City Plans To Start Construction Company, Employ Only Locals

Concrete-TruckIn an effort to ensure that local residents get hired for a $1.4 billion multi-stage sewer project, the city of Akron, OH is planning to start its own construction company. It’s a bold plan. It’s an innovative and unique idea. It’s a grand and noble gesture to provide jobs for its citizens. But is it a good idea?

The mayor of Akron, Don Plusquellic, apparently thinks it is, going as far as introducing legislation to have the city purchase $1.9 million worth of concrete mixer trucks and dump trucks that they would lease or sell to the as yet formed, city-owned Akron City Construction Company (ACCC).  A city employee even attended the World of Concrete tradeshow in Las Vegas back in February to do some research, which apparently couldn’t be done by reaching out to local heavy equipment dealers. If they really wanted to stay local, they could have just gotten their concrete mixers from the Kimble Manufacturing Company whose facility is about an hour away in New Philadelphia, OH. The city is planning to purchase or lease six concrete trucks and four dump trucks.

The city has run into problems in the past finding contractors that can meet the goals of their local hire program which requires 30 percent of their workers be Akron residents during the early stages of their multi-state sewer project. That percentage would grow by five percent each to 50 percent for later stages of the project in 2018. The city thinks they can do a better job of hiring locals than established construction firms by starting their own company.

They also hope to avoid any further legal challenges or potential legislation that would prohibit their local hire program. Last year the Ohio Contractors Association (OCA) filed a federal lawsuit challenging the local hire program on a combined sewer overflow (CSO) project on the basis that it was unconstitutional on the state and federal levels. The lawsuit was eventually dropped by the OCA, but the city went ahead with its plan to use city residents to perform some of the work to avoid any further legal delays. Ohio has some resident bidder preference laws, but none appear to apply to construction projects.

By starting their own construction company, the city of Akron would be able to hire city residents and skirt a provision in Ohio House Bill 53, Transportation and Public Safety Budget FY2016 and FY2017, that would prohibit cities from being able to require contractors adhere to local hire programs. (That provision has since been dropped from the language of the bill.) Local hire programs and local bidder preference laws have been enacted in a lot of states, counties and municipalities.

The city is considering using a CM-at-Risk with the city-owned construction company acting as a subcontractor. This brings up a couple of interesting questions as to how the CM-at-Risk contract would work. Would the guaranteed maximum price (GMP) exclude any work done by the ACCC? Would delays caused by the ACCC be treated the same as owner-caused delays? Would the ACCC be treated as a true subcontractor and could the CM-at-Risk require they provide performance and payment bonds?

The city is currently taking Statement of Qualifications from interested contractors for the largest part of their sewer project. The $317 million project which would primarily consist of construction of a 6,200-foot long, 27-foot diameter interceptor tunnel. Some of the work the city plans to perform on this project through their own construction company as a subcontractor includes hauling dirt and concrete, excavating and digging ditches.

To their credit, the city of Akron has done its part to ensure city residents are getting work on these sewer projects. In addition to the citizens hired last year to complete the project tied to last year’s OCA lawsuit, the city provided training to 48 residents in order to obtain a Commercial Driver’s License (CDL) some of which were hired by the city. The training was free of charge provided participants work 90 days for the city.

Last month the city began its first class of a five-week Construction Workforce Pre-Apprenticeship Program in conjunction with seven local trade unions and Akron Summit Community Action, Inc. The 52 participants of the inaugural class will receive training on the use of hand and power tools, materials handling and OSHA-10 certification. Successful completion of the program can lead to entrance into a local construction trade apprenticeship program.

OK, so the city has some equipment and construction workers covered, but what about the other things that go into starting a construction company? There’s licensing, bonding, insurance, safety. If they are purchasing dump trucks and concrete trucks, they need to consider maintenance and repair. They’ll also need to decide what to do with idle equipment as well as what to do should they need additional trucks in the event one is out of commission for repair. If they plan to perform excavating and ditch digging they will need heavy equipment such as excavators, bulldozers and skidsteers. They will also have to hire and train workers to operate these machines. The new company will also need administrative personnel, supervisors, a safety manager and possibly more.

If the city of Akron goes ahead with their plan and starts their own construction company it will be interesting to see if they are successful. Will they keep the company operational past 2018 when the sewer project ends? Will they bid on projects let out by the state and local governments in Ohio? Will they operate for profit or will they bid on just enough work to keep their workers employed and concentrate mostly on handling projects for the city of Akron?

As far as I know there isn’t a state or local government that owns a full-fledged construction company in the United States. There are some public entities that have departments that handle some construction work and countries like China and India have state-run construction companies, so this would be a first of sorts and it’s hard to be the first at anything. If Akron does succeed, would other municipalities follow in their footsteps and start their own construction company?

15 Responses to “City Plans To Start Construction Company, Employ Only Locals”

  1. Dude March 10, 2015 at 8:27 AM #

    Sounds like a terrible idea. So your going to purchase or rent equipment, create a safety program, hire project managers, safety inspectors, human resources to handle the hiring, estimators, purchasing agents, accountants, and a whole realm of other things so you can hire local people. Just mandate that the construction company must provide 80% of the project with labor forces in certain zip codes or some other way of ensuring local businesses are used. That is pretty common practice.
    Sounds like a huge waste of tax payer money, I am sure they will “claim” they saved millions doing this but as normal it will not be all inclusive, they will not take into account the unemployment paid out once the project is finished, the over run b/c who can you take liquidated damages from if you run the project, and we all know the project will never stay in budget and complete in the estimated time frame. Government has never, and will never run anything especially a business more efficient than a business in that sector can operate, you are fooling yourself if you think otherwise. I see know why Ohio voted for Obama twice. Also who wants to take the higher paying management positions, knowing there is not any long term benefits from it, you will have a hard time finding anyone with experience for standard industry wages without over compensating them b/c no one would leave a company to know they only have an estimated time for the project duration and knowing there is no place to grow or earn additional salary. I am pretty simple but sounds like Big Government at its finest and wishful thinking from locals in Ohio.

    • Kendall Jones March 10, 2015 at 8:34 AM #

      Dude, thanks for the comment. I’d say, regardless of who you are, you’re starting out on the wrong foot if the first step you take to starting a construction company is investing nearly $2 million in equipment.

    • Robert McCloskey March 10, 2015 at 9:55 AM #

      This has been tried before, it was called the TVA end up being a huge boondoggle, right out of the FDR New Deal Socialist Program.
      Some questions for this wanker fest:
      1) Will the City competitively bid for the work or will it be Time & Material?
      2) When changes or delays occur, and they will occur, will they be dealt with at arms length or just rubber stamped?
      3) Who are they going to get to manage this enterprise, what talented capable people are going to go to work for this company, with no future?
      4) Who is going to make up the cost between what was bid and what it cost to build this work?
      5) Do they really think contractors are going to waist the time and money bidding work they can not get?
      I see a slow motion train wreck coming, with the tax payer holding the bag.

      • Kendall Jones March 10, 2015 at 10:08 AM #

        Robert, thanks for the comment. From what I’ve read the city-owned would be working as a subcontractor on their sewer project under a CM-at-Risk the city hires. One of the current city engineer’s has been tapped to run the new company and the company will be hiring and training city residents as employees. On projects for the city of Akron they won’t be bidding against other contractors, the work they will do will be awarded directly to the city-owned company. I believe if they are serious about having a company they will eventually bid on other projects not being let by the city. I have no idea how much or little thought was put into this city-run venture. I commend them for wanting to employ more city residents but I’m not sure how that can’t be accomplished with a mandatory local hire program that contractors must adhere to.

  2. Steve March 10, 2015 at 8:51 AM #

    Sounds a lot like communism to me ?

    • Kendall Jones March 10, 2015 at 9:10 AM #

      Steve, thanks for the comment. Seems rather capitalistic of them if they run the new construction company for profit.

  3. Lisa March 10, 2015 at 10:58 AM #

    They will probably end up wasting tons of many and hopefully they end up with a safe tunnel.
    Every other aggressively run government will follow suit as they are always looking for ways to expand. They don’t have to worry about that darn overhead and profit because they will be around next year riding the backs of the taxpayers. it sound like they already have the laws on the books as far as resident hiring preference, they just need to enforce it and let the professionals do the work.

    • Kendall Jones March 10, 2015 at 11:05 AM #

      Lisa, thanks for the comment. Apparently they hired residents and members of local trade unions to do some work on their Rack 15 CSO project last year. They claim contractors are having difficulty meeting their resident hiring preference goals. I think setting up outreach programs and training initiatives to help contractors identify local workers would be a wiser investment. A recent Ohio House Bill had a provision in it that would have prohibited cities from including local hire programs in their construction contracts, but that language has been removed in the current version of the bill.

  4. Rick Kilpatrick, PLS March 10, 2015 at 11:08 AM #

    It is a crime anytime government – local, state, or federal – takes the competitive part out of the bidding process. Let the free enterprise system work, like it has, and continue to feed the local coffers, give skilled persons meaningful employment, and allow them to hire who they want. There is a reason that public works projects are built by the private sector, with oversight by the public sector. If there is no incentive for profit, or a sting from loss, the government entity in charge of both construction and oversight will ultimately go over budget and fail in the enterprise, and the taxpayer is left holding the bag. I am speaking from my experience of 13 years with the Washington State Department of Transportation, and 11 years of business ownership. Leave well enough alone!

    • Kendall Jones March 10, 2015 at 11:17 AM #

      Rick, thanks for the comment. It seems like a gamble for any government entity to take. Even more so in this case since you’d essentially have a non-experienced subcontractor (the city-owned company) working on a multi-stage sewer project that has an EPA mandated completion date of December 31, 2018.

  5. Frank March 10, 2015 at 5:56 PM #

    Who are they going to competivally bid against?

    • Kendall Jones March 11, 2015 at 6:54 AM #

      Frank, for city of Akron projects they won’t be bidding against anyone for the work they want their city-owned construction company to do. If they are serious about running a true construction company then I assume they will bid on other projects let by the state, county and other public entities against construction companies.

  6. Richard VAnek March 13, 2015 at 6:55 AM #

    So now we are going to have to compete against this government owned company for work? This really is becoming an “us against them” relationship between government and the people they are supposed to represent! Costa Rica is looking better every day.

    • Kendall Jones March 13, 2015 at 7:16 AM #

      Richard, thanks for the comment. Actually if it was a city of Akron project, there would be no competition as they would just award the work to the city-owned company with no public bidding process. Theoretically they would be competition if they bid on projects not put out by the city, say a county sewer project. And honestly, being able to enjoy the beaches of Costa Rica on a daily basis is better especially after the winter we’ve had.

  7. Bill March 16, 2015 at 2:48 PM #

    Hey we now have socialized medicine and how is that working out for you? Now the government want to socialize private enterprises? Am I in America? What will it take to stop these peoples quest for more and more power? It seems to me that the thought of government bringing an idea like this should be a crime.

    My belief is that government should not be used by people in government to create their own kingdoms. To me if a person wants to head a company then they need to build it themselves, run it themselves, and complete in the free market. Just because someone is a high ranking government employee that does not give them the right to run a billion dollar construction company. To me they have not begun to qualify to manage any company. They are government servants and not the government masters.

    The Magna Carta brings to mind all the reasoning for a minimalistic government, not promoting bringing on the Kings. Sorry I just hate to see a country I love so much being torn to shreds by government.

    Government needs to stop be a platform for government officials in the kingdom building business. Use your ideals that will promote service to us citizens. If you only reason for this type of a program is to utilize local employment then promote and teach your local citizens the skills it takes to perform the tasks of this project.

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