The O’Fallon Recreation Complex project in North St. Louis City, which originally bid for $16.7 million, is 97 percent complete.
Leaders of S.M. Wilson, the general contractor, said it cost an extra $2.174 million to give 40 percent of the work to minority companies, 8 percent to women-owned companies and 32 percent to minority workers.
In a Feb. 9, 2012 letter, S.M. Wilson VP Fred Jaeckle stated that achieving these minority participation goals “has been difficult and our company has experienced the tremendous hardship in finding minority firms to meet the rigid requirements established by the St. Louis City Ordinance 68412 and S.M. Wilson’s agreement with the City of St. Louis.”
The City of St. Louis has already awarded $1,173,888 to S.M. Wilson because of their “hardship” in achieving the minority goal.
Taxpayers’ should pay an extra $2.174 million for minority participation, according to the letter. At the end of the project, Jaeckle estimates that the project’s total contract value will be $19.6 million – if the city agrees to their requests.
‘Soldiers’ story
Court records show that S.M. Wilson’s struggle to meet the minority goal began months before they signed their contract with the Board of Public Service on July 13, 2010.
On May 24, 2010, S.M. Wilson’s biggest minority subcontractor was starting to enter into bankruptcy proceedings in St. Louis City Circuit Court, according to dockets.
In December 2009, Soldiers Plumbing Inc. had been awarded a bid for $2.6 million – which made up two-thirds of the $3.8 million that S.M. Wilson needed to satisfy the city’s original 25 percent minority goal.
Soldiers’ owner O’rion Jackson said he told S.M. Wilson leaders in early 2010 that he was going to shut down his plumbing business. The company offered financial help, Jackson said, and tried to urge him to join the project in a joint venture.
Jackson declined. He said it would have been a “pass-through” deal, which he said is strictly set to benefit the prime contractor.
“[S.M. Wilson leaders] were upset that I wasn’t going to take help,” Jackson said. “They wanted to control me and move me through pass-through situations. I wasn’t going to do it. Sometimes the best thing to do is just let a dead horse die. You live and learn. Henry Ford filed bankruptcy several times.”
In an interview with The St. Louis American, Scott Wilson, CEO of S.M. Wilson, and Jaeckle said they knew Jackson was struggling financially. But they said they never heard about his intent to file bankruptcy until after they signed the O’Fallon contract.
“We did not become aware that his plight was that severe” until after the contract was signed, Jaeckle said. “We see contractors that get into financial complications. If we can help, we help.”
“It would be ridiculous to execute a contract with an owner if you knew one of your subs was going to crash and burn,” Wilson said. “If we executed a contract and then he goes bust, I got to pay for it, not the client. You would never execute a contract on purpose with someone you knew was already bust.”
Wilson asked rhetorically, “Why would we do that? To achieve the numbers? No way.”
“That would not be a smart business decision,” Jaeckle said.
The timing of Jackson’s bankruptcy – filed before the contract was signed – raises the question of whether the city is responsible for the contractor’s hardships in meeting the 40 percent goal.
The American asked Board of Public Service President Rich Bradley if the city is responsible for paying such costs if the contractor’s problems with meeting minority participation occurred before the contract was signed.
Bradley responded in an email, “The project was bid on December 22, 2009. The contractor was required to submit a list of M/WBE contractors within a couple of days after. Once that list is submitted, the contractor is responsible for that amount of MBE/WBE participation at the bid day cost.”
Bids, goals and bonds
Through a Sunshine law request, The American obtained Board of Public Service documents for S.M. Wilson’s $2 million request.
In a nutshell, S.M. Wilson argues that the city’s request to substantially increase the minority goal after the bids were submitted forced them to use subcontractors who were not the lowest bidders originally. The late request also delayed the project, escalating labor and material costs.
When S.M. Wilson first bid on the project in December 2009, it was $1 to $2 million below the other bidders. Soon after the bids were in, the Board of Aldermen – led by the Black Caucus – decided they wanted to increase minority participation for the Northside project. The original goal was 25 percent minority business enterprise (MBE) and 5 percent women business enterprise (WBE).
In June 2010, the aldermen gave a verbal recommendation to push for goals of 40 percent MBE, 8 percent WBE, and minimum 32 percent minority workforce.
Rather than rebidding the project – and giving the other bidders a chance to achieve the higher participation goals at a cheaper price – city officials worked out an agreement with S.M. Wilson.
Richard Bradley, BPS president, said that the bonds sold for the recreational centers (south and north) were approaching expiration.
“The ultimate decision to not throw out the bids and rebid the project was based on this funding issue in conjunction with the bidding schedule,” Bradley said. “The funding needed to be expended or we would possibly risk losing the funding for the project.”
In negotiations, BPS agreed to give S.M. Wilson more money to meet the goal. According to a BPS “change order # 1” dated Jun 16, 2010, BPS awarded S.M. Wilson $650,000 to “increase minority workforce participation to minimum 32% and increase MBE participation to 40%.”
But since then, S.M. Wilson has kept coming back for more.
In March 2011, S.M. Wilson asked for another $1,163,065 – for the same minority requirements covered in the June 2010 change order. But the city only awarded them $523,888. Recently, they asked for another $361,091 “in additional costs we have incurred to meet the goal,” the request letter states.
In total, Jaeckle said the city owes the company an additional $1,000,229 to achieve the minority goal.
Escalating costs
Typically there’s an evaluation period between the time the bids for projects are due and the contract is awarded – which usually takes about two months. In this case, it took six months.
Several of the contractor’s claims for “escalation” costs include labor or material increases – due to the four-month delay. Escalation costs are calculated based upon the amount given on “bid day.”
S.M. Wilson has asked for labor escalation claims for several companies. Yet in our investigation, the American could not find evidence that these companies provided a bid on bid day – nor were they included in the Dec. 24, 2009 subcontractors’ list filed with the city’s DBE office. In a Sept. 30, 2011 letter, S.M. Wilson’s Dean Forth requested $947,669 for escalation charges for such companies.
BPS representatives had a similar problem in their investigation, according to records.
The documentation in Forth’s letter lacked sufficient detail and was concerning, Zachary Hamilton, of Kwame Building Group (the construction management company on the project) said in an Oct. 5, 2011 email to BPS chief engineer Tom Behan.
If these subs did not bid on bid day, “this claim could be considered an attempt to defraud the city and will be taken very seriously,” Hamilton wrote to Behan.
Hamilton advised Behan to request backup documents (i.e. original bids and dates.) However, the documents that S.M. Wilson provided in a following Oct. 15, 2011 letter did not include original bids or documents for all companies in question.
Jaeckle said, “We have provided supporting information. It’s a pretty clear story.”
In the interview with Jaeckle and Wilson, the American went over change orders, requests for further funding and the supporting documents provided to the BPS office. When some of the totals didn’t add up, Jaeckle provided answers by thumbing through his own files.
“There’s constant dynamics in this project,” he said. “The paper trail is extensive. You might be missing a piece of paper inadvertently.”
When the American asked for any documents that might be missing from BPS files, Jaeckle said he couldn’t provide them directly. He would have to ask the city’s permission.
Bradley said the escalation costs concern the city.
“To date, no escalation claims costs have been awarded as sufficient backup and documentation has not been provided to the City,” Bradley said.
‘Whatever it takes’
Alderman Antonio D. French of Ward 21, where the project is located, said he supports S.M. Wilson’s request for reimbursement. When he and the Black Caucus sat down with Wilson in early 2010, they told him to do “whatever it takes to meet that goal,” French said.
“There were dozens of times where subcontractors ran into issues with unions, taxes, business licenses,” French said. “He funded some of the companies to meet the goal.”
French said he hasn’t seen the backup documents for the funding requests, but he is proud of the project and pleased that S.M. Wilson met the goal.
“I said that if they meet the goal, I would be their number one cheerleader,” French said. “So I am going to keep my end of the deal.”
French disclosed that S.M. Wilson held a fundraiser for his political campaign a few weeks ago.
Wilson raises the question: “If the change orders were never paid, how much does S.M. Wilson lose? $1.6 million.”
“It’s an awful lot of money to lose,” Wilson said. “We set up ourselves to lose that much money because S.M. Wilson and the Board of Public Service agreed to make this job happen. They said, ‘Don’t worry about the little stuff. Make this job happen.’ From that standpoint, we did that very thing. Board of Public Service is proud that they achieved those numbers. We are pleased to help them do it. The sticking point will be it cost more to do it. But what is more important? The fact that it costs more or that we were able to achieve the desired minority goals?”
