Happy Anniversary!?!? Pennsylvania Begins Its 108th Year Overspending on Public Construction

Next time you drive by a public-school building under construction, know that our state is intentionally spending 10% more on that project because of an archaic law that only exists in Pennsylvania.

On May 1, 1913, Governor John Tener put his signature on legislation to enact the Pennsylvania Separations Act.  Tener assumed our state’s top office as we were coming off of a construction scandal involving the Pennsylvania State Capitol.  State Treasurer William Berry had found that there had been an unappropriated cost for our state capitol’s construction of over $7.7 million ($211,282,599 today).  Mr. Berry found many questionable charges, which led to the conviction of the building architect and the former State Treasurer.  Due to today’s technology, every cent that is spent is easily tracked.

At the time, in 1913, a Separations Act-type law was the norm in America.  However, it is not the norm today as every other state, the federal government and the private sector enjoy options in construction delivery.  Yet Pennsylvania remains the lone holdout that mandates the Separations Act which requires the use of multiple prime delivery.

Supporters of the Separations Act like to debate the statement that Pennsylvania is the only state left with this cumbersome contracting requirement and they believe there are two other states joining us.  They feel that North Dakota and New York join us.  These two states have chipped away at their multiple prime mandate, allowing flexibility in public contracting methods depending on the type of project.  But regardless of whether Pennsylvania is the only state or one of three states, it’s a pretty weak defense to keep a law on the books that wastes tax dollars.

So, what is the Separations Act and multiple prime delivery? And why should taxpayers care?

The Separations Act requires that public entities, like a school district, solicit and receive at least four separate bids for one construction project.  This is referred to as the multiple prime delivery method.  Let that sink in – four separate companies tasked with building one project.  This multiple prime delivery method requires the public entity to hold and manage the multiple contracts, making the public entity responsible for coordination of contracts.  Consequently, the public entity increases its contractual liability exposure and is forced to be involved in contractual disputes among the primes.

Without one company in charge of the construction project, the multiple prime requirement is cumbersome and sets the stage for adversarial relationships amongst the prime contractors, resulting in a drastic rise in change orders and claims on multiple prime delivered projects.  Additionally, without one contractor guiding the project, there are multiple project schedules, and this lack of collaboration eliminates the prospect of early completion.  In the private sector, like the healthcare industry, it’s typical to read in the newspaper that the new hospital was built under budget and ahead of schedule – wouldn’t it be nice to afford the public sector similar contracting options that others benefit from?

There is draft legislation that would bring Pennsylvania inline with the rest of the country when it comes to project delivery for public construction, but most importantly it would save tax dollars.  This legislation would allow the public entity to choose between four different delivery systems: Design-Bid-Build Multiple Prime (current mandate), Design-Bid-Build Single Prime, Construction Management At Risk, and Design Build.  To the non-construction professional these terms might be foreign to you.  While there are thousands of resources that explain the various delivery systems (and I don’t mind pointing people in the right direction if requested), I’ll try to keep the explanation simple: each of the listed delivery systems have a different entry point to have the construction team join the design team.  Due to design and construction teams joining forces at different times, depending on the selected delivery system, the systems vary in collaboration as illustrated here:

Now I’ve been told that the Separations Act is a tough issue for the general public to understand.  Personally, I thought an issue that saves tax dollars is something the masses can get behind.  But perhaps I can use an analogy that may help:

  • Can you imagine if the Philadelphia Eagles had four head coaches?  This lack of leadership would result in chaos on the field with players unsure who to listen to.
  • Or what if the Pittsburgh Symphony Orchestra had four principal conductors?  The crowd would need aspirin and earplugs if the orchestra were to receive four different directions.

On Pennsylvania public construction projects, we have four head coaches and four conductors all giving different orders.  There is no perfect construction delivery method, and our industry has evolved since the days of Governor Tener.  We have adapted delivery methods in response to the customer’s changing circumstances.

The customer should be afforded the opportunity to select the most appropriate delivery method for a particular project on a case-by-case basis as cost, quality, and time vary from project to project.  Flexibility to choose the most effective and efficient project contracting method will enable local public entities to control costs on building projects, which ultimately saves tax dollars.    

Separations Act in 2017

During 2017, there were some memorable stories involving Pennsylvania’s  Separations Act. Today I’m going to touch on a few of the major stories.

But before jumping right into the fun, here’s a quick explanation of the Separations Act: this law requires public construction projects in Pennsylvania to build utilizing a multiple prime delivery system and hire at least four prime construction companies for one project. Our state is one of three states that require this handcuffing of public agencies to build in this cumbersome manner – don’t get me wrong the multiple prime delivery system can be a good option depending on numerous factors (owner’s expertise, complexity of project, budget, schedule, etc.), but multiple prime is one of many delivery options. The construction industry has evolved over the years and we now have more innovative and collaborative team approaches to consider, yet our state only allows one delivery option. Considering that the multiple prime delivery system is rarely used in the rest of the country, federal government, and private sector, it’s time for our state to amend our law and allow options in construction delivery systems.

Here we are in 2017 and PA is still mandating we follow this ancient law that impedes the construction industry from progressing. However, our current state is led by a self-proclaimed Harrisburg outsider, so maybe Governor Wolf will play a vital role in advancing the construction industry, and maybe, just maybe the Harrisburg outsider moniker played a role in kick-starting efforts in advancing the construction industry in 2017. Without further ado, here are my top Separations Act stories of 2017:

2017 Senate Appropriation Hearing

On Monday, February 27, 2017, the Separations Act got off to a good first step this year during the PA State Senate Appropriations Committee hearing. At this event, the Governor’s appointed Department of General Services Secretary Curt Topper said: “we face some significant constraints that the private sector does face when it comes to managing our money efficiently. So, for example the Commonwealth, when we go to market in order to contract to do construction, we are bound by the Separations Act of 1913. We are one of only three remaining states in the U.S. that has a Separations Act. That Separations Act requires that we do business less efficiently than we could otherwise do business.” Bravo to Governor Wolf for appointing a forwarding-thinking individual like Secretary Topper who sees an issue and wants it addressed to improve the Commonwealth. Plus, bravo to Secretary Topper for knowing that you were appointed to do a job and you didn’t let politics get in the way.

Click here to Secretary Topper’s hearing:  http://www.pasenategop.com/budget-hearings-summary/

Here is an OpEd on his testimony:  http://www.yorkdispatch.com/story/opinion/contributors/2017/03/07/oped-s-time-repeal-separations-act-pa/98857412/

Here is commentary from Philly Inquirer’s John Baer: http://www.philly.com/philly/columnists/john_baer/Another-old-PA-law-enters-the-states-fiscal-follies.html

 

Pennsylvania Organizations Want Change

What happened on that Monday in February of 2017 had tremendous reach beyond the room where the Senate Appropriations hearing was held. Organizations across the Commonwealth had a bounce in their step, as an executive in the governor’s cabinet publicly supported modernizing the Separations Act. This newly formed coalition mobilized in 2017 and even launched an online petition (located here:

https://www.change.org/p/time-to-modernize-the-pa-separations-act). More to come from this coalition in 2018.

 

A Union Uses Separations Act to Gain Marketshare Over Another Union

In a bizarre twist of fate, a school in the Pittsburgh area signed a project labor agreement (PLA) which pleased the union construction sector in that area. Promoted as a tool to assure labor harmony, West Jefferson Hills School District could not imagine their PLA project being shut down when one building trades union sued the school district, architect, construction manager, and others – but that’s exactly what happened. The plumbing contractor filed suit claiming that the site utility work outside the building footprint should have been assigned to them and not the general trades contractor. It is typical on a construction project (public and private) to have the plumbing contractor perform plumbing work from inside the structure to five feet outside the building. Yet, this plumber wanted work to exceed the ‘typical’ scope of work and this contractor wanted the site utility work assigned to them, which took work from the general contractor, site contractor and the Laborers Union. The Court of Common Pleas of Allegheny County sided with the plumbing contractor stating that the project ‘willfully’ violated the Separations Act. This ruling changes years of precedence that could have major consequences on construction in Pennsylvania – both public and private.

 

 

Separations Act Project a Mess on a Grand Stage

The saying goes, that nothing attracts a crowd like a crowd. Well, in construction, nothing attracts the masses like a massive project. Originally set to open during November of 2015, the State Correctional Institution Phoenix in Montgomery County, PA, which is the largest public building project in our state’s history, is way over-budget and years past schedule. Since this project is so mammoth and expensive, it has the attention of many people statewide, from construction professionals who want to see how it’s built to concerned tax payers who want tax dollars spent efficiently. But a disastrous, multiple prime construction project should have been foreseen since it took years to bid the project, bidding three times over the timeframe of two Governors – Ed Rendell and Tom Corbett. I could go on and on about the mess that is the SCI Phoenix, but I think the PA Corrections Commissioner John Wetzel summed it up best in a Senate Budget hearing when he said: “It’s been a terrible construction project.”  For more information on this developing, and apparently never-ending story, click here to read one of the many articles on it:   http://www.philly.com/philly/news/crime/prison-graterford-phoenix-phila-convention-center-20170901.html

 

Well those are my top Separations Act stories of 2017. They were each briefly presented but if you would like additional information on any item listed please do not hesitate to contact me. Also, if you have an opinion on these stories or think I’m missing an item, I’d like to hear from you.

Let’s Spend PA Tax Dollars Efficiently

Today we are a few days away from the month of October. In Harrisburg, it should be a time that our legislature is working on crucial issues – education, healthcare, energy, opioid epidemic, etc., but instead our state is still trying to complete its budget. One Pennsylvanian even tracks it daily and any minute today we should see his post about the budget now being 89 days late.

Every time I think about the budget debacle, as a construction professional I think about a major issue that drives up the cost of public construction, that being the Separations Act. 10 to 13% – that is amount that we overpay for construction services in Pennsylvania. Think about that every time you drive around and see a public construction project underway – our state is paying 10 to 13% more from your tax dollars to construct that building than what Maryland would pay for it. Next time you hear that your local school district is holding a school board meeting, think about all the topics they cover under their buildings and grounds report and how those projects will cost tax payers 10 to 13% more than what New Jersey would pay due to a meaningless mandate.

The Separations Act requires Pennsylvania to build in an archaic manner where multiple prime contractors take a lead role, and point fingers at each other while standing next to their attorneys every step of the way. Claims, lawsuits, delays – those are the norm for public construction projects in our state and those are the factors that drive up the cost of construction. In other states, like West Virginia, Ohio, and 47 other states in our nation, they are free to choose the most efficient construction delivery method. Our federal government and the entire private sector are also free to choose the most cost-effective delivery method.

So next time you read a newspaper article on the state budget impasse, just think about how we overpay for construction services by 10 to 13%. Let that fact sink in while you start your day, the 89th day that we are late on this year’s budget.

Please share this petition with your contacts, urging them to sign:  https://www.change.org/p/pennsylvania-repeal-pa-separations-act. Also contact your legislators and let them know that you want action on Senate Bill 744 and House Bill 1529.