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Some local contracts exempt from bid laws

The stadium at Joe Quintal Field, pictured here, is scheduled to be replaced as part of a $2.5 million project, which is expected to be complete by the 2010 football season.

When Mitchell school officials set out to choose an architect and construction manager for a $2.5 million stadium replacement project at Joe Quintal Field, they did not seek applications from interested firms.

Instead, they turned directly to Puetz Corporation. The local company, which will design and manage the construction project but will not do any of the physical construction work, will be paid 10 percent -- an estimated $250,000 -- of the project's total cost.

Since the contract was finalized last month, some residents of the school district have wondered how a publicly elected board could award a six-figure contract without going through any kind of bidding process.

The answer is simple: School officials were not lawfully required to seek bids or other forms of competitive proposals, and they chose not to do so.

Exempt from the law

Architecture and construction management are considered professional services, and a 1959 South Dakota Supreme Court decision holds that professional services can be exempted from state bidding laws.

"The reason for this exemption," says a 1980 official opinion written by then-Attorney General Mark Meierhenry, "is that specialized personal services require special skill and ability which cannot necessarily be obtained through the competitive bidding process."

A bill adopted last winter during the 2009 state legislative session narrowed the professional-services exemption as it applies to state government. The new law requires many state agencies to seek competing proposals for professional-service contracts exceeding $50,000, but the law does not apply to local governments such as school boards, city councils or county commissions.

State Rep. Noel Hamiel, R-Mitchell, crafted the legislation last winter. He thinks local governments should voluntarily seek competing proposals on contracts such as the one awarded to Puetz Corporation, but he's not ready to support legislation requiring local governments to do that.

"I'm not ready to make that statement, because I haven't thought that through," Hamiel said. He added that his legislation last winter was motivated partly by the large amount of tax dollars at stake in state contracts. He's not convinced that similarly large amounts of tax dollars are at stake in local-government contracts.

State Sen. Scott Heidepriem, D-Sioux Falls, one of the sponsors of Hamiel's legislation last winter, has a stricter view of the situation. He said local governments should be held to the same standard as the state.

"If you're sitting on a local church board and the furnace breaks down, you don't just call your friend and say, 'Come replace the furnace. Whatever it costs, we'll pay it.' " Heidepriem said. "You have an obligation to everybody else to get the best possible deal, I would think."

'Excellent past performance'

Dana Price, president of the Mitchell Board of Education, said the board chose Puetz Corporation on the recommendation of Superintendent Joe Graves. Price added that he based his own supporting opinion on Puetz's "excellent past performance."

When asked why the board did not try to determine if there are other companies who might do an equally good job for less pay, Price urged the newspaper to "go through Dr. Graves for that."

Graves said no other companies were considered because the Puetz contract constituted a professional service, and "professional services aren't required to be bid."

He added that representatives of Puetz Corporation had served on the school district task force that studied the stadium replacement project and, as such, knew the project well. School officials have also been satisfied with past work done by Puetz Corporation, Graves said, and are confident that the company's fees are competitive.

Graves said he sees no problem with the district's decision to forego a competitive selection process on the stadium architecture and construction management, because it was an isolated case. The district awards many contracts, he said, and often solicits bids or issues a request for proposals.

"Where we would run into a problem is if we didn't bid out all the time," Graves said. "If we were just constantly picking one firm, then I think we would have a problem."

He cited the ongoing Longfellow Elementary School replacement project as an example. Puetz Corporation won the construction management contract for the $8.5 million project, but Puetz lost the architecture contract through a competitive process to Koch Hazard Baltzer, of Sioux Falls.

'Open up access'

Mark Puetz, of Puetz Corporation, also referenced past experiences with the school district when asked why the district chose his firm without considering others.

"It's just like an attorney or an insurance company or anything else," Puetz said, drawing a comparison between construction management and other professional services. "If a client is pleased with the services performed, and they've already seen that you're cost-competitive, there's nothing that states they have to go out and get further proposals."

Puetz pointed out that, under the construction-manager delivery method, all of the various aspects of the physical construction work are publicly bid. The construction manager conducts the bidding and brings the information to the client for approval.

Construction managers who serve "at risk," such as Puetz Corporation, act as full-time managers of the construction process and guarantee that the project will be built to exact specifications and standards of quality. Mistakes during the construction process are the responsibility of the construction manager alone, and it's the construction manager's job to see that the mistakes are fixed. Theoretically, the construction-manager method cuts down on finger-pointing between designers and builders.

"We're the only ones that anyone can point a finger at," Puetz said, "which I think is something that is appealing to the client."

According to Puetz, the construction-manager delivery method helps assure a better final product than a client might get by merely selecting a low-bid general contractor.

"A competitive proposal," he said, "doesn't always guarantee you a quality product."

Hamiel said he agrees with that statement, but he still thinks contracts such as the Puetz stadium deal should be subjected to a competitive process.

"I think if a local taxing district is going to enter into a project that costs millions of dollars, I'd be more comfortable if they open that up for other companies," Hamiel said. "I don't see a downside to that. It would open up access."

By law, local entities such as the Mitchell school board would still be able to select the most qualified firm, even if that firm does not have the lowest fees. Elected officials might face questions from constituents about their decision to forego the lower-priced company, but Hamiel said that's not a problem as long as the elected officials can adequately defend their decision.

"It's better to be in that position," Hamiel said, "than not to have an open competition for the job in the first place."