Regulations Governing Participation by Small Business Enterprises in State Purchase of Goods and Services and Public Works Projects (150-RICR-90-10-1)

Regulation Authority:

RIGL 37-14.1-5 and RIGL 37-2.2 – 3.1(b),

Purpose and Reason:

The purpose of this repeal and adoption is to encourage the maximization of participation of minority business enterprises (“MBEs”), women business enterprises (“WBEs”), and disability business enterprises in state procurement activities. Substantive revisions include 1) the creation of a Points System for Requests for Proposals that will include an evaluation criterion for participation of minority business enterprises, women business enterprises, and disability business enterprises, and 2) revisions to the bidder requirements for Requests for Quotations that will require the submission of an MBE/WBE Compliance Plan within five (5) business days of receipt of a tentative selection. There were no substantive changes as a result of public comment. The Office of Diversity, Equity and Opportunity ("ODEO") received the following public and responds as follows: 1. Section 1.8 Request for Quotes (G) Continuing Disclosure (2) Change Orders. The number of change orders on construction contracts can be substantial and requiring a revised compliance plan with each Change order would be excessive. The number of insignificant notifications to ODEO could be reduced and the objective of the Regulation would still be accomplished if reporting was only required when "change order amount exceeds 10% of adjusted contract amount". This would eliminate excessive filing of documents that have no impact on the MBE/WBE Compliance Plan. RESPONSE: In accordance with RI General Laws Section 37-14.1-3, a “contract” is defined as “a mutually binding legal relationship or any modification thereof obligating the seller to furnish supplies or services, including construction, and the buyer to pay for them...” Based on this legal definition, all change orders are subject to the State’s statutory MBE/WBE utilization goals. 2. The forms to be submitted in Section 1.7 E. 1. should be signed by each of the MBE's to be included in the contract and that package should be required to be shared with all the MBE's on the team. This will enable MBE's to be aware of the intention of each prime that they are teaming with. Many times MBE's are asked to be a sub-consultant on professional service contracts, but never end up getting any work because other sub-consultants are used instead. The MBE's good name and reputation are used to enhance the team, with no intention by the Prime of using the MBE to perform work. By committing up front, each MBE will be able to plan their work and agree to team only when they are assured of being a part of the team and not just a part of the proposal. RESPONSE: Under current practices, ISBEs who communicate with prime vendors prior to the bid award may not ultimately become the selected subcontractor once the contract is awarded. This has historically created tension and concern on the part of ISBEs, since they have no guarantee that they will ultimately be selected as the subcontractor. This was taken into consideration when the proposed regulations were crafted. Subsequently, the proposed regulations would require prime contractors to name the ISBEs at time of bid, thus affording the ISBE a layer of security with the prime contractor at the earliest possible stage in the contractual process. 3. Section 1.7 Request for Proposals. As a general note, RFP should specifically state that in-house administration of compliance with ISBE reporting requirements is an additional cost, reimbursable under the terms of the agreement. It should be reimbursed to the consultant as a labor line item in the proposal. RESPONSE: For RFPs, general practice is that all costs associated with a preparing and submitting a proposal are borne by the proposer. Compliance with any law or regulation is not a cost but rather is a contractual obligation that should be factored into the proposal. Once the proposal is submitted and a contractual award is made, the vendor is obligated to follow through with its proposal. 4. Section 1.7 - B.2 Weight. How did state arrive at the 106-point scoring? Also, it assumes that the non-ISBE points to be awarded will always total 100. Is that a sure thing? RESPONSE: The 106-point scoring system was arrived at by taking the standard 100 points available to vendors for cost and technical ability and adding 6 points available to vendors based on ISBE utilization rate. Based on our internal analysis, we believe a weight of 6 points will help the State effectively achieve its statutory ISBE utilization goals. It is our understanding that all RFPs will use the 106 point scoring system. 5. Section 1.7 - C. Calculation of ISBE Participation Rate. Total contract value should exclude non-service type related expense (travel, reproduction, incidentals, etc.) RESPONSE: ISBEs should not be excluded from opportunities for participation afforded through non-service type related expenses. 6. Section 1.7 - E. Proposers Responsibilities. Adequate time must be given to comply with submittal requirements. Preparation of proposals for professional services is a creative process. Identifying subs and negotiating their participation and price proposals takes time. It is a thoughtful process that matches a professional response and pricing to the needs of the project and client. ISBE’s in the design profession is in short supply and matching expertise, talent and capacity can be a difficult process. Design services are not a commodity with off the shelf pricing. Additionally, experience has shown that some ISBE enterprises may tend to charge above market rates for their services knowing that they have preference in selection. This becomes a burden when trying to achieve reasonable contract pricing. There are clear differences in the burden of meeting these requirements between suppliers of goods and services and providers of professional design services. Yet, under these new rules, they are all lumped into one and imposes hardship on engineering companies. RESPONSE: The proposed rules were designed to address your concerns. For each RFP, vendors will be competing against similarly situated vendors in the categories of cost and ISBE utilization. The surrounding market conditions including ISBE availability in the field for which proposals are being requested should be similar for each vendor. Furthermore, ISBEs have an incentive to charge market rates, because if an ISBE charges above market rates, the vendor has the option of going with a more cost-effective subcontractor and will receive additional points in the cost category that will offset the reduced points for ISBE utilization. 7. Section 1.7 - E.3 Change Orders. This is not practical. Change orders take on many forms and in most cases, do not need or require any additional subcontracting or outside services. ISBE Participation Rates should be applied to the original base bid only. The state should avoid any duplicative reporting requirements. All reporting should be done through the contracting entity and then can be disseminated to all other state agencies by that entity. The burden should not be placed on the engineering firm to satisfy multiple duplicative reporting requirements. RESPONSE: In accordance with RI General Laws Section 37-14.1-3, a “contract” is defined as “a mutually binding legal relationship or any modification thereof obligating the seller to furnish supplies or services, including construction, and the buyer to pay for them...” Based on this legal definition, all change orders are subject to the State’s statutory MBE/WBE utilization goals. It should be noted that the proposed regulations do not require duplicative reporting. Nor do the proposed regulations amend existing regulations with respect to reporting. 8. Section 1.7 - E.5 Notice of Change to Proposed ISBE Participation Rate. How would the state handle a situation where a bidder has won the contract award based on the points they earned for the ISBE Participation Rate but later requested a lowering of that rate to such a level that their final scoring in the procurement process would not have earned them the most competitively scored bid? RESPONSE: We would perceive the situation to be similar to that which arises through a change order, which changes the cost. Changes to an approved ISBE plan would only be granted if “the change in circumstances was beyond the control of the Proposer or the direct result of an unanticipated reduction in the overall total project cost.” Furthermore, any contractor who fails to meet its contractual obligations relating to ISBE participation is subject to the penalties set forth in R.I. Gen. Laws 37-14.1-8. 9. Section 1.8 Request for Quotes. As a general note, state purchasing tends to confuse “construction” contracts with “professional service contracts” and frequently expects design professionals to conform to requirements associated with “construction”. Moving from old language and reference to this new language does nothing to alleviate the confusion and may make it more problematic. We suggest that the State assign an experienced individual (group) within Purchasing that is familiar with contracting design services and recognizes the differences in contracting requirements. Request for Quotes (RFQ) should be distinguished from RFQ (Request for Qualifications). “Request for Quotes” should carry a qualifier specifying that it does not apply to Engineering and architectural services. RESPONSE: Section 1.8 of the proposed regulations refers specifically to Request For Quotes, which are those contracts that are awarded primarily based on cost. This does not refer to evaluated bids, otherwise known as Request For Proposals, which would include the design services contracts referenced by the commenter. 10. Section 1.8 - E.1 Acknowledgement. The state should incorporate standard language and forms in the RFP that specifically addresses this acknowledgment requirement to assure that all firms are agreeing to the same language regarding their obligation to meet the required utilization rates. RESPONSE: Please note that it is the intentions of the State to incorporate standard language in RFPs and forms that specifically address the requirements. 11. Section 1.8 - E.3 MBE/WBE Liaison Officer. Many firms employ a project management approach that assigns several individuals full responsibility for all aspects of a project including MBE/WBE goals. In these cases, the appointment of a single MBE/WBE person does not work. This section also seems to suggest a greater level of interaction with the state once the project is underway. The state should avoid imposing any additional burden on firms for program compliance and should be seeking ways to streamline the process rather than add more time and costs. RESPONSE: The proposed regulatory amendments make no changes to the requirements for vendors to have an MBE liaison officer for each contract. It is at the discretion of the vendor to determine whether or not they wish to assign this responsibility to multiple individuals within their organization or to have one individual responsible for reporting requirements. 12. Section 1.8 - G.3 Change Orders. All change orders should be negotiated and executed with the contracting (using) agency. It should be the contracting agency’s responsibility to then notify ODEO. Why put the onus on the proposer to take these additional bureaucratic steps? The requirement to amend the MBE/WBE Compliance plan for each change order should be eliminated. The plan should be applied to the original base bid only. RESPONSE: In accordance with RI General Laws Section 37-14.1-3, a “contract” is defined as “a mutually binding legal relationship or any modification thereof obligating the seller to furnish supplies or services, including construction, and the buyer to pay for them...” Based on this legal definition, all change orders are subject to the State’s statutory MBE/WBE utilization goals. 13. Section 1.8 - G.4 Good Faith Waivers. This section appears to have been written with a General Contractor in mind and presents some difficulties to engineering firms. Engineering firms may not know when they start pursuing a project if there will be adequate MBE/WBE availability and/or expertise to meet the needs of the project. If firms anticipate that a waiver may be needed due to the short supply of ISBE expertise at market rates, they must take these onerous steps up front and hope they can attract some ISBE involvement from outside our market area or generate acceptable documentation for the state that the expertise is not available and a waiver is warranted. This represents significant amount of time and costs in the preparation of responses to RFPs. RESPONSE: Section 1.8 only applies to Request for Quotes which are those contracts that are awarded primarily based on cost. For these issuances, good faith waivers apply because the State recognizes that in some instances vendors, despite their best efforts, may not be able to meet the mandatory MBE utilization rate. This process is not a change from the current regulations. Please note that, under the proposed rules, good faith waivers will not be applicable for Request for Proposals which are evaluated and scored based on technical ability, costs, and ISBE utilization rates. This is because vendors will be competing against each other and the market will determine the ISBE utilization rates as opposed to a required minimum rate. 14. Section 1.8 - G.5 Remedial Action. Please provide some examples of the types of remedial action that the Division may employ if it is determined that bidder has not met the requirements in its MBE/WBE Compliance Plan. RESPONSE: Vendors who do not meet the requirements of an approved M/WBE Compliance Plan will be directed to take all necessary remedial action(s) to become compliant. Failure to do so, subjects the vendor to possible sanctions pursuant to RI General Laws Section 37-14.1-8, which states that: “(a) The director of the department of administration shall have the power to impose sanctions upon contractors not in compliance with this chapter and shall include but not be limited to: (1) Suspension of payments; (2) Termination of the contract (3) Recovery by the state of ten percent (10%) of the contract award price as liquidated damages; and (4) Denial of right to participate in future projects for up to three (3) years.”