Under Massachusetts law, public building contracts must be performed by contractors who possess the skill, ability, and integrity necessary to faithfully perform the work. In September 1997, at the request of several members of the Legislature, the Office of the Inspector General initiated a review of three recent public construction projects undertaken in 1996 by Anchor Contractors, Inc., for the Towns of Carver, Medfield, and Millis. The Towns identified numerous deficiencies in Anchor Contractors’ performance on each of the projects, including defective workmanship, inadequate project staffing and scheduling, and failure to pay subcontractors. Anchor Contractors failed to complete the projects, and by 1998, all three municipalities had invoked Anchor Contractors’ performance bonds.
The Office reviewed the process by which Anchor Contractors was certified in 1996 by the Division of Capital Planning and Operations to bid on public building projects and then deemed qualified by the Towns of Carver, Medfield, and Millis. The Office also conducted a broader examination of weaknesses in the current system of certifying and qualifying contractors for public building projects. This report’s findings and recommendations are summarized below.
Anchor Contractors’ Performance on Recent Public Projects
In May 1996, the Town of Millis executed a $1,812,697 contract with Anchor Contractors for a renovation project to convert the Millis Memorial School into a community center and Town offices. Anchor Contractors failed to meet the contract completion date; and in April 1997, the Town notified Anchor Contractors and its surety (bonding company) that Anchor Contractors was in default of the contract. In September 1997, with the project approximately 80 percent complete, Anchor Contractors removed its crews from the project site. In November 1997, the Town terminated its contract with Anchor Contractors. After lengthy negotiations, Anchor Contractors’ surety agreed to complete the contract using a new contractor by September 1998. As of July 1998, however, the work had not begun, and the Town did not expect the work to be completed until November 1998.
- In July 1996, the Town of Carver signed a $2,704,945 contract with Anchor Contractors to construct a new public library. In October 1997, according to Town records, Anchor Contractors removed its crews from the project site with the project approximately 90 percent complete, and the Town invoked Anchor Contractors’ performance bond. As of July 1998, a new contractor hired by Anchor Contractors’ surety had achieved substantial completion of the project.
- In September 1996, the Town of Medfield executed a $1,985,800 contract with Anchor Contractors to renovate its Town Hall. Project records show that by the contract completion date of September 1, 1997, Anchor Contractors had stopped work after completing only 35 percent of the work. The Town subsequently terminated the contract and invoked Anchor Contractors’ performance bond. As of July 1998, a new contractor hired by Anchor Contractors’ surety had achieved substantial completion of the Town Hall project.
Certification of Anchor Contractors by DCPO
- The maximum allowable dollar value of a single project on which Anchor Contractors could bid was increased by 2,150 percent between 1991 and 1997 by DCPO on the basis of a project reference who apparently had undisclosed family and financial ties to Anchor Contractors.
- The maximum dollar value of all projects that Anchor Contractors could undertake at one time was increased by 1,500 percent between 1991 and 1997 by DCPO with minimal analysis of the firm’s financial capability.
- The certification applications submitted by Anchor Contractors in 1996 and 1997 to DCPO contained false statements and omissions.
- Because of a DCPO application backlog, Anchor Contractors was eligible to continue bidding on public projects for four months after its 1996 certification had expired.
Qualification of Anchor Contractors by Awarding Authorities
- Reference checks by the Towns of Millis, Carver, and Medfield did not disclose significant performance problems on previous projects completed by Anchor Contractors.
- The Update Statements Anchor Contractors submitted to the Towns of Millis, Carver, and Medfield contained false statements and omissions.
Certification and Qualification of Contractors: Weaknesses in the Current System
- Current contractor certification standards may not adequately protect Massachusetts awarding authorities from unqualified construction contractors.
- Current procedures for setting limits on the size of projects contractors may undertake do not take into account the size of evaluated projects and do not require a detailed examination of each applicant’s financial condition.
- The process of averaging ratings of evaluated projects can mask deficient performance.
- The certification process does not require disclosure and evaluation of claims by subcontractors for direct payment.
- The certification application and contractor evaluation form do not require disclosure of related-party projects.
- Awarding authorities do not always submit required contractor evaluations to DCPO and are reportedly reluctant to provide unfavorable evaluations of contractors’ performance on public contracts.
Conclusion and Recommendations
The story of Anchor Contractors’ certification is, in a sense, a case study of a system that worked. DCPO did deny certification to Anchor Contractors in December 1997 on the basis of its poor performance on two recent projects. Yet the Anchor Contractors case also demonstrates that systemic improvements can and should be made. The widespread perception that many public contractors are unqualified has sown doubt about the effectiveness of the construction bidding process, which is predicated on the assumption that the system can accurately and reliably identify and restrict public building contractors to responsible contractors.
Reforming the system is essential to restoring the confidence of awarding authorities, contractors, and the public in the construction bidding process. This reform effort will require both statutory changes by the Legislature and procedural changes by DCPO and Massachusetts awarding authorities. The Inspector General’s recommendations for reform are as follows:
- Standards for eligibility to bid on public building contracts should be raised.
1a. More restrictive methods for calculating contractor certification limits should be developed.
1b. Each Certificate of Eligibility should list summary information regarding the projects and numerical ratings considered by DCPO during the certification process.
1c. Contractors that routinely fail to pay their subcontractors should be denied certification.
1d. Safeguards for certification extensions should be instituted.
- DCPO’s capacity to identify and disqualify ineligible and nonresponsible contractors should be strengthened.
2a. DCPO contractor certification staff should be increased to enable thorough certification reviews and timely, informed certification decisions.
2b. The Contractor Qualification Statement should be revised to require disclosure of each applicant’s family and financial relationships with the owners and designers of all projects listed in the application.
2c. Contractors should be required to sign the Contractor Qualification Statement under the pains and penalties of perjury, as required by M.G.L. c. 149.
- Legislation protecting awarding authorities and their designers from litigation in connection with contractor performance evaluations should be enacted.
- Effective measures should be instituted to enable awarding authorities to reject unqualified low bidders.
4a. M.G.L. c. 149 should be amended to give awarding authorities explicit authority to reject unqualified low bidders on the basis of past performance on projects completed within the past five years.
4b. Contractor evaluations should be computerized for ready access by awarding authorities.
4c. Awarding authorities should establish clear procedures for obtaining and documenting low-bidder references.
4d. Local awarding authorities should be required to provide DCPO with completed contractor evaluation forms as a condition of receiving state funds for construction.
4e. Awarding authorities should notify bidders that failure to provide résumés of all project superintendents may be grounds for bid rejection.
4f. The contractor evaluation form should solicit information on related-party projects.