State of California’s Department of General Services Prepares to Drop Bomb on the Construction Industry’s Competitive Bid System.
By Jim Ryan
AGCSD Executive Vice President 

During 2005, the State Legislature passed and the Governor signed Senate Bill 115.  This bill basically allowed the California Department of General services to create incentive programs for the State’s 3% Disabled Veterans Business Program….the DVBE 3% goal that most contractors are familiar with.   This bill passed without opposition….the DVBE participation has been running at about 1.75%....when all purchasing, including construction as well as non construction supplies, etc., are included. The incentive programs were not defined and were left to the General Services staff to work with industry to create.  Most thought the incentives would take the form of educational assistance…advertising….help with starting a business, etc.

The staff at the Department of General Services had a different idea.

On December 19^th, a hearing is scheduled in Sacramento that is the final step in creating an incentive program that has the potential to turn the construction industry’s competitive bid system upside down.  The General Services Staff came up with the following system without discussing it with the construction industry…or to our knowledge anyone else…..except DVBE firms that will benefit by the incentive program.  This incentive will probably apply in some manner to most public entity construction projects owned by the State or by local public entities that are funded in part with state funds or bonds.

The incentive system will allow the public entity to establish an incentive amount for each project….in the following example, we are assuming the public entity has established a $400,000 incentive amount for prime contractors that meet the DVBE goal on the project. So here is how the California Department of General Services sees the incentive program working….. 

A public project was bid and it contained a 3% DVBE participation goal….

Bidder A submits a bid of $10,200,000 and completes all good faith efforts to secure the 3% DVBE goal but ends up with 0% DVBE participation.

Bidder B submits a bid of 10,500,000 and completes all good faith effort requirements and achieves the 3% DVBE goal….

Bidder C submits a bid of $11,000,000 and completes all good faith effort requirements and also achieves the 3% DVBE goal….

At the present time the public entity would select Bidder A because Bidder A was $300,000 lower than Bidder B and $800,000 lower than Bidder C…..

Under the new system that General Services envisions, the contract would be awarded to Bidder B, not Bidder A. Since Bidder B and Bidder C met the 3% DVBE participation “goal”, they will have the $400,000 incentive subtracted from their bids.  Bidder B’s bid would be adjusted to $10,100,000…..Bidder C’s bid would be adjusted to $10,600,000.  So the final results would be….Bidder B is low….Bidder A is second ….and Bidder C is still third.

The public entity would then award the contract at the $10,500,000 amount.  Yes, they would spend $300,000 to secure about the same amount of contracts (3%) for the DVBE involved in the project.

I must be missing something here….why not just give the $300,000 in state funds directly to the DVBE firms and skip all the messy bidding adjustments?

Anyway….AGC has been aware of this scheme for several months, and we have been meeting with state officials to explain why it will not work in the construction industry…evidently, they are already using this for purchases of certain non construction good and services.

Now, we know that a number of DVBE firms read Monday Morning Quarterback….the system that is being proposed may look like a good deal now, but many of us have been through similar schemes when public agencies try to use construction contracts to help other groups…..minority owned businesses….female owned businesses….etc.  If this program is put in place the legitimate DVBE firms will now find themselves competing with “shell” DVBE firms that offer their status as a disabled veteran to construction firms to fulfill the incentive quota only…..they will simply pass the dollars through their “shell” company and subcontract the work thus creating a competitor that does not need to invest in actually running a legitimate company. 

Why does this happen….because the existing DVBE firms in the state do not have anywhere close to the capacity to complete 3% of all public construction work in the state that would come under this new program.  We understand that there are supposed safeguards in place to stop this type of abuse….but the department of General Services simply does not have the staff to stop this from happening.

What is the solution……well the State is simply camouflaging a direct subsidy to DVBE firms with this incentive program.  Perhaps direct grants from the State that do not flow through the construction contracts would help legitimate DVBE firms to allow their construction companies to grow and prosper without competition from shell companies.

Finally…..the courts have not been supporting programs like the incentive program that DGS is trying to create….. we suspect that a low bidder that makes a good faith effort and has a project taken away  because of this program will successfully sue, and that probably does much more harm than good for DVBE programs throughout the State.

 

Call To Action -- City Council Tries to Stop Large Retail Development

On Tuesday, November 28, the San Diego City Council is expected to vote on size limits of large retail establishments in the City of San Diego.  Five of the eight council members (Peters, Atkins, Young, Frye, Hueso) will be the likely "YES" votes to limit these development and construction projects, which will basically shut the door on potential Wal-mart Supercenters.

Although much of the discussion may revolve around traffic and zoning problems caused by these establishments, the real issue is the attempt by the United Food and Commercial Workers and other unions to organize Wal-Mart and other retailers.  Their basic strategy seems to be to run around the country and try to legislate ordinances at the local level that make it difficult for the “Big Box” retailers to do business.

Call to Action -  Please e-mail or write to Councilmembers Peters, Atkins, Young, Fyre, and Hueso and tell them to vote "NO" on any ordinance that will restrict development and construction.  Tell them to support the free market system and customer choice, and tell them to spend their time on more pressing issues facing the City of San Diego, such as its current fiscal crisis and its deteriorating infrastructure. 

We have prepared a letter for you to send to each of the five council members (it can be modified if you wish).  Simply click on http://www.bipac.net/issue_alert.asp?g=AGC_SD&issue=Big_Box&parent=agc_sd, follow the directions, and your letter will be sent electronically.  You also have the option to print the letter on company letterhead and mail it to the council members.

 

No Airport at Miramar – So What’s Next for the Airport Authority?

By Brad Barnum, Vice President Government Relations

Voters spoke load and clear on November 7….”N0” to the San Diego County Regional Airport Authority’s choice for a replacement airport at Miramar MCAS.

Now, some of our local state legislators, who in 2002 voted to move the operations, land use, and development responsibilities from the Port Authority to a new San Diego County Regional Airport Authority, are beginning to review its effectiveness.  The timing of this review is interesting, given the results of the election and the fact there are three $150,000 Governing Board Member appointments at stake (two as of last week, when Mayor Jerry Sanders appointed Alan Bersin).

Last Friday, I attended part of the second hearing of the State Senate Committee on Local Government, which was chaired by Senator Christine Kehoe.  The first meeting was held on October 10, and was co-chaired by Assemblymember George Plescia.  The hearings were conveniently scheduled just before and after the election, and they were intended to get public input on whether the governance structure of the Airport Authority is functioning in an efficient and effective manner, and to consider whether any modifications are needed.  It is interesting to note that Port Commissioner Steve Cushman and County Supervisor Bill Horn were in attendance.

Senator Kehoe started the program with a brief report of the first hearing, which included 18 findings and 14 recommendations.  Land use and governance issues were prominent in the report, which included recommendations to look at the Authority’s leadership structure, explore options to re-assign land use responsibilities, and require that an Independent Taxpayers Oversight Committee (ITOC) be established.

The State’s Legislative Analyst’s Office (LAO) presented its findings on the Authority’s accountability, specifically high-lighting the confusing leadership structure (three members are highly paid while the others receive monthly stipends; the three paid appointments are made individually by the Governor, the County Sheriff, and the Mayor of San Diego, while the other appointments are made by various cities throughout the County), which may reduce the Authority’s accountability to the public.  In addition, the LAO questioned whether or not the land use responsibilities should be shifted back to SANDAG, which has significant responsibilities for related regional issues.

I departed the hearing following comments by outgoing Authority Chairman Joe Craver and three other board members.  It is clear they believe the Authority is doing a good job for the community; however, some of them did agree that the compensation should be “leveled off” between members. 

I have four observations from the two hours I spent at the hearing: 1) The three Governing Board positions are highly sought after, but the compensation package is likely to be downsized; 2) Senator Kehoe believes there needs to be more accountability at the Authority and that it needs to work closer with Caltrans and SANDAG; 3) The Authority believes it is doing a good job; and 4) The Port Authority may want the Airport back under its jurisdiction, but does the County Board of Supervisors also want that responsibility?

We can expect this issue to heat up in the coming weeks and months….in fact, it is rumored that Senator Kehoe will introduce legislation in December that could significantly change the structure of the Airport Authority.  What is in that legislation and who it will affect will be interesting…stay tuned!

In the meantime, we will continue to monitor the situation and support the Authority in its efforts to move forward with the current phase of its Master Plan, which comprises $600 million of improvements designed to maximize efficiency of Lindbergh Field in terms of airfield, terminals, ground transportation and airport support requirements.  Key elements of Phase 1 include an expansion of Terminal 2 West with 10 new gates, airfield efficiencies, expanded parking and on-airport roadway improvements.

 

The AGC Specialty Contractors Council & Affiliate Members Council announce the 2006 Member Awards Nominations

Click here to find nomination forms for the 2006 AGC Annual Awards.  Also included, is a summary sheet explaining the award categories.  The awards will be presented during the AGC Installation Dinner on January 23, 2007 at The Hilton La Jolla, Torrey Pines.  The program will also include the installation of the 2007 AGC Board of Directors, the AGC Apprenticeship graduation and the Construction Safety Excellence Award (CSEA) winners.

The award nomination forms are due in the AGC office no later than December 8, 2006.

Those nominated will be required to complete a questionnaire concerning their qualifications. 

If there are any questions please contact Rae Krushensky directly at (858) 731-8157 or (raek@agcsd.org).

 

AGC Annual Construction Safety Excellence Awards (CSEA) – Deadline Nov 22- by 12:00 noon

For a CSEA application, please request a copy from Marcy at mknopman@agcsd.org. 

 

AGC Holiday Dinner Dance at the Hotel Del Coronado- Dec. 2nd

For those members who are attending the Holiday Dinner Dance, this is a reminder to please bring an unwrapped toy for the Children’s Hospital Toy Drive. Thank you!

 

AGC Annual Meeting Dec. 13th

On Wednesday, December 13, 2006, we will be holding our Annual Meeting at the Hilton Mission Bay. 

Like last year, the AGC Board of Directors has opened the Annual Meeting up to all members.  Many companies in 2005 have taken advantage of this opportunity to attend this informative meeting, which traditionally had been open only to “Active” members of the Association.  “Active” members are defined in the Bylaws as General Contractors (Building and Engineering) and Contractor members.  Contractor members are Subcontractors that participate in one of AGC’s major programs (health, apprenticeship, pension, etc.) and pay local dues that are equal to the dues paid by the General Contractors.  The Bylaws allow for only these “Active” members to have voting privileges for the election of members to the AGC Board of Directors.

The Annual Meeting is an opportunity to receive a complete update on the activities and finances of the AGC.  Most General Contracting firms are represented at this meeting.

While Specialty and Affiliate members will not be able to vote, the Board is convinced that sharing the valuable information about the association with the entire membership is important.

We encourage all AGC firms to take a couple of hours out of your schedule on December 13 to attend.  It is an opportunity for each member to learn more about the AGC.  It is also an opportunity to spend some time with AGC General Contractor members.

The event will begin at 11:00 A.M. and conclude after lunch at about 1:30 PM.

A reservation form can be found here.

Please complete the enclosed form and fax to 858-558-8444.  You can also contact Rae Krushensky at 858-371-8157 with any questions.

 

“iSqft Randy’s” iSqFt Tip of the Week & Obscure factoid

iSqFt Tip of the Week:
iSqFt's Download Center allows you to store Drawings to be downloaded in bulk fashion, at your convenience. 

Obscure Factoid:
The Plymouth Pilgrims held their first Thanksgiving celebration in the fall of 1621, it lasted three days (the celebration consisted of games as well as food).

 

November
November 21 – Project Engineering – 7:00 AM
November 29 – CPR/First Aid – 8:00 AM 

December
December 8 –Scaffolding
December 12 - "Building Information Modeling" (BIM) Workshop – Click here for flyer
December 19 - Excel Class ... Intermediate – Click here for flyer
December 27 – CPR/First Aid
December 28 - NAVFAC WEBCM

 

All meetings will be held at AGC unless indicated otherwise

NOVEMBER MEETINGS
November 28 – County of San Diego Liaison Committee Meeting – 1:00 PM
November 29 – City of San Diego – 1:00 PM

DECEMBER MEETINGS
December 6 – Safety Committee Meeting- 7:00 AM
December 11- Navy Liaison Meeting – Subject to change- 11:30 AM
December 12- Education & Training Committee – 11:30 AM
December 13- Toastmasters – 7:00 AM at Roel

 

Save The Dates: 
December 2 – Holiday Dinner Dance at Hotel Del Coronado
December 13 – AGC Annual Meeting –Hilton Mission Bay
January 23, 2007 – Installation Dinner – Hilton La Jolla Torrey Pines

(Installation of Officers & Directors, AGC Membership Awards, Safety Awards, & Apprentice Graduations)