The PO Myth: Why “Simpler” Public Works Can Cost You More
In the world of public construction projects in California, the necessity of utilizing a proper construction contract cannot be overstated. While there may be temptations to opt for simpler methods, such as purchase orders (POs), or Field Work Orders (FWOs), the risks associated with foregoing comprehensive contracts far outweigh any perceived convenience.
For years, the standard practice for construction projects under $15,000 involved the use of a templated contract, even for relatively small-scale endeavors. These contracts, though shorter in form, ensured that crucial terms and conditions were in place to protect both the public agency and the contractor. However, with recent updates, the threshold has been raised to projects under $75,000, emphasizing the continued importance of formal agreements.
Additionally, for all public agencies the need for Payment Bonds for projects over $25,000 doesn’t go away, and a lot of other laws don’t, either, so a contract template helps keep things lined up and ready for enforcement!
What are the issues if I don’t?
Despite provisions within the California Uniform Public Construction Cost Accounting Act (CUPCCAA) allowing for the use of POs in certain circumstances, public agencies must assess the added risk carefully. While it may seem convenient to streamline processes with POs, they typically lack the depth and specificity required for construction projects, leaving both parties vulnerable in the event of disputes or accidents.
The reality is that construction work, regardless of its size, carries inherent risks—from potential accidents to legal liabilities. Attempting to cut corners by forgoing proper contracts exposes the agency to significant legal and financial jeopardy. Whether it's ensuring compliance with prevailing wage laws, setting insurance coverage requirements, the need for fingerprinting, or outlining safety protocols, a robust construction contract provides the necessary framework for accountability and risk mitigation.
Why create a contract when I have their proposal?
One of the critical aspects of enforcing agreements is having a solid foundation in writing. A comprehensive construction contract ensures that all parties understand their obligations and rights, reducing the likelihood of misunderstandings or disputes down the line. Conversely, relying solely on budget committing documents like POs and loosely attached proposals leaves room for ambiguity and places undue risk on the agency.
Proposals often have clauses that are unfavorable to the public agency. These include but are not limited to limits of liability, payment terms, and scope exclusions. Purchase Orders are in themselves contracts. They often have no terms and conditions, and if they do, they typically do not include and address all of the laws, rules, and needs of a construction project. Remember, a construction contractor is coming to your site to work with power tools, ladders, and other scary things. Without a solid contract, you have very little protection or clauses you can enforce if things go wrong.
I think my small contractor won’t like a 40+ page contract
Don’t fear protecting your agency. This is where a little information goes a long way. Contractors who regularly pay prevailing wage are likely used to small construction contracts from other agencies. Using only a PO may make them nervous unless you attach their proposal with their likely unfavorable to you terms and conditions. Their proposal terms are written to protect them, not your agency, which is why you probably shouldn’t include it in the contract!
Public agencies need to recognize the value of educating and supporting small contractors. While some may initially be daunted by the requirements of public projects and associated contracts, providing guidance and clarity can help them navigate the process effectively. By offering transparent information about contracting procedures and requirements, agencies can foster a stronger pool of contractors while maintaining compliance, accountability, and mitigating the agency’s and the small contractor’s risk.
How can I make using a contract easier?
Use a proposal form that goes on top of your blank small project contract template when you ask for a quote. This way, pricing can include the terms and conditions of the contract they will sign. Using a proposal form also helps save time because you don’t have such a hard time normalizing the proposals and arguing over clauses they include that you don’t want.
Use a solid and up-to-date small project contract template that works for projects under $75k. Your lawyer likely has one – just ask them for it. Often another similar public agency is willing to share theirs, too.
Format the contract for mail merge. It’s worth learning how to do this if you do more than 2 or 3 contracts in a year. Once you take the time to create a merge template filling out the contract becomes fast and easy! Fill out the list of blanks in the contract and create a “mail merge” for them. The output is then editable.
In conclusion
The decision to use proper construction contracts for public projects in California is not merely a matter of convenience—it's a matter of safeguarding the interests of all parties involved. From protecting against legal liabilities to ensuring compliance with regulations, the benefits of comprehensive contracts far outweigh any perceived drawbacks. By prioritizing transparency, accountability, and risk management, agencies can uphold the integrity of their projects while fostering a thriving and compliant contractor community.
Many of the challenges discussed here are ones public agencies navigate every day. Our free Purchasing & Public Works Group offers a place for templates, checklists, continued conversation and peer learning for public agency employees.
More information: https://www.colbitech.com/ppwg
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