Chesapeake Geosystems, Inc. Baltimore, Maryland No Bid. Morrison Geothermal, Inc. Duncannon, PA $ 7,800

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1 May 6, 2013 West York Area School District 2605 West Market Street York, PA RE: Geothermal Conductivity Testing Request for Proposals and Recommendation Wallace Elementary School West York Area School District West Manchester Township, York County, PA Dear School Board Directors, To assist in the design of the proposed building addition structural design and the site design as it relates to heating and ventilating system and the use of a geothermal system, we prepared a Request for Proposal for Geothermal Drilling and Conductivity Services utilizing a scope of work specification requirement prepared by Moore Engineering for the test well and conductivity test. We requested proposal from five firms to perform geothermal drilling and conductivity testing. All firms prepared their proposal based on the same scope of work. The scope of work for the conductivity test includes the following: Drill a 6 test well 400 feet deep. The well will be cased approximately 60 feet in depth. A unit cost has been provided by each contractor to adjust the cost if less or more casing is required. Install a 1 ¼ geothermal loop in thermal grout. Perform a minimum of 48 hours of conductivity testing. The well will be capped below grade for reuse and the property restored to conditions prior to testing. All permits will be provided by the contractor. The results from the five firms contacted for proposals are as follows: Chesapeake Geosystems, Inc. Baltimore, Maryland No Bid Morrison Geothermal, Inc. Duncannon, PA $ 7,800 Reith Geothermal Energy, Inc. Emmaus, PA $ 9,000 Myers Brothers Drilling Contr. Inc. Salunga, PA $ 9, Reith Brothers Inc. Emmaus, PA $ 11, North Charlotte Street, Lancaster, PA P: F: gilbertarchitects.com

2 After reviewing the proposals with Mr. Ken Kauffman, Vice President, Moore Engineering, it is our recommendation that the West York Area School Board of Directors award the geothermal conductivity drilling and testing services contract to Morrison Geothermal Inc. from Duncoannon for the sum of $7,800. Please feel free to call or me at with any questions and/or comments regarding this. Kenneth R. Johnson Kenneth R. Johnson Senior Project Manager

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6 M E M O R A N D U M TO: FROM: RE: West York Area School District Rhonda F. Lord, Esq. Possible Lease-Purchase of a District Administration Building DATE: May 14, 2013 You have asked for guidance on the general rules applicable to a possible lease-purchase arrangement for a District Administration Building. This memo will outline the general rules relating to lease-purchase arrangements and some of the issues that need to be considered by the School District. However, it is important to note that we cannot provide a definite legal opinion on a lease-purchase arrangement unless and until there is a concrete proposal with specific facts. The analysis will necessarily be very fact specific. Until those facts are pinned down, we can only provide general guidance and an overview of the relevant laws. To that end, this memo addresses the following topics: PDE issues; competitive bidding issues; prevailing wage issues; and debt act requirements. PDE issues Under School Code 703.1, school districts have the authority to lease for five or more years existing buildings or buildings constructed or renovated for school use. School Code provides reimbursement for buildings leased pursuant to Section As defined in Section , reimbursement for approved leases of buildings constructed for school use is based on the lesser of (1) the annual rental multiplied by the ratio of the scheduled area to architectural area, or (2) the rated pupil capacity multiplied by $160 for elementary schools, $220 for secondary schools, and $270 for area vocational technical schools. Reimbursement for approved leases of existing buildings altered for school use is based on the lesser of (1) the annual rental multiplied by the ratio of the scheduled area to architectural area, or (2) the rated pupil capacity multiplied by $112 for elementary schools, $154 for secondary schools, and $189 for area vocational technical schools. For leases authorized by Section to qualify for state reimbursement, the following must be submitted: (1) PlanCon Part A, Project Justification, except page A21; (2) a draft lease agreement; (3) the number of rooms to be leased; (4) a floor plan of the building; and (5) a Department of Labor and Industry Certificate of Occupancy. During the term of the building lease, updated information must be submitted on an annual basis if the lease provisions permit the lease amount, the number of rooms or square footage to change. Amendments affecting

7 lease costs or room use must also be submitted to PDE for review and approval. Written PDE approval must be obtained prior to the district entering into a building lease if reimbursement is being sought. Prevailing Wage In general, under the Prevailing Wage Act, [n]ot less than the prevailing minimum wages as determined under the Act shall be paid to all workmen employed on public work. 43 P.S Public bodies proposing contracts for any project of public work are to request, from the Secretary of Labor and Industry, prevailing minimum wage rates (categorized by craft or classification of workers in the job locality) for incorporation into ensuing contracts. Id. In relevant part, a project is a public work if it is performed under contract and is paid for in whole or in part with public funds. 500 James Hance Court v. Pennsylvania Prevailing Wage Appeals Bd., 613 Pa. 238, , 33 A.3d 555, 557 (2011). The prevailing wage provisions not only apply to construction of buildings owned by school districts, but may also apply to lease-purchase arrangements (or a long-term lease) if public funds are being used for public work that is performed under contract. In determining whether construction of a building subject to a lease-purchase agreement or a longterm lease requires the payment of prevailing wages, the courts look at the specifics of the transaction. In cases where construction begins before an agreement is signed, and there is no obligation on the part of the school district to enter into the agreement, courts have found that the prevailing wage provisions do not apply. Id. To the contrary, if a public body plays a large role in determining the space layout and goals and signs an agreement to lease before construction contracts are signed, the prevailing wage provisions will likely apply. Mosaica Education, Inc. v. Pennsylvania Prevailing Wage Appeals Board, 925 A.2d 176 (2007). Based on the above, whether prevailing wage provisions would apply to a lease-purchase situation would depend very much on the facts of the lease. If the lease-purchase were on an existing building owned by a third party, it is likely the prevailing wage provisions would not apply. If a building is built to school specifications to be used as an administration building, and the school has a binding long-term lease (or lease-purchase agreement) before construction contracts are signed, it will likely be determined that the prevailing wage provisions apply to the project. With respect to the prevailing wage, it is also important to consider the likelihood of a challenge by labor unions or the Prevailing Wage Appeals Board with respect to the prevailing wage. If there is even a hint of an attempt to circumvent the provisions of the Prevailing Wage Act, labor unions and PWAB have been very aggressive in opposing avoidance of the Act. The associated cost, expense and risk of such a challenge must also be considered. Thus, while it is possible to avoid the prevailing wage provisions with a lease-purchase arrangement, it is important that the transaction be structured in a way that demonstrates the third-party developer is in control of the project until after the lease is signed. This would apply equally to construction of a new building or to renovations to an existing building. 2

8 Competitive Bidding/Separate Prime Contractors Under School Code 7-751, all construction of public school buildings where the cost exceeds $18,500 must be awarded through separate bids for electrical, plumbing, mechanical and general trades work to the lowest responsible bidders. This provision applies to work done on any school building or any school property or upon any building or portion of a building leased under the provisions of section While not expressly addressed by Pennsylvania courts, we believe the courts would apply the same rules mentioned above regarding prevailing wage in determining whether Section 751 applies to a construction project involving a building that is leased by a school district. That is, factors such as the timing of the construction contracts, the timing of the lease and the school district s input into the layout and building plans would all have to be considered. If a third party entered into contracts to build a building without any lease commitment from the school district, and the school district did not play a large role in the design and layout of the building, the bidding requirements and separate prime provisions should not apply simply because the district later leased the building. If, however, the school district played a large role in the design and had a lease commitment prior to construction contracts being signed, the requirements of would likely apply. Because this has not been addressed by any Pennsylvania courts, there is no definitive answer as to exactly how a court would rule on this issue, but we believe it is likely the prevailing wage analysis above would be applied. Debt Act The Pennsylvania Local Government Unit Debt Act requires filing with and obtaining approval from the Department of Community and Economic Development ( DCED ) anytime a School District incurs debt under the Act Debt is defined as The amount of all obligations for the payment of money incurred by the local government unit, whether due and payable in all events, or only upon the performances of work, possession of property as lessee, rendering of services by others or other contingency, except the following:... (3) Rentals or payments payable in future years under leases, guaranties, subsidy contracts or other forms of agreement not evidencing the acquisition of capital assets. 53 Pa. Cons. Stat. Ann According to DCED and Section 8004 of the Debt Act, this section means that if you enter into a true lease whereby you are not acquiring title to the property at the end of the lease and paying a fair rent based on what would be paid in the open market for a lease, you would need to file debt proceedings. If, however, you obtain ownership at the end of the lease and pay lease rentals that essentially equate to the cost of the building, it would not be considered a true lease and would not be considered debt under the Debt Act. As you may recall, filing with DCED for debt approval is not a complicated process. The School District would need to adopt resolutions, advertise and file debt proceedings in accordance with the Act. The amount of the lease, if it were a true lease, would also use a portion of your overall borrowing capacity. With a 3

9 lease-purchase arrangement where the School District is essentially paying the building costs as rent and obtaining title at the end of the lease, the Debt Act likely would not apply and the lease amount would not affect your borrowing capacity. Conclusion As you can see, there are many legal considerations that must be fully examined prior to entering into any lease-purchase arrangement. The analysis will depend greatly on the facts, such as: Whether the lease would be for an existing building owned by a third party. Whether the lease would be for a new building to be constructed by a third party developer. Whether the building would be on school district land. The extent of the school district s input into the building process and layout. The terms of the lease-purchase arrangement. Very significantly, whether the district is entering the lease prior to the entering of construction contracts. If the school district proceeds in pursuing a lease-purchase arrangement, we will need to pin down these facts to provide a definitive legal opinion on the foregoing issues. 4

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