Denver’s jewel on the eastern plains continues to evolve. As Denver International Airport (DIA) is transformed with renewed vision, the City and County of Denver can be proud of the benefits it will bring to the metro area. The South Terminal Redevelopment Program (STRP), which will add a hotel and light rail terminal to the existing terminal, is visionary and ambitious. Now with a reported budget of close to $600 million, it would seem that it is the next great economic engine.
As Denver has developed into an enviable major metropolitan city, the construction industry has played a significant role in projects, including the RTD Light Rail, T-REX, DIA and STRP, which is an initial step in the development of the airport city. With millions of dollars being spent, sometimes with the help of federal funds, the design, development and construction of these projects for the public benefit are complex. Subject to rules and regulations, contractors of all stripes must wade their way through regulations and ordinances to secure work, participate, and gain from them as the developments evolve and move forward.
These types of projects are common around the country, and the federal government has realized that not everyone has been a participant. As a result, the United States Small Business Administration has developed programs to foster the participation of groups that have traditionally been left out. Minority/Women’s Business Enterprise (M/WBE), Disadvantaged Business Enterprise (DBE), and Small Business Enterprise (SBE) are some of the more common designations and associated programs aimed at helping historically disadvantaged groups across all industries, not just in construction. In numerous cases, minority and or women-owned firms enter the marketplace, intent on growing their influence and businesses.
Denver based Burgess Services LLC is such a company. President and CEO Denise Burgess has been involved in the business since 1993 and became the president in 2001 with her father’s passing. Burgess Services in its present context is a mechanical construction management firm, but it started out in the 1970s as Burgess Mechanical. Her late father, Clyde Burgess, a decorated war veteran started Burgess Mechanical, and endeavored to build his business in an environment often rife with discrimination in contracting.
Burgess has taken her father’s company to a completely new level. Her firm now focuses on construction management and quality control, after years of targeting projects to increase Burgess Services’ stature. She is a board member of the Denver Chamber of Commerce and a leader in the conversation for increasing M/WBE construction contractor participation. Former Denver mayor John Hickenlooper selected her to the first Construction Empowerment Initiative (CEI) Committee, where she was co-chair. Burgess Services has managed multimillion-dollar projects in Atlanta and Miami, as well as Denver, where in addition to DIA, Burgess Services was a construction manager (CM) for the Denver Justice Center. This growth in stature and influence has gained the confidence of prime contractors locally and nationally, and earlier this year it was announced that Burgess Services was awarded a $39 million contract, the largest amount ever awarded to an African-American woman-owned firm in Denver.
The awarding of this contract is significant not only for the dollar amount but for the scope of responsibility and risk that it entails. Burgess Services is on par with other majority-owned contractors on the DIA/STRP project who have subcontracted with Mortenson Hunt Saunders (MHS). Her company has contracted with the tri-venture for the management and mechanical installation of STRP. Burgess Services is at risk for the entire $39 million contract. Her bonding company has guaranteed that Burgess Services will complete the job. Burgess’ goal has always been job completion using other M/WBEs when possible, but not to their subsequent detriment, and losing their bond.
Construction out at DIA is a 24-7, high-stakes game with many nuances and layers of contracting and subcontracting. Parsons was selected by the city and County of Denver as the construction management firm (CM or GC), sometimes known as a general contractor. Parsons in turn hired the joint venture of MHS, which hired Burgess Services and other subcontractors to manage and complete other pieces of the STRP project.
To get STRP completed, Burgess says that MHS management had to form teams of contractors with which they had little familiarity. She says that the three major prime contractors forming MHS had not worked together before. “So their management team came together and said the best way for us to do this is to make sure that we are all comfortable with whoever is doing the mechanical electrical and plumbing (MEP),” says Burgess. “So let’s work with them, and see how it works. And if it works, we will continue down the path and then change order their contract. We had ours change ordered up to our $39 million and Sturgeon Electric had theirs change ordered to their final.”
A change order is when the parties agree to changes in the scope of work in the original contract.
In effect after the initial $187,000 design-assist contract was awarded to Burgess Services, Burgess says that throughout the change order process, they were still interviewing for the contract. Along the way, Burgess Services provided its bonding letters and bonding letters from their potential pre-selected team subcontractors, as required by the City, as the work at STRP progressed.
In the last few months Burgess has been called out in various media for awarding a large chunk of the contract, $22 million, to RK Mechanical, a majority-owned firm. Dennis Gallagher, the Denver city auditor, even weighed in on the issue in a letter to Denver Mayor Michael Hancock. Burgess defends her decision because RK was qualified and had the bonding capacity to complete the job. RK was hired as a necessary anchor contractor much like Parsons hired MHS as an anchor to ensure the job completion. In the industry, contractors often mirror each other’s practices at the different levels.
“And the big thing that sort of gets lost in the conversation is that Burgess Services is taking the entire $39 million risk. We are taking the bonding risk for the entire project. RK Mechanical is only taking their risk for what they do. Construction is a risk business these days. That is just how it is. And its whose bonding company is willing to say ‘yes they’re good or yes they have the credit,’ the experience and knowledge that we say ‘yes’ to them for a certain amount.” According to Burgess bonding companies have become increasingly wary since the Great Recession, which the National Bureau of Economic Research defines as a severe economic downturn spanning December 2007 to June 2009.
Surety bonds have protected the completion of federal construction projects since the Miller Act (1935), a federal law intended to protect contractors on public works projects. States followed with their own Little Miller Acts. The typical remedy for non-payment to contractors is the mechanic’s lien. But contractors cannot file suit against a state’s property, so bonding is required for public construction projects exceeding $100,000. In Colorado, according to the Colorado Public Works Act, most recently amended in 2007, bonding is required at bid time, and performance and payment bonds are required before work can be started. These are typically 50 percent of the value of the contract. Additionally a penal bond may be required of contracts $50,000 or less. Bonding capacity is built over time, so a good reputation as well as good credit is key to participation.
Bonding guarantees the specific contractor will do the job for a certain amount or the bond is pulled. Burgess cited other team subcontractors that are at their capacity, NM Industrial, an M/WBE ($6 million), Colorado Mechanical Insulation, an SBE ($1.8 million). The recently renewed Construction Empowerment Initiative (CEI) ordinance has very specific requirements for outreach to find qualified minority and women-owned businesses.
As Burgess prepared the request for proposal (RFP) for MHS and DIA, she says it was difficult to find qualified minority mechanical contractors. Qualified in this case doesn’t just mean the contractor has the knowledge to do the work. Contractors at this level must have not only bonding capacity, but also financing, credit, cash flow to meet weekly payrolls, and insurance. Frankly, Burgess says that some minority contractors that she approached didn’t want to enter into this system of the city.
Given her diligence in staying on point to get the job done Burgess believes she deserves credit as an M/WBE for 100 percent of the value of the $39 million contract counting toward the overall 30 percent project goal. But the city disagrees.
“I think they have been burnt in the past. Paul Washington and I have had extensive conversations about this. I get their fear is a pass through. That can’t be because I’m taking a 100 percent risk. If it was a pass through, I would take no risk and just cash the check and have no one out there. But that’s not true. I’m taking 100 percent of the risk. We have five managers out onsite making sure it is getting done,” says Burgess when addressing the use of a pass through, which is essentially when the minority contractor fronts for a majority-owned contractor so that it appears that the minority contractor gets credit for their participation.
She adds, “And I get in the past that really was how things were done but today that is not how it is done. You’re held accountable everywhere down the line. So I think that’s where our disconnect happens, because I think they look through a prism of 1980s contracting, but this is 2014, and things have changed considerably.”
Burgess contends that her usage of RK Mechanical was always transparent and open and she has emails from a supervisor in the Division of Small Business Opportunity (DSBO) for the city from April 2012 indicating that her participation and contract value would be counted 100 percentage toward the M/WBE goals. As late as March 2013, when a new guaranteed maximum price (GMP) amendment was signed by MHS and the city, Burgess was under the assumption that her contract and task would count 100 percent towards the 30 percent project goal, because the GMP stated this.
But late in the summer of 2013 that changed. The city now contended that because she was only certified as an M/WBE in construction management, and in their view perhaps not self-performing the work, her contract value would only count 100 percent if she subcontracted all M/WBEs. By then the contract with MHS had already been procured and the work started. Since then Burgess has been fighting the battle for her reputation, even though in his final report to the mayor and the public in early October this year, Paul Washington, executive director of the Denver Office of Economic Development, found no impropriety by her actions, but there remains no resolution as to how similar contracts count in the future.
“I don’t want any W/MBE to take a high stakes risk and lose their businesses because of it. And I’ll take the heat for not getting a goal. But that is heat I’ll take rather than have anyone lose their business. There are too many that did it during the Great Recession,” says Burgess.