Special Report The bid competition was framed with the best of intentions. While overseeing the $1.9-billion light-rail line from Minneapolis to its suburbs, the Metropolitan Council, the regional transportation agency for the Twin Cities area, wanted to level the playing field and pre-empt even a suggestion of a conflict of interest when it spelled out in bid documents a now-infamous clause. It barred all subcontractors that had done work on the project’s design and engineering from taking part in bids by large joint-venture teams for the construction phase of the Southwest Light Rail Line, extending 14.5 miles from downtown Minneapolis to Eden Prairie, Minn. Such measures are common in public works. The council also stated that the clause would assure the project stayed in line with state and federal conflict-of-interest practices.
“This restriction was communicated to the subcontractors when they signed the contract” as well as in other ways, said Mary Bogie, the council’s chief financial officer, at a hearing held by state lawmakers in late January.
The restriction may have been clearly spelled out, but the council admits it had been “remiss in enforcement” of the same language in prior light-rail construction contracts. Lulled into believing the restriction would be overlooked again, companies such as Braun Intertec Corp., a regional geotechnical engineer, and the much bigger design firm WSP now find themselves shut out of the construction phase.
The ramifications of the ban—and the Met Council’s intent to enforce it for this contract—did not become clear until September, when the council rejected four bids for the construction contract for the Southwest line. The council said the bids were too high and “nonresponsive” for having included several banned subs on the proposing teams.
Angered by the rejection, Minnesota’s engineering and contracting community rose up in protest, part of a series of events that have further delayed the work and triggered state hearings on the council’s handling of the project.
The council scheduled a new round of bidding for January but, after the federal government demanded a new environmental review of a small but crucial part of the project, recently postponed the rebid until the spring. Meanwhile, Minneapolis-area commuters wait in frustration.
Conflict-of-interest clauses are used widely in public-works contracts. Florida’s Dept. of Transportation, for example, won’t allow a contractor to pursue construction work if it performs a constructibility review on the design contract. Florida, however, does allow consultants that perform value-engineering on a project to seek further work in the construction phase.
|The cover of the rebid solicitation for the light-rail project.|
States also apply conflict-of-interest rules in design-build. For example, when the California Dept. of Transportation set up its design-build demonstration project, it spelled out the conditions under which department consultants would be prevented from participating as a proposer or member of a design-build team. Further, the ban applied to a consultant that had conducted preliminary design services, including bridge-type selection, for the design-build project.
The Metro Council’s conflict-of-interest clause stands out for its breadth, notes Ray Lemming, an engineering professor at the Illinois Institute of Technology. “I think there is a misunderstanding of the concept of a level playing field in bidding,” Lemming said. “What they have really tried to do is preclude anyone who has knowledge of the project. You are going to have to pay for the learning curve of the winners.”
After having been battered by delays and a budget crisis that resulted in a $300-million cut, the Minneapolis project seemed to be moving forward. The Met Council in 2016 forecast its construction cost subtotal—at 90% design, with a 21% contingency—at $967 million, with bid submissions due last summer.
The Bids Come In
On Aug. 15, 2017, the council fielded four construction bids at its St. Paul office for the bulk of the construction work on the light-rail line, including tracks, roads, bridges, trails, tunnels and stations. A joint venture of Minnesota-based Ames Construction and Wisconsin-based Edward Kraemer and Sons submitted the lowest bid, at $796 million; Minnesota-based C.S. McCrossan and Wisconsin-based Lunda Construction Co. submitted the second lowest, at $807.1 million, and Southwest Rail Constructors came in third, at $1.068 billion. Southwest Transit Constructors was highest, at $1.1 billion.
A little over a month later, when the Met Council rejected all four bids as too high and as having “responsiveness issues,” the surprised bidders said they needed clarification. The council’s official rejection announcement stated that a lack of responsiveness simply means “a bid did not meet all the requirements of the bid documents.” The council’s chairwoman declined in an interview with local media to go into detail.
On Oct. 26, the council’s project procurement officer finally responded to requests for clarification from subcontractors and industry associations on the responsiveness issue.
In a letter to the associations citing plans to seek a new round of bids in early January, the council listed 36 subcontractors that had done preliminary design or planning work. The letter repeated the bid solicitation’s language stating that if any prime contractor “includes a subcontractor from the list below in its bid, the Prime Construction Bidder will be found to be nonresponsive, will be rejected from the bidding process, and will be given no further consideration.”
To back its point, the council’s letter quoted language in the contracts signed by the subs with their prime contractors—language which the companies had largely ignored or discounted—stating that the subs would not be allowed to work for contractors or other subs bidding on work for the main construction agreement.
The companies and their associations—the American Council of Engineering Companies of Minnesota and the Associated General Contractors of Minnesota—pushed back hard in a letter to the Met Council in late October. They argued that most of the subcontractors precluded from bidding “were performing a supporting role and did not develop or draft specifications, requirements, statements of work, invitations for bids or requests for proposals.”
The ban also threatens to put a big dent in the bottom line of Minnesota construction and engineering firms, the trade groups contended.
The bigger companies competing for the project have had to solicit out-of-state subcontractors for replacements, the associations said. Some of those firms, in turn, have cautioned that they do not have the staff in Minnesota to do the work and will have to hire employees from the subcontractors banned from the bidding, the letter notes.
“If this were to occur, it would result in irreparable damage to the operations of these Minnesota-based firms,” the associations claim. Any conflict-of-interest concerns should be resolved on a case-by-case basis, the industry groups contend.
In fact, federal transportation regulation should give the Met Council the flexibility to consider individual cases, said Tim Worke, chief executive of the Minnesota AGC, in a separate interview. “They simply took the easy way out and said, ‘You did work on the front end—you are out,’ ” he added. By mid-December, the council had shifted its stance again, announcing another postponement of construction bidding, this time to May 3.
Before bidding could commence, federal regulators notified the Met Council that it would have to conduct a separate environmental review of a planned mile-long crash wall along the light-rail route.
Making a concession to local engineering and construction industry leaders, Met Council officials also said testing and inspection subcontractors would be hired directly, taking those contracts out of the hands of the prime contractors. By directly bidding out that portion of the pre-construction work, the council intends to eliminate future conflict-of-interest problems and, hopefully, steer the project into a new construction bid.
The light-rail extension has had a long and turbulent history. The Republican-controlled state Legislature takes a critical view of the Met Council, whose members are appointed by Gov. Mark Dayton, a Democrat. A spike in the project’s estimated costs—to close to $2 billion—triggered a funding crisis in 2015 and led to cuts, including elimination of a planned tunnel in Minneapolis and a bike path. Then, in 2016, state lawmakers formally refused to contribute money to the extension project and left the job of paying for the work to Hennepin County and the local cities and towns along the route. The federal government pledged to kick in more than $900 million, about half.
When the designers and consultants voiced outrage after the bid rejection, the Republican chairman of the Minnesota Legislation Commission on Metropolitan Government called a public hearing, giving a stage to the unhappy engineering firms on Jan. 24.
It was a difficult decision to publicly criticize a client’s action, said Jon Carlson, the chief executive of Minnesota-based Braun Intertec, a 1,000-employee geotechnical engineering, environmental consulting and testing firm. “We come forward with no small amount of trepidation,” Carlson told the committee, noting his firm’s long relationship with the council.
After performing preliminary work on the project, Carlson testified that he was “shocked” and “dismayed” to find his firm on the list of banned subcontractors. At that point, he tried to clarify the contract’s conflict-of-interest language.
Carlson said it took some time to get the council to agree to a conference call last May, but it left him with the belief that Braun Intertec would not be excluded from involvement in the construction phase. When exactly the opposite happened, putting his firm on the list of excluded companies, Carlson said he went to the Federal Transit Administration, the U.S. Dept. of Transportation and his local congressman to explain what had changed.
Similar conflict-of-interest language appeared in a previous Braun Intertec contract that involved preliminary work on a smaller light-rail-related project, said Carlson. But that had not stopped his firm from being able to vie for construction-phase work.
Dan Larson, chief executive of St. Paul-based American Engineering Testing, said it is common to have to steer clear of conflicts of interest, but the council never provided a definitive answer. “We were waiting for some kind of determination where we could get a proper review on a case-by-base basis,” Larson said. “We didn’t hear back from the council.”
Ann Johnson, owner of Professional Engineering Services, another testing company, said the ban has already forced her to lay off six employees. Further, Johnson said she is faced with eating thousands of dollars of costs for certification training for employees she thought were going to be able to work on the construction phase. Now, the firm may have to lay off more staff. “For us, not being able to work on this project is a huge shock,” she said.
‘Free and Open Competition’
At the Jan. 24 hearing, Met Council CFO Bogie blamed the ban on the federal government, pointing to its expansion of a rule calling for “full and open competition” on public-works contracts. The aim of the rule is to ensure the best possible price while guarding against “favoritism,” she said, adding that the federal government was contributing substantial funding to the project.
Also, in a comment on a report on the Met Council, the state auditor noted that the council had not always enforced the conflict-of-interest policy, Bogie observed. “The council chose long ago to remove any ambiguity by prohibiting subcontractors from working on both the design and construction,” Bogie said. She argued that the Met Council had communicated its bidding policy “early and often” through contract language and other official channels.
The policy makes sense, too, she said. Letting the subcontractors that worked on project design to also bid on construction would be unfair to other firms that purposely did not bid on the design work in order to be free to pursue construction-phase work. While acknowledging that companies had sought clarification from the Met Council, Bogie said those requests were channeled through the so-called Information-for-Bid process. “We received several inquiries,” she said. “Our procurement process is fairly rigid” when it comes to ensuring a level playing field.
But state Sen. Eric Pratt (R-Prior Lake), chair of the legislation commission, peppered Bogie with questions on whether the decision to ban the subcontractors was truly warranted. “We are solving a problem that doesn’t exist,” he claimed.
One thing is probable: When the project is rebid, everyone involved is likely to read the contract requirements and terms very carefully without expecting a single word to go unenforced or be overlooked.