listing of the foreign countries which have been found by the commonwealth Court to discriminate. 71 P.S. §§ 773.101 - 773.113.

J. Pennsylvania Prevailing Wage Requirements. It is the duty of the school district to obtain a minimum wage rate determination for the project from the Secretary of Labor and to include the determination in the notice to secure bids. The minimum wage rate is to be included in the contract and is not to be altered. 43 Pa. C.S.A. § 165.4.

The Department of Labor regulations provide that the general prevailing wage rates must be specified in the contract and a provision shall also be placed in the contract specifying that the contractor shall pay no less than the wage rate determined by the Secretary and shall comply with the conditions of the Pennsylvania Prevailing Wage Act. 34 Pa. Code § 9.103.

A new request for predetermination must be made if the contract is not awarded within 120 days from the determination date. 34 Pa. Code § 9.104.

K. Pennsylvania Human Relations Commission Requirements. Under the authority granted by the Pennsylvania Human Relations Act, the Pennsylvania Human Relations Commission adopted regulations requiring the inclusion of provisions in the contract with respect to non-discrimination. 43 P.S. §§ 951-963, 16 Pa. Code § 49.101.

VIII. Mandate Waivers

A. The Mandate Waiver Program is an educational reform initiative established by Pennsylvania Act 16 of 2000 for school districts and expanded by Pennsylvania Act 35 of 2001 to include intermediate units and area vocational-technical schools.

B. The Mandate Waiver Program permits public schools to seek waivers from compliance with certain provisions of the Public School Code, the State Board of Education regulations and standards of the Secretary of Education. Relief may be granted if the waiver will allow the school to improve its instructional program or operate in a more effective, efficient or economical manner.

C. The following Mandate Waivers have been approved by PDE for the following purchasing requirements in 24 P.S. § 807.1(Purchase of supplies):

807.1(a) Raised the bidding threshold for purchases without advertisement from $10,000.

807.1 (a.1) Raised threshold for seeking quotes of 3 vendors from $4,000.

807.1 Waiver from bidding requirements to purchase used equipment.

807.1 (b) Relief from bidding requirements for 60 days, to purchase item at lower cost.

807.1 Bidding relief to negotiate directly with vendors who have met requirements of state contracts.

Note: Copies of Mandate Waivers approved by PDE can be found in the “Initiatives” Subsection of PDE “K-12 Schools” webpage “” at PDE website.

D. The legality of Mandate Waivers of the multi-prime construction requirements of 24 P.S. § 751(a) has been brought into question by an unpublished, single judge opinion of the Commonwealth Court in Perkiomen Valley Plumbing and Heating, Inc. et al. v. Commonwealth of Pennsylvania Department of Education, Charles B. Zogby, No. 455 M.D. 2001. The case suggests that single-prime construction contracts may violate the Separations Act despite being approved through the PDE Mandate Waiver process. As a result, PDE no longer is accepting Mandate Waiver applications for waivers of the multi-prime construction requirements of 24 P.S. § 751(a).

IX. Ethical Practices

A. All public officials and employees are covered by the Public Official and Employees Ethics Act (“Ethics Act”). 65 Pa.C.S. § 1101, et seq. The purpose of the Ethics Act is to identify conflicts of interest which include where one uses confidential information or authority of the office for private pecuniary gain. It does not include actions that have de minimis economic impact.

B. Statement of Financial Interest

1. Must be filed by:

a) Public officials:

(1) School board members

(2) School board authority members

(3) Includes candidates and nominees for school board or school authority

b) Public employees:

(1) Full and part-time solicitors must file according to Section 404 of the State Ethics Act.

(2) Any person responsible for taking and recommending official action of a non-ministerial nature with regard to:

(a) contracting or procurement;

(b) administering or monitoring grants for subsidies;

(c) planning or zoning;

(d) inspecting, licensing, regulating or auditing any person; or

(e) any other activity where the official action has a significant economic impact on the interest of any person.

(3) Includes key central administrators, e.g., business managers.

(4) Does not include teachers or, in all likelihood, most principals.

2. Requires disclosure of:

a) Real estate interests sold, leased, or subject to condemnation by state or any political subdivision (including school districts).

b) Creditors (including interest rate) in excess of $6,500 (excludes mortgages for primary and secondary residences).

c) Direct and indirect sources of income in excess of $1,300.

d) Non-family gifts received in excess of $250.

e) Certain types of reimbursement for transportation, lodging and hospitality.

f) Office, directorship or employment in any business.

g) Financial interest in any business (incl. %).

h) Business interests transferred to immediate family member.

3. Deadline for filing:

a) Due May 1 for public official, public employee, and solicitor.

b) Due with petition to appear on ballot for candidate.

c) Due ten days before nominee takes office.

4. Consequences for failure to file:

a) Could disqualify candidate/nominee.

b) Public official could be removed from office.

c) Public employee’s pay could be stopped.

C. Specific areas which are restricted are (65 Pa.C.S.A. § 1103):

1. Engaging in conduct constituting a conflict of interest.

2. Offering to a public official or employee a gift or loan.

3. Solicitation of anything of monetary value in return for official action.

4. Acceptance of honorariums.

5. Soliciting or accepting a severance payment to take public office or employment (certain exceptions apply).

6. Entering into contracts valued at $500 or more unless after open and public process. Note that the Section 3-324 of the Public School Code says that school directors cannot enter into contracts with the school district. However, it is not a violation of the Public School Code for a school district to contract for the purchase of goods and/or services from a business with which a school director is associated as long as it is permitted and in compliance with the Ethics Act.

D. The Ethics Act provides that if you, in good faith, rely on a Solicitor’s advice (not provided under duress), that you will not be subject to criminal penalties or the treble damages. You can also get an opinion from the Ethics Commission which would avoid penalties.

Examples of conflict of interest:

1. An assistant to a superintendent violated Section 1103(a) of the Ethics Act when she accepted gifts in her official capacity from a construction manager overseeing district construction projects that the assistant was supervising. Pennsylvania State Ethics Commission, Shaner, Order No. 1163 (Decided September 20, 2000).

2. A school district superintendent authorized the installation of pipes and pumps at a well and stream by a business owned by a member of the school board without engaging in the open and public process as required by Section 3(c) of the Ethics Act. The action was approved by the School Board. The State Ethics Commission found no violation of the Ethics Act, but cautioned the superintendent that Section 3(c) requirements should be met in future transactions to avoid a violation or the appearance of conflict. Pennsylvania State Ethics Commission, Henderson, Order No. 48 (Issued June 25, 1981).

Note: Although the Ethics Act was not violated, this did violate Section 324 of the Public School Code which prohibits a school board member from engaging in any business transaction with a school district in which he/she is elected or appointed.

E. It is also important to avoid the appearance of a conflict of interest.

RECIPROCAL LIMITATIONS ACT

Guidelines

NOTE: These Requirements Do Not Apply To Bids Under $10,000.00

I. REQUIREMENTS

A. The Reciprocal Limitations Act requires the Commonwealth to give preference to those bidders offering supplies produced, manufactured, mined or grown in Pennsylvania as against those bidders offering supplies produced, manufactured, mined or grown in any state that gives or requires a preference to supplies produced, manufactured, mined or grown in that state. The amount of the preference shall be equal to the amount of the preference applied by the other state for that particular supply.

The following is a list of states which have been found by the Department of General Services to have applied a preference for instate supplies and the amount of the preference:

STATE PREFERENCE

1. Alaska 7% (applies only to timber, lumber, and

manufactured lumber products originating in the state)

2. Arizona 5% (construction materials produced or

manufactured in the state only)

3. Hawaii 10%

4. Illinois 10% (for coal only)

5. Iowa 5% (for coal only)

6. Louisiana 4% (meat and meat products)

4% (catfish)

10% (milk & dairy products)

10% (steel rolled in Louisiana)

7% (all other products)

7. Montana 5% (for residents) *

3% (for non-residents)*

* offering in-state goods, supplies,

equipment and materials

8. New Mexico 5%

9. New York 3% (for purchase of food only)

10. Oklahoma 5%

11. Virginia 4% (for coal only)

12. Washington 5% (fuels mined or produced in the state

only)

13. Wyoming 5%

B. The Reciprocal Limitations Act requires the Commonwealth to give preference to those bidders offering printing performed in Pennsylvania as against those bidders offering printing performed in any state that gives or requires a preference to printing performed in that state. The amount of the preference shall be equal to the amount of the preference applied by the other state for that particular category of printing.

The following is a list of states which have been found by the Department of General Services to have applied a preference for instate printing and the amount of the preference:

STATE PREFERENCE

1. Hawaii 15%

2. Idaho 10%

3. Louisiana 3%

4. Montana 8%

5. New Mexico 5%

6. Wyoming 10%

C. The Reciprocal Limitations Act, also requires the Commonwealth to give resident bidders a preference against a nonresident bidder from any state that gives or requires a preference to bidders from that state. The amount of the preference shall be equal to the amount of the preference applied by the state of the nonresident bidder. The following is a list of the states which have been found by the Department of General Services to have applied a preference for in-state bidders and the amount of the preference:

STATE PREFERENCE

1. Alaska 5% (supplies only)

2. Arizona 5% (construction materials from Arizona

resident dealers only)

3. California 5% (for supply contracts only in

excess of $100,000.00)

4. Connecticut 10% (for supplies only)

5. Montana 3%

6. New Mexico 5% (for supplies only)

7. South Carolina 2% (under $2,500,000.00)

1% (over $2,500,000.00)

*This preference does not apply to construction contracts nor where the price of a single unit exceeds $10,000.

8. West Virginia 2.5% (for the construction, repair

or improvement of any buildings)

9. Wyoming 5%

D. The Reciprocal Limitations Act also requires the Commonwealth not to specify, use or purchase supplies which are produced, manufactured, mined or grown in any state that prohibits the specification for, use, or purchase of such items in or on its public buildings or other works, when such items are not produced, manufactured, mined or grown in such state. The following is a list of the states which have been found by the Department of General Services to have prohibited the use of out-of-state supplies:

STATE PROHIBITION

1. Alabama Only for printing and binding involving

“messages of the Governor to the Legislature,” all bills, documents and reports ordered by and for the use of the Legislature or either house thereof while in session; all blanks, circulars, notices and forms used in the office of or ordered by the Governor, or by any state official, board, commission, bureau or department, or by the clerks of the supreme court.../and other appellate courts/; and all blanks and forms ordered by and for the use of the Senate and Clerk or the House of Representatives, and binding the original records and opinions of the Supreme Court…/and other appellate courts/

2. Georgia Forest products only

3. Indiana Coal

4. Michigan Printing

5. New Jersey For legislative printing and

bidders for all of the following items:*

automotive parts, farm machinery, stainless steel tableware, kitchen small wares, major household appliances, chain link fence, portable sanitation units, glass, glazier supplies, storage batteries, spark plugs and filters, automotive glass, dental casting, prosthetic devices, pianos, musical instruments, carpet and cushion, shades, upholstery materials and supplies, room air conditioning, electrical supplies, plumbing supplies, hardware supplies, fasteners, lumber, building supplies, audiovisual/video equipment, fire extinguishers, fire hose, motor oils, fuel oil, sporting goods, photographic supplies, police equipment and supplies, venetian blinds, drapes, cheese, fresh fruit and vegetables, ammonia, bleach, pails, cleaning soaps, toilet cleaner, bowl cleaner, sponges, paper towel dispensers, water hose, course paper products, corrections department uniforms fine paper and paper cups.

6. New Mexico Construction

7. Ohio Only for House and Senate bills, general and

local laws, and joint resolutions; the journals and bulletins of the Senate and House of Representatives and reports, communications, and other documents which form part of the journals; reports, communications, and other documents ordered by the General Assembly, or either House, or by the executive department or elective state officers; blanks, circulars, and other work for the use of the executive departments, and elective state officers; and opinions of the Attorney General.

8. Rhode Island Only for food for state institutions.

*If the bid discloses that the bidder is offering to supply one of the above-listed products from the listed state (or in the case of New Jersey, if the bid discloses that the bidder is from New Jersey and it is offering one of the above-listed items), it shall be rejected. Contractors are prohibited from supplying these items from these states.

II. CALCULATION OF PREFERENCE

In calculating the preference, the amount of a bid submitted by a Pennsylvania bidder shall be reduced by the percentage preference which would be given to the lowest nonresident bidder by its state of residency (as found by the Department of General Services in Paragraph I.C above). Similarly, the amount of a bid offering Pennsylvania goods, supplies, equipment or materials shall be reduced by the percentage preference which would be given to another bidder by the state where the goods, supplies, equipment or materials are produced, manufactured, mined or grown (as found by the Department of General Services in Paragraphs I.A and I.B above).

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