This guy isn't the only topic of controversy in the Buckeye State, anymore.
There is more turmoil at Ohio State University (OSU) – this time its not about football. Nope, this time we are talking public contracting. By reducing their dependence on public financing, OSU has curtailed the impact of state regulations. So, what is the fallout? Who gets hurt the most?
Yesterday, Chris Cheatham published a quick article on a lawsuit filed against OSU that caught my immediate attention. According to Chris, the Surety and Fidelity Association of America (SFAA) and the American Subcontractors Association (ASA) filed an action to compel OSU to require bonding on a public works project at the University. As you can assume, the State of Ohio requires payment and performance bonds on all public works. For at least one project, the school failed to do so.
The University appears to have petitioned the State of Ohio for a sort of prototype “reprieve” from some of the state’s public works regulations. In doing so, OSU was able to procure this unknown project through the Construction Manager At Risk procurement method. Chris’ article says that this meant “non bond” – but is there more?
Last week, I read a strange article in the Columbus Dispatch that appears to go hand in hand with Chris’ post. OSU Chancellor, Jim Petro, went on record to state that the school had worked a deal with the State of Ohio to remove a number of regulations that directly correlate with additional construction costs. Accordingly, OSU was able to cut $164.7 million from a $1.1. billion medical center expansion. That’s right, $164.7 million!!
So how did this come about? Chancellor Petro blames a lack of public funding for capital projects:
“The steady decline in state support that public universities have seen over the last decade must be accompanied by increased flexibility that allows us to contain costs and pursue new revenue opportunities,” Ohio University President Roderick J. McDavis said in a statement. Petro said it’s too early to speculate on which of the 120 state mandates that govern public education might be loosened, and how much enterprise status would cost schools.
Petro’s solution? Create a semi-privatization concept that removes the primary dependence on public funding for the school’s capital projects. The plan allows a public university to relinquish some state funding in exchange for more freedom from regulation. His solution saved the school $164 million, but caused a lot of concern.
When I think about this, I immediately understand why the SFAA and ASA are worried. Reducing regulation increases risk that subcontractors won’t have security on the project and that contractors won’t have the opportunity to fairly compete for state-funded work. The counter-argument is that bonds add 3-5% to a project’s cost and public bidding adds tons of headache and cost. Remember, the state already manages a retainage against the contractor for payment of lower-tier claims.
So, whats the verdict? Is this a scary development or are we finally streamlining public contracting? The debate will no doubt pick up steam as more construction businesses are impacted by similar projects. Let me know your feelings in the comments.
