• The Allure and Danger of Bidding as an LBE
  • February 29, 2012 | Authors: Daniella Gordon; Lane F. Kelman
  • Law Firm: Cohen Seglias Pallas Greenhall & Furman PC - Philadelphia Office
  • In this bleak economy, contractors are cutting profits down to razor thin margins in order to win bids. As contractors search for secure work, some have sought to become eligible for public set-aside or preference programs. At first blush, these programs may appear to provide a competitive advantage in a rough economy, and they can in fact provide tremendous opportunities to qualified businesses. However, contractors must ensure that their businesses actually meet the strict eligibility criteria to be eligible for such work. A business' failure to meet the criteria could result in a loss of the public contract, a demand for restitution, and could render the business ineligible to perform future public work. In the worst-case scenario, a criminal or governmental investigation, and actions against the business and its principals, can arise.

    This article focuses on the City of Philadelphia's Local Business Entity (LBE) program. The purpose of the Philadelphia LBE program is to provide a preference and competitive advantage to businesses that are located within the City and bid for City work. In identifying the lowest bidder for a public project, the City will reduce the LBE's bid price by 5%, while a non-LBE's bid price will be considered at face value. The 5% reduction is considered only for purposes of identifying the lowest bidder. If an LBE wins a contract due to its preferential status, the contract value still will be based upon its actual bid price.

    The LBE program is clearly available to City-based businesses. The City, however, also allows businesses whose primary offices are located outside of the City to take advantage of the LBE program, if they self-certify that they satisfy certain requirements. Among other things, applicants must certify that that they "continuously occupy" an office in the City "whereby the customary business operation of the business entity is conducted." Applicants also must certify that more than half of their total full-time employees work in the City at least 60% of the time, or that more than 50 of their full-time employees work in the City at least 60% of the time. Notably, the LBE regulations fail to adequately define a "customary business operation." Therefore, applicants and advocates alike are left to interpret what this term means in the context of a construction business, whose primary business functions are performed in the field.

    Hence, even the most well-intentioned contractor is at risk of violating the requirements of the LBE regulation. Despite the ambiguous requirements, businesses must make sworn statements of "compliance" and must submit truthful and good-faith certifications in order to avoid penalties. Under the law, if it is determined that a business entity failed to comply with any term of the LBE certification at any time during the term of a contract, the business entity "will be deemed to be in breach of the contract, and shall pay liquidated damages of 10% of the bid, and may be debarred by the Commissioner for up to 3 years." There are additional ramifications for non-compliant LBEs even if the contract term has expired. Further, contractors must be aware of the criminal and civil implications of submitting potentially fraudulent certifications to the government.

    The bottom line is that all public contractors who submit certifications to the government pursuant to set-aside or preference programs must be prepared to withstand scrutiny into their business structures and practices. If you have concerns about your business' status, or plan to submit any sort of certification to the government regarding your business, you should consult with an attorney in order to ensure your full compliance with the applicable laws and regulations. If your business is questioned, an attorney will be able to work with you to respond to the alleged violation.