HomeMy Public PortalAbout010_014_House Bill Chapter 6: Construction, Bonding and Insurance
Jid You Know That...
Local governments are prohibited from dividing projects into smaller components to avoid compliance with the
Public Works Construction Law?
D. A Comparison: Union City Purchasing Ordinance and Public Works Construction Law
It is interesting to note that with very few minor exceptions,the current Union City Purchasing Ordinance
Imposes the same requirements as O.C.G.A. Title 36 "Local Government". A minor difference in
requirements is
included in the table below:
Georgia Public Works
Legal Requirement City of Union City Construction Law
Purchasing Ordinance O.C.G.A. Title 36
2 times with the first advertisement appearing 4
Advertising Period 2 consecutive weeks weeks prior to the bid opening date and the
second ad following 2 weeks after the first
advertisement
Although the Purchasing Ordinance requires a public notice in the form of a legal advertisement for two (2)
consecutive weeks, the decision to advertise over a longer period of time is determined on a project-by-project
ilia basis. Most construction bids and requests for proposals for professional services are advertised for at least
four(4)weeks or more.
E. Sales and Use Tax Liability
Effective July 1, 2005, House Bill 306 modified O.C.G.A. Title 48, Sales and Use Tax Liability, imposing
additional responsibilities and liabilities on local governments that use their tax exempt status to procure
materials and/or equipment on behalf of private contractors hired by local governments for capital projects.
Overview of House Bill 306
O.C.G.A. Title 48, Chapter 8, Section 63 imposes a use tax liability of 7%, equivalent to the sales tax
liability, on private contractors when materials and equipment are purchased by a public agency using their
tax exempt status for a public works construction contract. An audit of private contractors indicated that the
State was suffering loses in revenues as a result of this arrangement between public agencies and private
contractors. Contractors did not appear to be aware of their liability for payment of a use tax on the
materials or equipment provided by local governments.
The State responded with the adoption of House Bill 306. This amendment to Title 48-8-63, subsection g,
makes the local government responsible for providing private contractors with written advance notification of
their use tax liability when the local government purchases materials/equipment and then provides such
materials to the private contractor for a local government capital project according to the bill,this notice
must include the cost of the materials or equipment purchased and the amount of the use tax owed. This
change makes the public agency, i.e. Union City, liable for payment of the use tax to the State if the agency
(Union City)fails to provide advance written notification to the contractor.
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Chapter 6: Construction, Bonding and Insurance
It is important to note that Title 48 provides an exemption from these provisions when the materials and equipment
purchased by a public agency are for the construction of a utility installed for general distribution purposes such as
water and sewerage lines.
This change in state law does not affect Union City's ability to purchase materials and/or equipment for
construction projects when Union City performs the installation or construction.
,_ Union City Sales&Use Tax Liability(O.C.G.A.48-8-63)
-, Finance Department Recommendation:
~ =~ The Finance Department recommends that Union City departments limit the purchase of materials and/or
, • equipment for capital projects that are subsequently turned over to a private contractor for construction or
installation. Because of the 7% use tax liability imposed on the private contractor, Union City's procurement of tax-
exempt materials will not result in any cost savings.
Should it become necessary to purchase materials and/or equipment based on the needs of a particular project,
Purchasing will work with the department to provide the required advance written notice to the contractor,
including the cost of the material and the amount of use tax due and payable to the State.
6.4: Bonds and Insurance
6.4.1 General
To protect the interest of City of Union City some form of security may be imposed as part of procurement. The form
of security, when it is required and when vendors are released from the requirement is determined by the contract.
Securities covered in Chapter 6 include bid bonds, payment and performance bonds, and alternatives to bonds such
as certified checks,cash escrows, letters of credit,and certificates of insurance.
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[PurchaPolicsing Ordinance Section 5-426: Deposits; bid bonds]
The purchasing division administrator shall be authorized to require a bid bond or deposit, payable to City of Union
City, for contracts up to $99,999.00 from vendors bidding on any goods or services when, and in such amounts,
as in his or her judgment the nature of the goods or services to be purchased would warrant such bond or deposit
or whenever such bond or deposit is required under state law. Notice of a bond or deposit shall be included in the
public notice and bidding specifications. Contracts over$100,000.00 shall require a bid bond or deposit. Such bond
or deposit shall not exceed 100 percent of the bid amount.
B. Definition of Terms
1. Bid bonds — an insurance agreement, accompanied by a monetary commitment, by which a third party
(the surety) accepts liability and guarantees that the bidder will not withdraw the bid, the bidder will furnish
bonds as required, and if the contract is awarded to the bonded (insured) bidder, the bidder will accept the
contract as bid or else the surety will pay a specific amount.
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