BOARD MEMORANDUM

RECOMMENDATION:

Continue the Contractor and Sub-contractor Pre-qualification Program under the current Pilot Program procedures with the following change:  Pre-qualify sub-contractors for a two year period from the date of their initial pre-qualification. 

BACKGROUND: 

At the October 11, 2001 meeting of the VTA Board of Directors, staff was directed to implement a Pilot Construction Contractor and Sub-contractor Pre-qualification Program to apply to approximately half of all construction contracts for an 18-month period commencing January 1, 2002.  At the December 13, 2001 meeting, the Board adopted a set of recommended success criteria for this Pilot Program and also approved a Program Implementation Plan.  Since the implementation of the Pilot Program, staff has provided monthly reports to the Administration and Finance Committee of pre-qualification activities undertaken.  Additionally VTA has held quarterly meetings with representatives of the Building Trades Council (BTC), Associated General Contractors (AGC), Engineering and Utility Contractors Association (EUCA) and the South Bay Labor Council (SBLC) to discuss issues as they arose and develop the evaluation criteria.  It should be noted that the representative of the SBLC participated in only the first quarterly meeting.

DISCUSSION: 

Evaluation Factors:

The Pilot Program was established with the objective to assist in ensuring, to the extent feasible, the business responsibility of all entities contracting with VTA and the completion of VTA construction projects on time and within budget.   At the outset, four evaluation criteria were established to measure the success of the Pilot Program.  Those criteria are:  1) Reduction in Substitution of Contractors, 2) Reduction in Prevailing Wage Violations, 3) Reduction in Safety Violations and 4) Reduction in Receipt of Stop Notices.  After discussion and in consultation at our quarterly meetings with the groups indicated in the Background section above, a fifth evaluation criterion was added, and that was Claims.  The most recent statistics for the evaluation criteria is as follows:

(1)    Represents a two year period
(2)    Represents an 16 month period

Substitution of Subcontractors and Stop Notices are the two criteria where we have experienced increases since the inception of the Pilot Program.  A review of details of the data in these two categories show an unusual number of sub-contractor substitutions and stop notices occurred in two specific contracts.  We believe this is an anomaly and is not reflective of the overall experience of the Pilot Program.  The numbers for the balance of the criteria are so low that they are not statistically significant, and cannot be used to draw a conclusion on the effectiveness of the Pilot Program.  The reason for this lack of success or improvement is explained by what was acknowledged from the beginning:  that VTA previously had a very good record of success in advertising and awarding construction projects to high quality contractors. 

Given that evaluation, the decision whether to continue the pre-qualification of contractors and sub-contractors must rest on other factors.  It was initially estimated that the Pilot Program would require four new staff positions and an annual budget of $425,000.  In fact, we have been able to run the program successfully with only two additional staff positions reporting to an existing Senior Contract Administrator.

  Observations:

The Construction and Procurement staffs believe the following factors are pertinent and mitigate in favor of continuing the program.  Representatives of labor and the contractor community concur.  

• It appears that the requirement of a pre-qualification process may have discouraged some less qualified contractors from bidding on VTA projects.  While there is no way to quantify this perceived outcome, VTA has not experienced any increase in requests for pre-qualification from primes or subcontractors of questionable quality.  This was initially considered as a possibility, given the increased competition among contractors caused by the economic downturn. 
• The determination of a contractors responsibility is better done prior to bid submission.  Being determined non-responsible is not palatable for a contractor at any time.  It is an even more bitter pill when time and money have been expended to prepare a bid and that bid is apparently the low bid after opening.  This may explain why we have experienced fewer bid protests during the Pilot Program.  
• There has been an increase in the number of bidders on our projects during the Pilot Program.  The general economic climate may well explain this increase.  It was discussed during the planning phase of the Pilot Program that VTA could find more new contractors bidding on our jobs due to the downturn in private sector construction.  While more competition is generally viewed as a positive thing, a concern was expressed, that less reputable contractors might begin bidding on VTA projects.  In light of this increased attention to VTA projects, we have managed to pre-qualify a sufficient number of primes and sub-contractors to assure continuity of our projects. 
• Because VTA publishes a continuously updated listing of pre-qualified primes and sub-contractors on our web site, we believe primes are more aware of which subspecialties are needed on any particular job they may bid on and which sub-contractors are already pre-qualified. 
• It appears that most large prime contractors are now familiar with our pre-qualification program and are having few problems complying with the requirements. 

VTA feels that while meetings with labor and the construction groups may not need to happen on a quarterly basis, periodic meetings to discuss potential problems with a pre-qualification program would be productive.  

Recommended Changes:

VTA recommends the following change to the Pre-qualification program to help streamline the process.

•  VTA pre-qualified sub-contractors for the length of the Pilot Program, which was eighteen months.  VTA recommends that sub-contractors be pre-qualified for a two-year period unless events occur that would preclude continued pre-qualification.  As with primes, sub-contractors would be eligible to submit an application for pre-qualification at any time and be added to the list if qualified.

ALTERNATIVES:

The Board could determine that the perceived benefits do not outweigh the costs of the program at this time and choose not to continue the program permanently.   

FISCAL IMPACT: 

The Pre-qualification program, as recommended, will continue to require two positions during those times when projects are advertised and pre-qualification activity is at its highest.  As we have done in the past eighteen months, pre-qualification staff will be used to support contracting activities when they are not performing pre-qualification duties.  The projected annual costs for pre-qualification efforts only, not including anticipated time used on other contracting activities, are projected to be $146,000.  It should also be noted that the cost of the Pre-qualification Program is reimbursed on an indirect cost basis through the Capital Improvement Program.  These positions are included in the Recommended Budget for FY 200304 and FY 200405 and would be requested as part of future budgets.

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