AG’s Office agrees to consider legality of Education Special District 112’s Construction-Services Group

 

Sarah Cox, Associate Attorney at Davis Wright Tremaine LLP

The Washington State Attorney General’s Office has agreed to look into the procurement practices of Educational Special District 112’s Construction Services Group, and to issue a non-binding opinion on whether it school districts that contract with the group must comply with Washington’s competitive procurement procedures in doing so.

One of the Washington construction industry’s best kept secrets is the Construction Services Group (“CSG”) of Educational Special District 112 (“ESD 112”), which claims to “provide capital program, project and construction management for K-12 school districts.” In reality the CSG serves precisely the same role as private construction management businesses including general contractors, architects, engineers, building commissioners, and bread-and-butter construction management companies.

The CSG boasts on its website of having served “over 100 of the state’s 295 public school districts” and managed “in excess of $3 [billion] in public capital investment in the K12 built environment.” A review of a sample of the CSG’s contracts—obtained through Public Records Act and similar requests—shows not only that the CSG has managed a remarkable number of large construction projects, but also that it charges above-market rates and recognizes substantial profits.

Despite the fact that it conducts its work like a sophisticated, multi-million dollar company, the CSG does not participate in the public bidding and competitive procurement processes set forth in Washington law. Instead, it claims to be exempt from competitive procurement laws because it is a creature of the state and may thus contract directly with school districts through what are known to be “interlocal agreements.”

Interlocal agreements are essentially contracts entered into by Washington state agencies and subdivisions for “joint and cooperative action.” Interlocal agreements are intended to allow state agencies, particularly those that are smaller and / or serve less populous jurisdictions, to pool and share resources.

Despite the interlocal agreement statute’s pronouncement that “[n]o agreement made pursuant to this chapter relieves any public agency of any obligation or responsibility imposed upon it by law,” the CSG and the districts that contract with it use interlocal agreements to sidestep competitive procurement. In so doing, they not only avoid having to comply with often onerous competitive bidding procedures and also bypass other public contracting requirements such as diversity and small business goals. The CSG is similarly able to ignore the state’s mandated licensing and insurance requirements, and need not select subcontractors, suppliers, and/or consultants through the public bidding process.

Together its purported exemptions give the CSG a substantial competitive advantage with which private companies simply cannot compete. Making matters worse, its contracts are not typically subject to standard legal challenges (such as bid protests) because they are usually executed behind closed doors. Consequently, their would-be competitors often do not know they lost business to the CSG until after the ink is dry on the contract, when it’s too late for a temporary restraining order enjoining performance under the contract.

The CSG has been on the radar of the companies that provide services similar to it for over a decade. These companies and their representatives have tried in vain for over a decade to bring the contracting issues generated by the CSG to the attention of legislators and districts for years. Until recently their objections were mostly ignored. The CSG maintained a public persona of altruism that allowed districts and lawmakers to look the other way when it came to complying with the law and harming private enterprise.

Recently, however, due in large part to the efforts of the Washington Public Contracting Alliance (“WPCA”) and the CSG’s alarming rate of growth, the problems inherent in the CSG’s operations caught the attention of State representative Michelle Caldier, who, along with the WPCA, requested that the Washington Attorney General’s Office (“AGO”) issue an opinion as to the legality of the CSG’s contracting practices. Specifically, they asked the AGO to respond to the following question:

May a state school district contract directly with a state educational service district for construction management services, value engineering reviews, constructability reviews, commissioning procedures, or other public works without first complying with the competitive procurement procedures specified in RCW 28A.335.190 and RCW 39.26.120?

The AGC and ACEC backed the request for an AGO opinion and stated in a comment letter that the organizations “respectfully request that the AGO issue an opinion stating that the CSG and the districts that hire it must participate in open and competitive procurement and comply with the same rules and regulations to which private businesses are subjected if they intend to continue performing “public works” for Washington School districts.”

If loyal to its prior “precedent” the AGO’s answer to the question posed should be “No.” In 2011, it answered a similar question relating to architect and engineering services in the negative, explaining that “a state or local agency or special district must first comply with the procurement procedures under RCW 39.80 when acquiring ‘professional services’ as defined in RCW 39.80.020[,]” and that “[t]he Interlocal Cooperation Act, RCW 39.34, does not excuse compliance with those requirements, but does allow public agencies to join together in acquiring such services.” In any event, the outcome of this issue—whether determined through the AGO, the court system, or legislature, could have untold effects upon K-12 procurement and construction work.

The AGO has not indicated when it will render its decision, but it has welcomed comments from both the WPCA and the AGO recommending that it determine that the ESDs must comply with public procurement procedures. You can submit comments as well by emailing Assistant Attorney General Jeff Even.

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Sarah Cox is a member of AGC’s Government Affairs and Legal Affairs committees.