LAW: Inner workings

Aug. 2, 2010

I try to avoid writing on similar subjects during any one calendar year, but my fascination with the evolution of innovative contracting within our industry has gotten the best of me.

I try to avoid writing on similar subjects during any one calendar year, but my fascination with the evolution of innovative contracting within our industry has gotten the best of me.

As I have noted in previous articles, the public has a natural inclination toward being suspicious of any procurement that is not awarded to the low bidder. Skeptics and the media often focus on price when they report on local procurements, and no effort is made to explain the “best value” process. Unfortunately, even supporters from time to time will play the “price card” when a particular letting does not go their way.

One case in point occurred several years ago when local labor unions launched a media blitz aimed at inciting the public when the Delaware Department of Transportation awarded a design-build bridge project to a contractor whose price was slightly higher than the low bidder but whose technical scores offered the best value. Oh yes, and the unsuccessful bidder was union while the successful bidder was nonunion. No protest was ever filed by the disappointed proposer, but public sentiment won out and the project was re-let.

Just recently, I wrote about a design-build protest in Louisiana where the highest bidder also offered the best value. The bid protest filed by the two disappointed proposers raised a legitimate issue concerning whether the Louisiana Department of Transportation & Development had misled them into rehabilitating a bridge, while the successful proposer received higher scores for its plan to replace the bridge. Unfortunately, media coverage focused solely on price, and the controversy led to the resignation of the department head. Legislators have since gone on record questioning the design-build proc­ess.

Public sentiment took center stage again just recently in Ohio. In early February 2010, the Columbus Dispatch ran a story that criticized the Ohio Department of Transportation’s (ODOT) plan to award $1 million stipends to unsuccessful proposers on a project known as the I-90 Inner Belt Bridge project in Cleveland. A series of newspaper articles and television coverage that followed questioned whether the payment of stipends might constitute an unjustified expenditure of public funds. This led to a formal investigation by the Ohio Inspector General.

ODOT faced the difficult challenge of explaining the nature of a design-build procurement after the fact and when public opposition had already taken on a life of its own. The Inspector General’s report issued on April 16, 2010, concluded that the proposed stipends would indeed constitute a misuse of public funds unless ODOT (1) sought explicit statutory authority to do so or drafted criteria and procedures for determining when stipends should be paid; and (2) based such payments upon a proposer’s actual proposal preparation costs.

As a result of the report, ODOT issued an addendum to the three teams chosen to submit proposals. Under the revised arrangement, stipends will be paid to unsuccessful proposers in an amount equal to each proposer’s actual proposal preparation costs or $1 million, whichever is less.

It is important to note that ODOT did precisely what all departments do regarding the payment of stipends. It determined—albeit informally—that the state would benefit from increased competition if it paid stipends. It used FHWA guidance and evidence of what other states are paying to determine the stipend amount.

Highway officials across the country must study the events that occurred in Ohio and determine if their design-build legislation must be amended or their formal design-build procurement procedures should be revised to address some of the shortcomings identified in the Ohio Inspector General’s report. However, the industry must do a better job of educating the media, legislators and the public in general so that when issues arise, critics cannot effectively play the price card.

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