Evansville Contractors Challenge Procurement Tactic

By: Scott P. Fisher

On February 7, 2011, several Evansville area contractors filed what is commonly known as a Taxpayer’s lawsuit challenging the award of a construction contract to a certain Evansville area contractor (“Contractor”) for the renovation/construction of an existing building owned by the Evansville Vanderburgh School Corporation (“EVSC”) to be known as the Supportive Service Center.  The plaintiff contractors seek a declaratory judgment that a combination of transactions between EVSC, the EVSC Foundation and the Contractor were coordinated to circumvent public bidding laws.

The gist of the contractors’ allegations is that EVSC solicited a price from the Contractor, and only the Contractor, for the project.  EVSC then sold the building which would be renovated to its Foundation, a private entity.  About a month later, the Foundation then contracted with ICI to perform its services related to the project to the tune of about $6.5 million.  Three (3) days later, EVSC agreed to re-purchase the building (and project) from the Foundation for approximately $7.2 million through installments over the course of four (4) years.  The contractors allege that this circumvents the public bidding laws specifically enacted to maximize competition and prevent fraud and graft.

It should be noted that this is not the “normal” process for the construction of a local project such as a public school building.  Aside from Design/Build projects where the contractor competitively bids to both design and build the project, in a Design/Bid/Build project the plans and specifications are put out to bid requesting all interested contractors to provide a price for the completion of the project.  The owner, through its architect, evaluates the merits of each bid including price, responsiveness to the bid solicitation and the perceived responsibility of the bidding contractor, i.e., whether the contractor is sound financially and capable of completing the work.  Ultimately the contractor with the lowest bid who is both responsive and responsible is awarded the project.  The contractors allege that since the monies used to fund the project come from the public coffers, i.e., tax dollars, the purpose of such a process is to ensure that the local governmental entity receives the lowest price possible for the project.

From a bidding contractor’s perspective, if all it takes to circumvent the public bidding laws is the creation of this “straw-man” type transaction, the safeguards put in place by the Indiana General Assembly may be no protection at all.  If this type of transaction is legal, as EVSC contends, it does not bode well for smaller, less politically connected, contractors seeking to perform public bid work.

However, from the EVSC’s perspective (and likely the perspective of all political subdivisions from school corporations to the State), expediency and other factors make this type of arrangement necessary.  EVSC officials say the foundation chose to hire the Contractor without a competitive process because of that company’s ability to complete as well as obtain financing for the renovation work in a short time.  Furthermore, the Contractor has successfully completed several projects for EVSC in the past and there is every reason to believe it would successfully complete the Supportive Service Center as well.

Nevertheless, all entities involved in public bid work, including contracting public owners, should be watching this matter closely as it may dramatically affect the landscape of public construction work in Indiana.  Check back for updates on this interesting development.