Public money, private matter?

Without bidding, observers wonder how taxpayers will know that the process is honest

By Edmund S. Tijerina

Although the vast majority of design/build projects are privately owned, more builders and government officials are asking why the presumably efficient construction technique can't be used in public projects as well. The problem: Opponents of such a move argue that using design/build would open the door to corruption and increased costs while slamming it on competition.

Opponents say they aren't knocking design/build as a technique, nor are supporters claiming that using design/build would eliminate all the headaches of bidding jobs. If there is common ground, it lies beneath calls for checks and balances.

The case for using design/build on public projects is essentially that taxpayers would benefit when projects are completed more efficiently than by bidding out the jobs.

"We will be in a remarkably better position as owners to select a representative to watch out for our interests and deal with one contractor," said Paul Jadin, Green Bay mayor and president of the Wisconsin Alliance of Cities. "I think it's likely that we'll use it on most of our projects."

Who's accountable?

Projects including the Kaukauna High School (bottom) and the Ouragamie County Youth and Family Services facility (top) were design/built with taxpayer funds. Photos: Hoffman Corp.

Even so, say opponents, there's a reason for bidding: accountability. By designating a project as design/build, local governments can eliminate the need to bid a job at all, a possibility that troubles many.

"We're concerned that taxpayers won't have the best value for the dollar," said Jim Boullion, legislative director of the Associated Builders and Contractors of Wisconsin. "While it works well for private projects, the big thing is you're relying on political officials who are subject to political processes and personal prejudices."

Smaller contractors fear "the buddy system."

"You're going to open it up to the possibility of somebody saying, 'My buddy has been telling me that business is slow, so why don't we make this project design/build,' " said Donald J. Croysdale, executive director of the American Subcontractors Association of Greater Milwaukee. "I'm not saying there will be cronyism, but the potential is there. If you're in the private market and you want to do cronyism, it's your money and you can spend it until you run out of money. But in the public sector ... you'd have to raise taxes."

Already, state government can limit or eliminate the need to bid out projects by designating them as design/build. Many local governments may request waivers of bidding requirements from the state Building Commission chaired by Gov. Tommy G. Thompson. Thompson has said that he often prefers limiting bidding in favor of design/build contracts.

School districts also may get around bidding requirements by hiring construction managers who then choose the contractors.

Recent budget measures authored by state Sen. Gary George, D-Milwaukee, and state Rep. Eugene Hahn, R-Cambria, would expand the use of design/build in public projects. Hahn's version would raise the threshold to require competitive bidding for public jobs to $30,000 and allow design/build for jobs worth at least $500,000. George's version would make the competitive bidding threshold $20,000 and allow the use of design/build to projects above $3 million in the City of Milwaukee, Milwaukee County, the Milwaukee Metropolitan Sewerage District and the Milwaukee Public Schools. Under current law, contracts from $5,000 to $10,000 for county construction contracts must be bid on a competitive basis, as are municipal contracts from $5,000 to $10,000.

Courting 'disaster'

"Opening all public construction to design/build would be a disaster," said Bob Smith, a senior partner at the Madison law firm of Wickwire Gavin P.C. "There would be more dissatisfied public owners, unhappy contractors and some design firms that would lose their shirt and that's principally because of the relative lack of experience in design/build."

"Some city officials welcome the prospect of opening more public construction to limited bidding and design/build techniques. We will be in a remarkably better position as owners to select a representative to watch out for our interests and deal with one contractor." Paul Jadin Mayor of Green Bay President Wisconsin Alliance of Cities

Some officials, such as Jadin, see potential rather than disaster in the use for design/build in almost all projects. Others envision a much narrower scope.

"You get into this situation with extremely complicated projects that are very difficult to bid out-like sewage treatment plants, for example," said Dan Thompson, executive director for the Wisconsin League of Municipalities. "We do very few of those, overall. But when we do them, we have many regulations to deal with. We don't know where to begin. If we can hire someone who will say they'll do the whole thing for 'x' dollars, and will make sure that everything complies, then we don't have to worry about the complexities.

The projects we'd suggest for design/build under this plan just ain't a new city hall, a new bridge, street widening or municipal garage.

"These are nightmare projects, like the treatment plant that didn't meet EPA standards so it sits idle, or the $15 million incinerator that can't burn because it would pollute. We need a contractor who will take care of that for us. ... The projects might have met the specs, but we didn't have good specs," Thompson continued. "We're looking for someone to be in charge, who'll will take responsibility for meeting performance standards. We want to be able to choose those contractors not from the lowest bid, but for their ability."

Although design/build is sometimes touted as a way for public officials to delegate responsibility to a builder, it paradoxically requires that a public body be more specific about exactly what it wants.

"The design/build process relies on the integrity and knowledge of the people running the system," Boullion said. "How do you build safeguards to ensure that people will have that?"

The answer, Smith says, is that you can't, and therein lies a huge problem.

"There are a lot of vulnerable public owners out there," Smith said. "The polite way to say it is they take their responsibility for getting value very seriously. The less polite way to say it is they're cheap and they don't realize that a few more dollars up front in planning would result in greater savings in construction and in getting what they want.

"I've worked on a lot of successful design/build projects," Smith added. "The distinguishing characteristic of them is the owner's understanding of a project's needs to make it work."

Recent budget measures authored by state Sen. Gary George, D-Milwaukee, and state Rep. Eugene Hahn, R-Cambria, would expand the use of design/build in public projects.

Compounding these potential pitfalls from design/build is the issue of whether it would limit the chances for some contractors and subcontractors to compete.

"If you're a smaller contractor that does the work with no pretense of design capability, it could put you at a disadvantage," Croysdale said, adding that small firms that don't have relationships with larger firms that do design/build work could be shut out of public contracts.

Don't blame design/build for that, says Kevin O'Toole, executive vice president of Brookfield-based Hunzinger Construction Co.

"If some of these guys are getting shut out, it's not because of design/build," he said. "That could happen with any delivery system."

The best thing may be for smaller firms to build those business relationships, said Scott McBrien, marketing director of Camosy Inc.

"A sub that wants to get noticed should start on smaller jobs to build a reputation and get on the bid list," he said. "If things go well, they'll be invited to be part of a project team."

Even if design/build gains more adherents and becomes a more widely used method of construction, it's not likely that the traditional method of design/bid/build will disappear. For many projects, it still works well.

"I can't imagine that municipalities are going to want to use design/build all that often," said Thompson of the League of Municipalities. "Bidding is the best way to go. You avoid fraud, everyone has a chance to scrutinize the project, the taxpayers can ensure honesty in government."

Take away the checks built into open bidding, and the credit or blame for a project's fate rests with the public officials who would be the ones choosing to use design/build.

"If owners don't know what they're doing, they're going to lose the benefits of cost and time savings," attorney Smith said. "There are going to be lots and lots of disputes. I'll be able to retire early."