By attorneys Jenna Bishop, Maria Brownell, Danielle Haindfield, Kristine Stone and Carrie Weber
On April 4, 2018, House File 2253 (HF 2253), a bill making changes to public construction bidding requirements for property acquired by lease-purchase by government entities, was signed into law by the Governor. This change in the law impacts numerous governmental entities including but not limited to cities, counties, public school districts, community colleges, and those entities covered by the definition of governmental entity in Iowa Code Section 26.2.
HF 2253's provisions are effective immediately.
Under prior law, governmental entities could contract with a private developer to construct buildings which the governmental entity would eventually own through a lease-purchase contract without following the competitive bidding process.
Now, HF 2253 makes lease-purchase contracts subject to Iowa Code Chapter 26's public construction competitive bidding requirements. The specific exemption for construction projects taking the form of a lease-purchase agreement has been removed and these types of construction projects are now subject to competitive bid.
HF 2253 makes several other significant changes that expand the applicability of Chapter 26:
"Public Improvements" Under Iowa Code Section 26.2
HF 2253 expands the definition of what buildings and construction work are considered "public improvements" subject to competitive bidding.
Previously, "public improvements" meant buildings or construction work that (1) was "constructed under the control of a governmental entity" and (2) was "paid for in whole or in part with funds of the governmental entity."
Following HF 2253, the second prong of the "public improvements" definition can be satisfied in an additional way - if "a commitment has been made prior to construction by the governmental entity to pay for the building or construction work in whole or in part with funds of the governmental entity."
Therefore, if the governmental entity either has paid for, or has made a commitment to pay for, the building or construction work (and that building or construction work is under the control of the governmental entity), then the project is a "public improvement" under Section 26.2.
"Under the Control of a Governmental Entity" Under Iowa Code Section 26.2
HF 2253 made one additional change to the definitions used in Chapter 26 by adding a definition for "under the control of a governmental entity," which is the first prong of the public improvements definition. "Under the control of a governmental entity" now specifically includes "determining the construction work to be performed or establishing the specifications for a building or construction work to be occupied by the governmental entity."
Pertaining to School Districts - Additions to Iowa Code Sections 278.1 and 298.3
HF 2253 also applies the new definition of "public improvement" in Iowa Code Section 26.2 to school districts through additions to Iowa Code Sections 278.1(2) and 298.3(1)(j). The new language in both statutes states that:
[A] contract for construction by a private party of property to be lease-purchased by a public school corporation is a contract for a public improvement as defined in section 26.2. If the estimated cost of the property to be lease-purchased that is renovated, repaired, or involves new construction in excess of the competitive bid threshold in section 26.3, the board of directors shall comply with the competitive bidding requirements of section 26.3.
While lease-purchase arrangements are not as common among school districts as they are with cities and counties, school districts that utilize these types of contracts should be aware of the change and ensure they are following the competitive bidding procedure when necessary.
This is only a summary of some of the changes made by HF 2253. If you have questions about the impact of HF 2253, or want advice generally on government lease-purchase contracts or public construction competitive bidding, please contact an attorney in the Ahlers & Cooney Economic Development/Urban Renewal Practice Group or Construction Practice Group.