By Tasha Anderson for Arizona Builder’s Exchange
More than 100 people gathered at the DoubleTree by Hilton in Tempe on Thursday, July 12 for what was by far the most popular AZBEX Leading Market Series topic: the public K12 market.
While most LMS events so far have covered projects that are upcoming/in the works and how to get work within the market, this particular topic was more focused on the unexpected K12 procurement rule change expected to go into effect by July 1, 2019.
The rule was added to an amendment of the recent education reconciliation bill and stated that as of July 1, 2019, Alternate Project Delivery Methods for education procurement are to be scrapped, and all State Board of Education procurements for materials, services and construction will be required to be awarded to the lowest qualified bidder. (AZBEX, May 08) (Note: An earlier version of this article stated the change was added to RedforEd legislation.)
The announcement of the change came after Scottsdale Unified School District came under fire for illegal actions with lax oversight, and AZBEX President Rebekah Morris invited panelists to discuss their opinions on the subject and the impact the change will have on districts.
The K12 Market and Current Procurement Issues
Morris began the presentation by giving attendees a brief overview of the market with analytics taken from the AZBEX Database. The total size of the market was pegged at $400M-$600M on an annual basis, with no one school district commanding more than nine percent of the total market share.
“What that should tell everybody is… lots of points of entry,” Morris said. “If you wanted to be active in this space, there’s a lot of ways to get in.”
While this data suggests that a company would have an easy time entering the market, the reality is quite different.
The results of Morris’ research showed that 94 percent of all GC contracts are CMAR and some of the issues with an Alternative Project Delivery Method can make it difficult to enter the market. Some of the issues highlighted in her presentation were:
- RFQ language requires LOCAL relevant experience in the last three years.
- Procurement timelines do not meet the statute.
- No public opening of SOQs.
- Using a 1-step instead of a 2-step process.
These and other issues raised an important question discussed further by the panelists: “Would a requirement to low bid fix these issues?”
The Trouble with Low Bid
The answer to that question was a resounding “No” from both panels. The first panel, comprised of Howard Kropp, director of purchasing for Washington Elementary School District and Ward Simpson, principal for Rider Levett Bucknall, and moderated by Patrick O’Grady, managing editor of the Phoenix Business Journal, discussed the implications of the low bid change to the schools.
“Unfortunately, all of my experiences with low bid were not necessarily successes,” explained Kropp. “While the projects still got done, it was company XYZ that would low-ball the bid, but then would change order and by the time the project was done there was no way of knowing whether or not they were indeed still the low bidder.”
Both Kropp and Simpson agreed that the Alternative Project Delivery Method was the better way to go due to the pre-construction services a CMAR is able to provide versus a low bid contractor.
“By that low bid rule, you have to award it to that low bidder. You have no idea whether or not they have looked at the entire scope. Whereas with the CMAR you do your job walks, you have your pre-submittal meetings and they know the scope.” Kropp explained.
The second panel, comprised of Bonnie Gonzalez, director of business development for The H2 Group, and Michael Baer, national division manager for Sunland Asphalt and moderated by Rebekah Morris, echoed similar concerns about the change to low bid.
“If you do low bid, you don’t know the quality of the person. You don’t know the firm, necessarily,” said Gonzalez. “You don’t know whether or not they’ve got the labor force behind them. These are all the questions… we don’t know.”
“It’s About People Behaving Badly.” So How do we Fix It?
Both panels were also in agreement that they believed the change was an overreaction to the Scottsdale Unified School District situation, and attendees demonstrated their agreement with the panel by applauding as Kropp mentioned he felt the announcement of the change was a punishment and not necessarily in the best interest of the state.
“It has nothing to do with alternative delivery method or low bid. It has to do with people behaving badly,” said Gonzalez.
During Morris’ presentation early on, she identified a key reason why the rules aren’t always followed, and that’s because some people aren’t fully educated on them.
“There are not a lot of education opportunities for district employees,” said Morris. “One of the things I asked in doing my research… I would go and I say, ‘Who teaches you to abide by procurement rules?’ They didn’t have a good answer… I said, ‘how do you set up a Job Order Contract?’ I asked six different people and got five different answers.”
All speakers agreed that to fix the issue, districts need to hire a strong procurement team and to give them the proper education on the procurement rules in order to alleviate any wrong doing.
“This knee-jerk reaction to go just to low bid is going to be very painful to the schools,” said Baer.
Update from the State Board of Education
Catcher Baden, deputy director of the Arizona State Board of Education, also gave an update on new procurement rules that will be coming sooner than July 1, 2019. Some of these rules include:
- Requirements for licensure and documentation for licensure
- Rules on conflict of interest
- Gift and reprisal prohibitions
According to Baden, these rules are expected to come out in early August.
The next Leading Market Series topic will be on the hospitality market. To check out dates and topics or to register for the next event, visit: http://lms.azbex.com/