The agenda for last November’s work session of the Shelby County Board of Education was jammed. There were nearly 90 business items to go over, three times the normal load.
More than opens in a new window70 items were contracts with construction companies to pave parking lots, add classrooms, or upgrade heating, ventilation, and air conditioning (HVAC) systems at schools across the district.
The bounty of contracts was the result of a federal funding boon that is bringing the district more than half a billion dollars in COVID-relief funds via the Elementary and Secondary School Emergency Relief Fund, also known as ESSER.
Urgency was the order of the day.
“We heard the board loud and clear about being diligent and timely about spending these ESSER dollars, and we’ve got more than $150 million on the agenda tonight,” Superintendent Joris Ray told the board. “We’ll try to get through this meeting as quickly as possible.”
They did. It took the board about three minutes to hear the list of 29 proposed HVAC contracts totaling more than $172 million.
Board member Stephanie Love asked what percentage of the HVAC contracts were being awarded to minority- or women-owned businesses (MWBE).
“Because this is a whole lot of money,” Love said. Fifteen of the 29 HVAC contracts were awarded to three MWBE firms.
There were no other questions.
A week later, there were no questions when all nine board members unanimously approved all 29 HVAC contracts.
- Board members didn’t ask why there had been only one bidder on 15 of the 29 contracts, and only two bidders on 10 others.
- They didn’t ask why the normal bidding process had been changed last summer in ways that limited competition for contracts.
- They didn’t ask why the HVAC job specs were revised in July in little ways that favored one local equipment supplier and excluded others.
- They didn’t ask why these ESSER-funded HVAC jobs turned out to be several times more expensive than other HVAC jobs in recent years.
Billions allocated
opens in a new windowESSER funds are flowing to all school districts — $129 billion nationwide has been allocated in three phases since the pandemic began in 2020.
Charter schools in Shelby County are eligible for about $130 million; the six suburban districts in the county just under $100 million; and DeSoto County schools nearly $60 million.
The school districts have until 2025 to spend the money.
“It’s fast and furious around here,” said Tutonial Williams, chief financial officer for Memphis-Shelby County Schools.
The rush to spend the funds is especially urgent in a big urban district like MSCS, which has racked up more than $500 million in deferred maintenance. School districts with large populations of low-income students like MSCS are receiving more funds per student.
But in the rush to spend, the school district made decisions that limited competition for contracts, favored certain vendors, and helped push overall costs up as much as 40%.
The Institute for Public Service Reporting examined the 29 ESSER-funded HVAC contracts that were awarded by Memphis-Shelby County Schools in November 2021.
The Institute also examined the 32 HVAC contracts that were awarded by MSCS from 2019 through April 2021, pre-ESSER.
The jobs varied in size and scope, but there were clear and significant differences between the contracts awarded before ESSER and those funded by ESSER.
- The pre-ESSER jobs averaged five bidders and about $1 million per job.
- The ESSER jobs averaged fewer than two bidders and about $6 million per job.
- Three pre-ESSER jobs had one bidder, but 23 of the 32 had at least four bidders. Others had from two to nine.
- The ESSER jobs drew from one to four bidders. Fifteen of the 29 ESSER jobs had only one bidder, 10 others had only two bidders.
- The most expensive pre-ESSER job was $3.4 million to replace the HVAC system at Booker T. Washington High.
- Eighteen of the 29 ESSER jobs cost more than that. The most expensive ESSER job was $8.2 million to replace the HVAC system at Oakhaven High.
The lack of competition for ESSER jobs proved costly.
One example:
In April 2020, pre-ESSER, opens in a new windowseven companies bid to replace the chiller, pumps, and air-handling units at Hamilton Middle School, which is about 137,000 square feet.
Damon-Marcus Co. of Bartlett was the low bidder for the job at $297,000 — about two times the cost of equipment.
Last summer, only opens in a new windowone company bid to replace the boilers, air-handling units, cooling towers, and rooftop units that heat and cool at American Way Middle School, which is 141,000 square feet.
CS3, Inc., with offices in Memphis and Nashville, was awarded the contract for $8,069,676 — nearly 10 times the cost of equipment.
The pattern was repeated numerous times. ESSER-funded HVAC jobs generally drew many fewer bidders and cost many times more than pre-ESSER jobs.
Spending priorities
In June 2021, MSCS administrators hosted an opens in a new windowESSER workshop for board members.
The goal was to set spending priorities for the hundreds of millions the district would be receiving in the second and third waves of COVID-19 relief funds (known as ESSER 2.0 and ESSER 3.0).
Federal dollars don’t just fall from the sky. They are attached to reams of federal and state rules, regulations and deadlines.
“I keep hearing, ‘y’all got all this money. What you gonna do with all that money?’ ” Ray told board members. “Everybody under the sun is coming and they want a contract for this, they want a contract for that. But these monies have to be spent specifically on children, on upgrades of some buildings, and those kinds of things that are COVID-related.”
To get ESSER dollars, school districts were required to produce a needs assessment, a health and safety plan, a community engagement plan, and a spending plan — all made available to the public in English, Spanish and Arabic.
School districts also were required to have “meaningful public consultation with stakeholder groups,” including families, students, teachers, principals, school and district staff and administrators.
There wasn’t much time to do any of that.
Congress approved ESSER 2.0 in late 2020, and ESSER 3.0 in March 2021. The state had 60 days to come up with its own plans and reporting requirements. Those were released in late May 2021.
The state gave school districts until Aug. 27, 2021, to come up with their own plans.
At the June 24, 2021, workshop, district administrators presented a series of spending recommendations that included more than $200 million to upgrade school buildings.
“We have $500 million in deferred maintenance projects,” Genard Phillips, chief of business operations for MSCS, told board members. “Now we get the opportunity to address those.”
The district’s spending plan included:
- $70 million for classroom additions at 14 schools.
- $36 million for new roofs at 25 schools.
- $25 million to purchase and install bipolar ionizers in all schools. The board had unanimously approved that contract the previous April.
- $5 million to install water bottle filling stations at all schools.
- $3 million to install new windows at three schools.
- $72 million to upgrade HVAC systems at 50 schools.
The district’s final opens in a new windowESSER Spending Plan released in August was even more ambitious: HVAC upgrades at 74 schools for just under $100 million.
“We have a lot to do in a short period of time to access these funds,” CFO Williams told the board. “We’re going to move pretty fast.”
Concerns expressed
In 2016, some school board members expressed concerns about the district’s contract procurement process.
“We wanted to make sure we had the best prices, and had effective practices,” said Chris Caldwell, a former board member who was board chairman at the time. “There were a number of problems.”
The Council for Great City Schools reviewed the district’s contract procurement process in 2016 and found opens in a new windowseveral areas of concern.
- “There are no automated controls to prevent overspending of contracts.”
- “The district’s policies and procedures do not prohibit supervisors and their direct subordinates from participating on the same RFP evaluation team, exposing the process to the possibility of undue influence by the ranking officials.
- “The team noted evidence of multiple numbers in the vendor file assigned to a single vendor, which would lead to duplicate payments and inaccurate spending reports.”
The district launched a “procurement improvement plan” that included this recommendation: “Allow adequate time to ensure stakeholder goals and SCS interest are met in the procurement process.”
It didn’t define “adequate time.”
In summer 2021, the school district decided to bid as many HVAC jobs as quickly as possible.
Between July 16 and Aug. 12 last year, MSCS opens in a new windowbid 82 HVAC jobs — 50 more than the district had bid over the previous five years.
It was 60 more than in 2019, when an infusion of capital funds from the county allowed the district to bid 21 jobs over the course of 10 months.
District officials said they were under pressure to meet the state’s Aug. 27 deadline, and to get a jump on other nearby districts that might be planning their own HVAC jobs.
“One of the things we’ve been trying to do is get ahead of the municipalities, especially our local ones,” John Barker, MSCS chief of staff, explained to a board committee meeting last July, “so we’ll be able to get our projects kind of on the way first.”
As it turned out, other nearby districts provided little competition.
DeSoto County posted 12 HVAC jobs, but not until late October.
Among the six municipal school districts, Collierville has bid three elementary school jobs since January. Arlington posted one HVAC job in February.
Meanwhile, the MSCS effort to get ahead of the competition proved costly.
At a committee meeting last August, district officials told board members that bids were coming back much higher than expected.
“Some are up to 42% higher,” Phillips told board members.
Bidding process change
MSCS changed its bidding process last summer in ways that limited competition.
First, the 82 individual HVAC jobs were opens in a new windowsorted into 26 lots.
Normally, potential contractors are given about 30 days to bid on a single job. With ESSER, they were asked to bid on entire lots with up to 10 schools in the same amount of time.
There are dozens of mechanical contractors in the area, but only a handful have the capacity to handle so many HVAC jobs at once.
“The whole process was difficult to understand,” said Steve Thornburg of Morgan & Thornburg Construction in Memphis. “You had to bid on the lots, but they awarded only a portion of the lot. We were going on the assumption they were going to award the entire lot. We had to bond the entire lot but got just one school per lot. I just wish they’d been a little more transparent. I don’t think they quite understood the overall dollar impact of their process.”
The company bid on four different lots with a combined 12 schools. It was awarded contracts for two schools that drew opens in a new windowno other bids: $5.9 million for Carver High and $5.3 million for Geeter K-8.
Bidding the HVAC jobs in lots with multiple schools pushed out smaller bidders. Only a handful of the larger construction companies can qualify for bonds (required insurance policies) large enough to cover multiple jobs.
“The lots were too big for us to bid on, but we’re so covered up with jobs, it didn’t matter,” said Tony Wooten of Wooten Mechanical. “We couldn’t bid.”
The bidding process was further complicated by ESSER guidelines that required construction contractors to design each job.
That’s a task normally handled by an architect or engineer hired directly by the district.
“Normally, that’s a two-step process,” Phillips of MSCS explained. “You have to bid the design, then wait for the designs to be done and approved, then bid the installation and get that approved.”
Phillips said the district didn’t have time to add another layer of bidding and approval to 84 HVAC jobs. “The design/build approach was a way to get more bids faster,” he said.
ESSER guidelines required the district to shift responsibility for any design mistakes from the district to the installing contractor.
As a result, prospective contractors included extra “contingency funds” in their bids to cover any mistakes they might make, or any unforeseen circumstances they might encounter. If the job goes as planned, the installing contractor keeps the extra funds.
Few bidders
In the end, only nine construction companies bid on the 26 lots; only eight won contracts.
No company bid on more than six of the 26 lots, and three companies bid only one or two.
Eleven lots had only one bidder. One job had no bidders.
“It was a challenge to put bids together with all the uncertainty,” said Xavier Robinson of Robinson Mechanical, which will subcontract with two larger construction companies.
The high cost of the lack of competitive bidding is most apparent in HVAC jobs with similar scopes.
In late 2020, pre-ESSER, opens in a new windowsix companies bid to replace the boiler, chiller, and pumps at Willow Oaks Elementary, which is about 72,000 square feet.
Martin & White was awarded the low-bid contract for $424,495 — about three times the cost of equipment.
In January 2021, pre-ESSER, opens in a new windowfive companies bid to replace five boilers and 10 pumps at Sherwood Elementary, which is about 94,000 square feet.
Martin & White again was awarded the low-bid contract for $404,067.
With ESSER, competitive bidding dried up.
Another example:
Last summer, only opens in a new windowone company bid on the four HVAC jobs in Lot 1A5. The lot included replacing the steam boiler and replace it with a hot water boiler at Vollentine Elementary, which is about 75,000 square feet.
Gipson Mechanical of Memphis, the only bidder, was awarded the job for $5.7 million — about 40 times the cost of equipment.
Supply chain bottlenecks
Phillips suggested the higher costs of MSCS HVAC jobs were the result of supply-chain bottlenecks and general inflation.
“We’ve heard from contractors who say there are big delays in the supply chain, and lots of surcharges to move up in line,” Phillips said. “Demand for construction services is high.
Contractors say they are having problems with equipment delays and cost increases.
“Sure, it’s a worldwide crisis,” said Chris Smith of American Refrigeration in Olive Branch, which was awarded six ESSER-funded HVAC contracts for DeSoto County Schools.
“Each manufacturer has long delays waiting on components,” Smith said. “Delays will cost us overtime. All materials go up daily. Gas for our trucks is out the roof.”
But contractors also say that supply-chain shortages and inflated prices are impacting all of them equally.
Those issues don’t explain why HVAC bids were so much higher for MSCS projects than similar projects nearby.
DeSoto County, just across the state line, provides an apt comparison.
Seven companies bid to replace rooftop units at Lewisburg Elementary in Olive Branch. American Refrigeration was awarded the contract for about $1.2 million. That amounts to about $15 per square foot.
At MSCS, only opens in a new windowone company bid to replace rooftop units at Woodstock Middle School, which is about the same size as Lewisburg. Martin and White was awarded the contract for about $2.8 million. That amounts to more than $30 per square foot.
In DeSoto, five companies bid to replace rooftop units and outside air units at DeSoto Central High School. Accurate Air of Memphis was awarded the contract for $2 million — about $10 per square foot.
In Shelby, opens in a new windowfour companies bid to replace rooftop units at Southwind High School.
Damon Marcus Co. was awarded the contract for $6.1 million — about $19 per square foot.
The lower overall bid prices for ESSER-funded HVAC jobs in DeSoto County Schools reflect its more competitive bidding process.
In DSC, there were 55 bids on 12 HVAC jobs — nearly 4.6 bids per job.
In MSCS, there were only 47 bids for the 29 awarded HVAC contracts — about 1.6 bids per job.
In DCS, 13 construction companies bid on the 12 jobs. The average contract was $822,000.
In MSCS, only nine companies bid on the 29 jobs. The average contract was $6 million.
In the DCS jobs, equipment — which can cover more than half the cost of a job — was supplied by all five major HVAC manufacturers: Carrier, Daiken, JCI, Lennox and Trane.
“We are using all major HVAC manufacturers vendors for these projects,” said Smith of American Refrigeration.
In the MSCS jobs, nearly all the HVAC equipment was supplied — per MSCS guidelines — by one local distributor, Ewing Kessler.
The Institute for Public Service Reporting asked all eight HVAC contractors which distributors supplied their equipment. Only two responded.
“We use whatever the specs call for,” said Steve Thornburg.
“I’d prefer to not answer,” said Heather Bonner Page, vice president of A&B Construction of Memphis, which was awarded three MSCS contracts for about $4 million.
This story first appeared at dailymemphian.com under an exclusive use agreement with The Institute.
