PhillyDeals: Taxpayers lose when city pays more for 'lowest' bid

The Venice Island project pact was awarded to Daniel J. Keating Co., based in Narberth. Its satellite office in Phila. gave it an edge.
The Venice Island project pact was awarded to Daniel J. Keating Co., based in Narberth. Its satellite office in Phila. gave it an edge. (ALEJANDRO A. ALVAREZ / Staff)
Posted: August 27, 2012

Philadelphia taxpayers are spending an extra $1.5 million, as workers rebuild Venice Island Recreation Center and storm-water drains in flood-prone Manayunk, so that the city can use a contractor based in suburban Narberth to manage the job, instead of one from suburban Langhorne.

Thomas P. Carney Inc. of Langhorne offered to perform the work for $36.6 million in bidding last year. Instead, the city hired Daniel J. Keating Co., based in Narberth, even though Keating's price was higher, at $38.1 million.

What's the difference? Because Keating had a satellite office just east of City Avenue, city procurement officers said it qualified for preferential treatment as a "local business entity."

That means Keating, but not Carney, was entitled to have 5 percent knocked off its bid price. Not in real life. Just in calculating the lowest and winning bid.

Carney protested, noting that it met most other "local" qualifications, and questioning whether it made sense to apply the law so literally, at such a cost.

For example, "we pay the city business-privilege tax. All our workers are subject to the city wage tax," Carney's controller, John Czuba, told me.

Plus, on union jobs such as Venice, the firm employs "the same union employees, paying the same union wage rate" as Keating and four other general contractors who bid, he added. "So why should the city pay extra? It just eats up more money from the city budget."

At a time when private construction projects are scarce, paper barriers on public projects leave disappointed contractors extra sore. When Keating won the Venice job despite charging more, the Carney firm asked Philadelphia Judge Albert P. Sheppard for an injunction to stop the deal.

But Sheppard, in one of his last decisions before his death last summer, said the city had the right to enforce its law. "Even if it's a foolish law," Czuba said.

Contractors weighed a second lawsuit, citing state fair-bidding statutes, but balked at the cost, said lawyer Peter F. Marvin, who represented Carney, along with lawyer Noah H. Charlson.

"Maybe they should get suburban counties to retaliate" with schemes disadvantaging builders from neighboring communities, Marvin said.

"Set-aside programs are well-intentioned," he added. "But as soon as you have regulations, you immediately got people going to work, thinking, 'How can I use this to my advantage?' " before thinking of the social cost.

"The same thing is going on" with other Philadelphia contracts, increasing the price, according to Czuba.

The city has paid building contractors an average $200 million a year for the last two years, according to spokesman Mark McDonald.

So the 5 percent local preference could cost taxpayers up to $10 million a year, without guaranteeing that more city residents get hired.

Keating considers itself a Philly firm with a suburban address. Most Keating trailers are currently set up on Philadelphia job sites (including, for example, the $50 million Dilworth Plaza replacement project), and Keating has more people working in the city, most days, than at its home office, company treasurer Joseph Maloney told me.

Why not move everything to town? "We own this building, and it would be difficult to sell or lease it," Maloney told me from Keating headquarters in Narberth Borough's quaint business district.

I asked whether he thought the added cost of the hire-in-Philly law is good for the taxpayers who finance it. "City Council makes that determination," Maloney said.

City Council can change it, too. City Council members Blondell Reynolds Brown and W. Wilson Goode Jr. in May put out a proposal to increase the extra price "local" firms may charge, to 10 percent. "I hope that this measure will keep more of Philadelphia's money in Philadelphia," Reynolds Brown said at the time.

Won't that measure double the extra millions already spent on local preference, without guaranteeing more city residents get hired? "That's a legitimate question," Reynolds Brown told me. She called for hearings "to learn more."

Contact Joseph N. DiStefano at 215-854-5194, or @PhillyJoeD on Twitter.

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