• Beware of New Legislation on "Responsible Contractors" that May Impact You 
  • May 14, 2015 | Author: Elizabeth S. Poeschl
  • Law Firm: Meagher & Geer, P.L.L.P. - Minneapolis Office
  • On January 1, 2015, the Minnesota legislature's "Responsible Contractor" statute became effective. This statute, found in Minnesota Statute 16C.285, is intended to prevent contractors that have committed unlawful practices from performing public work. The new statute sets up a frame work of steps that a contractor must take to be considered "responsible." Failure to satisfy this statute will stop contractors from bidding on and performing public work. As such, it is imperative that contractors understand this new statute, and how to comply with its requirements.

    History of "Responsible Contractor" Definition:

    Minnesota has always required that contractors bidding for public work to be "responsible." A contractor was typically considered "responsible" if it appeared to have the financial ability to perform the job, and the integrity, skill, and ability to perform satisfactory work.If these basic requirements were met, the government entity would  award a publicly bid contract to the "responsible" bidder with the lowest-cost bid.

    The new legislation, Minn. Stat. § 16C.285, is intended to further define the requirements that a contractor must meet to be a "responsible contractor." This statute is intended to protect government entities, and the public, by preventing the state from awarding non-compliant contractors work on government projects. It attempts to add a level of protection by providing specific criteria for responsibility that will allow the government entity to either decline to award a contract, or void a contract after awarded, if the contractor is found to be non-responsible. Notably, "contractor" is defined as a prime contractor or subcontractor, and does not include material suppliers or design professionals.

    Application & Minimum Requirements:

    The requirements in the new Responsible Contractor statute applies to all publicly funded construction projects that exceed $50,000.00. On these projects, the prime contractor, and all of its subcontractors, and any related entities must meet the following minimum requirements:

    (1) Insurance and tax.
    a. Compliance with workers compensation and unemployment insurance;
    b. Registration with the Department of Revenue and the Department Employment and Economic Development ("DEED");
    c. A valid federal tax id or social security number;
    d. Registration to transact business in Minnesota (foreign businesses);

    (2) Wage and Hour compliance. A three-year record of compliance with the following laws:
    a. Minn. Stat. § 177.24 (minimum wages);
    b. Minn. Stat. § 177.25 (overtime);
    c. Minn. Stat. §§ 177.41 to 177.44 (prevailing wages);
    d. Minn. Stat. §§ 181.13 and 181.14 (prompt payment of wages);
    e. Minn. Stat. § 181.722 (misrepresentation of employment);
    f. 29 U.S.C. §§ 201-219 (FLSA); and
    g. 40 U.S.C. §§ 3141-3148 (Davis-Bacon Act).

    (3) Registration and Licensing Compliance. Compliance with:
    a. Minn. Stat. § 181.723 (pertaining to independent contractors and registration)
    b. Chapter 326B (construction codes and licensing).

    (4) Affirmative Action. The contractor has not had a certificate of compliance revoked or suspended more than twice during the three-year period.

    (5) Good Faith Efforts. Good faith efforts at targeted group business, disadvantaged business enterprise (DBE), or veteran-owned goals (no more than 1 violation in three years).

    (6) Debarment/Suspension. No debarment or suspension by any federal or state agency. Minn. Stat. § 18C.285, subd. 3.

    Notably, the public entity is also able to exercise its discretion to establish additional criteria that a contractor must meet in order to be considered "responsible." Minn. Stat. § 18C.285, subd. 6.

    Certification of Compliance:
    All contractors bidding on a public project must provide the contracting authority with a signed statement under oath verifying that it complies with each of the minimum criteria in subdivision 3 at the time that it responds to the solicitation document.  Minn. Stat. § 18C.285, subd. 4. If the contractor fails to verify its compliance with any one of the minimum requirements, or falsifies its compliance statement, then that contractor will be deemed ineligible and cannot be awarded the contract for that construction project. A false compliance statement may also result in termination of a construction contract that has already been awarded to a contractor or subcontractor. Importantly, false certification also implicates the liability and penalties set out by the False Claims Act including civil penalties, treble damages, and attorney fees.

    Application and Implementation of New Legislation:

    The new statute applies to new contracts solicited on or after January 1, 2015.  Therefore, any contract bids submitted after January 1 must include a valid certification affirming compliance with the minimum requirements. The contractor should carefully read all bid documents from the government entity to determine exactly what it must do to submit a valid certification for each particular project. Strict compliance is required, and should not be taken lightly.