• PA Supreme Court Rules that DOE May Waive Contract Requirements for School Construction
  • February 13, 2008 | Author: Andrew C. Maher
  • Law Firm: Pepper Hamilton LLP - Philadelphia Office
  • February 2008

    On November 21, the Pennsylvania Supreme Court overturned a lower court ruling and empowered the Pennsylvania Department of Education (PA DOE) to waive the requirement that public school districts enter into separate prime contracts for plumbing, HVAC and electrical work with regard to public school building construction projects.

    This decision has potentially significant consequences for how school districts can finance construction projects. Waivers from the requirement to enter into separate prime contracts for the three trades will allow school districts increased flexibility to engage in construction projects because of the potential for significant cost savings.

    The Supreme Court consolidated two cases: Mechanical Contractors Association of Eastern Pennsylvania, Inc. v. Commonwealth of Pennsylvania, Department of Education and General Business Contractors Association, Inc. et al. v. Commonwealth of Pennsylvania, Department of Education into Mechanical Contractors Association of Eastern Pennsylvania v. Commonwealth of Pennsylvania, Department of Education, 934 A.2d. 1262 (Pa. 2007)

    In the original cases, the issue before the Commonwealth Court was whether the Mandate Waiver Program, which was added to the Public School Code of 1949 under Act 16 of 2000 as part of the Education Empowerment Act, allowed for the waiver of Section 751(a) of the School Code which requires the separate contracts referred to above for work done on public school buildings.

    The Commonwealth Court analyzed the relationship between Section 751(a) of the School Code, which applies only to public schools, and the Separations Act, a general statute that requires separate prime contracts for plumbing, HVAC and electric work for all public buildings. The Commonwealth Court concluded that the multi-prime contracts mandate in the Separations Act was applicable to public schools districts. Consequently, the Commonwealth Court ruled that the requirements of Section 751(a) of the School Code could not be waived by the PA DOE.

    The PA DOE appealed in both instances and the Supreme Court consolidated the appeals. The issue raised in the appeal before the Supreme Court was whether the Commonwealth Court was correct in ruling that the PA DOE was not empowered to waive Section 751(a) of the School Code for public school districts under the Mandate Waiver Program. The Supreme Court held that because the language of the Mandate Waiver Program states that "any provision" of the School Code may be waived, Section 751(a) of the School Code falls within the Mandate Waiver Program's general rule of waiver.

    The Supreme Court further held that the mandate for separate prime contracts for public school building work does not come directly from the Separations Act, but instead comes from the language in Section 751(a) of the School Code. This distinction demonstrated that the General Assembly, in enacting the Mandate Waiver Program, intended that the separate prime contracts mandate is waivable for public school districts, regardless of the general applicability of the Separations Act.

    The Supreme Court acknowledged that such statutory construction advanced the objects that the General Assembly sought to attain by enacting the Mandate Waiver Program. In addition, the Supreme Court held that permitting the PA DOE to grant a waiver from the separate prime contracts mandate of Section 751(a) of the School Code favors the public interest by contributing to efficient and economical public school construction.

    As a result of this decision, public school districts may apply to the PA DOE for a waiver of the Section 751(a) requirement that they engage in separate prime contracts for plumbing, HVAC, and electric work for public school construction, notwithstanding the provisions of the Separations Act.

    In the wake of the Supreme Court's ruling, the PA DOE has resumed consideration of waiver applications from the Section 751(a) separate prime contract requirement. Waivers consideration had stopped in 2003 when the ability of the PA DOE to legally waive the separate prime contracts requirement was first challenged in court.

    Under the Mandate Waiver Program, if a school district desires to exempt a construction project from the separate prime contracts requirement, the school board must vote to apply for a waiver at a regularly scheduled meeting. The waiver application may not be retroactive.

    In determining whether to grant a waiver of the separate prime contracts requirement, the PA DOE insists that the school district's application show the anticipated costs of the construction project and provide calculations indicating the extent to which a waiver will reduce the school district's anticipated project costs. Any waiver application must also have attached a copy of the resolution of the school board adopting the waiver application, an affirmation of the adoption of the waiver application by the school district superintendent or executive director and the school board president, a copy of the public notice of the regular board meeting at which the resolution for the adoption of the waiver application was considered, and the waiver application must be notarized.

    Upon receipt of the waiver application, the PA DOE has 60 days to approve, deny or request modification of the waiver application. When the waiver application is received by the PA DOE, it will confirm receipt to the applicant and post on its website the applicant's name and deadlines for consideration of the waiver. If the PA DOE takes no action after 60 days, then the waiver is deemed to be approved. If the PA DOE requests modification of the application, the applicant may resubmit a modified application. Upon receipt of the modified waiver application, the PA DOE has another 60 days to approve or deny it.

    Once a waiver application is denied by the PA DOE, the denial is final. If the waiver application is approved, then within three years of the approval the school district must submit a waiver evaluation to the PA DOE. If the evaluation indicates an improvement in school operations and cost savings, the waiver will be renewed by the PA DOE and remain in effect until rescinded by the school district's board.

    An example of cost savings enjoyed by a school district through the granting of a waiver from the separate prime contracts requirement is that of the Lower Merion School District. According to information provided on its 2003 waiver application, Lower Merion planned to renovate and add onto three elementary schools. The cost of these projects was estimated to be $33.27 million.

    According to its waiver application, a waiver from the separate prime contracts requirement would save Lower Merion $40,000 in direct administrative costs and contract processing fees. Moreover, Lower Merion estimated that such a waiver would result in considerable savings from costs attributed to change orders and from litigation costs. Additionally, with a waiver there would be a better chance that the projects would be completed on schedule, thus avoiding costs attributed to construction delays. Lower Merion estimated that these cost savings would amount to 2 percent to 5 percent of the total project, or $665,000 to $1,663,500.

    A representative for the PA DOE stated that other school districts throughout Pennsylvania have successfully applied for waivers from the separate prime contracts requirement and each of their applications indicated that the school district anticipated significant cost savings on their construction projects.

    While the Mandate Waiver Program provides a significant opportunity for school districts to reduce their costs when engaged in construction projects, school districts need to be aware that under the terms of Act 16, the Mandate Waiver Program expires on June 30, 2010. If the Mandate Waiver Program is not renewed, no waivers from the separate prime contracts requirement will be granted by the PA DOE after the expiration date. School districts should keep this in mind when contemplating construction projects for which they may seek a waiver from the separate prime contracts requirement.