State's new bid system for construction not foolproof
| • | Buying a roof the PIPS way |
| • | School roof slipped through cracks |
By Jim Dooley
Advertiser Staff Writer
A new computerized system that was supposed to get taxpayers the best deals on construction jobs has occasionally cost significantly more than the traditional low-bid system and raised questions about the state's methods of awarding bids.
Deborah Booker • The Honolulu Advertiser
The system, known as PIPS, has also triggered complaints that a select group of contractors are controlling most of the work.
Stephen Miwa, a deputy in the state Public Works Division, admitted he and other PIPS administrators "inadvertently" violated state procurement law.
In several cases, state officials violated procurement laws by using the system.
At least two other states and one federal agency tried the system and dropped it, with some citing its cost and complexity.
The state Department of Transportation paid about $140,000 for PIPS services, used it for about a half-dozen contracts, then stopped.
Short for Performance Information Procurement System, PIPS is a software system that weighs not only cost but previous work done by the contractor, material warranties and customer service.
Those factors, in addition to the results of an interview with the contractor, are plugged into a complex computer purchasing database to select a contractor. The contractor selected isn't necessarily the one who submitted the lowest bid.
For example, the state this year awarded a Pearl City High School construction contract to a company whose $7 million bid was $1.4 million more than what the state budgeted for the job and $300,000 more expensive than the lowest bid.
The same company, Ralph S. Inouye, Inc., received another $1.43 million PIPS contract March 15 to renovate Hale Kula Elementary School, a bid that was 55 percent higher than the $917,000 bid submitted by CC Engineering & Construction, Inc., according to state records. CC Engineering did win another PIPS contract the same day, with a low bid of $965,000 for Aliamanu Intermediate School renovations.
The state awarded $328 million in construction contracts in 1999 and 2000.
Of that, about 10 percent have been PIPS jobs, according to Gordon Matsuoka, head of the state Public Works Division.
PIPS is seen by its advocates as a sophisticated, high-tech procurement system that takes the cronyism and guesswork out of awarding contracts and recognizes that the low-bidder won't necessarily do the best job.
Officials of the state Department of Accounting and General Services (DAGS), which oversees the bulk of the state's big construction jobs, have complained that contractors put in unrealistically low bids to get the job, then submit change orders or substitute sub-standard material to increase their profit.
Arizona State University professor Dean Kashiwagi, who created the PIPS system and sells it to public and private agencies, describes it as a system that "forces contractors and manufacturers to compete based on proven performance."
Under PIPS, the state basically tells contractors and the manufacturers who supply their materials: Here's the job, tell us if you've done this kind of work before, how you're going to do this job, how much you'll charge and what warranties you'll give us. All those factors are run through the PIPS computer software and it picks the bidder offering the "best value."
Kashiwagi, who received his undergraduate engineering degree from the University of Hawai'i, says PIPS has been a success wherever it has been used, and where there are problems, they're usually rooted in local politics.
"Having successful construction results does not ensure that a facility owner will continue to use the process," he said. "Many environments have strong political climates which are not conducive to performance-based, best-value construction."
Since 1998, the state has paid more than $600,000 to Arizona State University for use of the procurement system, according to ASU records.
PIPS is now coming under its most critical examination at an administrative hearing under way at the state Department of Commerce and Consumer Affairs.
Hi-Tec Roofing, a company that has received one state contract since PIPS went into effect in 1998, is protesting the awarding of four roofing contracts to other companies.
Testimony at the hearing revealed some potentially troubling flaws in the administration of the PIPS program.
Among them:
- Stephen Miwa, a deputy in the state Public Works Division, said he and other PIPS administrators violated state procurement law when they "inadvertently" allowed three school roofing jobs to proceed last year, even though contracts were never signed, performance bonds were never posted and warranties for the work were never received. Miwa said he received a written reprimand for the violation. He has asked Chief Procurement Officer Aaron Fujioka to approve payment to the contractors despite the procurement violations.
- PIPS personnel have repeatedly but unintentionally entered faulty information into a computer database that calculates which companies are best qualified for state contracts in Hawai'i. Miwa acknowledged that the faulty data has been used to calculate subsequent contract awards by the PIPS personnel.
- The state and Kashiwagi, the PIPS creator, decided to disregard the worst "performance ratings" given to PIPS roofing contractors on state jobs after the contractors complained bad reviews were caused by biased reviewers. Kashiwagi told The Advertiser that ratings that are more than 15 percent below average can be dropped "as a measure of protection against owner-representative abuse." The procedure, he said, "has led to good results."
- The winning bid for a Nanakuli High School re-roofing project was $56,000 more expensive than the second-place bid. Both contractors offered the same materials and identical warranties. The deciding difference, as calculated by the PIPS computer: the winning company said it would respond to trouble calls 30 minutes faster than the second-place firm.
Testimony at the hearing also described the unconventional way in which PIPS was implemented. Miwa said he and his boss, Gordon Matsuoka, attended a seminar conducted by Kashiwagi in January 1998. Matsuoka decided immediately afterward to start using PIPS, Miwa said.
"Gordon said this is where we're going to go," Miwa testified. There were no studies of other systems or discussion about how to fix problems in the low-bid system, Miwa said.
Neither Miwa nor Matsuoka would comment for this story pending the outcome of the hearing.
Firms dominate market
A group called the Hawai'i Construction Coalition, which represents some of the contractors who are critical of PIPS, claims PIPS has allowed a small group of contractors and roofing material manufacturers to dominate the market on state government roofing work.
In the 2001 fiscal year, the coalition told legislators, five companies received 41 contracts worth $4.76 million. Two of the five companies, Certified Construction, Inc. and Tory's Roofing & Waterproofing, Inc., got the lion's share of the work, receiving $1.7 million and $1.5 million respectively.
Kevin Simpkins of Certified Construction said his company and Tory's Roofing have been getting a great deal of work under the low-bid system, too.
He said companies have to work hard to meet the requirements of PIPS, but once they do, they realize it works well. Critics, he said, don't want to put in the effort.
"Some people surprise me with the effort they put into being negative and crying about this," he said. "If they put more effort into just working with the system, they'd probably be a lot better off."
Malarkey Roofing Co., a Mainland-based manufacturer, was the supplier on $4.3 million of the $4.7 million total PIPS jobs.
Malarkey Roofing representative Mark Alexander could not be reached for comment. But Simpkins, whose company uses Malarkey products on its state jobs, said Malarkey takes the time to "partner" with contractors in planning, executing and guaranteeing projects, as required by PIPS.
Most manufacturers, Simpkins said, are "lazy. It's as simple as that. It takes more energy and effort to get involved and to partner up in the system and they don't want to make the effort necessary to do that."
Critics of the system have tried but failed for the past two years to get legislators to order an examination of PIPS by State Auditor Marion Higa. DAGS said it is forming an advisory committee and hiring an auditor to study the program.
"To ask DAGS to do a self-study on whether DAGS is doing a good job sounds, and is, pretty ridiculous," said Rep. Guy Ontai, R-39th (Wheeler Army Airfield, Mililani). "The whole point of the audit would be to restore public confidence in the procurement system."
DAGS officials told legislators that critics of PIPS are limited to "a small group of roofers, manufacturer's representatives and architects. We believe these people do not want to change, want to protect their jobs, do not understand that performance is defined by owners, or do not understand PIPS."
Roofing company executive Mark Carr, one of the most vocal PIPS critics, said: "DAGS adopted PIPS because they say there are problems with the low-bid system. That's not the problem. The problem is the people who are managing the system."
System not widely known
Although Hawai'i has been using PIPS for nearly four years to buy construction services, the system has seen little use elsewhere and is unknown to some national experts on government purchasing.
"I've never heard of PIPS before," said Rick Grimm, chief executive of the National Institute of Governmental Purchasing in Virginia. "That doesn't mean it's not a good system, but we don't keep track of every software program that's out there."
That was the same answer from Michelle Sisler, director of the National Association of State Purchasing Officials, and Kristen Kioa of the Institute for Supply Management, a national non-profit organization that runs a certification program for purchasing professionals.
"I've talked to a number of experts in the field, but I haven't been able to track down anyone who's even heard of PIPS," Kioa said.
PIPS has been tried and dropped by Utah and Wyoming. Georgia tried it on two projects "but I don't think we'll be continuing with it," said Walter Fairchild of the Georgia State Financing and Investment Commission.
"On the first project, the prices were so far in excess of what we expected, we had to cancel and bid it another way," Fairchild said. "The second project isn't finished yet, but overall, I'd have to say the process seems to be very time-consuming."
The Federal Aviation Administration tried PIPS but dropped it three years ago.
The Hawai'i Department of Transportation paid Kashiwagi's program $140,000 for PIPS services, used it on about a half-dozen contracts during 2000-01, then stopped. "We haven't used it for over a year," said Jamie Ho, contracts officer for the department.
The University of Hawai'i is using PIPS on painting and roofing jobs after paying $75,000 for the rights to do so. Critics point out that one of the biggest PIPS jobs, the $700,000 re-painting of Bilger Hall, was at least $100,000 over budget.
Connections questioned
Questions were raised about Kashiwagi's business connections at the administrative hearing.
Miwa testified that there is a close relationship between Kashiwagi and Neogard, Inc., one of the largest roofing material manufacturers in the country and a recipient of PIPS contracts here.
According to documents presented at the hearing, Neogard helped finance Kashiwagi's development of PIPS with a $75,000 grant in 1997. One objective of the grant was to "transform Neogard into a performance leader in the waterproofing marketplace," one document said.
Neogard also paid $35,000 to Kashiwagi directly for "presentations" he was to conduct. Kashiwagi acknowledged that Neogard helped finance the January 1998 Hawai'i presentation that Matsuoka and Miwa attended.
"I give 30 to 45 presentations a year around the country encouraging owners to try performance instead of the traditional low-bid," Kashiwagi said. "Neogard has been one of the largest supporters of these presentations."
Neogard makes "elastomeric coatings" for roofs, a treatment whose reliability was questioned here in 1997 by an official with the Quality Control Branch of DAGS. The official, Roy Tanji, issued a "technical memo" that said elastomeric products shouldn't be used on state roofing projects "unless specifically directed by the project coordinator."
DAGS later said Tanji wrote the memo "after reading a magazine article" and never observed any problems with elastomeric roof coatings in Hawai'i.
The PIPS unit didn't know about Tanji's memo and approved elastomeric products after examining several roofs coated with the material, which were "in good condition after lasting for 15 to 20 years," according to a DAGS memo on the subject written last year.
Neogard has been the supplier on more than $300,000 worth of state jobs since 1998, according to state records.
Miwa said in the hearing that PIPS was limited to roofing contracts at first and was controlled by Kashiwagi in Arizona. But after questions were raised about the Kashiwagi-Neogard connection, Miwa said, Kashiwagi "licensed" Hawai'i to run the PIPS roofing program itself.
The state pays $25,000 a year for the PIPS roofing license and another $75,000 for annual PIPS training services, according to Miwa. Although PIPS stresses the importance of warranties in the purchasing process, the PIPS system itself comes with no warranty.
To this day, Kashiwagi's PIPS program in Arizona awards all Hawai'i non-roofing PIPS contracts, including air conditioning, electrical work and, most recently, large construction jobs such as the $7 million Pearl City High School project.
Even the Hawai'i Public Works Division Web site is operated by Arizona State University.
Support for program mixed
Support for the PIPS program is mixed, even among businesses that receive PIPS contracts.
John Cheung, president of CC Engineering and Construction, Inc., recently won a PIPS contract that was $860,000 under the state's budget estimate but he is still not a supporter of the process.
"I feel that the PIPS evaluation process is subjective and is costing taxpayers a lot of money," Cheung said in testimony to legislators. Cheung is a board member of the Building Industry Association of Hawai'i.
Fellow board member Fred Moore, general manager of HSI Mechanical, has a different view.
"I really support any alternative to the low-bid system," Moore said. "PIPS is not a perfect system, but it has really allowed contractors the opportunity to examine the design criteria and work with the customer before bidding. It gets the contractor to step up to a higher level of quality."
Neither the Building Industry Association nor the General Contractors Association has taken a position regarding PIPS.
Lance Inouye, president of the General Contractors Association, says he is "reserving judgment."
Inouye's company, Ralph Inouye, Inc., landed $8.3 million in school renovation contracts through PIPS.
Inouye said PIPS administrators "appear to be trying their best to be fair about the contracts awards" but he's concerned about "the amount of effort it takes to get involved in PIPS in the first place."
Other industry groups do support the program, including the Plumbing and Mechanical Contractors Association, the Building and Construction Trades Council and the Painting and Decorating Contractors Association.
Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.
