Mississippi State University’s Acquisition of Selected Construction Contracts, FY 2006 to Present
Executive Summary
Introduction
In response to citizens’ complaints, PEER reviewed Mississippi State University’s acquisition of selected construction contracts to determine whether the university complied with applicable state law and policies of the Board of Trustees of State Institutions of Higher Learning.
Problem Statement
Managers at Mississippi’s universities face numerous challenges in planning and implementing campus construction work. Universities must consider funding and accompanying timelines (i. e., the window of opportunity in which managers learn the amount of funding that may be used and whether the work can be completed within the timeframe in which the funding must be spent), as well as the campus environment in relation to the academic calendar. Universities must also comply with state purchasing laws and policies of the Board of Trustees of State Institutions of Higher Learning regarding acquisition of construction services.
In FY 2006, managers from the Mississippi State University (MSU) Department of Facilities Management and the Office of Procurement and Contracts began using alternative methods described within this report to accomplish several small-scale construction efforts. This was in response to the managers’ belief that the state’s bid laws inhibited the university’s attempts to meet its construction needs in a timely manner.
Subsequently, local construction contractors and some legislators questioned the legality and fairness of these methods (i. e., whether construction work was properly advertised, whether contracts were awarded to the lowest and best bidders, whether certain types of contracts for construction were legal, and whether MSU managers “split” the bids in order to circumvent state law) and requested that PEER conduct this review.
Entities Responsible for University Construction Work
Managers at three possible levels may be involved in construction work at the university campuses: at the IHL Executive Office, at the Department of Finance and Administration, and at the university level. The involvement of the first two entities is determined by the estimated cost of the construction work and the source of funds to pay for the work.
IHL Policy 902 requires that the IHL Board approve construction of new facilities, repairs, and renovations to existing facilities, and requests for a capital outlay with a total budget of $250,000 or more, regardless of how these projects are financed. According to David Anderson, Deputy Executive Director of the Department of Finance and Administration, if work is to be paid for with general fund appropriations or state bonds, the Department of Finance and Administration’s Bureau of Building must approve a university construction project. If work is to be paid for with self-generated funds, the project does not have to be approved by the Bureau of Building.
At the university level, the MSU Department of Facilities Management is responsible for managing, designing, planning, and overseeing construction, repair, and maintenance services. The MSU Office of Procurement and Contracts is responsible for contracting for and purchasing the labor, equipment, and materials needed for construction, repair, and maintenance services.
Questions and Answers Regarding MSU’s Acquisition of Selected Construction Contracts
Did Mississippi State University comply with requirements of state law regarding the purchase of construction in FY 2006 through FY 2008?
From FY 2006 through FY 2008, managers at the MSU Department of Facilities Management and the Office of Procurement and Contracts utilized some methods of acquiring construction services for small-scale projects that did not comply with state law or that circumvented state law.
MISS. CODE ANN. Section 31-7-13 (a) through (c) (1972) requires that purchases (including construction) of over $5,000 be made from the lowest and best bidder, determined through solicitation of competitive written bids.
However, to expedite and accomplish as much construction work as possible during the summer months, in FY 2006 through FY 2008 managers at the MSU Department of Facilities Management and the Office of Procurement and Contracts utilized some methods of acquiring construction services that did not include a truly competitive selection process for contractors:
Although MSU might have had a legitimate need to expedite the acquisition process for small-scale construction projects, MISS. CODE ANN. Section 31-7-13 (o) (1972) prohibits the splitting of construction projects to circumvent the state’s bid laws. This situation is exacerbated by the fact that the state’s bid laws do not define what constitutes a “construction project.”
After analyzing MSU’s use of the three above-described methods for procuring construction contracts, PEER concluded that because MSU circumvented state bid laws, the university’s managers could not demonstrate that they had attempted to obtain the best price for construction services. Also, MSU’s actions restricted the opportunity for contractors to compete for construction projects.
What actions did MSU managers take after determining that the university’s acquisition of some construction work did not comply with state law?
Managers of the MSU Department of Facilities Management and the Office of Procurement and Contracts began using term contracts in FY 2008 for small-scale construction projects. These term contracts complied with state law, but were flawed in that they did not allow determination of the lowest and best bidder and subjected the university to potential difficulties in controlling costs. By August 2008, MSU managers had ceased using term contracts and were using competitive methods of acquiring construction services that ensured that contracts were awarded to the lowest and best bidder.
Because IHL Policy 707.01 limits the board’s oversight to service contracts estimated to cost $250,000 or more and the term contract for Request for Proposals 07-52 was an indefinite quantities service contract for construction with no defined cost, MSU managers did not submit the contract to IHL for review, despite total costs of over $1.6 million.
In response to contractors’ complaints, in July 2008 MSU conducted an internal audit of construction procurement and instituted corrective action. By August 2008, MSU had ceased the use of term contracts (see page 21 regarding term contracts being legal and competitive) and was using competitive methods of acquiring construction services that ensured that contracts were awarded to the lowest and best bidder.
Recommendations
PEER recognizes that some of the purchasing restrictions imposed by state law inhibit the universities’ ability to expedite small-scale construction projects within the time frames related to funding and the academic calendar. In order to meet the university’s construction needs within the desired time frames, from FY 2006 through FY 2008 MSU utilized methods of acquiring construction services that did not comply with or circumvented state law. In many cases, use of these procurement methods damaged the university’s relationships with construction contractors.
The Legislature must balance the universities’ small-scale construction needs and time frames with the need to maintain a fair and competitive environment for procuring university construction services at the lowest and best price, maximizing the yield from public funds.
Also, the Board of Trustees of State Institutions of Higher Learning should strengthen its policies regarding university construction projects. At present, even though term contracts for university construction could potentially cost more than the threshold amount requiring IHL approval, these contracts could escape IHL oversight.
PEER provides the following recommendations for ways to reduce the restrictions on university procurement practices for construction services, yet also maintain a fair and competitive environment in which contractors could compete for university construction projects.
“Construction project” shall mean a project including planning, design, preparation, and performance of a new capital improvement, alteration, conversion, fitting out, commissioning, major renovation or repair, demolition or decommissioning of any structure or infrastructure. The project scope shall be inclusive of scope of work, timeline and budget. The term “construction project” shall also include any or all necessary materials, labor, and equipment, needed to complete the project if such are contracted for separately.
Such statutory definition would specifically require that an entity consider all related costs of construction efforts together as a construction project. Thus the entity would be required to compare aggregate costs of the effort to the cost thresholds specified in CODE Section 31-7-13 to determine which competitive procurement method should be utilized.