The horrible history of state contract awards

By Nicholas Umashev
July 20, 2017

California’s state contract award system combines the worst of two worlds, delivering significantly higher infrastructure costs and longer construction time. Since government contracts are typically awarded on a lowest-cost basis, construction companies often engage in dodgy practices to win contracts. The history of Tutor Perini demonstrates why a company’s history should be taken into account when considering their bid on government contracts.

Tutor Perini CEO Ron Tutor is allegedly a master at change order scheming, where companies make artificially low bids on projects and then make up for the low bid by charging the government for “unanticipated costs”. According to David Casselman, an attorney who opposed Ron Tutor “he’s a master at it” and change order scheming is central to why Tutor Perini is a billion dollar company. These business practices have earned Ron Tutor the title of “Change Order Artist”.

The company’s change order practices have led to public outcry, with officials in both San Francisco and LA seeking to ban the company from bidding on contracts. Over a period of 12 years Tutor has cost the San Francisco government $765 million more than expected (or 40% above initial bids) for contracted projects. Specifically, San Francisco city attorney Dennis Herrera alleged that the company fraudulently inflated costs from $626 million to $980 million in a 2002 lawsuit. The company paid only $19 million to settle the San Francisco based suit.

It seems that any project CEO Ron Tutor touches is doomed for legal trouble. The most notable is Tutor Perini’s lawsuit against LA County for $16 million in “unanticipated costs”. Two decades later the county has spent over $32 million without a resolution to what the county refers to as a false reimbursement claim.

That Tutor Perini is one of the main contractors for California’s High Speed Rail(HSR) might explain why HSR has faced significant delays and increases in cost. Despite rail officials estimating a cost of $1.2 billion to $1.8 billion for the first railway segment, Tutor Perini bid $985 million in a joint venture. When Tutor was awarded the HSR project he faced severe criticism from the U-T Watchdog for the company’s stained history. Tutor stated that U-T Watchdog are “picking up on the 20-year-old (baloney) that we get jobs and we get a lot of change orders.” Surprise surprise, Tutor later made a change order and was given $63 million by the HSR authority as a result. Ironic, considering Tutor called U-T Watchdog’s criticisms dribble.

The issues with Tutor Perini speak to the problems with the way government contracts are awarded. When laws mandate that the lowest price wins the contract, companies like Tutor Perini have an incentive to engage in change order scheming. California should take into account the past of Tutor Perini, as well as any company engaging in fraud, before ever considering them for a contract.

Nicholas is a policy research intern at the California Policy Center. Nicholas spent the past two years studying economics throughout the United States on exchange from the University of Queensland, Australia. Prior to joining the Koch Fellowing Program, Nicholas worked at the Professional Research Institute for Management and Economics in Cambodia and at the Buckeye Institute in Ohio.

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