Effective January 1, 2004, House Bill 95 prohibits public agencies from awarding contracts to delinquent vendors. The bill requires that public agencies issuing contracts first verify that the proposed contractor is not subject to the state auditor’s “finding for recovery.” No contract may be awarded to a contractor subject to such a finding for recovery. This is significant not only for its direct implication to the contractor, but also for its impact on the contract award process.

Specifically, the bill states that “No state agency and no political subdivision shall award a contract for goods, services, or construction, paid for in whole or in part with state funds, to a person against whom a finding for recovery has been issued by the auditor of state, if the finding for recovery is unresolved.” Of particular interest to political subdivisions is the fact that the law does not directly define the entities considered as political subdivisions. As a result, the law may not apply to separately defined public subdivisions such as school districts, library districts, or institutions supported in whole or in part by the state, such as Ohio’s public colleges and universities.

Under the law, the only debt prohibiting a contractor from doing business with a public agency is a debt identified by the auditor in a finding. Not included in these debts to the state are taxes or other debts generally pursued by the Attorney General as owing to the state. The bill further narrows the new contract prohibition by creating six exceptions:

1. The finding is paid in full.

2. The debtor is in a repayment plan, providing incentive to a debtor to enter into an agreement of any sort.

3. The Attorney General waives a repayment plan.

4. The debtor is in an enforceable settlement agreement, allowing for broader terms than mere repayment.

5. The agency and the Attorney General agree that the contractor is providing sole source essential services, giving the public agency leeway to ensure that services continue to the public’s benefit. This provision allows the Attorney General to work with public subdivisions, not previously provided for in other bills.

6. The finding for recovery is embroiled in pending litigation, regardless of stage or likely conclusion.

In order to facilitate the evaluation of a potential vendor’s status with the state, the law calls for the Attorney General to submit to the auditor all findings for recovery for the years 2001, 2002, and 2003. With that information, the auditor will create and maintain a database that must be operational by January 1, 2004. Public agencies then must verify that the contract award does not go to a “person” in the auditor’s database.

“Person” generally includes corporations under Ohio law. But the new law is unclear as to whether a corporation with a principal against whom a finding is made might be prohibited as well. If not, a debtor may merely avoid bidding on contracts with the individual or corporation named in any finding, whether by using a different corporate entity or by bidding with a different person. As this law must be strictly construed against enforcement, it is likely that the prohibition will be limited only to the person literally named in the finding for recovery.

Of legal concern is that any public contract awarded might be null and void if the public agency does not make the proper verifications before the award is made. Ohio law guards against misspending of taxpayer funds, stating that an enforceable public contract is not formulated unless all legal requirements first are met. Both the public agency and the successful contractor must document that the public agency verified that no finding for recovery is outstanding. Otherwise, the contract might be challenged as void merely because the agency did not verify the existence or nonexistence of a finding and even if no finding is outstanding.

State agencies and political subdivisions involved in public contracting must be sure to verify that their vendor candidates are not listed in the auditor’s database or risk voiding the contract.

Reprinted from Finley’s Ohio Municipal Service, with the permission of the publisher and copyright owner, West Group.