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Contractors challenging no-bid deals: four firms get most state jobs since change.

SOMETIME IN 2005 DAVID Gatzke started noticing the bid market for construction projects drying up.

Gatzke, the co-owner of Wilkins Construction Inc. of Little Rock, said other contractors also started seeing jobs disappear.

"We got to noticing that everybody's hunting for work," Gatzke said. "Then we get to digging and finding all the things that have been passed that allowed the state and Higher Ed to give construction projects away without competitive bidding them."

The 47-year-old points to legislation passed by the Arkansas General Assembly in 2001 that allows any state agency, including the Arkansas Department of Higher Education, to pick the contractor it wants for any construction project that exceeds $5 million. Legislators also passed legislation in 2005 that exempts any municipal construction project over $2 million from the competitive bid process.

Gatzke, president of a group of about 50 contractors called the Contractors for Public Protection Association, lobbied for legislation in the recent General Assembly to require competitive bidding for all projects. But that piece of legislation--sponsored by Rep. David Dunn-D, Forrest City--failed to get out of the House Insurance & Commerce Committee.

No Bid On March 23, shortly after the legislation failed, Gatzke and other contractors filed a lawsuit in Pulaski County Circuit Court seeking to prevent the three main university presidents, the director of the Arkansas Department of Finance & Administration and the Arkansas Building Authority from awarding any more no-bid contracts. The contractors also want a judge to rule that no-bid contracts are unconstitutional.

The state of Arkansas and the universities have asked that the lawsuit be dismissed.

"Our position in a nutshell was that that constitutional provision [which forces government agencies to take the lowest bid] applied only to counties, not to state agencies or to public institutions of higher education," said Fred Harrison, an attorney for the University of Arkansas System.

The case is pending.

$784 Million at Stake

Gatzke said the no-bid projects raise questions about where the money is going and for what purpose. Of $784.1 million worth of no-bid construction contracts entered into by the state since 2001, $730.4 million has gone to four companies: Baldwin & Shell Construction Co., Kinco Constructors LLC, CDI Contractors LLC, all of Little Rock, and Nabholz Construction Corp. of Conway.

Gatzke's group, the CFPPA, sued Nabholz in Pulaski County Circuit Court in an attempt to get documents related to a $35 million dormitory construction project at the University of Arkansas. Pulaski County Circuit Judge Marion Humphrey ruled from the bench in March that Nabholz had to turn over some of the documents, but the order hadn't been entered into the record as of last Wednesday.

Also as of last week, Nabholz hadn't turned over the documents and it's unclear whether it will appeal the ruling.

Nabholz CEO Bill Hannah declined to comment.

The university systems, though, have applauded the no-bid system and want to keep it in place.

"We believe it speeds up the actual construction of the building," said Tom Courtway, an attorney for the University of Central Arkansas at Conway.

Bringing the contractor in on the beginning of a project means that he or she can help the architect design the building, which saves money, Courtway said.

"By having all the people at the table during the design phase, you are able to identify cost savings and make those savings prior to actually going out for bid," he said.

Courtway, though, said it was hard to quantify exactly how much time is saved.

Doug Wasson, the president of the Arkansas chapter of the Associated General Contractors of America and president and CEO of Kinco, said that skipping the bidding procedure saves time and money. The savings would depend on the specifics of the project, he said.

Even Dunn agreed that a no-bid process is easier and creates less red tape for the universities. But bids need to be requested.

"The public process is cumbersome [from] the ... legislative process all the way down to city councils [and] quorum courts," Dunn said. "That's just the way it has to be for ... public protection.

"I think when you are not subject to an audit, with public funds, that just opens up a question in my mind of what's going on here and are we spending our money wisely?" he said

Harrison, the attorney for the UA System, said the process of selecting a contractor is open, even without bids. All of the University of Arkansas' projects are decided in public meetings and all the records are public, he said.

Harrison also said he doesn't see a risk for abuse of the no-bid process.

Law Changes

Up until 1997, all contractors had to bid for projects if they wanted state construction jobs. The lowest responsible bidder won the contract.

But that started to change in 1997 when the state Legislature passed a bill, sponsored by Rep. Bob Johnson, D-Morrilton, that allowed higher education officials to choose which contractor they want as long as the construction project was more than $5 million and at least 80 percent of the price came from private funds.

Four years later, in the 2001 session, the General Assembly passed another piece of legislation that widely expanded the provisions to now allow all state agencies--not just higher education--to choose which contractor they wanted as long as the project was more than $5 million, deleting the 80 percent private-funding provision. That piece of legislation was sponsored by Sen. Jim Hill, D-Nashville, and Rep. Larry Teague, D-Nashville.

The 2001 legislation allowed state agencies to select general contractors based on their qualifications and not just the lowest competitive bid, Harrison said. The contractor's qualification for building projects as well as its record for bringing a project in on budget and on time could be taken into consideration, not just the bottom-line price.

After the 2001 bill passed, Gatzke, the co-owner of Wilkins Construction, said he watched his revenue fall. At one time his company had more than $25 million worth of projects annually, and that total included jobs at schools and universities. Now the company has only about $6 million worth of projects a year.

The attorney representing Gatzke and the contractors, Ronald Hope of Little Rock, said Section 16 of Article 19 of the Arkansas Constitution is clear on awarding construction contracts:

"All contracts for erecting or repairing public buildings or bridges in any county, or for materials therefor; or for providing for the care and keeping of paupers, where there are no almshouses, shall be given to the lowest responsible bidder, under such regulations as may be provided by law."

But the Attorney General's Office pointed to the same section in the Constitution as a reason to dismiss the contractors' lawsuit challenging the constitutionality of the no-bid projects.

"By its plain language, Article 19, Section 16 applies only to county construction projects," the motion filed by the AG's Office said. "Likewise, the consistent interpretation of that Section by the Arkansas Supreme Court, since the Constitution was adopted in 1874, makes clear that Article 19, Section 16's limitation on counties has no application to construction projects undertaken by the State or State entities."

Checks and Balances

Gatzke said that when he and other contractors tried to figure out what was going on, they couldn't get a clear picture as to where the public money was going.

After asking for documents from all of the contractors, the group zeroed in on trying to obtain more documents from Nabholz on the $35 million dorm project. The group had received a stack of documents from the UA System, but it wasn't clear what Nabholz did with some of the money.

Hope, Gatzke's attorney, said the UA documents show that Nabholz received a $1.36 million fee and then $340,000 for "beginning premium time to make completion allowan(ce)."

"What's that for?" Hope asked. Hope also said Nabholz was paid $2.5 million for reimbursable expenses "without submitting a single receipt."

Nabholz said in its court documents that it didn't have to release the documents because it didn't have administrative control of the records and is a private company. Nabholz also argued that releasing the documents would give its competitors an advantage.

Wasson, the president of AGC, said the no-bid systems has checks and balances.

"There's checks and balances by the university. There's checks and balances by the design team, and then there's checks and balances by the contractor, too," Wasson said. "It's all an open book. There's nothing hidden."

The university that hires the contractor could take competitive bids if it wanted to. And some schools do, Wasson said.

Wasson also points out that the private sector operates without competitive bids.

The private sector must "meet a bottom line even more stringent than any public entity," he said.

Arkansas is one of 40 states that has some sort of no-bid contracting in place, Wasson said.

Another benefit of having a no-bid contract is the university gets a quality product, he said.

"It is not the obligation of government to 'auction off' its acquisitions to the lowest bidder," the AGC said in a January report on alternative methods to project delivery. "It is the obligation of the government to achieve the 'best value' and the 'best cost' for the public dollars invested in the name of the public interest."

By Mark Friedman
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Title Annotation:CONSTRUCTION
Comment:Contractors challenging no-bid deals: four firms get most state jobs since change.(CONSTRUCTION)
Author:Friedman, Mark
Publication:Arkansas Business
Geographic Code:1U7AR
Date:Apr 23, 2007
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