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Home / Articles / News / Local News /  Taking Care of Bidness
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Taking Care of Bidness

Does the city's construction process need an overhaul?

September 3, 2008, 12:00 am

These are the final days for smelling diesel fumes on Marcy Street. The heavy equipment work at the Santa Fe Community Convention Center is nearly done and, soon, the portable toilets and hard-hatted workers will be gone.

What downtown Santa Fe will be left with is a study in voluminosity: a 9,800 square-foot lobby, a kitchen that spreads out over 4,000 square feet and 72,000 total square feet of convention space. In a city with approximately 75,000 residents, that's almost one square foot per Santa Fean.



The convention center was built by Cameron-Swinerton LLC, which submitted a bid of just under $50 million for the project in October of 2006. Six days later, the bid won unanimous approval; groundbreaking was in November.

The project has had its bumps. Archaeologists discovered Native American ruins during the project's early stages. In May 2007, a truck carrying 200 tons of concrete rolled on its side. Salazar Trucking ended up suing Cameron-Swinerton for negligence, and a trial is scheduled for next January.

Many city officials praise the company for its work on the center-expected to officially open on Sept. 25. But the convention center also is a very expensive example of what some say are problems with the city's process for securing construction contracts.

Cameron-Swinerton was the only company that bid on the convention center's construction. When SFR took a look at some 25 other contracts from the last two years, many of them also had few, if any, competing bids.

"Often I've found that, on really big things-and this is disappointing-the city only gets one bid on a project," Santa Fe City Councilor Patti Bushee says.

And, Councilor Miguel Chavez adds, "If you have a limited pool of people [bidding on contracts] you're limiting yourself."

This lack of competition gives the city few options when it comes to its projects-and can leave it vulnerable down the road. Change orders-unforeseen amendments to partially completed construction projects-abound for city projects.

Some worry the city's emphasis on low bids-versus using a wide range of criteria to award contracts-limits participation and ends up costing the city later with these change orders.

City Councilor Carmichael Dominguez says extremely low bids prompt the question: "Did they low-bid it and want to get change orders...later on? Those kinds of questions come up many different times in many different venues."

And while some contractors say such a practice would be unprofessional, others believe the regulation and licensure of the construction industry isn't robust enough to prevent it.



Finally, City of Santa Fe officials worry about their lack of oversight for the gross receipts tax dollars the city uses to pay contractors. That money is passed along to the state and eventually ends up back at the city. At least in theory. But because the city can't, under state law, audit its gross receipts, the possibility of under or over-payment is there. Mayor David Coss says he is particularly concerned because numerous Santa Fe contracts are executed by Albuquerque companies.

"We have a concern of leakage," Coss says. "If it's an Albuquerque contractor and they're paying their GRT, are they paying it to Santa Fe or Albuquerque?"

These issues add up to a contracting system some in the city believe is significantly flawed.

The number of bidders for a $557,685 reconstruction project for a bridge on Sandoval Street: 1.

A $3.4 million construction project for a fire station on Cerrillos Road, number of bidders: 1.

A $177,000 improvement project on El Rio Road Trail, number of bidders: 1.


These are just a few examples of bids over the last two years in which, despite the chunk of change it was ready to spend, the city had little to choose from when it came time to award the contract.

Requests for bids are publicly advertised for at least 10 days in the Santa Fe New Mexican and the Albuquerque Journal, and sometimes in contractors' publications. The city also sends out bid packets to contractors it knows will be interested in particular projects.

The day a bid closes, City Purchasing Director Robert Rodarte reads the submissions publicly in his office and then makes sure bidding contractors have the correct licenses to do the job.

He then takes the lowest bid to city councilors. The city's Public Works Committee reviews contracts next, before the Finance Committee and, finally, the City Council signs off on them.

The lack of bids is regrettable, but it's the system, Rodarte says. City engineers assess the cost of a construction project. If a contractor's bid falls within the price range the city is willing to pay, the company gets the job-regardless of how many or few competitors there are.

However, it's the city's emphasis on cost that some contractors say keeps more companies from entering the process. Sarcon Construction President Peter Brill says the cheapest-is-best system of procurement is discouraging, especially when his company is outbid by contractors who work for less but do lower-quality work.

"You hate to spend three or four weeks working on a bid and then lose the project by five bucks," Brill tells SFR, "and you feel like you're qualitatively not even in comparison with the lowest bidder."

Dan Clavio of Santa Fe-based Architects, Designers and Contractors Referral Service agrees. "It takes hours and hours to do a bid or a quote on a job, and it's a huge investment of time and money...The city and school and state have to take the lowest bidder, and that's not necessarily a good thing. Sometimes you get what you pay for."

But Coss believes it's not the city's emphasis on cost that is leading to a lack of bids. Rather, he thinks it's due to the plethora of construction work going on throughout the state; contractors are simply stretched thin.

"There's the Rail Runner, Gov. [Bill] Richardson's GRIP [Governor Richardson's Investment Partnership] projects, Mesa Del Sol in Albuquerque... we've been in kind of a construction boom," he says.

But while Coss believes the lack of competition is understandable, he says he was frustrated by the lack of bidders on the new convention center.

That project went through two bidding cycles. Only one contractor, Hensel Phelps Construction, bid on the convention center when it was announced in 2006. The company estimated construction costs at $55.9 million, according to Rodarte.

Coss and councilors believed the bid was too high. However, seeing that the price of steel was jumping to record highs, Coss says he considered just going with it, "tightening our belts and getting it done."

The city decided to rebid but, even then, Cameron-Swinerton was the only company to step up.

"Fortunately, that bid was under budget," Coss says.

Purchasing Director Rodarte, like Coss, laments the lack of participation by contractors. But he anticipates a change.

"We're starting to see more because the economy is slowing down," Rodarte tells SFR. "We're starting to see vendors we've never ever seen before."

Of the few vendors who bid on city contracts, many of them are Albuquerque firms. The convention center was hailed as a job given to a local firm (which would, presumably, keep many of Cameron-Swinerton's employees' paychecks in Santa Fe), but undoubtedly much of Santa Fe's tax dollars spent on local projects wind up going south.

For example, Albuquerque-based contractor AS Horner has won six contracts over the past two years, totaling $14.4 million. Another Duke City Firm, RMCI, has won three contracts totaling $22,761,064.

And even though RMCI is based in Albuquerque, it reaps the benefits of the biggest incentive for local contractors to compete: the local preference rule.

Under that rule, the city will award a Santa Fe County-based contractor a job if that company's bid is within 8 percent of the non-local's bid. It was designed to give Santa Fe businesses an advantage over the out-of-towners. In the case of RMCI, the 8 percent rule applies because the company has five or more employees who live in Santa Fe.

Councilor Chavez, who has himself won city contracts for woodwork in the old, now-demolished Sweeney Center, says the percentage for local preference should increase. "If we looked at local preference to see about changing those numbers, maybe we could get more businesses to bid."

While the city emphasizes cost in its bidding process, there are few mechanisms to keep costs down once contractors have secured a project.

Take the landscaping contract for Fort Marcy Magers Field Park, just north of downtown on Washington Avenue.

Two contractors came forward-Accent Landscape Contractors and Sequoia Landscaping, both Albuquerque firms. Accent won the job, but subsequently requested three change orders that amounted to an 82 percent increase from the initial bid of $377,719.

This is exactly the kind of request for public money Bushee has a problem with.

"What I don't like to see is large change orders... I don't want it to be a way of getting around the bidding process," she says.

As chairwoman of the city's Public Works committee, Bushee says she has been taking change orders like these off her consent calendar (where they get a public hearing). She's been doing this, she says, because she believes some of these change orders should be rebid, giving other companies a chance to work on what are sometimes lucrative amendments to the original contract.

"I am very concerned about the process," Bushee says. "If it's a large chunk of change and it wasn't built-in in the first place, I don't consider that a change order."

Chavez, who also sits on the Public Works Committee, echoes Bushee's sentiments. "We have three or four or five change orders...and it ends up costing for the low bidder as much as it would if we gave the project to the middle or highest bidder."

That is certainly the case with Ft. Marcy Magers Field Park, in which Accent bid less than its next-cheapest competitor, Sequoia, by $66,820. The $311,000 worth of change orders made the project far more lucrative for Accent.



Numerous other examples abound: At an Aug. 25 Public Works Committee meeting, councilors approved a $117,097 change order for improvements to La Farge Library, a project the city originally consented to spend $171,200 on-a 68 percent jump. At the same meeting, councilors approved change order number 16 ($204,935) for the convention center.

The change orders for the convention center, Rodarte says, were nothing out of the ordinary, even though the total cost was more than $1 million. Those change orders included $6,189 to remove 17 trees, $21,119 to modify handrails and other smaller architectural details. Another $29,135 was used to change a concession stand into a box office.

Although she's concerned about change orders in general, Bushee says the massive complexities of the convention center project more than justified the request. "For a project of that size," she says, "that's not extraordinary."

But some contractors say the concerns about change orders are misplaced.

Change orders, Clavio says, are "standard in building. To anybody who's ever built, that's not alarming." He says it is often a matter of a client-in this case, the City of Santa Fe-doing its homework beforehand to make sure there will be few variations down the road.

But Clavio says he has seen contractors bid at surprisingly low prices and believes they do so in anticipation of adding onto the project's cost later with change orders.

"It's a strategy used often by builders," he says, "where [the city] thinks, ‘Oh goody, I'm getting this lowball price.' And when they allow that to happen, they pay for it."

Chrys Jaschke, president of Cameron-Swinerton Construction, strongly disagrees with Clavio's assessment that contractors intentionally underbid the competition in order to get the job and then request lucrative change orders.

"That's just not true," Jaschke says. "It's not a prudent business practice. It's not a safe business practice. It's not professional."



Yet many believe the system governing contractors in general needs to be stricter to enhance the professionalism of the industry.

"To get licensed, all you have to do is take a test and prove a certain amount of financial sufficiency and away you go," Jaschke says.

The state Construction Industries Division requires four steps from aspiring contractors: a copy of licensing exam scores, a signed Authorized Notice (a document that details where contractors want their official mail sent), proof of financial responsibility and proof the business has applied for a New Mexico tax ID number.

But there are government entities asking more from contractors during the bidding process than proof of licensure and a bottom line figure.

"What we see more and more, like at Bernalillo Public Schools and University of New Mexico, are qualification-based proposals where you submit a very rigorous and detailed qualification package," Jaschke says. "The qualification package includes company details that help clients decide whether a contractor is right for the job."

When a contractor turns out to not have been right for the job, it can turn into a long, expensive battle.

For example, the city is currently suing Bosque Farms-based Lone Mountain Contracting for, the city alleges, installing a faulty liner in a 4 million gallon water tank near CHRISTUS St. Vincent Regional Medical Center. According to the complaint, the city contracted with Lone Mountain in 2003 to fix leaks in the tank, but after the company installed the liner, the tank leaked more than it did before the job started. City Water Division employees ended up draining the tank, and now the city is trying to collect Lone Mountain's $640,203 performance bond.

Yet if Lone Mountain wanted to bid on another contract, it is still eligible.

"They screwed up royally," former City Councilor Karen Heldmeyer says. "Yet there has been no effort to debar them."

Debarring a contractor-locking them out of the bidding process-is left up to the city's purchasing officer. In Santa Fe, debarment can be for a period of up to three years, during which time that company will not be considered for any contracts.

A few things can get a company debarred. If a contractor is convicted of a criminal offense for trying to illegally secure a contract, the contractor can be debarred. If the company is debarred by another government entity, the city can do the same. If the company simply does bad work, the city can also debar it.

"I haven't had to debar anyone yet," Rodarte says. That includes Lone Mountain because the lawsuit with the city is still pending.

Rodarte points to another example of a troubled company that currently has a number of city contracts: AS Horner. According to court records, in 1996, road crews working on a bridge in Pojoaque allegedly dropped an I-beam on a passing car, paralyzing 29-year-old Pamela Sena. The resulting lawsuit was settled out of court.

Four years later, on the same project, AS Horner crews accidentally razed a Spanish colonial archaeological site on Pojoaque Pueblo.

In April, AS Horner made the news again when one of its crew members fell off a bridge in Gallup while drunk on the job. Five other workers had also been drinking. Gov. Richardson requested an investigation, saying in a news release, "I want to be sure the contractor is held accountable."

Nonetheless, in the last two years, AS Horner has won several big local contracts, including a $1.6 million Railyard project and a $6.4 million Cerrillos Road reconstruction job.

Coss says he has not heard of any complaints about AS Horner's local contract jobs. He is, however, concerned that there is no convenient way for the city to screen out underperforming contractors.

The University of New Mexico, by contrast, has a rigorous process for vetting its contractors that takes a variety of criteria-not just the bid itself-into account. It's a system born from experience, according to UNM Senior Contract Specialist Ron Mattingly.

Five years ago, UNM fired Silver Construction after the company missed multiple deadlines and purportedly failed to hire competent workers for the school's $25 million Student Union Building remodeling project.

"There's a lot of small contractors who are good but aren't equipped to handle something like this," Mattingly says.

"Contractors seem to like this [qualification process] pretty well," Mattingly continues.

Sarcon Construction President Brill is reaping the benefits of UNM's revamped qualification system.

"Sixty percent of the points were qualification-based and 40 percent was pure price," Brill says. He says Sarcon just finished a project at UNM's Taos campus that he won-not because Brill's bid was the cheapest-but because the university deemed his company the best value for the money.

UNM is not the only entity that is changing its approach to a "best values" system. Los Alamos National Laboratory changed its process several years ago as well and now judges contractors on such criteria as their quality of personnel, safety records, experiences and references. Contractors-even bad ones-can fill out paperwork to pass muster with the state. But the company's track record, Brill says, should count for much more.

The cheapest-is-best approach is discouraging to Brill, and he suspects that a bottom-line method of rating contractors affects their willingness to bid. "If [the city's procurement system] was better balanced, and...used a quality-based selection process, they could attract better bidders," he says.

Regardless of whether Santa Fe gets better bidders or more bidders, it still will grapple with how to ensure its gross receipts tax dollars end up here.

Contracts generate a lot of tax revenue. The city counts on those funds, but it can't really bank on them because it can never be sure they're accounted for.

The City of Santa Fe pays contractors 7.9375 percent of a project's total cost in gross receipts taxes. Those contractors then pay taxes to the state. The state Taxation & Revenue Department is then supposed to send a portion of those tax dollars back to Santa Fe.

This is the case in all New Mexico counties and cities.

The Rail Runner is perhaps an extreme example: Taxes on the $450 million project have to go to whatever municipality or county the contractors are working in. When tracks are laid in Bernalillo County, GRT is paid there. Once crews cross into Sandoval, taxes are paid there and so on.

In Santa Fe, many of the companies working on contracts are based in Albuquerque. And although taxes are assessed by where a company is working, not where it is based, Coss worries the money Santa Fe gives to Albuquerque companies may wind up unintentionally going to the Duke City.

June figures from the state Taxation & Revenue department state that $3.1 million was paid to the state by construction contractors working in Santa Fe that month. According to the department's economist, Clinton Turner, revenues have been growing over the past few years, even though the nationwide economic downturn has slowed growth.

But of that $3.1 million, the city has no way to check which companies paid those tax dollars, nor which county they reported as their construction site.

State Tax & Revenue spokesperson Patricia Herrera acknowledges as much.

"All municipalities and counties are concerned with that," she tells SFR. State law prohibits cities from auditing contractors themselves.

Herrera suggests Coss and other public officials request contractors' tax ID numbers when they get a city project. That way, they can take those tax IDs to her department and ask Tax & Revenue to make sure contractors are paying taxes in the jurisdiction where they are working.

Jaschke insists the taxation system is sound. "The city may not have any oversight, but we don't want to run afoul of Tax & Rev," he says. "Some companies
probably report better than others, but it would ill-behoove anyone to actively not pay their GRT."

Still, the mayor would like to see more progressive steps by the state, in terms of letting Santa Fe know where its tax money is coming from. Right now, it is hard to know how much the city is going to owe or will receive in GRT funds.

The much-publicized (and unexpected) $3 million tax windfall earlier this year is an example.

"There had been a company that was reporting [their taxes] incorrectly, and the state caught it, and we got the back pay which gave us a surplus," Coss says. "We don't know what company that was. We don't know how it happened."

Because the money contractors pay to the state government is off-limits to City of Santa Fe inspection, Coss says it makes budgeting tricky.

"It could have just as easily been a $3 million deficit for us," he says.

Despite the maze of blocked off-sidewalks, it's possible to get a sneak-peak of the new convention center. In the final days of August, workers mostly seem concerned with the perimeter: There are stacks of bricks and debris behind chained off portions of entryways, with more than a dozen orange-vested, hard-hat wearing workers moving materials under the hot morning sun.

Residents will get their first view of this massive city undertaking Sept. 3, when the mayor delivers his State of the City address from inside the pristine structure

For now, the hustle is on. One worker walks quickly down Lincoln Avenue back to the construction zone, but stops when asked how the project is going and smiles broadly

"Oh, it's beautiful in there," he says. "You're going to love it."

 

 

 

 

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