Kentucky Breeds Its Own "Cash Cows".

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Here is the news story:

FRANKFORT, Ky. -- Kentucky taxpayers shell out millions extra for road work because of a lack of competition among state contractors, a Courier-Journal computer analysis has found.
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In 2006 and 2007, the Kentucky Department of Highways awarded 485 maintenance and construction contracts worth $975 million for projects that received only one bid, according to the analysis of state records. That's 48 percent of all the road contracts awarded during that period.

The single-bid contracts resulted in costs that were $15.1 million above the state's confidential estimates, while contracts with multiple bids cost $96 million less than the estimates, the analysis found.

Transportation Secretary Joe Prather said in an interview that he is "very aware of the problem."

"Obviously, significant single-bid contracts are problematic for the cabinet because … competition brings lower prices," he said. "We plan … to try to minimize that. But it's a long-term problem that isn't going to be cured in a short time."

The problem takes on added significance in view of a continuing federal investigation of past cabinet contracting practices. The investigation apparently focuses on whether the department's confidential contract cost estimates were leaked to some companies before they submitted bids.

The estimates would be especially valuable to a company bidding without competition -- because the cabinet has a policy of rejecting single bids more than 7 percent over the estimate. Thus, a company would know the maximum amount it could bid and still win the contract.

Contractors say there's often no competition because a project is worth bidding only if it's relatively close to a company's asphalt plant and source of stone. When materials must be hauled over a long distance, they say, it's impossible to submit a profitable bid against a local competitor.

Rep. Don Pasley, a Winchester Democrat who is chairman of the House budget subcommittee on transportation, said he doubts that a law requiring competition would work.

"If we said every contract we award needs (at least) two bids, there would be some areas where we'd never do any work," he said.
Analysis of bidding

Still, the value of competition was readily apparent in The Courier-Journal's analysis of bidding records.

Nearly all of those without competition involved asphalt surfacing. Of the 756 asphalt contracts, 471 -- or 62 percent -- went to the only contractor that submitted a bid for each job.

Those 471 single-bid contracts cost $740 million, which was $17 million higher than the $723 million the state estimated those contracts would cost.

The 285 asphalt contracts that were sought by two or more bidders cost $171 million -- $20 million less than the $191 million estimated costs for those contracts.

On average, when the state accepted a single bid on an asphalt contract, the price was 2.4 percent higher than the estimated cost. But for contracts with competition, the state paid 13 percent less than the estimated cost.

The analysis found no competition for asphalt contracts in 52 counties, and only isolated instances of competition in 11 others.

Companies owned in part by the Leonard Lawson family of Lexington -- L-M Asphalt Partners, The Allen Co., Lexington Quarry, Gaddie-Shamrock LLC, Bizzack Inc. -- had the largest dollar amount of single-bid work, the newspaper's analysis found. They won $242 million in single-bid contracts over the two years in the central and south-central Kentucky areas where they dominate.

Scotty's Contracting, owned by the Bowling Green conglomerate Houchens Industries, was second, with $183 million in contracts.

Hinkle Contracting of Paris, along with three affiliated companies, won nearly $80 million in work, while Mountain Enterprises, the Eastern Kentucky company sold by Lawson in 2005 to the Ireland-based construction giant Oldcastle Materials, won $77 million.
Contractors' response

In response to a request for an interview, Lawson released a statement that said in part, "We operate in a manner which enables us to deliver quality services and products to our public- and private-sector customers while making sufficient profit to pay our people and grow our business."

Henry Hinkle, president of Hinkle Contracting, said his company can bid only on projects close to its asphalt plants and sources of stone and can't control what other contractors do.

Asked why he doesn't cross county lines to bid in areas where other companies hold effective monopolies, Hinkle said, "By the time we add on the cost of the additional haul, our price would be noncompetitive with the other person's price. And when you take the time and expense that it takes to work up a bid, it's not really a good use of our time and resources to bid some place where we don't have a very good chance of obtaining a job."

Hinkle said his companies do quality work for the state, which can reject bids it considers too high.

"Because (the state) controls our bidding to the point where we don't make an excess profit, they're getting fair value for the money they are spending," he said.

Rogers Group Inc., a Nashville-based multi-state contractor that faces no competition for asphalt contracts in five Western Kentucky counties, says it decides whether to bid based on the project's proximity to its asphalt plants and quarry, as well as its available manpower.

"RGI is unable to comment on why other companies do or do not decide to bid on a particular project," the company said in a statement.

It said it intends its bids to be competitive and noted the state retains the right to reject bids. "This process assures Kentucky taxpayers quality road construction for each dollar spent," the company said.

Representatives of Scotty's and Mountain Enterprises did not return phone calls seeking comment.
No easy solution

Prather said he is going to focus on the issue now that his transportation team is in place and the legislative session is over.

"We're looking into various critical areas and that's one of them," he said. "We're in the early stages of that, but we're keenly aware the problem is there."

But any solution will not be simple, he said, and almost certainly will take time.

Marginal improvement, he said, might be achieved by steps such as considering more contracts where concrete pavers can compete against asphalt pavers.

"We need to pave and build roads in the least expensive manner as long as we maintain quality. That is going to be our thrust," Prather said. "But this issue of single-bid contracts didn't arise overnight, and it's not going to go away overnight either."

The lack of competition does, in fact, have a long history.

In 1994 The Courier-Journal examined the previous five years of state contracts and found that 59 percent of resurfacing contracts -- and 63 percent of the money spent under such contracts -- were awarded in single-bid situations.

Attorneys from the U.S. Justice Department subsequently came to Kentucky and investigated the issue for possible antitrust violations. But the investigation ended without any charges.

Reporter Tom Loftus can be reached at (502) 875-5136.
Top single-bid companies

Name No. of single-bidcontracts Amount
Lawson-related companies 80 $241,166,000
Scotty's Contracting 55 $183,381,000
Hinkle-related companies 91 $79,795,000
Mountain Enterprises 84 $77,639,000
Rogers Group 27 $71,130,000
Gohmann Asphalt 3 $68,675,000
Mago Construction 34 $30,904,000
Jim Smith Contracting 12 $23,001,000
Elmo Greer & Sons 15 $22,473,000
Road Builders & Parkway Construction 17 $19,582,000

Editor's comment: ABSOLUTELY DISGRACEFUL!