Recommendations of the Texas Comptroller

Improve Specification Writing for Major Repair and Maintenance Contracts

Summary

To protect taxpayer funds and ensure open competition among repair and maintenance vendors, Texas should improve its specification writing for such contracts.

Background

Building maintenance and repair is a substantial expense for Texas state government. In fiscal 1999 alone, the state spent more than $63 million on major repair and maintenance of state and higher education buildings.[1] School districts also spend a considerable amount of money to repair and maintain structures.

While it is not possible to determine what portion of the state’s repair and maintenance expenditures involves re-roofing, such costs can be considerable. The state should approach decisions about re-roofing contracts wisely and ensure competition among vendors to help control costs.

One method that some state agencies, universities, and school districts use to develop bid specifications for re-roofing contracts prevents some vendors from competing for the work. Individuals paid by roofing material suppliers sometimes volunteer to write re-roofing specifications for government agencies free of charge. In turn, these “consultants” develop specifications that require the use of products sold only by the company that employs them. This makes it difficult, if not impossible, for other vendors to compete with the company paying the consultant and does not ensure that the state receives quality services at competitive prices.

In 1995, Southwest Texas State University in San Marcos used an innovative bidding system to ensure that they received the highest quality re-roofing service for the best price. They asked vendors to submit multiple bids using comparable materials from different manufacturers. The university saved approximately $180,648 by awarding the contract to a vendor whose bid included materials that were available industry-wide and were not exclusive to a single company.[2]

A Texas newspaper recently raised questions about state roofing repair practices.[3] The newspaper reviewed roofing repair costs for a sample of state school districts and found that repairs cost significantly more when districts hired a vendor who also wrote the specifications. Exhibit 1 compares the costs of re-roofing projects for eight schools in the Fort Worth area.

When a vendor wrote the specifications and performed the repairs, repair prices per square foot were consistently higher than cases in which the vendor did not write the specifications. In all five cases the newspaper cited, the vendor or vendor’s representative wrote specifications that required materials that could not be purchased at a roofing supply store, but had to be ordered directly from the vendor. Although the specifications did not explicitly exclude other vendors’ products, they were tailored to fit the products of the vendor who wrote the specifications.

Exhibit 1

Costs of Re-Roofing Projects for Eight Schools in the Fort Worth Area

Source: Fort Worth Star-Telegram, August 17, 1997.

Vendors who write bid specifications may argue that higher prices reflect the quality of their products; however, some experts believe that expensive, vendor-specific materials perform no better than materials available in roofing supply stores.[4] In a competitive marketplace, purchasers should be able to weigh the quality and cost of a variety of vendors to obtain the best value.

Other states have discovered similar contracting practices. The New Jersey Commission on Investigation recently reviewed state practices for developing re-roofing specifications. They found that New Jersey school districts may have wasted millions in taxpayer dollars, paying as much as 30 percent more for re-roofing contracts than necessary. In an 18-month investigation, the commission found that 59 percent of 115 projects involved the use of consultants who had written the bid specifications in such a way that made it almost impossible to use any materials but their suppliers’ products.[5]

State Oversight of Building Maintenance and Repair

The General Services Commission (GSC) oversees building maintenance and repairs for many state agencies. According to the Texas Government Code, Chapter 2165, GSC controls state buildings, grounds, and property; however, many agencies are not subject to GSC’s oversight with regard to building maintenance and repair. For example, the Texas Department of Transportation, the Texas Military Facilities Commission and state university systems have the authority to procure maintenance and repair services without GSC oversight. School districts are responsible to their respective boards for repair and maintenance expenses and are not governed by GSC rules.

The Texas Government Code, Chapter 2155.067, sets conditions under which a vendor may write proprietary or exclusive specifications for the purchase of goods.[6] For example, when agency bid specifications require goods or services exclusive to one vendor and do not permit the use of equivalent products, the state agency must provide a written justification to GSC. The justification must explain the need for the specifications, state the reason competing products are not satisfactory, and provide other information requested by GSC. These provisions, however, do not pertain to building maintenance and repair.

According to Michael Lacy, GSC director of Facilities Planning, GSC requires state agencies under its oversight to include justifications for including proprietary specifications in bid solicitation documents for the repair and maintenance of the facilities.[7] Codifying the GSC prohibition into law would ensure a more competitive environment for building maintenance and repair contractors. By giving GSC the statutory authority to require written justification for proprietary specifications for repairs and maintenance contracts as it now has for goods, GSC can help ensure that the state receives the best goods and services for the lowest price.

GSC advises state agencies on laws and rules relating to building maintenance and repair. One law affecting re-roofing is the Texas Professional Services Procurement Act, Chapter 2254. This act requires governmental entities to select the most qualified provider for engineering projects worth more than $8,000 and is intended to allow multiple vendors to compete for more expensive projects. In addition, agencies under GSC oversight must use a professional engineer or architect to develop bid specifications for building maintenance and repair projects expected to cost more than $8,000. This helps state agencies ensure that vendors will not underbid for work simply to win the contract and then submit future “unanticipated” costs. Another problem with underpriced contracts occurs when vendors that underbid are unable to meet contact deliverables and abandon the contract, requiring the agency to rebid the service.

Recommendation

State law should be amended to require that, if an agency or institution of higher education allows a vendor write specifications for a building maintenance or repair contract using a product that is proprietary to one vendor, the agency shall provide written justification for the unique specifications in the request for bids.

This recommendation is consistent with a similar provision (Texas Government Code, Section 2155.067) relating to the purchase of goods by agencies when such purchase involves products that are exclusive to a specific vendor. Under this recommendation, agencies subject to General Services Commission (GSC) oversight would be required to provide written justification to GSC for using proprietary specifications.

The proposed statutory change also would further require any state agency or university exempt from GSC oversight to explain why competing products are not satisfactory in any solicitation document containing proprietary specifications. These entities should use GSC procurement practices as a model for developing future repair and maintenance contracts.

Fiscal Impact

The fiscal impact for this recommendation cannot be determined. Agencies under GSC’s jurisdiction are already subject to a level of oversight that ensures open competition. The proposed statutory change would primarily affect those agencies not subject to GSC oversight. During fiscal year 1999, the 51 state agencies and universities currently not under GSC oversight accounted for more than $53 million of $63 million spent on state repairs and maintenance expenditures.[8] If similar expenditures occur in subsequent years, and 10 percent of these expenditures involve proprietary specifications, the state could save a significant amount of money by adopting more stringent controls for bid specification development. For example, if $5.3 million of maintenance and repair contracts used proprietary specifications and this amount could be reduced by 25 percent by allowing multiple vendors to compete for repair work, Texas could save more than $1.3 million each fiscal year.

[1] Texas Comptroller of Public Accounts, “State of Texas USAS Expenditures for Appropriation Year 1999, Object Code 7266 Maintenance and Repairs of Buildings,” Austin, Texas, July 21, 2000. (Computer printout.)

[2] Texas Comptroller of Public Accounts, How Direct Marketing Roofing Material Distributors Raise Your Roofing Prices by 25%, by Edis Oliver & Associates (Austin, Texas, October 1999), Section 3. (Consultant’s report.)

[3] “Critics Raise Roof Questions,” Fort Worth Star-Telegram (August 17, 1997), p. 1.

[4] Texas Comptroller of Public Accounts, How Direct Marketing Roofing Material Distributors Raise Your Roofing Prices by 25%, Section 3. (Consultant’s report.)

[5] “Roofing Schemes Detailed by State Commission of Investigation,” Asbury Park Press (December 9, 1999), p. 1.

[]⁶ V.T.C.A., Government Code §2155.067, Title 10 (d).

[7] Interview with Michael Lacy, director of Facilities Planning, General Services Commission, Austin, Texas, July 26, 2000.

[8] Texas Comptroller of Public Accounts, “State of Texas USAS Expenditures for Appropriation Year 1999, Object Code 7266 Maintenance and Repairs of Buildings.” (Computer printout.)

e-Texas is an initiative of Carole Keeton Rylander, Texas Comptroller of Public Accounts
Post Office Box 13528, Capitol Station
Austin, Texas

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