On May 13, 2009, I published a blog titled "Who can be a "Qualifying Party" for a Contractor’s Certificate of Responsibility". [Click to view blog post] The blog article states that the requirement for a contractor’s Certificate of Responsibility for a public contract is $50,000 and a private contract is $100,000. Since the writing of that blog article, the statute has been amended and effective July 1, 2010, a Certificate of Responsibility is required on all contracts, both public and private, in excess of $50,000.
Listing of Subcontractors with a Bid--should it be grounds for rejecting a low bid from a responsible bidder?
Where in the Mississippi Procurement Statutes does it require subcontractors to be listed with a bid? The correct answer is NO WHERE!! So why use it to decide whether to award the contract to a prime contractor who is the low bidder with a valid certificate of responsibility from the Mississippi State Board of Contractors?
Rule 12 of the Mississippi State Board of Contractor’s Rules and Regulations states:
… the Prime Contractor on or before the date of being awarded the prime Contract, shall submit to the awarding agency a list of all subcontracts, exceeding Fifty Thousand Dollars ($50,000.00) with respect to public projects…
The Department of Finance and Administration’s Procurement Manual provides as follows concerning the requirement for the listing of subcontractors:
The Contractor will submit to the Bureau a list of all Subcontractors to be used on the Project within seven (7) days after written notice of contract award. Any Subcontractor listed must be acceptable to the Bureau. [Miss Code 1972, Annotated, Sections 31-3-1 through 31-3-23.]
And, when the City of Vicksburg questioned whether it could award the contract to the apparent low bidder that had not listed its subcontractors as required on the Bid Form, the Attorney General opined as follows:
In response to your first inquiry, previous opinions have stated that a waiver of an irregularity in a bid received would not be improper in cases where (1) the irregularity does not destroy the competitive character of the bid by affecting the amount of the bid thereby giving the bidder an advantage or benefit over other bidders and (2) the irregularity does not involve noncompliance with a statutory or regulatory requirement. See MS AG Op., Dees (June 7, 1995) and MS Ag Op., Kilpatrick, December 19, 1997). See also Parker Construction Company v. Board of Aldermen of the City of Natchez, 721 So.2d 671 (Miss. App. 1998). In your first inquiry, the irregularity was the failure to list the names of subcontractors on the bid form. We have previously opined that there is no statutory or regulatory requirement that a contractor submit a list of subcontractors upon the submission of his or her bid. MS AG Op., Dees (June 7, 1995). In fact, as you have stated, the Rules and Regulations of the State Board of Contractors, Rule 12, specifies that "the Prime Contractor, on or before the date of being awarded the prime contract, shall submit to the awarding agency a list of all sub-contracts, exceeding Fifty Thousand Dollars ($50,000.00) with respect to public projects…" It is the responsibility of the awarding authority, however, to make a final determination whether an irregularity in a bid may be waived.
(Emphasis added). Mississippi Attorney General Opinion, dated September 22, 2000, addressed to Nancy D. Thomas. See also, Mississippi Attorney General Opinion, date June 7, 1995, addressed to A.J. "Buddy" Dees, Jr. (public agency permitted to award contract where prime contractor’s bid document listed subcontractor did not have a certificate of responsibility but prime contractor substituted licensed subcontractor prior to award).
Nonetheless, the design professionals for most public projects require the listing of subcontractors. Then, when a prime contractor fails to list its subcontractors or makes an error in listing its subcontractor, the design professional and/or public agency decide whether to reject the bid or waive the "irregularity". What are the criteria for deciding which of the two options will be exercised? You tell me.
If the public agency requires the listing of subcontractors it should state in the Instructions to Bidders that the bid will be rejected if subcontractors are not listed properly. It is just that simple. In addition, public agencies should change their rules and regulations to state listing of subcontractors must be submitted with the bid to be considered for award. This would mean that everyone would know the rules for listing of subcontractors. Will this happen? It is doubtful. It appears design professionals and public agencies prefer the flexibility afforded by such an ambiguity in the bidding process rather than the objectivity associated with clear Instructions to Bidders.
On July 21, 2009, the Mississippi Court of Appeals made it clear that any contract entered into by a party with an unlicensed contractor is null and void. United Plumbing & Heating Company v. AmSouth Bank (Ct. App. No. 2007-CA-01194). This is the first reported decision that addresses the interpretation of Miss. Code Ann. § 31-3-15. This statute provides in pertinent part as follows:
No contract for public or private projects shall be issued or awarded to any contractor who did not have a current certificate of responsibility issued by said board [of contractors] at the time of submission of the bid…Any contract issued or awarded in violation of this section shall be null and void.
In United, the general contractor [United] entered into a contract with an owner [Wee Care] for the construction of a building. The contractor and its subcontractors were not paid for their work. The owner filed bankruptcy and the contractor filed suit against the lender [AmSouth] to recover its contract balance. AmSouth filed a motion for summary judgment arguing that because United did not have a valid certificate of responsibility, the contract was null and void. United argued that it did hold a certificate of responsibility, even though the certificate was issued in a classification different from the type of work being performed for Wee Care. The trial court granted summary judgment in favor of AmSouth. United appealed the decision but the Mississippi Court of Appeals affirmed the trial court’s ruling finding:
[T]he contract entered into between United and Wee Care was null and void because United failed to possess the appropriate certificate of responsibility for the type of work it undertook to perform. Having found that United’s contract with Wee Care was void, it follows that any contractual obligations AmSouth [the lender] may have owed [United or] the subcontractors are also void.
(emphasis added). If a contractor or subcontractor does not have a current certificate of responsibility, it may find itself in the position of having furnished labor and material on a project and not being paid. This could result in a financial disaster for one party and a windfall for the other party.
United makes it abundantly clear that owners, contractors and subcontractors should always check Mississippi State Board of Contractors to determine if the contractor or subcontractor holds a license for the work to be performed. It is also prudent for a party to confirm with the licensed entity that the qualifying party is currently an "owner, or a responsible managing employee, or a responsible managing officer, or a member of the executive staff…" See, Who Can be a "Qualifying Party" for a Contractor’s Certificate of Responsibility? Posted on this blog site by Christopher Solop, May 13, 2009. (The State Board of Contractors has recently proposed an amendment to Rule L shortening the period to replace a qualifying party after the individual holding the certificate of responsibility leaves the employment of the company from 180 days to 90 days. This change will take effect on October 8, 2009.)
To perform any public contract of at least $50,000 or private contract of at least $100,000, a contractor must hold a Certificate of Responsibility issued by the Mississippi State Board of Contractors. It makes no difference whether the "contract" to be performed is a prime contract or subcontract at any tier. Miss. Code Ann. 31-3-15.
Moverover, Mississippi law does not permit the "borrowing" of certificates of responsibility. Only a responsible managing officer, employee, or member of the executive staff of the applicant for the certificate can serve as its qualifying party. The statutes creating the State Board of Contractors, which governs the licensing of contractors, and that Board's regulations implementing those statutes are designed to prevent one person from serving as the qualifying party for entities in which he or she has not personal or managerial stake or responsibility. To allow otherwise would dilute the requirements which are meant to ensure the integrity, financial capacity, and technical capability of all entities performing construction in Mississippi.
Miss. Code Ann. 31-3-1 defines a "certificate of responsibility" as a "certificate numbered held by a contractor issued by the board under the provisions of this chapter after the payment of the special privilege license tax..."
Miss. Code Ann. 31-3-13(a) defines who can be the "qualifying party" or an applicant of a certificate of responsibility, whether such application is for a new certificate or a renewal certificate. Specifically, it states:
The board shall take applicants under consideration after having examined him or them and go thoroughly into the records and examinations, prior to granting any certificate of responsiblity. If the applicant is an individual, examination may be taken by his personal appearance for examination or by the appearance for examination of one or more of his responsible managing employees; and if a co-partnership or corporation or any other combination or organization, by the examination of one or more of the responsible managing officers or memebers of the executive staff of the applicant's firm, according to its own designation.
The intent clearly is that a qualifying party be a responsible managing employee for or officer of the applicant, whether it's a sole proprietorship or corporation. The true "responsibility" for which the certificate is issued cannot be determined otherwise. In construing this requirement the State Board of Contractors promulgated the following regulation which, again, leaves no doubt that the "qualifying party" must be intimately involved in the management and/or ownership of the entity claiming him or her as their qualifying party. Rule L states:
When the qualifying party terminates employement with the Certificate holder, the Mississippi State Board of Contractors must be notified in writing, by the qualifying party and the Certificate holder, within thirty (30) days of the disassociation and another party must qualify within one hundred eighty (180) days or Certificate holder will be subject to suspension or revocation of its Certificate of Responsibility.
Thus, where a purposed "qualifying party" for Company A is neither a managerial employee nor an officer of that company but, in fact, owns or is the officer of another, unrelated Company B, but Company B routinely serves as a subcontractor to Company A, Company A and its purported "qualifying party" are in violation of MIssissippi law and the Rules and Regulations of the State Board of Contractors. (This is typically done where owners of two companies do not want to commingle business assets, finances, or interests, but they do want to pursue and perform contracts together.) Company A's Certificate of Responsibility is null and void as a matter of law.