The Impacts of an Inefficient, Cumbersome Law

The following article first appeared in the Keystone Contractor Magazine’s Spring 2023 edition. To view the entire issue visit: https://issuu.com/atlasmarketing/docs/the_keystone_magazine_spring_2023_final_issuu_0420?utm_medium=email&utm_source=sharpspring&sslid=MzcxtzQwMjE1MbcwAwA&sseid=MzI1MTUzNzOyNAAA&jobid=8e832794-eea0-4ecd-80ef-31f10ccb9ec3

The Impacts of an Inefficient, Cumbersome Law

The Separations Act – Wasting Tax Dollars Since May 1, 1913

By Jon O’Brien

President Theodore Roosevelt was among the admirers of Pennsylvania’s new Capitol building at the dedication ceremony on Oct. 4, 1906.

“This is the handsomest State Capitol I ever saw,” the president said as he entered.

While it was a magnificent building, the project was way over budget – three times more than the legislature allocated.

The subsequent investigation resulted in a law that, while well-intended at the time to protect taxpayers from fraud, is no longer relevant today. Instead, it is costing taxpayers money because it requires inefficient construction methods on public projects.

That $7.7 million Capitol overrun – the equivalent of more than $211 million today – triggered a probe that revealed grafting. Capitol architect Joseph Huston, superintendent of construction James Shumaker, general contractor John Sanderson, state Auditor William Snyder and state Treasurer William Matheus were sentenced to prison.

With little financial stewardship, each convicted individual had profited tremendously. But this sort of illegal activity wasn’t just happening at the Capitol project – it was the norm on public projects at the time.

Fast forward to 1913. Public outrage over the scandal remained. There was pressure on public officials to do something. Republican Gov. John Tener, a former congressman and major league baseball player, signed the Separations Act.

It mandated multiple prime contractors on all public construction projects. The thought was that the more eyes there were on the project, the less likely that there could be collusion for fraud.

Perhaps 110 years ago, enacting the Separations Act made sense due to the circumstances at the time. Other states imposed similar rules.

But in this day and age, every cent can be easily tracked. Every other state has done away with their laws because they recognized they were outdated and that providing options in construction delivery methods is the most-efficient way to spend tax dollars on construction.

Pennsylvania continues to cling to its law. Here’s how that is hurting taxpayers by driving up the price of constructing public buildings.

Requiring multiple prime contractors – one for HVAC, one for electrical, one for plumbing and one for general trades – means the owner must bid out and manage four separate contracts.

The primes are not contractually connected and this impedes communication with each other. This lack of contractual relationship also hurts the communication between the architect and the primes.  Each prime contractor and the architect are directly contracted with the project owner – like a school district, municipality or other government entity – and because of that all communication runs through the project owner.

The lack of a single point of contact from the construction team creates a nightmare of a scenario for the owner. It’s inefficient and cumbersome.

Most problematic is it eliminates the possibility of collaboration during pre-construction,  which is a more-efficient method of construction. If early collaboration were allowed between the project architect and a single construction manager, projects would proceed more smoothly. Hurdles could be anticipated and resolved in advance. Without collaboration, expertise from the construction team is sparse, if at all, during the design phase.

Legislation has been proposed several times in recent years that would do away with or amend the Separations Act.

During a legislative budget hearing in 2017, state Secretary of General Services Curt Topper testified that the Separations Act “requires that we do business less efficiently than we could otherwise do business.”

He said the old law “effectively sets up a situation where it is much more difficult to design a project, to bid a project and to manage a project. So, I’d love to see us address that problem.”

Yet the law remains on the books.

Its inefficiency is well-documented.

From 2000 to 2010, public education projects could opt out of the Separations Act through the Education Empowerment Act that was enacted during Gov. Tom Ridge’s administration. Seventy school districts applied for the waiver during that period, an indication of the unpopularity of the Separations Act.

The Allegheny Conference reviewed some of those projects and issued a report concluding that savings of between $8,000 to $2.5 million were achieved on school construction projects that used a single prime contractor instead of multiple primes.

Kennett Consolidated School District did one project with a single prime and one with multiple primes per the Separations Act. The single prime project was finished two months ahead of schedule and $300,000 under budget. The multiple prime project came in over budget. This is just one the many examples to show that the Separations Act is costly to taxpayers.

There is a long line of organizations, trade unions and governments that are lobbying for modernization of the Separations Act.

They include: Pennsylvania Chamber of Business & Industry, National Federation of Independent Businesses PA Chapter, Pennsylvania School Board Association, Pennsylvania Coalition of Public Charter Schools, Pennsylvania Association of School Business Officials, PA Association of Rural and Small Schools, Green Building Alliance, Green Building United, U.S. Green Building Council Central PA, Keystone Contractors Association, Master Builders’ Association of Western Pennsylvania, National Utility Contractors Association Pennsylvania chapter, Association for Responsible and Ethical Procurement, Carpenter Contractor Trust, Construction Legislative Council of Western Pennsylvania, Design-Build Institute of America, General Contractors Association of Pennsylvania, General Building Contractors Association, Cement Masons Local 526, Eastern Atlantic States Regional Council of Carpenters and Laborers’ District Council of Western Pennsylvania.

Many public owners want to modernize the Separations Act and a few of the more vocal ones include: Philadelphia School District, Pittsburgh Water and Sewer Authority, Peters Township School District, Cumberland Valley School District and Community College of Allegheny County.

Jon O’Brien is Executive Director of both the Keystone Contractors Association and the General Contractors Association of Pennsylvania. He can be reached at 717-731-6272 and Jon@KeystoneContractors.com.