30 April 2010

Opinion: Concrete Deal for DDA Parking Structure a Bad Taxpayer Deal

Ann Arbor / Tony Dearing

It looks bad and raises serious questions when a company managing construction of a major public project rejects a lower bid from a competitor and awards the work to its subsidiary.

So far, the answers provided have been unsatisfactory, including those from the Ann Arbor Downtown Development Authority.

The DDA is responsible for the underground parking structure being built on South Fifth Avenue, a project that has been dogged by questions about whether the structure is needed and what will be built on top of it.

The last thing the DDA and the city of Ann Arbor needed was the appearance of impropriety raised by having the construction manager give its own subsidiary Michigan concrete contracting company $22 million when a pre-qualified bidder said it was prepared to do the job for a half a million dollars less.

Granger Construction Co. of Lansing is crying foul after its bid of $21.5 million was rejected by Christman Co., the construction management firm hired by the DDA last fall. Christman also passed over the second-lowest bidder, Colasanti Construction, to give the work to its own subsidiary, and Colasanti is equally miffed.

In this tough economy, the competition among Michigan concrete contractors for a big-ticket project like this can be intense, and those who don’t get the work are likely to be disgruntled. But in this case, Granger has every right to be howling with outrage.

The bid in question was for complex concrete work to be done on an aggressive timeline, so there might be only a handful of firms in Michigan capable of doing the job. In general, experts say that prequalification means that all the firms are judged capable of doing the work. At that point, the price becomes primary, and the normal expectation - particularly when public funds are involved - is to go with the low bidder. It is rare that the low bid is rejected, and when two lower bids are rejected and the concrete construction manager awards the work to its subsidiary, that is virtually unheard of.

Christman has described Granger as inexperienced and said Granger “did not display an understanding of the project’’ that allowed Christman to have confidence in Granger’s ability to deliver the work. Granger finds that preposterous. Granger is a well-established firm with a good reputation that has done major concrete projects for the University of Michigan, Michigan State University and other public entities across Michigan. It may not have put its best foot forward in the bidding process, but its reputation and experience make it exceptionally hard to justify it being ruled out for this job.

Harder to accept, though, is the DDA’s rationalization for allowing this outcome. Susan Pollay, DDA executive director, has said she has no concerns about Christman giving the contract to a subsidiary and that the process was in the public’s interest. We could not disagree more.

When the DDA chose Christman as the construction manager, it got a guaranteed maximum price of $44.38 million from the company, and in turn, agreed to let Christman chose its subcontractors regardless of price. If the result is that the company can potentially add an additional $500,000 in cost to the project by giving itself the work, that is a bad deal for taxpayers.

The DDA did insist that Christman expand the list of qualified bidders, and did ask that the bids be opened in public, which wouldn’t have occurred otherwise. Those actions aside, the whole arrangement was set up in a way that gave the construction manager too much latitude and the DDA too little stewardship over the public dollars being spent.

We have spoken to many experts who find it hard to believe that a public entity would allow such an outcome, but this now appears to be a done deal. Because of the DDA’s autonomy on this project, we are not aware of any other entity that has the ability to step in after the fact and give this questionable bid award the level of review or scrutiny that the DDA failed to provide.

The guaranteed price committed to by Christman is a maximum, not a minimum, and whatever the final cost of the project is, we now know that it could cost $500,000 more than it might have if the pre-qualified low bidder had been chosen. The public deserved better.

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