Design Phase

In most cases, contracts for project construction of $50,000 or more must be awarded through an open, competitive bidding process whereby a solicitation to bid is made by means of a formally advertised public notice. Exceptions to this requirement are discussed below in Sections B through D. Unless otherwise approved by your RLS project manager, an advertisement for bids must be published at least 30 days prior to the date on which bids are scheduled to be opened.
Although all applicants are encouraged to place bids in local publications to ensure local contractors and potential subcontractors are aware of bidding opportunities, revolving fund projects must be advertised through at least one statewide publication. A number of state wide advertising options exist, one of which is maintained by the Michigan Infrastructure and Transportation Association (MITA).

As of October 1, 2014, all architectural and/or engineering services (includes planning, design, and construction engineering) must publicly announce all requirements for these services and negotiate contracts using a Qualifications-Based Selection (QBS) process. This applies to SRF projects only. Communities using in-house staff for architectural and engineering services are not required to conduct the QBS process. A Procurement of Architectural and Engineering Services Certification form (Attachment 1) must be submitted with the Part III application.

As of May 1, 2015, the following project delivery methods will be acceptable for use in the State Revolving Fund (SRF)/Strategic Water Quality Initiatives Fund (SWQIF)/Drinking Water Revolving Fund (DWRF) programs: Construction Management At-Risk (CMAR), Progressive Design-Build (PDB), and Fixed-Price Design-Build (FPDB). Because the CMAR, PDB, and FPDB delivery methods include additional requirements from that of the traditional Design-Bid-Build delivery method, the applicant needs to schedule a meeting with the Revolving Loan Section (RLS) project manager early in the planning stage to discuss project delivery requirements and eligibility. The CM delivery method differs from those previously allowed in Michigan as it incorporates the following principles:

• The project designer and the CMAR firm (acting as a general contractor) are separate entities and have no contractual relationship. Each entity has a separate contractual relationship with the applicant.
• The CMAR firm is heavily involved in the design stage early on in the project.
• The CMAR firm can self-perform any construction work; the process must be transparent.

Competitive bidding requirements will be waived when the cost of a good or service to be procured as part of a loan project will be less than $50,000. Goods might include material such as pipe or equipment such as pumps, while services might include compaction testing by an independent contractor.

Minimal cost procurements are eligible for loan assistance provided the municipality/water supplier’s Part II Application submittal includes adequate documentation that the cost of the good or service is less than $50,000.

Competitive bidding requirements will be waived when a good or service needed as part of a loan project is only available from one source.

Sole source procurements are eligible for loan assistance provided the municipality/water supplier’s Part II Application submittal includes a justification for using a good or service that is only available from one source and the basis for its estimated cost.

Competitive bidding requirements can be waived when the municipality chooses to use a Request for Quotes/Qualifications (RFQ) process to accomplish project construction on a SWQIF loan project. Under the RFQ process, the municipality would establish a list of pre-qualified contractors for its SWQIF project construction. Each homeowner targeted for project construction, or the municipality, would then enter into an agreement with one of the pre-qualified contractors to perform the private property work necessary for the completion of the SWQIF loan project.

Construction under the RFQ process is eligible for SWQIF loan assistance provided a number of conditions are met:

1. Notification of the owner’s intent to use the RFQ process needs to be made by no later than the date set in the executed project milestone schedule for the submission of draft plans and specifications.
2. The list of pre-qualified contractors established by the RFQ process must include a sufficient number of licensed contractors to accomplish the timely completion of the municipality’s project.
3. The Part II Application submittal must include a copy of the list of pre-qualified contractors and an explanation of how it was obtained.

Please note that a municipality need not utilize the RFQ process but may instead choose to accomplish SWQIF project construction by hiring a contractor through the use of the standard competitive bidding process.

Section 5308(1)(e) (SRF/SWQIF) and Section 5409(1)(f) (DWRF) of the NREPA, requires a municipality/water supplier applying for loan assistance to prepare and submit "a set of plans and specifications suitable for bidding." Design documents will meet this requirement if:

1. The final design documents present a project that corresponds with the one described in the state-approved project plan;
2. The final design documents include a bid proposal form which allows the segregation of costs for all items that are not eligible for loan assistance;
3. The final design documents include the Required Standard Contract Language: Clean Water State Revolving Fund and Drinking Water Revolving Fund. The Debarment Certification portion must be completed for any contract of $25,000 or more, the Disadvantaged Business Enterprises portion for any contract and the Davis-Bacon portion for all contracts over $2,000 (CWSRF and DWSRF only). The DBE program has been created by the EPA to increase the participation of small, minority and women owned firms in the procurement process for goods and services as required by rule, 40 CFR Part 33. Prime Contractors bidding on a project must follow, document, and maintain records of their Good Faith Efforts to ensure that DBEs have the opportunity to participate in a project by increasing DBE awareness of procurement efforts and outreach. Detailed information about the required Good Faith Efforts are detailed in Attachment 2 and Attachment 3 of this document. For additional DBE questions contact EPA’s Region 5 DBE Program Contact Adrianne Callahan at 312-353-5556 or callahan.adrianne@epa.gov). Please note that federally funded highway projects utilize DBE goals which require that a certain percentage of work be performed by DBE subcontractors. Since the CWSRF/DWSRF program’s DBE requirements utilize a solicitation effort goal rather than a financial DBE goal, it would be difficult for the applicant to comply with both requirements. Therefore, joint projects with the Michigan Department of Transportation can be excluded from the SRF/DWRF EPA DBE requirements and the Good Faith Efforts Worksheet is not required.
4. The final design documents meet the requirements in Part 41 of the NREPA and its related administrative rules for approvable plans and specifications for the SRF/SWQIF and Act 399 and its related administrative rules for the DWRF. In particular, the design documents must conform to the design standards and guidance provided in the Recommended Standards for Wastewater Facilities (SRF/SWQIF)/Recommended Standards for Water Works (DWRF) published by the Great Lakes-Upper Mississippi River Board of State and Provincial Public Health and Environmental Managers (commonly known as the Ten State Standards); and
5. The final design documents were prepared and sealed by a professional engineer registered in Michigan. The design engineer may either be a qualified employee of the municipality/water supplier that is applying for SRF loan assistance or a consulting engineer hired by the municipality/water supplier on a contractual basis.

The proper CWSRF/SWQIF/DWSRF project number, including the project segment suffix if appropriate, should appear on the cover of the contract documents, specifications books, and plan sheets. The procedure for the submittal, review, and approval of design documents is outlined in Section M below.
Under state law, the municipality/water supplier applying for loan assistance is responsible for obtaining all federal, state, and local permits, or clearances that are required for the project and must perform any surveys or studies that are required in conjunction with such permits or clearances. All appropriate provisions, conditions, and mitigative measures included in such studies, surveys, permits, or clearances must be incorporated into the final design documents.

Two types of projects can qualify for SWQIF loan funding: (a) projects to remove clear water (groundwater or storm water infiltration or inflow) from sanitary or combined sewer house leads and (b) projects to replace or upgrade failing on-site septic systems (OSSS) that are adversely affecting public health or the environment. Generic plan sheets and specifications ─ as opposed to site-specific documents for each property ─ will suffice for clear water removal projects. Site-specific health department permits will suffice as plans and specifications for an OSSS project. The permits for all OSSS sites must be received by the DEQ project manager at least one week before the quarterly design document approval deadline, which will require the municipality to provide sufficient lead time (perhaps months) for the local health department review/approval.

To a certain extent, allowances circumvent the bidding process because the value of the allowance is specified by the project owner. Municipalities and their consultants are encouraged to avoid the use of allowances and, instead, fully develop specifications to enable bidders to competitively establish the cost of each good and service in the construction contract. However, many types of bid allowances can receive funding if appropriate documentation is provided to your DEQ project manager to support both the need for the allowance and its estimated cost. Please contact your DEQ project manager if you have any questions about the possible use of an allowance.

A type of allowance that is not eligible for inclusion in a loan is one that is not linked to specific goods or services. Such allowances are typically identified as "allowance for differing site conditions" or “provisional allowance” in the design documents. This type of allowance is deemed to be an ineligible addition to the standard 6 percent contingency that will be included in the loan. Further information regarding bid allowances can be found in the Eligibility Guidance for the Drinking Water and the Clean Water State Revolving Fund.

Specifications may reference equipment that is to be supplied by naming the model produced by a particular manufacturer. Traditionally, such specifications include a caveat that the bidder may instead supply equipment from a different manufacturer that meets the particulars in the owner’s specification (the “or equal” approach). Another approach is base bidding, where the model produced by a particular manufacturer must be supplied. Base bidding may be used in a project to provide compatibility with existing equipment, reduction of operation or maintenance costs, or a proven track record of performance. Please contact your DEQ project manager if you have any questions about the possible use of base bidding.

Alternates are additional items or project enhancements that are not part of the base bid. Alternates are structured to provide for greater flexibility in meeting budget goals. If bids come in under budget, the owner may accept alternates that, when added to the base bids, do not exceed the authorized construction budget. Under certain circumstances, the alternates may be deductive, where bidders are requested to offer amounts to be deducted from the lump sum bid based on a savings from choosing the alternate.

Alternates are allowable to the extent that they are consistent with and address the critical needs identified in the project plan and meet requirements of Part 41/Act 399 construction permits. Both project management and district engineering staff will review alternatives for programmatic and technical acceptability.

In most cases, the assessment of a contractor’s qualifications and apparent ability to meet the requirements of the contract must occur during the evaluation of bid proposals. Pre-qualification of contractors prior to bidding may be considered only where it can be justified based on special expertise requirements that would limit the availability of capable contractors. Notification of the owner’s pre-qualification process, the rationale for its use, and the actual description of the owner’s pre-qualification process must be submitted no later than the date set in the executed project milestone schedule for the submission of draft plans and specifications.

The use of municipal/water supplier employees to construct a project (force account labor) may be approved for assistance when all of the following conditions are met:

1. The construction work can be effectively performed by permanent staff on the current payroll of the applicant, or the municipalities for which the project is being constructed.
2. The total labor cost (salaries, fringe benefits, travel expenses) is less than $50,000.
3. The employees involved in project construction will perform the construction work concurrent with their regular duties, without the hiring of any additional staff.
4. The applicant can demonstrate that force account labor will be cost-effective when compared with contracted labor.

A municipality/water supplier may use its own staff to perform resident inspection of project construction, either independent from or concurrent with resident inspection performed by a contracted engineering firm. The documentation necessary to support the inclusion of a municipality/water supplier’s resident inspection costs is outlined in the “Instructions for Completing the Project Cost Worksheet” that accompanies the SRF/SWQIF/DWRF Part II Application. Services are only eligible if specifically linked to the project and actual hours are documented on timesheets.

To obtain an SRF loan for a project involving the construction or alteration of a wastewater transport or treatment facility, the municipality must obtain a construction permit issued under the provisions of Part 41 of the NREPA. To obtain a DWRF loan for a project that involves the construction or alteration of drinking water supply, storage, transmission or treatment facility, the water supplier must obtain a construction permit issued under the provisions of Act 399. An application for this construction permit must be submitted to the appropriate DEQ district office by no later than the date set in the executed SRF/DWRF project milestone schedule for the submission of final design documents.

A municipality will not need a Part 41 of the NREPA construction permit for a SWQIF loan project. Instead, local building codes and inspections will cover the work on private property needed for a clear water removal project and site-specific permits from the local health department will cover the work done for an OSSS upgrade or replacement.

A municipality/water supplier applying for loan assistance for a competitively-bid construction project, or a CM project will need to do the following:

1. Submit two sets of the draft design documents (plan sheets, specification books, and contract documents) to the DEQ project manager in accordance with the executed project milestone schedule. In cases where mailing delays are likely, you may send one set of the draft documents directly to the appropriate DEQ district office provided you notify your DEQ project manager.
2. Revise the draft design documents to address all comments received from your DEQ project manager and the DEQ district staff.
3. Submit one set of the final design documents to the DEQ project manager and at least three sets directly to the DEQ district office, again in accordance with the executed project milestone schedule. Additional sets may be submitted to the district office in cases where a stamped, approved set of design documents is desired by parties other than the applicant municipality/water supplier (e.g., a copy for the municipality/water supplier’s consulting engineer or, on a county-administered project, a copy for the local government’s representative).

A municipality applying for SWQIF loan assistance for an RFQ process project will need to do the following:

1. For a clear water removal project, submit one set of the generic plan sheets and specifications to the DEQ project manager in accordance with the executed project milestone schedule.
2. For an OSSS project, submit all of the site specific permits issued by the local health department to the DEQ project manager in accordance with the executed project milestone schedule.

In cases where a modification of the approved final design documents is found to be necessary, an addendum needs to be prepared for issuance to all prospective bidders. The addendum does not have to receive EGLE approval prior to its issuance; however, as soon as one has been prepared, the municipality/water supplier must submit three sets of each addendum to the EGLE project manager for review and approval.

If the EGLE staff can approve the addendum, the project manager will send a stamped, approved copy of the addendum to the municipality/water supplier. If the EGLE staff cannot approve the addendum, the project manager will work with the municipality/water supplier’s design engineer to correct all deficiencies so that a revised addendum can be issued. If the time remaining before the opening of bids does not permit the issuance of a revised addendum to all prospective bidders, then either the bid opening must be delayed or the required corrections must be made by means of a change order issued after the contract has been awarded.

Under Section 3 of the Michigan Use Tax Act (MCL 205.91 et seq.), a use tax (along with potential interest and penalties) is imposed upon every person “for the privilege of using, storing, or consuming tangible personal property in this state at a rate equal to 6% of the price of the property.” Under MCL 205.92(g)(i), a “consumer” is defined as “a person acquiring tangible personal property if engaged in the business of constructing, altering, repairing, or improving the real estate of others.” The Michigan Department of Treasury has ruled that contractors are the consumers of the materials used by them. Therefore, the Michigan Use Tax applies to owner-furnished equipment that will be installed under a competitively-bid construction contract and the contractor will be liable for the 6% Use Tax for materials “consumed” in fulfilling the contract.

Exemptions to the Michigan Use Tax identified under MCL 205.94(s) include “tangible personal property purchased and installed as a component part of a water pollution control facility for which a tax exemption certificate is issued pursuant to Part 37 of the natural resources and environmental protection act, 1994 PA 451, MCL 324.3701 to 324.3708...” This exemption only applies to a facility operated “primarily for the purpose of reducing, controlling, or eliminating water pollution caused by industrial waste.”