State Round-Up

As the economy has slowed over the past year, more and more companies are looking to government marketplace as a steady source of demand for their products and services. The Holland & Knight Government Contracts Newsletter usually focuses on new developments in the federal procurement world. However, the state and local government procurements, while more diverse, in aggregate exceed their federal counterparts in many areas. For instance, a recent report in Washington Technology projects that spending for state and local government information technology products and services will exceed federal IT spending by almost $10 billion dollars in 2001. The state and local IT market is projected to grow at an annual rate of 7%, from $45.6 billion in 2001 to over $52.2 billion in 2003.

Given the importance of state and local government procurements, we have included two articles in this edition of the newsletter dealing with changes in the procurement process in two of the jurisdictions where we have offices - Virginia and Florida. We should note that, while the overall framework for government procurements is relatively consistent from the federal to state level, and across the various states, there are enough variations in practices and procedures to require that each jurisdiction must be treated separately. We therefore recommend that before a company pursues sales or marketing opportunities with a particular government entity, that they become familiar with the rules and regulations governing procurements by that organization.

Florida Contracts

The state of Florida spends approximately $12 billion each year on goods and services, ranging from computers to accounting services to paper goods. On May 4, 2001, the Florida Legislature passed a bill that will change the way that those goods and services are procured.

The bill, Senate Bill 1738, deals primarily with One-Stop Permitting and the use of technology in procurements. It requires executive branch state agencies to participate in an online procurement program to be developed by the State Technology Office. Participation in the online procurement program by other agencies is optional. The program will establish requirements and qualification criteria for pre-qualifying bidders, procedures for accessing and conducting online procurements, and criteria for eligible commodities and contractual services. The bill further authorizes collecting fees for use of the online procurement system.

The portion of Senate Bill 1738 that could most significantly change Florida procurement, however, was part of a last-minute amendment which created two new methods for procuring commodities and contractual services in Florida. Florida law previously requires executive branch agencies, absent express statutory exceptions, to award all contracts for the purchase of commodities or contractual services in excess of $25,000 using competitive sealed bidding. Only when an agency determined in writing that the use of competitive sealed bidding is not practicable, could the agency procure commodities or contractual services through competitive sealed proposals. Senate Bill 1738 adds invitations to negotiate and requests for quotes to the types of solicitation documents that may be issued by executive branch agencies.

The bill defines an invitation to negotiate as "a written solicitation that calls for responses to select one or more persons or business entities with which to commence negotiations for the procurement of commodities or contractual services." The bill authorizes the use of an invitation to negotiate where an "an agency determines that the use of an invitation to bid or a request for a proposal would not result in the best value to the state, based on factors, including, but not limited to, price, quality, design, and workmanship . . . ."

Senate Bill 1738 defines a request for quote as "a solicitation that calls for pricing information for purposes of competitively selecting and procuring commodities and contractual services from qualified or registered vendors." The bill provides that an agency may procure commodities or contractual services "by a request for quote from vendors under contract with the department."

Notwithstanding the previous lack of statutory authority for invitations to negotiate and requests for quotes, some Florida executive branch agencies have been using these procurement methods for years. Agencies like invitations to negotiate because they provide greater flexibility in evaluating responses and reaching contract terms and conversely make it more difficult to protest award decisions. Requests for quotes have historically been used to obtain price quotes from pre-qualified bidders by those agencies that have a pre-qualification process.

With the new law, the use of these procurement methods is likely to increase. The practical effect is that agencies will have greater flexibility to evaluate proposals, agree on contract terms and negotiate prices throughout the course of a procurement without necessary adherence to more rigid specifications and evaluation criteria required as part of an invitation to bid, and to a lesser extent, a request for proposals. This will allow for more discretion on the part of the agency in contracting for commodities and contractual services.

The most dramatic change in Florida procurement law could come from the language describing when a request for quotes may be used by an agency. Read literally, Senate Bill 1738 could allow the Department of Management Services to limit the field of bidders in a procurement using a request for quotes to only those persons or entities currently under contract with the Department of Management Services. State Representative Loranne Ausley and an editorial in the St. Petersburg Times have expressed concern that this language could be applied more broadly by all executive branch agencies to use a request for quotes to limit a procurement to those entities currently under contract with the soliciting agency. Governor Bush, however, has stated that "request for quotes" will be used when multiple vendors are qualified by reason of being on a state term contract and an agency then requests a quote from the multiple vendors, negotiating for the best price under the state term contract cap. Whether this is how the language regarding "request for quotes" will actually be applied remains to be seen.

Virginia Contracts

11 Amendments to the Virginia Public Procurement Act

Virginia has enacted 11 amendments to the Virginia Public Procurement Act and state contracts statutes, all effective July 1, 2001, and a statutory request to the Departments of General Services, Transportation, and Technology Planning, in consultation with the Joint Commission on Technology and Science, to study the methods and technologies needed to implement competitive procurement via electronic means, including electronic sealed bidding. The statutory amendments are as follows: HB-1859 (Fair Employment Contracting Act; discrimination); SB-1052 (VDOT contracts) (identical to HB-2303); HB-2418 (Submissions of claims to VDOT and Commonwealth Transportation Board); SB-1024 (Public Procurement Act; procurement by reverse auctioning); SB-1212 (Procurement; faith-based organizations); HB-2183 (Public Procurement Act; professional services); HB-2020 (Public Procurement Act; indemnification provisions); HB-2050 (Public Procurement Act; preference for Virginia products); HB-2052 (Public Procurement Act; damages for unreasonable delay); HB-2051 (Public Procurement Act; actions on payment bonds); and HB-2054 (Public Procurement Act; contractual disputes).

Immunity from Claims Based on Quasi-contract

The Virginia Supreme Court found that the Commonwealth of Virginia has not waived its immunity from claims based on quasi-contract, even though recovery may be had against a municipality under similar circumstances. The court also made it clear that, for claims under the Procurement Act, the Act's notice and filing requirements trump those of general statutes relating to the presentation of pecuniary claims against the Commonwealth. Contractor claimants should, therefore, strictly adhere to the Procurement Act's requirements, such as those found in Virginia Code § 11-69, in filing contract claims arising from state procurement transactions, and avoid any reliance on the notice of filing provisions of general pecuniary claim statutes.

The Doctor William E.S. Flory Small Business Development Center, Inc. v. Commonwealth, 261 Va. __, 541 S.E. 2d 915 (Va. 2001)

Six-month Period Following Notice May Be Tolled

The Virginia Public Procurement Act requires a contractor to give written notice of its intention to file a contractual claim with a public body and gives the contractor six months thereafter to institute legal action appealing a final decision of the public body denying the claim. The Virginia Supreme Court found that the six-month period can be tolled (i.e., suspended temporarily). Following a public body's denial of its contractual claim, a contractor filed suit in a United States district court in West Virginia, which dismissed the suit without prejudice and on jurisdictional grounds. The contractor then filed suit in a Virginia circuit court approximately 11 months after the public body's denial of its contractual claim and claimed that its suit was timely, arguing that the period its suit was pending in federal court was excludable from the six-month requirement.

The court agreed. If an action is commenced within the prescribed limitation period for any cause abates or is dismissed without determining the merits, the time such action is pending shall not be computed as part of the period within which the action may be brought.

In Welding, Inc. v. Bland County Service Authority, 261 Va. __, 541 S.E.2d 909 (Va. 2001).