Arizona School District Construction: Procurement, Bonds and Retention

Subsection J has the State Board adopt, and the Auditor General review, rules authorizing districts to procure construction by construction-manager-at-risk, design-build, qualified select bidders list and job-order-contracting delivery. The same subsection says those rules shall not require school districts to obtain bid security for the construction-manager-at-risk method. A CMAR proposer may therefore not need a bid bond, though performance and payment bonds still apply once the construction contract is set.

Job-order contracting has a dollar ceiling. Under subsection M, an individual job order is capped at $1,000,000, or a higher or lower amount the governing board sets in a policy adopted at a public meeting, and requirements may not be divided or fragmented to fit under the cap. Subsection C separately bars dividing or sequencing a project into separate purchases to avoid the limits. A JOC contractor working for more than one district should check each board's policy, because the cap can differ.

When a district awards from a qualified select bidders list, subsection B requires a record of the rationale for the award, made public. Firms seeking to get on those lists should expect their qualifications, safety record and bonding capacity to be weighed, though the scoring itself is set in the district's request.

Subsection A.2 requires the Board to adopt rules for procurements involving construction not exceeding $150,000, known as the simplified school construction procurement program. Smaller roofing, paving, HVAC and classroom renovation jobs typically fall in this range, and these are often the first district contracts a trade contractor wins.

The simplified program does not drop the bond requirement. Paragraph A.2(c) says a performance bond and a payment bond as required by the section be provided for contracts for construction by contractors. A small contractor bidding its first $90,000 school job should expect to furnish both bonds, which means arranging surety credit before bidding rather than after award.

Subsection B also requires the rules to bar proprietary specifications except under listed conditions. Bidders that see a brand-name specification can ask the district whether an equal is allowed.

Subsection A.1 of 15-213 requires that surety bonds furnished as bid security and performance and payment bonds be executed and furnished as required by title 34, chapter 2 or 6, as applicable. The applicable chapter depends on the delivery method the solicitation uses.

A.R.S. 34-222 sets the core bond terms. Before the contract is executed, the contractor furnishes a performance bond and a payment bond, each in an amount equal to the full contract amount, binding on award. The bonds must be written by a surety holding a certificate of authority from the Arizona Department of Insurance and Financial Institutions, may not be executed by individual sureties, are payable to the public body and are filed with the body awarding the contract. Each bond includes an attorney fee provision for the prevailing party in a suit on the bond.

The statute also says it is illegal for the invitation for bids, or anyone acting for the contracting body, to require that the bonds be furnished by a particular surety company or through a particular agent or broker. A contractor can use its own surety relationship on district work, subject to that surety's underwriting of the job size, work on hand and the firm's financial statements.

A.R.S. 34-221 sets the title 34 rule for progress payments and retention. Monthly progress payments are required on contracts of 90 days or more, and the owner retains 10 percent of each estimate. An estimate is deemed approved seven days after submission unless the owner issues a specific written finding on the disputed items, and certified estimates are paid within 14 days.

When the contract is 50 percent complete, half of the amount retained is paid to the contractor on request if progress is satisfactory and no specific claim requires holding more. After that, no more than 5 percent of later progress payments may be retained, and 10 percent comes back if the owner finds progress is not satisfactory. Retention is paid within 60 days after completion or the filing of a notice of completion, and at the contractor's option the owner accepts substitute securities, including securities of Arizona school districts, in place of cash retention.

We could not confirm whether the State Board's procurement rules adopt this retention schedule for school districts or set their own, because those rules could not be read. Treat 34-221 as the reference point and confirm the retention clause in each district's contract before pricing subcontracts.

A.R.S. 41-5741 says the School Facilities Division administers the new school facilities fund and distributes money at the direction of the School Facilities Oversight Board. The award for new space is driven by a formula. Square feet per pupil is 90 for preschool children with disabilities, kindergarten and grades one through six, 100 for grades seven and eight and, for grades nine through 12, 134 in districts with fewer than 1,800 high school pupils or 125 in districts with at least 1,800.

Cost per square foot is $270.24 for the elementary band, $285.30 for grades seven and eight and $330.30 for grades nine through 12, adjusted annually for construction market considerations, and multiplied by 1.05 for districts in a rural area. As simple arithmetic from those figures, 1,000 net new high school pupils in a large district would support 125,000 square feet at $330.30, about $41.3 million, before any annual adjustment or site-condition change the Board may allow.

A district whose capital plan shows a need for a new school or addition within four years submits the plan on or before September 1, and a district using its own project manager must follow the minimum adequacy requirements in A.R.S. 41-5711. For contractors, a formula budget typically leaves little room for scope growth, so value engineering, allowances and change order pricing tend to get close attention on state-funded schools.

The statutes on this page do not set insurance limits, additional insured wording, contractor prequalification, warranty periods or liquidated damages for school work. Those terms come from each district's solicitation and contract documents, and we did not read a district bid package with enough verified detail to state them here. Expect them to differ between a large urban district and a small rural one.

Before bidding, read the insurance article of the general conditions for limits, additional insured and waiver terms and any owner-controlled insurance program, and match the endorsements on the general liability, auto and umbrella policies to that wording. Coverage terms can vary by carrier guidelines and programs and are subject to underwriting and the terms of the policies issued. Confirm the current requirement with the district.