Concrete deal for DDA underground parking structure a bad deal for taxpayers
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.
A passerby peers through a viewing hole overlooking the underground parking deck being built on South Fifth Avenue in downtown Ann Arbor.
Steve Pepple | AnnArbor.com
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 a $22 million contract for concrete work 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 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 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.
(This editorial was published in today's newspaper and reflects the opinion of the Editorial Board of AnnArbor.com)
Comments
Radar
Sat, May 1, 2010 : 8:23 p.m.
Hey dbob, get your facts straight. Granger has never done an underground deck. Christman Constructors has done three in the last five years. Christman took on an extremely difficult project and gave the DDA an early GMP. The engineer, architect and owners rep said they supported passing over Granger who did not offer any project understanding or work plan (ie inexperience). Granger is a good company and Christman has said so. You can't blame Christman for not wanting to take the risk on employing a subcontractor on such a difficult and important project that didn't know how they were going to perform work. That wouldn't be good for the DDA or the City. No intelligent Construction Manager would hire a subcontractor that doesn't demonstrate knowledge of the work to be performed. Christman has a great relationship with local subcontractors and the building trade unions. Get real. It was Granger's job to lose and they did. Don't blame Christman for Granger's inadequate job understanding.
dbob
Wed, Apr 28, 2010 : 1:59 p.m.
The taxpayers should not be hurt in this case, if the DDA does their job. The big problem is in the ethics, honesty and integrity of Christman and the DDA. For Christman to describe Granger as inexperienced is slanderous. Both Granger and Colasanti have as much, if not more, experience than Christman in constructing documented successful parking decks in Michigan. Most of Christman's successes on parking decks has been when they joint ventured with an outstanding concrete contractor, Grand River Construction
heresmine
Sun, Apr 25, 2010 : 7:47 p.m.
Forget the price and the almost sneaky way this was handled. What about some guarantee that this structure will stand for more than a few decades? What about a guarantee that Christman will stand behind its work for some period of time? What happens if large chunchs start falling down in five years? How about flooding in the lower levels? Is the engineer who designed this going to be held accountable?
hacksaw
Sun, Apr 25, 2010 : 6:55 p.m.
a bad deal for taxpayers? thanks for the sensationalized headline aa.com. the project is a guaranteed maximum price. so the taxpayers pay the same price no matter what the bids come in at. Granger may what to whine about it, but the reality is that Christman is eating the $500k difference out of their bottom line for the whole project, it's a net zero for the taxpayers of AA.
Mike D.
Sun, Apr 25, 2010 : 5:45 p.m.
Anyone who would say that "It is rare that the low bid is rejected...." has never run a successful business. In fact, it makes me sad to hear you say that, because if you're that clueless about running a business, AnnArbor.com has even less of a chance of success than I had previously thought. Do you even know how your business is run? Aren't you one of the people in charge if its budget? Could you sit there with a straight face and tell me AnnArbor.com uses generic coarse toilet paper? Did you lease the cheapest space you could? Nobody there uses Macs, because Dells with the same specs are cheaper, right? Yeah, that's what I thought. But it doesn't even matter. Christman agreed to a fixed price contract, and in doing so, it won the right to choose vendors (including itself) and the responsibility to get the project done within the budget. This is not a complicated concept, and Christman has done nothing wrong. In Christman's shoes, I would have done exactly the same thing, given that dealing with a subsidiary means there's a lot less risk of contract disputes and misunderstandings, and that the cost difference is negligible anyhow. Furthermore, Christman is a company that's in business to turn a profit. If it can eke out a profit on the concrete, there's less pressure to cut costs on the rest of the project. If a company is building something for you at a fixed price, you want it to have as much leeway to do a good job as possible.
logo
Sun, Apr 25, 2010 : 3:53 p.m.
By the logic exhibited here Christman would be hurting themselves by not taking the lowest bid if they ended up going over the guaranteed price. They would have to eat the difference but instead they are giving a cool $million back to the DDA. Taking the low bid sounds like a smart thing to do but not always, taking the best bid is smarter.
Basic Bob
Sun, Apr 25, 2010 : 3:21 p.m.
@Gloriagirl, your suggestion only ensures a transfer of wealth from the tax-supported DDA to the lawyers. I don't share your convictions.
bigbluebus
Sun, Apr 25, 2010 : 12:12 p.m.
Way too much attention on this. The $500m difference in the lower bid is a mere 2% lower, and represents only 1% of the total project cost. Like SMOKEYBOB says, the risk of running over the guaranteed max is much greater. Unless the general's contract specified something about spreading the work around, let it go. But as far as I know this is not a stumulus project.
Gloriagirl
Sun, Apr 25, 2010 : 11:53 a.m.
Its time a taxpayer group sue the DDA and Christman for nonfeasance of duty.
Grumpy
Sun, Apr 25, 2010 : 11:32 a.m.
If the other bidders "sucked it up and moved on" and "left it alone," the "under the table dealings" if there were any would probably NEVER come out and these articles on the subject would NEVER be written.
scooter dog
Sun, Apr 25, 2010 : 9:14 a.m.
Hey,you lost the bid,the low bid does not always get the job,I own a small business,I see it happening every day. So suck it up and move on,probably the best move you ever made.If it smells,leave it alone. The under the table dealings will come out,why would you want to be apart of it.
SMOKEYBOB
Sun, Apr 25, 2010 : 8:12 a.m.
Sounds to me like the contractor could possibly be cutting into his own profits with a garranteed maximum bid even if the sub-contractor is a company owned subs.