The Imperial District: Redefining Material vs. Immaterial

What does $10 million buy? Many of you might buy property and become rental owners. Some of you might retire and live a life of leisure. Still others might decide they would like to help out those injured or in need, perhaps including those left in the dust by the federally bailed out and bankrupt GM and Chrylser. I just submitted a proposal to build a four-story, 40,000 square foot museum that should end up costing less than that to build, barring major design changes by the owners. The owners will have a fully functional and operating museum for less than $10 million dollars.

But that pertains to us regular folk. What does $10 million buy you if you're in the government? Well, as I have recently discovered, it buys you something ever so much more valuable than things like museums or retirement, or even justice. The Metropolitan Water Reclamation District of Greater Chicago, in awarding a construction contract in the Fall of 2008, spent 10 million taxpayer dollars on something ever so much more important than just a little old museum. They spent it on Minority Participation.

The MWRD has instituted an ordinance, for the purpose of complying with affirmative action rulings, that requires general contractors to commit to certain percentages of Minority Owned, and Women Owned businesses in their bids for construction contracts. This is not uncommon for public agencies in general, and particularly in Chicago. The Chicago Housing Authority requires it, the Department of General Services and the Public Building Commission require it, as do the Chicago Public Schools. Minority and Women Owned businesses are also required on projects built by those private developers that seek to finance their projects via TIF funds.

In committing to MWBE participation, a general contractor is typically required to submit a mountain of paperwork with its bid. This will usually include a summary page outlining what MWBE subcontractors have been committed to, and for what work and dollar amount, followed by the MWBE certification letters of those contractors, generally provided by the City of Chicago, to prove that they are indeed of currently recognized MWBE status. When committing to the use of these MWBE subcontractors for certain dollar amounts, the general contractor is not allowed to renegotiate these values after being awarded the job, thereby guaranteeing that these MWBE subcontractors will be receiving what they are promised. The general contractor retains the right to renegotiate contract values with any non-MWBE entities after the fact, a practice known in general contracting as "the buyout."

The MWRD's Affirmative Action Ordinance requires that every single piece of paperwork be in order with the bid in order for the bid to be deemed responsive. Should any one page or piece of requested information be missed, the bid will be deemed non-responsive and will be summarily rejected without question. The MWRD is ruthless in its application of this ordinance, even when staring a difference in bids of $10 million in the face. This comes to light in the recently decided case of Walsh/II in One JV v. MWRDGC.

In this case, the project at hand was worth $244, 600,000. The Walsh joint venture was the low bidder by $10 million. In its bid, Walsh provided the minority certification letters of the MWBE subcontractors it intended to utilize on the project. Walsh, however, failed to provide the required signed page D-25 summary page outlining what MWBE subcontractors were being utilized, how much money they were each promised, and for what work. In its strict compliance to the Ordinance, the MWRD rejected Walsh's bid as non-responsive. Walsh sued the MWRD and the case ultimately wound up in the Illinois State Supreme Court.

To make a long story short, as you can read the decision for yourself in the link provided, the court ruled in favor of the MWRD, arguing two points that were specifically challenged by Walsh. The first challenge was that the Ordinance itself was illegal. The court dismissed this based on years and years of precedent, and a failure by Walsh to provide a coherent case as to why. The second, more important challenge made by Walsh, was that the failure to include the signed page D-25 was an immaterial breach, and should not have constituted a reason to declare the bid non-responsive. The court ruled that the breach is in effect material, due to the legal issues that would otherwise arise if the MWRD were to reverse its decision making process on its own ordinance. The court also went out of its way, rightly in my opinion, to skewer Walsh for just plain being stupid.

Legally speaking, the court's decision is correct. However, this does not mean that the MWRD's Affirmative Action Ordinance is correct. Comparatively speaking, having dealt with public contracts from nearly all of the public agencies local to the Chicagoland area, the MWRD's percentage requirements for MWBE participation are actually quite fair. It is the only organization in the area in my experience that gives itself the ability to change the percentage requirements on a contract-by-contract basis. The CHA, for instance, always requires 40% MWBE participation, and the PBC always requires 28%, no matter the contract, no matter if it is even reasonably possible. What the MWRD does not provide, however, is the opportunity for a contractor to "cure" its bid.

I have submitted bids in the past to the CHA and the PBC that have not included the correct paperwork down to the last letter. This is due to the extremely pressing nature of the bidding environment. A bidding general contractor handles perhaps over 100 different subcontractor bids on bid day, and must decide which MWBE subcontractors to carry in the bid, and have all of their paperwork correct, up to mere minutes before the bid is required to be turned in. It is fairly common for mistakes to be made. The CHA and the PBC, respectively, will from time to time offer the low-bidding general contractor the opportunity to correct its paperwork. The agencies typically allow extremely short turnaround times for this correction, sometimes mere hours, but those mere hours are often sufficient. Subcontractor bids cannot be renegotiated in those short hours, nor would an MWBE subcontractor acquiesce to that renegotiation after knowing he or she had been utilized in the first place. The CHA and the PBC recognize this fact, and operate in a reasonable manner.

The MWRD, however, fancies itself of higher importance. It is their stance that any contractor working for them is priveleged to be working for them. In fact, many of their personnel jokingly refer to themselves as The Imperial District. Throughout the case, the Purchasing Agent for the MWRD, Darlene LoCascio testified that she had similarly rejected eight other bids in the year prior for the exact same discrepancy. This was what the court relied upon when upholding the MWRD's decision to declare Walsh non-responsive. Now not only does the MWRD have an unreasonable policy from a business standpoint, and from the standpoint of administering public dollars, but it has been upheld by the Illinois State Supreme Court, meaning it is unlikely ever to be overturned.

If the MWRD had any common sense, they would revise the Affirmative Action Ordinance to allow for a bid to be "cured" after a certain minimum amount of money was involved. However let us remember that Darth Vader wore all black. And indeed it appears the Force is strong with this one, as they have implemented an ordinance that allows one missing piece of paper to cost the taxpayers $10 million. $10 million is immaterial to the Imperial District, but you'd better believe that Minority Participation is material.