Light at End of MSD’s Deer Creek Tunnel, or a Train?

By on April 21, 2017

by Tom Finan, Executive Director, Construction Forum STL

With an announcement on Wednesday, the bidding process for the MSD Deer Creek Tunnel project may be seeing light at the end of the tunnel. But with questions raised about the utility’s bidding procedures, it remains to be seen if that light is an oncoming train.

Two days after pointed questions were asked during a contractor meeting about the ongoing controversy over the award of the project, the utility announced that its staff was recommending that the bid be awarded to the second lowest bidder.

In an email to ConstructforSTL.org Wednesday, Lance LeComb, manager of of public information and spokesperson for MSD wrote:

“After evaluating available options – and in accordance with MSD’s selection process – MSD staff will recommend to our Board of Trustees a contract with SAK Construction for the Deer Creek Sanitary Tunnel Project.  SAK is the second lowest responsible bidder on this project, after Jay Dee/Frontier Kemper Joint Venture.  (Attached is the bid summary, so that you may see the difference in these two bids, the other bids, and the estimated cost of the project.  I have also attached the notice of award to SAK.)

“Staff’s intent is to bring this recommendation forward for discussion at the next MSD Board of Trustees Program Management Committee Meeting.  This meeting is tentatively set for the morning of Tuesday, May 2, 2017.

“The earliest that this recommendation could be voted on is at the next Board Meeting, tentatively scheduled for Thursday, May 11, 2017.

“As this is part of an open and ongoing procurement process, any further comments or discussion by MSD about this recommendation will be reserved for the May 2nd Program Management Committee Meeting, which is, of course, a public meeting.”

Click here to view MSD’s letter to SAK, announcing the bid award.

Click here to view the complete list of bids submitted on the Deer Creek project.

The MSD  meeting Monday at the Moolah Ballroom in Maryland Heights was held to review MSD’s capital program for the coming year.  At the end of the presentation Abdul-Ghani Mekkauoui, a project manager for Jay Dee Contractors, Inc. of Livonia, MI asked MSD Executive Director Brian Hoelscher questions about the Deer Creek tunnel project. Last week the MSD board in a tie vote opted not to to award the project to the low bidder, a joint venture between Jay Dee Contractors and Frontier-Kemper Constructors of California (known as JD/FK).

Trustee Michael Yates, who had voted to introduce the contract ordinance in February, changed his vote to a no, providing the swing that killed the contract. Yates, a business representative with Operating Engineers Local 148 (the local related to power plants and other stationary work) was quoted in the St. Louis Post-Dispatch as saying: “I have my reasons, and that’s all I’m saying.”

Monday Mekkauoui asked MSD Executive Director Brian Hoelscher several questions, including how the board could act against staff recommendations, whether MSD had a bias favoring local contractors, and how contractors could expect to have any confidence in MSD’s bid process. Hoelscher said Monday that the trustees were not bound by staff recommendations, that there was no bias in favor of local contractors, and that contractors’ perceptions were essentially their own business.

Bid Process Transparency Questioned

Thursday the common thread from ConstructForSTL’s  conversations with labor and contractor leaders seemed to be that while MSD may have operated within the bounds of its rules, the translucency – or even opacity — of this project’s bid history has almost certainly dealt a blow to contractor confidence in MSD’s process, which may impact future bidding.

Conjecture was offered Thursday by some sources that jurisdictional disagreements between the operating engineers and laborers may have factored in some behind-the-scenes elbowing. The AFL-CIO has awarded tunnel equipment work to laborers, a position with which the operating engineers do not agree. The sources agreed that it would be difficult if not impossible to determine with certainty whether labor issues played a factor in the staff’s decision.

What is known is that MSD staff told JD/FK to remove ALL Contracting from its bid.  JD/FK reworked its numbers to reallocate the work among the remaining W/MBE contractors and to self-perform some of the work.  MSD staff never explained to JD/FK, SAK, or any of the other parties the reason for the change.

“Should Have Rebid the Project”

Terry Briggs, executive director of the SITE Improvement Association, which serves sewer, paving, and earth moving contractors said that MSD would have been better served by rebidding the project and preserving the integrity of its process with contractors. “When there were questions, they should have rebid the project completely,” Briggs stated. He noted that MSD has had months to rectify the situation.

Briggs said that MSD’s inclusion requirements under the recommendations of its disparity study place contractors under the gun to find bidders, sometimes creating situations in which M/WBE contractors are placed in slots that they have not previously performed. This is particularly problematic in tunneling work, with its exacting safety concerns, Briggs said.

Briggs affirmed that MSD is within its rights under its bidding rules to award the contract to SAK, since that contractor’s bid was within the allowable price range and was compliant with the utility’s requirements. He questioned, however, the utility’s practice of leaving it to  prime contractors to verify the qualifications of the W/MBE contractors on their bid submission.

The issue of W/MBE contractors being misclassified  is a longstanding concern when it comes to inclusion.  In a 2008 U.S. Court of Appeals, Federal Circuit decision,  Roth Development Corporation  v.  Department of  Defense, the appellate court cites six disparity studies and questions the efficacy of the standard applied to inclusion:

“We are even more troubled, however, by the failure of five of the studies to account sufficiently for potential differences in size, or relative capacity, of the businesses included in those studies. As Professor Ayres explained to the USCCR, “ ‘qualified’ firms may have substantially different capacities,” and thus might be expected to bring in substantially different amounts of business even in the absence of discrimination: Firms A and B may both be qualified to do some business with the government, but one firm may be a multinational with many plants, while the other firm may be a sole proprietorship with only a single plant. The ‘qualified-firm counting’ approach ignores differences in capacity and deems the single-plant firm to be equally ‘available’ to serve the government as the multiplant firm. It might assume, for example, that the manufacturers of a small micro-brewery brand and Budweiser are equally available to sell beer.”

More to Come?

Predictably, JD/FK and SAK had very different reactions to Wednesday’s news.

In an interview with ConstructForSTL.org, John DiPonio, vice president at Jay Dee, said,  “We maintain the same position that we’ve had from day one. Inexplicably the (MSD) board decided to voted this down. We have still to be given a reason from the board or staff for the reason for rejection for our bid.

“What is wrong with the bid? Why is the board refusing to accept this contract? We are the lowest responsible bidder.”

DiPonio said he could not say whether JD/FK will bid other packages or what actions they will take on Deer Creek. “We’re still evaluating our options.  It’s very confounding. We’re as confused as everybody else.

I don’t know how anybody can bid an MSD project going forward not knowing that the fair and transparent bidding processes are going to be upheld. I can’t believe that this won’t have ramifications for MSD’s future work.”

In a statement supplied by a spokesman, SAK Chairman and CEO Tom Kalishman said, “From the beginning, SAK has sought a fair bidding process in which all participants are required to follow the same rules. The MSD’s bidding rules are quite clear, and SAK has followed them. We are pleased that the MSD is continuing to require all bidders to meet the important qualifications that ensure quality, safety and diversity on every project.”

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