This week’s story is one of corruption, bribery, cronyism, nepotism, and an over-reaction that could drive a progressive school district back towards public procurement practices from the 1990’s.
This story is of the Scottsdale Unified School District and the corrupt gaggle of administrators who’s list of crimes reads like the plot of a soap opera.
Let’s start with the Superintendent Denise Birdwell. Birdwell ran the school district like a mob boss awarding contracts to companies with whom she had personal financial interests and hiring employees to the district that were close personal friends. She held a secret joint bank account with the sister of the district’s chief operations officer Louis Hartwell whom Birdwell hired to be COO. Birdwell awarded business to the architectural firm of Hunt & Caraway Architects who were found to have made payments directly to Birdwell in excess of $30,000.
Hartwell was dismissed by the district after finding that he lacked the credentials for the position and for failing to disclose a prior relationship with Birdwell. Hartwell also approved payments to the aforementioned Hunt & Caraway Architects for amounts that were reported to be “higher than negotiated”. The district further claimed that Hartwell made sloppy procurement awards utilizing “blanket purchase orders” with no details specifying what the payments were for.
Brian Robichaux a principal architect at Hunt & Caraway Architects also resigned from his post after investigators found he was charged and convicted of felony theft in 1998. The conviction involved a contract with the Arizona Department of Transportation. Robichaux signed the checks made to Birdwell.
Chief Financial Officer Laura Smith resigned days after being placed on administrative leave. Smith’s corruption appears to be unrelated to Birdwell, but was similarly found to be receiving payments from a consulting practice she previously owned and ceded to her sister. The consulting firm of Professional Group Public Consulting was actively engaged by the district while Smith was the CFO and while actively receiving payments from the firm. According to investigators Birdwell was fully aware of Smith’s relationship with Professional Group Public Consulting but denied any knowledge.
Pam Sitton the Assistant Superintendent also resigned amid allegations that she was making payments to an undisclosed school principal without district approval.
You can read all the sordid details of these people’s corruption here.
The tragedy of these five individuals with positions of power plundering and pillaging the district has caused the governor of Arizona to roll back procurement practices in response to all of this abuse.
Before all of this was uncovered, Arizona school districts were permitted to contract for construction under Construction Manager at Risk (CMAR) and Job Order Contract (JOC). Both of these forms of engagement promote transparency in the cost of work and collaboration between the designer and builder. These forms of engagement differ from the old traditional lowest lump sum bid award in a number of ways.
1. CMAR awards are based on qualifications and rates.
In order to award a CMAR contract, governments utilize a two-step procurement process. The first step is an open solicitation that invites all interested bidders to present their qualifications for a specific type of work. This weeds out unqualified suppliers and promotes the award of only the best qualified builders. Step two in the process is a solicitation of only the most qualified builder’s rates for fee and general conditions. Awards are then made to the lowest quoted rates.
This two-step process is unlike lump sum bids in that lump sum solicitation are made openly to any interested bidder. In government procurement the lowest “qualified” bid must be awarded. Since these are open bids, the number of submissions tends to be much higher making it very time consuming to review every single submission. This biases the reviews towards the lowest quotes first meaning that many of the higher bids are only briefly reviewed or not reviewed at all. The problem with this process is that anyone who wants to “game” the system can simply submit a low bid and immediately begin looking for change order opportunities after the work is awarded.
2. CMAR allows for Cost of Work transparency (Open Book Bidding).
In a lump sum bid, the builder makes his profit by delivering the project for less than he quoted. The lower his actual costs are, the more he makes, there is no opportunity for transparency. The nature of a lump sum quote is one where the builder alone knows the actual quotes from the trades. This information is never made available to the Owner. An open book is facilitated by a CMAR contract because the builder’s award is made on the basis of a quoted fee (typically as a Percent Cost of Work).
With open book bids the Owner may see the quotes from all sub-contractors. Often open book provisions also include procurement policies that are passed down to the building which ensure the builder is following strict procurement guidelines.
3. Job Order Contracts (JOC) leverage Master Services Agreements (MSA).
Job Order Contracts are often used by organizations that have a high amount of recurring construction spend. These awards are typically made on an annual basis and are based on a solicitation that is similar to CMAR. Open solicitations are sent out requesting qualifications. The best qualified are then selected to quote a series of rates for the fees and general conditions costs. What is different about JOC quotes is that these are typically for a certain volume of undefined work. The solicitation typically shares historical or projected spend values. Bidders are told that as projects come up through the term of the contract, the bidder will be presented with a scope of work and asked to submit a quote. Job order quotations strictly follow the rates in the MSA. Typically these types of solicitation result in 3 to 4 awards.
This process creates a pool of qualified builders with pre-negotiated rates which can be leveraged anytime there is a new project. Often projects costs are solicited from all suppliers in the pool and the lowest bid from the pool is awarded the project. JOC engagements essentially create Master Services Agreements which simplify procurement and reduce the time to procure.
4. JOC promotes higher quality work.
JOC promotes higher quality work because the process ensures that only the most qualified suppliers are engaged. This is unlike lump sum bidding because it creates a closed bid where unqualified suppliers cannot quote.
JOC also promotes quality work by creating a vested interest for the builder to perform well. When builders know that they can expect recurring work opportunities from the same source, they are less likely to do things that would hinder their ability to receive future work. This cuts down on sloppy or careless work because the builder knows such things will be noted when the next project comes around. Lump sum bids have no such incentives because the open bid nature of the solicitation means that competition is higher and the likelihood of recurring work is lower.
Despite the fact that everything that Birdwell and her crew did at the Scottsdale Unified School District was already illegal, the governor feels that more action is required. His proposal known as HB 2663: K-12 education; budget reconciliation; 2018-2019 “Instructs SBE to adopt rules for school district procurement of materials, services and construction that ensure maximum competition, require contracts to be awarded based on the lowest qualified bidder”. This regulation will do away with CMAR and JOC contracts, reverting to a lump sum low bid environment.
Trade organizations like the Arizona Builders Alliance are lobbying the Governor to remove the procurement language, but only time will tell if the Governor will heed the industry’s pleas.
So what do you think? Should the school districts be allow to use CMAR and JOC agreements? Are Lump Sum contracts good for public projects? Do you have experience with any of these forms of engagement? Tell me your stories.
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