Common Clauses in New York State Contracts and What They Mean Part II
This is the second installment in the series of articles dedicated to the types of clauses you will likely find with New York State government Requests for Proposals and other similar contracts from public institutions in this state. Although government issued contracts can have varying terms, they often include many of the same standard provisions, although Invitations for Bids, Requests for Proposals and other types of specific procurement inquiries may have slight differences. Clauses 1-5 were addressed in Part I, therefore this installment will pick-up with Clause #6 and continue until Clause #10[1].
Disclaimer: The following information does NOT constitute legal advice and is only for general educational purposes. Each situation is different and specific legal issues usually require additional research and investigation, so do not rely on this article to address a particular legal issue; use it as a starting point to gain a general understanding.
6. Wage And Hours Provisions
Typical Wording: If this is a public work contract covered by Article 8 of the Labor Law or a building service contract covered by Article 9 thereof, neither Contractor's employees nor the employees of its subcontractors may be required or permitted to work more than the number of hours or days stated in said statutes, except as otherwise provided in the Labor Law and as set forth in prevailing wage and supplement schedules issued by the State Labor Department. Furthermore, Contractor and its subcontractors must pay at least the prevailing wage rate and pay or provide the prevailing supplements, including the premium rates for overtime pay, as determined by the State Labor Department in accordance with the Labor Law. Additionally, effective April 28, 2008, if this is a public work contract covered by Article 8 of the Labor Law, the Contractor understands and agrees that the filing of payrolls in a manner consistent with Subdivision 3-a of Section 220 of the Labor Law shall be a condition precedent to payment by the State of any State approved sums due and owing for work done upon the project.
What Is It? Most construction related work and many services performed for public entities constitute what is known as “Public Work.” While not precisely defined anywhere (don’t you love government?), a three-prong test is applied to determine whether a particular project is public work and subject to the prevailing wage requirements of Labor Law § 220 and article I, § 17 of the State Constitution. First, a public agency must be a party to a contract involving the employment of laborers, workmen, or mechanics. Second, the contract must concern a project that primarily involves construction-like labor and is paid for by public funds. Third, the primary objective or function of the work product must be the use or other benefit of the general public.”[2] If the construction of a Public Work, or the services that relate to “maintaining” such a project, which include “building services employees” such as janitors and security,[3] the contractor or services provider will have to pay employees what are known as “Prevailing Wages.”[4]
Does It Affect Me? If you are the contractor or owner, unfortunately yes (if you are the worker for one of these, then you are fortunate, not unfortunate!). Prevailing Wages are usually significantly higher than market-set rates, sometimes twice as high, and can significantly increase costs for a contractor, forcing smaller players out of the field.[5] Failure to recognize that the work should be paid for according to Prevailing Wage rates can result in fines; willful refusal to pay Prevailing Wages, or worse, attempts to cover-up and purposefully mislead the government or employees with respect to these wages, can result in fines, suspension or debarment from contracting with the local government, or even criminal penalties![6] Also, be very aware - there have been situations where a government contract failed to specify Prevailing Wages but the contractor was accused of knowing that the contract *should have* contained them and therefore the contractor had to pay Prevailing Wages retroactive even though government bureaucrats initially failed to include the provisions.[7]
7. Non-Collusive Bidding Certification
Typical Wording: In accordance with Section 139-d of the State Finance Law, if this contract was awarded based upon the submission of bids, Contractor affirms, under penalty of perjury, that its bid was arrived at independently and without collusion aimed at restricting competition. Contractor further affirms that, at the time Contractor submitted its bid, an authorized and responsible person executed and delivered to the State a non-collusive bidding certification on Contractor's behalf.
What Is It? Basically, you can’t “fix” bid prices. If, for instance, you and you buddy Jake both sell Widget Model A, you both are prohibited from agreeing to do anything that “restricts competition,” such as agreeing to bid certain prices, to bid on the project or even not to bid on the project (if you did so purposefully so someone else could bid on it; especially if you receive a kick-back or inducement (i.e. payment) of some kind in order not to bid).[8] Be aware, you can easily violate this rule if you “innocently” disclose your bid price to another known bidder or unknown potential bidder.[9] So calling up your friend and asking him to do you a favor and pass-up this project, so you can get the business may mean that you cannot certify that the above statement (in the Typical Wording) is true. That means you may be committing perjury if you sign any certification to the above, which could result in suspension or debarment from local procurement, as well as potential criminal penalties.
Does It Affect Me? Only if you violate the rules. Don’t discuss your bids with other bidding contractors, even those that are friends, before the bids are publicly announced. Of course you can still discuss any subcontracting pricing with potential subs. Also, if for some reason you are unable to certify the above (maybe you thought you weren’t going to bid, disclosed what you would have bid to your friend so he could price it out more accurately, and then you decided to compete for the project anyway), don’t panic. You can still explain the reason for what happened and the head of the agency purchasing unit who can grant you a waiver if they determine you did not disclose or do anything with the “intent” to “restrict competition.” Whatever you do, don’t lie. If you get caught, you could face severe penalties including “Non-Responsibility” determinations that could affect you ability to bid on future projects.[10]
8. International Boycott Prohibition
Typical Wording: In accordance with Section 220-f of the Labor Law and Section 139-h of the State Finance Law, if this contract exceeds $5,000, the Contractor agrees, as a material condition of the contract, that neither the Contractor nor any substantially owned or affiliated person, firm, partnership or corporation has participated, is participating, or shall participate in an international boycott in violation of the federal Export Administration Act of 1979 (50 USC App. Sections 2401 et seq.) or regulations thereunder. If such Contractor, or any of the aforesaid affiliates of Contractor, is convicted or is otherwise found to have violated said laws or regulations upon the final determination of the United States Commerce Department or any other appropriate agency of the United States subsequent to the contract's execution, such contract, amendment or modification thereto shall be rendered forfeit and void. The Contractor shall so notify the State Comptroller within five (5) business days of such conviction, determination or disposition of appeal (2 NYCRR 105.4).
What Is It? The Export Administration Act of 1979 was passed generally in order to facilitate trade with friendly countries and restrict technology or products that could be used by the enemies of the United States.[11] However, there was a provision prohibiting American people and companies from participating in foreign boycotts that are not sanctioned by the United States.[12] This participation must be intentional and not an accident.[13] So, in plain English, it means that you cannot participate, intentionally, in an international boycott unless the U.S. is also boycotting them. Perhaps the most famous example of this is the embargo that the Arab League countries impose against Israel.[14]
Does It Affect Me? Well, in the above example, for instance, you could not currently refuse to do business with Israel or discriminate against their products, as part of this boycott; nor could you own substantially own or affiliate with a company that violates this law. If you do, and you are convicted of a violation, your contract with the State of New York can be voided. If you don’t do any international business, you should be ok with this under almost all circumstances. If you do a lot of international business, you might want to check with the U.S. Department of Commerce, Bureau of Industry and Science, as that is the government agency that enforces these laws, to get a current list of “sanctioned” boycott countries.[15] Also, pro tip, free of charge - if you have a face book or other social media page or you comment on social media, and “brag” about your participation in a boycott against a country that the U.S. regards as friendly, you may invite investigation and eventual conviction of violating this federal statute and lose your New York State contract.
9. Set-Off Rights
Typical Wording: The State shall have all of its common law, equitable and statutory rights of set-off. These rights shall include, but not be limited to, the State's option to withhold for the purposes of set-off any moneys due to the Contractor under this contract up to any amounts due and owing to the State with regard to this contract, any other contract with any State department or agency, including any contract for a term commencing prior to the term of this contract, plus any amounts due and owing to the State for any other reason including, without limitation, tax delinquencies, fee delinquencies or monetary penalties relative thereto. The State shall exercise its set-off rights in accordance with normal State practices including, in cases of set-off pursuant to an audit, the finalization of such audit by the State agency, its representatives, or the State Comptroller.
What Is It? If you owe New York State money for any reason - fines, back taxes, unpaid Prevailing Wages to workers in violation of the law, lawsuit damages, re-negotiated contract amounts / refunds, the State can take money it owes you for the current contract, to pay itself, dollar for dollar, what you owe the State; even if the liabilities arise from other contracts! The right to government set-off has been long established and maintained, not only against the contractor but also against sureties, subs and suppliers who have claim to the same money.[16]
Does It Affect Me: If you don’t owe the State any money, no. If you do, or have other business with New York State, it very well could, if the State Comptroller figures it out. So, for instance, if you are President of Acme, Inc. and Acme Inc. has a juicy $1M State contract to renovate a State facility, but Acme owes $100,000 in back taxes, and $50,000 in fines, Acme might well only collect $850,000 on this project. BE CAREFUL!! Even claims barred by the Statute of Limitations could be set-off against a new contract!![17] Silver Lining: Your old debts will be squared away and settled.
10. Records
Typical Wording: The Contractor shall establish and maintain complete and accurate books, records, documents, accounts and other evidence directly pertinent to performance under this contract (hereinafter, collectively, "the Records"). The Records must be kept for the balance of the calendar year in which they were made and for six (6) additional years thereafter. The State Comptroller, the Attorney General and any other person or entity authorized to conduct an examination, as well as the agency or agencies involved in this contract, shall have access to the Records during normal business hours at an office of the Contractor within the State of New York or, if no such office is available, at a mutually agreeable and reasonable venue within the State, for the term specified above for the purposes of inspection, auditing and copying. The State shall take reasonable steps to protect from public disclosure any of the Records which are exempt from disclosure under Section 87 of the Public Officers Law (the "Statute") provided that: (i) the Contractor shall timely inform an appropriate State official, in writing, that said records should not be disclosed; and (ii) said records shall be sufficiently identified; and (iii) designation of said records as exempt under the Statute is reasonable. Nothing contained herein shall diminish, or in any way adversely affect, the State's right to discovery in any pending or future litigation.
What Is It? Hope you like libraries, because if you do business with the State, you will be one. You must keep all records for six years, plus the balance of the calendar year, in which they were made; i.e., if the record was created July 2015, figure keep it to December 31, 2015 plus six years, until December 31, 2021.
Does It Affect Me? Absolutely. Best practice is to hold on to the records until at least six years after the job is done, and you are paid. Remember, for construction jobs, final payment can take years, so it is best to keep the records for at least six years until all outstanding issues and payments are resolved. Pro Tip: Just because the State requires records to be held for six years, doesn’t mean the State can’t audit you even later, say eight or nine years down the line.[18]
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[1] Standard Clauses For New York State Contracts, Appendix A (Jan 2014).
[2] (NYS Department of Labor Website) http://www.labor.ny.gov/workerprotection/publicwork/pw_faq1.shtm#0; De La Cruz v. Caddell Dry Dock & Repair Co., 2013 NY Slip Op 04842 (June 27, 2013).
[3] A "building service employee" includes but is not limited, to, watchman, guard, doorman, building cleaner, porter, janitor, gardener, groundskeeper, stationary fireman, elevator operator and starter, window cleaner, and occupations relating to the collection of garbage or refuse, and to the transportation of office furniture and equipment, and the transportation and delivery of fossil fuel. http://www.labor.ny.gov/workerprotection/publicwork/pw_faq1.shtm#0
[4] https://en.wikipedia.org/wiki/Prevailing_wage; https://labor.ny.gov/workerprotection/publicwork/PDFs/06.01.2015PrevWageSch.pdf.
[5] http://www.arch.columbia.edu/files/gsapp/imceshared/tct2003/PrevailingWage.pdf.
[6] https://labor.ny.gov/workerprotection/publicwork/PW_faq7.shtm#8; and http://labor.ny.gov/workerprotection/publicwork/pwgeneralprovisions.shtm.
[7] http://www.licanys.org/news2/latest-news/officials-say-some-sandy-cleanup-workers-were-underpaid/.
[8] NYS State Finance Law, Section 139-d.
[9] NYS State Finance Law, Section 139-d(1)(a)(2).
[10] http://ogs.ny.gov/procurecounc/pdfdoc/BestPractice.pdf (Question #14 Vendor Responsibility Questionnaire).
[11] United States Public Law 96-72 (1979); technically expired in 1994, but continued by Presidential Executive Orders.
[12] 15 CFR 760.1(e)(1) (This part prohibits a United States person from taking or knowingly agreeing to take certain specified actions with intent to comply with, further, or support an unsanctioned foreign boycott.)
[13] 15 CFR 760.1(e)(3).
[14] http://fpc.state.gov/documents/organization/219630.pdf.
[15] https://www.bis.doc.gov/index.php/enforcement/oac.
[16] U.S. v. Munsey Trust Co. Of Washington, D.C. No. 847., 332 U.S. 234 (1947).
[17] Jewish Board Of Family And Children's Services, Inc. v. NYC, 109 A.D.2d 619 (1st Dept. 1985).
[18] Blossom View Nursing Home, v. Antonia C. Novello, M.D., 830 N.E.2d 268 (2005).
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