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K12 Market Study Shows Irregularities

By Roland Murphy for Arizona Builder’s Exchange

As a reporter and editor, it’s always a strange situation to report on your own organization. Objectivity is impossible, and the temptation to inject opinion is hard to resist.

We have spent the past several months hip deep in procurement data, legislative/regulatory review and all manner of associated data analysis to develop our second Arizona K12 Market Study.

When we put together our first study in 2015, it raised as many questions as it answered for us. While we did not go into this new report with a set agenda, we did go in with those questions in mind and with a nearly obsessive desire to find the answers.

In researching this study, we looked at five years’ worth of bond measures from across the state and pulled every publicly available design and construction procurement (discovering in the process many procurements and awards aren’t available or accessible to the public).

We interviewed District leaders, government officials and several A/E/C executives to get their first-hand view of the market and how it operates. We also reviewed nearly 1,000 pages of legislation, process guidelines and study findings to learn the market’s regulatory and operational framework.

The result was a report weighing in at more than 80 pages with bond results, major owner profiles, procurement distributions by size and award recipient and more. For comparison, our 2015 study was 15 pages.

What we found as a result of this deep dive was surprising. The long and short of it is, quite simply, K12 does not operate like any other public sector in Arizona or in any way how one would expect from an open and competitive market.

From the report’s Executive Summary: “Arizona’s more than 200 public school districts spend more than $500M on facilities design and construction every year. With Alternate Project Delivery Methods being overwhelmingly preferred, and with qualification requirements being as clearly delineated as they are, it would stand to reason that among the state’s more than 25,000 licensed Architects and Engineers and more than 10,000 licensed General Contractors there would be a ripple effect based on firm size, where a large number of small procurements was spread across a large number of firms, a smaller but still appreciable number was spread across a smaller but still appreciable number of firms for medium-sized opportunities, and only a small number of firms was awarded procurements for large jobs because of their unique size, capitalization and/or expertise.”

That’s how it works in the state’s other public sectors, including at Arizona State University.

In K12, however, our research showed there are as few as three firms that consistently get awarded work in the market’s various components. Through standalone and on-call solicitations over our study period, roughly $125M in design fees have been contracted across 65 firms. On its face, that seems somewhat reasonable, until one examines the individual procurements and sees the top three firms in the space pulled down 46 percent of the total.

Another factor to consider is Districts can avoid the public procurement process entirely through the use of cooperative purchasing agreements, in which they obtain services through an established collective.

On the General Contractor side, the disparity is even more glaring. More than 20 years ago, Federal procurement standards started moving away from the traditional low-bid to APDMs. State and local entities, including K12, eventually followed the Federal lead, with Construction Manager @ Risk leading the way in terms of preference, followed by Job Order Contracting. In other public sectors, the distribution of work has expanded, but that’s not the case in Arizona K12.

In fact, due to the way many Districts’ selection criteria are weighted, if a company hasn’t built a school in the past three-to-five years, they have next to no chance of winning a contract, even if they’re actively building other projects of 10-20 times the size and complexity of even the largest public school facilities and winning international recognition for their efforts. It’s sort of like a merry-go-round where unless you’re already onboard and in the center, you will either be flung off or unable to get on in the first place.

Investigations, Follow-up and the Promise of More to Come

This small overview only scratches the surface of our findings.

Over the last several months we found out there is at least an active Arizona Attorney General’s Office investigation into one District’s procurement process. We also learned the state’s School Facilities Board is considering supporting legislation to establish new and expanded oversight for procurements stemming from voter-approved measures like bonds and overrides.

Early on in the process, we realized there was a lot more to cover on the state of K12 than our resources in terms of time and staff would allow. As much as we would have loved to do the work ourselves, getting the information in front of the public was more important.

We entered into a collaborative arrangement with Arizona Center for Investigative Reporting and KJZZ Radio to share our data and offer them advice and recommendations from AZBEX’s years of work covering the sector.

They may have started with our data, but their exceptional reporting and analysis quickly took them much farther afield and into the realms of dark money, bond campaign financing and other areas too extensive to list here.

Their coverage deserves to be read in its entirety, and we are happy to provide the links below.

AZBEX’s sole mission is to help make it easier for our subscribers to find work by providing information and identifying trends and opportunities. As such, we strongly support a fair, level and richly competitive marketplace, particularly in the public sector, which is supported by and obligated to taxpayers. Very little in our analysis indicates such conditions generally exist in Arizona K12.

It’s not our policy or place to recommend or advocate for specific changes or reforms. We are an A/E/C industry news and research outlet. As such, however, we will continue to ask questions and track down answers, and we will monitor developments and report back as new information becomes available.

Find Out More

KJZZ and AZCIR collaborated on the research and development of their stories and published material on both their websites.

To read or listen to the two-part series published on KJZZ, click here.

For the article at AZCIR, click here.

To learn more about the AZBEX K12 Market Study, click here.

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