MSD Projects: Bidding in a Dysfunctional Game

By on February 13, 2017

ANALYSIS

by Tom Finan, Executive Director, Construction Forum STL

“Game theory” — a term fancied by mathematicians, economists and poker players — is defined as “the process of modeling the strategic interaction between two or more players in a situation containing set rules and outcomes”.

Take away the “set rules and outcomes” part of that definition and you wind up with a chaotic and dysfunctional game. That’s pretty well where things sit, in our estimation, with the bid process on the massive Metropolitan Sewer District Project Clear remediation construction program, which has about $3 billion in work still to bid.

The MSD trustees’ recent unwillingness or inability to rely on the recommendation of MSD staff related to contract awards and the trustees’ failure to be transparent about the reasons for not following those recommendations has created a situation in which general contractors — whether from this region or from outside the region — may come to distrust MSD’s bid process. If that happens, MSD’s cost of construction may escalate radically, and the region, the industry, and developing businesses that this program is supposed to help could suffer.

In Dec. 9, 2016 letter, Len Toenjes, AGC MO president, wrote: “If contractors cannot rely on MSD’s agreement to partner with MBE’s that are certified by approved certifying entities when they are bidding projects, contractors will forever have an arbitrary bidding process with MSD. This is an unthinkable, subjective, and unfair bidding practice precedent that is being set.”

We totally agree with Len’s assessment of the situation.

Solid Effort by MSD Staff

It is conjectured that the reasons for the trustees’ actions center around the W/MBE participation goals associated with the program. In reality there is no concrete evidence that the W/MBE participation has anything to do with the course that things have taken. That is because the trustees have elected to discuss the issues in closed session, vote in public session, and disclose nothing of the reasons for their votes.

There are, in fact, rules that are spelled out in the bidding process and in the recommendations of the disparity study that MSD commissioned to define the rules for W/MBE participation. MSD, going into the Project Clear program, appeared to have a really good handle on a process that would assure optimal W/MBE participation in fair and professional fashion. MSD’s staff has made significant effort to ensure the integrity of that process.

But anyone who has worked for any length of time on diversity and inclusion within the St. Louis construction industry knows the core issue: We can set contractor and workforce goals, but the capacity to completely fulfill those goals on all projects in our region currently does not exist. If anything, the situation is devolving as more projects with such requirements pile onto the region’s backlog.

Gaming the System

This situation in which rules exist but the ability to follow them does not invites a different sort of gaming to occur, one in which the rules are bent. That, to the extent that we can determine from the evidence that is visible, did not happen due to the actions of any of the general contractors on the
latest large MSD project — the $140 million Deer Creek Sanitary Tunnel project.

What did happen — because of actions of the MSD board of trustees — resulted in situation in which what the rules meant varied.

 Most of the facts on this project are fairly clear:

  • A joint venture of Michigan-based Jay Dee Contractors, Inc. and Indiana-based Frontier-Kemper had the lowest bid at $140 million to replace a tunnel between Clayton Road in Clayton to I-44 in Shrewsbury
  • The bid was $2.5 million under the bid by SAK Construction of O’Fallon, a contractor which has won significant MSD Work.
  • It was also under the MSD engineers’ estimate of $205.2 million.
  • SAK filed a total of four protests related to the minority participation aspects of JD/FK’s bid. All four protests were rejected.
  • After a closed-door session of the MSD board of trustees, a 5-1 vote was taken in the trustees’ public meeting not to introduce the JD/FK contract for approval. No specific reason was given for the trustees’ decision to reject their staff’s recommendation.
  • JD/FK was directed by MSD staff in a letter to submit a substitution for A.L.L.. JDFK’s substitution, which followed MSD staff’s guidelines. consisted of self-performing the work originally submitted for A.L.L. and increasing W/MBE participation in other areas.
  • After again meeting in closed-door session, the trustees agreed in their public meeting last week to approve the JD/FK submittal and move it along to the next step.

We were not in the room for the Feb. 9 public portion of the trustees’ meeting, but we’re told by multiple sources that,  with a packed room of about 75 people,  the rhetoric flowed freely. The SITE Improvement Association weighed in favor of local contractors SAK and Goodwin brothers. MOKAN and NAACP allowed that minority contractors, in their estimation, get a fairer shake from out-of-town contractors. That’s interesting conversation, but it has nothing to do with the issue at hand.  Jay Dee’s Vice President John T. DiPonio points out that SAK bids work in Jay Dee’s  hometown of Detroit. Tunneling is highly specialized work, he said, noting that nine of 11 bidders on Deer Creek were not from St. Louis. “You go where the work is.”

We spoke with JD/FK’s DiPonio, and Tom Kalishman, chairman and CEO of SAK. While there isn’t much of anything that the two agree on regarding this project, there is one point of shared interest. MSD (and by inference its trustees, since that is where the buck stops) has not been proactive through this whole debacle in insisting upon transparency of the process, specifically regarding the reasons for the trustees’ votes: one rescinding JD/FK’s award and one approving the revised contract.

After reading piles of documents and talking at length to parties both directly and indirectly involved in the Deer Creek Tunnel bid process, it is clear that MSD staff did its level best to assure the integrity of the process. SAK believes in the validity of its protests and deserves to hear whether the issues related to those protests, which were rejected, by MSD staff, had anything to do with the trustees’ votes, and why. JD/FK followed all the rules in good faith and submitted what it believed to be a bid based on those rules. It deserves to learn what the issues were that caused the trustees’ initial vote, resulting in their staffs’ rescinding the contract, and why the trustees voted to reinstate the award.

If MSD trustees had reason to doubt the recommendations of their own staff, then the reasons why should be stated publicly. If there were other reasons for the trustees’ decisions, those should be made public. If the reasons for concern were compelling enough the trustees should have required the project be rebid, stating the reasons why.

As dealers in this high-stakes game, the MSD Trustees need to show their cards at all times. Anything less will cause bidders to walk away from the table. If that happens, majority GCs, W/MBE contractors, and the people of the St. Louis region will all lose.

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