THE IMPACT OF THE IRAN SANCTIONS ACT ON PUBLIC BIDDING IN N.J.

AND RECENT PUBLIC BIDDING LAW AMENDMENTS Presented by

THOMAS S. COSMA, ESQ.MAY 1, 2014

IRAN SANCTIONS ACT

• Since 7/2010, Federal law imposes sanctions on companies involved in Iran’s energy sector.

• Federal statutes authorize States to bar such private entities from state contracts.

• Who is barred under Federal law? Firms or persons who:– Invest $20 mil. or more in Iran’s energy sector, or– Are financial institutions that lend $20 mil. or more, for

more than 45 days, to be used in Iran’s energy sector.

IRAN SANCTIONS ACT

• New Jersey Act, P.L. 2012, c. 25, enacted 7/30/12, effec. 8/30/12.

• What does Ch. 25 require?– Treas. must create list of barred persons and entities by

11/30/12.– All those on list entitled to 90 days prior written notice

and oppty to respond.– The prohibited entities or persons “shall be ineligible to,

and shall not, bid on, submit a proposal for, or enter into or renew” a State contract for goods or services.

IRAN SANCTIONS ACT

• First NJ Treas. Ch. 25 List Issued 1/28/13. Second one posted 1/31/14

• Access Ch. 25 List via DPP website: http://www.nj.gov/treasury/purchase/pdf/Chapter25List.pdf [Check it every 6 mos.]

• State Act also requires a Ch. 25 Bidder Certification– When is the Certification required?

• At time of bid submission or contract renewal

IRAN SANCTIONS ACT

• What does the Certification require?– First, a statement that the “person or entity” is

not identified on Treasury’s current Ch. 25 List.– Also, that neither the person or entity, or “its

parents, subsidiaries, or affiliates” has engaged in the prohibited activities.

– If the bidder can’t so certify, provide detailed and precise description of the prohibited activities, prior to the receipt of bids.

IRAN SANCTIONS ACT

• Issues presented:– If bidder is not on list, does that end inquiry?– Statute defines “person or entity” to include a

“parent, successor, subunit, direct or indirect subsidiary, or any entity under common ownership or control” with the bidder.

– So Certification includes “affiliates” even though statute doesn’t define an affiliate.

– Common ownership or control varies.

IRAN SANCTIONS ACT

• Forms of Certification promulgated.– First Form issued by DPP in 2012 (part of DPP

Standard Forms Packet). Provides generally that the bidder isn’t violating both criteria of prohibited activities.

– Second Form issued by DPP in April 2013. Provides that neither bidder or any parent, subsidiary or affiliate is on the Ch. 25 List. If they are on list, then provide detailed explanation. So it doesn’t go beyond the List.

IRAN SANCTIONS ACT

• Ch. 25 amended LPCL, PSCL and CCCL.– These entities shall utilize Treasury’s Ch. 25 List.– But they must include their own Certifications.– As a result, some entities are still using the “old” DPP

Ch. 25 Certification, others are using the “new”, and still others have developed their own.

– Even some State agencies (e.g. NJDOTrans, DC-16) still use 2012 DPP Ch. 25 Certification format.

IRAN SANCTIONS ACT

• What if the low bidder fails to include the Certification with its bid?– If entity is on Ch. 25 List, it’s ineligible to bid– Act states such entity “shall not” bid on or submit a

proposal for a public contract for goods or services– Act doesn’t prescribe mandatory rejection of bid.– Ch. 25 List available on Internet– Stockholder disclosure form lists 10% or > owners

IRAN SANCTIONS ACT

• Test of material defects:– [F]irst, whether the effect of a waiver would be to

deprive the municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements, and second, whether it is of such a nature that its waiver would adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders or by otherwise undermining the necessary common standard of competition. Twp. Of River Vale v. R.J. Longo Constr. Co., 127 N.J. Super. 207, 216 (Law Div. 1974)

NAMING SUBCONTRACTORS

• Contracting unit may bid any job for the erection, alteration or repair of a public building in a single unit or by construction specialties or both.

• Recognized branches are: Plumbing; Mechanical (HVAC and Refrig); Electrical (Tel, Fire, and Alarm); Structural Steel; and General Construction.

• Problems arose when public owners demanded GCs name all subcontractors, regardless of trade, and that prime subs name their subs as well.

NAMING SUBCONTRACTORS

• Led to lobbying efforts by contractor organizations and passage of P.L. 2012, Ch. 59 (effec. 12/1/12).

• For single GC contracts, subcontractor listing is limited to the 4 prime trades, and no sub-subs.

• For separate primes by trade, no subcontractors need be named.

NAMING SUBCONTRACTORS

• EXCEPTION (applies only for separate primes, not a single GC bid): – When the value of one of the prime trade’s

work > 35% of the Owner’s pre-bid estimate of the total value of the work, you can require that trade’s subs be listed.

– Owner must disclose its estimate “in the bid specifications”. NJS 40A:11-16(A)(2); 18A:18A-18(b).

NAMING SUBCONTRACTORS

• Normally, owner is not required to disclose construction cost estimates pre-bid.

• Trade-off of encouraging competition vs. knowledge and approval of subs in a multi-prime procurement.

• Encourages “low ball” construction cost estimates (“CCE”).

CONTAMINATED SOIL

• Known contamination:– Under LPCL, owner must include either an

allowance for or a “minimum unit price line item” for soil testing and disposal.

– Owner must prepare good faith estimate.

CONTAMINATED SOIL

• Unknown Contamination– Where there is no line item or allowance for

testing and removal of contaminated soil, or– The soil encountered is different in type or

quality than anticipated, change order appropriate for soil testing and disposal.

– Change order should be limited to the additional reasonable costs by virtue of the changed conditions.