Audit: D.C. may be overpaying for transportation projects due to small number of contract bidders

Paving roads and laying the groundwork for infrastructure projects in the District could be costing taxpayers more than is necessary, according to a recent audit by the D.C. inspector general’s office. The audit found that the District “may not have obtained the best value” for almost $300 million in transportation projects from October 2015 through September 2017, largely because of “limited vendor participation” in bidding for local construction contracts.

Over the course of nine months last year, auditors examined 20 randomly selected contract transactions involving the District Department of Transportation (DDOT) and private firms. For 10 construction contracts included in that sample, DDOT averaged only 2.5 “responsive bidders” per contract, the inspector general’s office discovered. This is less than half the six minimum bids per solicitation that is recommended by the Federal Highway Administration, which has provided D.C. funding for highway-system design, construction, and maintenance.

“DDOT has an opportunity to increase competition by attracting more vendors to ensure the District obtains the best value when awarding transportation contracts,” explained the audit. “The market for local construction services at DDOT is concentrated among three firms, and has been more concentrated since [fiscal year] 2014.” While those three contractors are not explicitly named in the audit report, they collectively garnered about $292 million in DDOT construction contracts in fiscal years 2016 and 2017. This was more than three-quarters of the total dollars for construction projects that the department awarded during that period.

(The inspector general’s analysis excluded the colossal, multi-million dollar South Capitol Street project—the District’s largest construction project ever—which is currently ongoing. Per the audit, it spans multiple years and “is not comparable with other projects at DDOT.”)

D.C. inspector general

The auditors noted that DDOT officials had told them that the level of bidder competition varies by project and that “eight recent large projects attracted approximately four bidders on average”—still less than the six bidders per project recommended by federal guidelines. “We also found one instance in our sample where the losing bidder was a subcontractor of the winning bidder, which could indicate that the pool of contractors is even smaller than the average number of bidders observed, and may increase the risk of anticompetitive practices,” like “collusive bidding” and “follow-the-leader pricing,” wrote the inspector general’s office.

The audit additionally found technical problems with D.C.’s overall process for contracting out its transportation projects. “DDOT also did not capture the data needed to analyze key aspects of the contract solicitation process, did not have formal standardized cost estimate and bid evaluation procedures, and did not always develop and maintain the Independent Government Estimate [a cost-measurement tool] prior to soliciting proposals,” it concluded.

In written replies to the inspector general’s office, DDOT Director Jeff Marootian wrote that his agency “has already taken a number of actions which have not yet had an opportunity to fully bear competitive fruit and are not reported in the [audit’s] recommendations.” These actions included conducting a “market review” of firms that used to work with DDOT more often than now; restructuring solicitations; introducing tiered pricing and monthly targets for paving projects; and meeting regularly with industry groups. “All of these changes are meant to demonstrate that the District is open for competitive business,” Marootian wrote.

A spokesman for DDOT declined to comment further on the audit’s findings, other than to say the department “cooperated fully during the audit process” and “reviewed the findings and responded to each of the recommendations.” A spokesman for the inspector general’s office declined to provide the names of the three top construction contractors discussed in the audit, noting that the subject of the “report was DDOT, not the contractors themselves.”

The audit comes after an especially rough year for D.C. roads, when weather events limited crews’ ability to repave streets. It also comes as the annual “Potholepalooza” paving push is underway and District lawmakers are reviewing the mayor’s proposed budget for next year.