Duluth-area contractors’ cut of Red Plan: 39 percentNearly 90 percent of the Duluth school district’s $296 million Red Plan is in the hands of contractors and laborers as they work to finish the megaproject.
By: Jana Hollingsworth, Duluth News Tribune
Nearly 90 percent of the Duluth school district’s $296 million Red Plan is in the hands of contractors and laborers as they work to finish the megaproject.
But as of Sept. 3, only 39 percent of the contract money has gone to Duluth and neighboring communities such as Hermantown and Proctor, according to data provided to the News Tribune by the school district.
Some say 39 percent isn’t enough.
“My hope would be that we had at least 50 percent local contractors,” said Duluth School Board member Tom Kasper. “And that the folks ultimately paying this bill — the taxpayers of ISD 709 — my hope would be that as many of those folks as possible are receiving some benefit if they work in that industry.”
“That’s most of our tax money (paying for the Red Plan),” said Duluth resident and carpenter Donovan DeRosier. “People from the Cities are not going to spend their money here.”
The flip side is that the school district is required by law to accept the lowest bid on contracts for the public project, meaning that taxpayers reap the benefits of the low bids. And because of project labor agreements requiring out-of-town contractors to hire locally, local trades say they’ve seen an increase in hiring.
That influx of work has helped many local companies during a time of economic upheaval.
“Four years ago,” said Don O’Connor, executive director of the Duluth Builders Exchange, “if people would have said we need the Red Plan to help a lot of the contractors in our area survive, nobody would have believed it.”
RED PLAN “HAS BEEN A BOON”
The district’s consulting firm, Johnson Controls, breaks down school contractors and suppliers into three tiers: Duluth and neighboring communities; regional cities such as Mora and Grand Rapids, which has so far garnered 19 percent of the contract money; and the Twin Cities metro area and beyond, which has received 42 percent of the money.
Kerry Leider, property and risk manager for the school district, contends that nearly 60 percent of Red Plan money has stayed in the region.
That’s because he considers local to mean not only Duluth but regional cities, as the Duluth Building and Construction Trades Council’s unions include members who live and work throughout the Arrowhead region.
And union leaders say that influx of work has helped many local companies during a time of economic upheaval.
“Because the economy turned badly, it has been a boon,” O’Connor said. “Even though the percentages we’re getting of contracts, and dollar figures, aren’t what we would like to see.”
Some of the trades in Duluth have 20 percent unemployment rates. But rates have been shrinking, said Craig Olson, president of the Duluth Building and Construction Trades Council.
“Because of the Red Plan, we are one of the few bright spots in Minnesota,” he said.
But being a “bright spot” has led to dozens of metro-area contractors bidding on, and winning, 193 of 372 contracts.
Because the district has no choice in the matter of bids, it has worked to break down packages and make as many as possible manageable for smaller companies to keep bidding competitive.
“I think we’ve done as well as we could have,” Leider said. “Certainly, we would have liked to see at times some local contractors be successful in providing low bids.”
Of the 372 bids awarded, the value of most could be met by local contractors, he said, noting, “If they were much larger contracts … some local contractors may not have been able to do that work or get the bonding to do that work.”
But it’s easier for larger companies to bid lower, because they have more employees and more revenue. They can also buy supplies in bulk factory-direct, avoiding a middle man.
“In this economic downturn, it is very common for contractors from out of the area … to chase work and be very aggressive in their bidding,” Olson said. “I’ve had them tell me they are even in survival mode. They are larger firms and need a steady flow of cash.”
LOCAL WORKERS “SITTING ON THE BENCH”?
But out-of-town contractors can’t just bring their work force with them. The district’s project labor agreement requires out-of-town contractors to hire a certain number of local workers.
It also requires them to abide by the conditions of the Duluth building trades and affiliates, Olson said, noting one Twin Cities company had hired 90 percent of its drywall finishers and carpenters out of Duluth.
But the labor agreement is not enforced to the degree it should be, said Andy Strom, owner of Superior-based Flament-Hampshire, an acoustical ceiling company that has done work for the Red Plan project.
He also said smaller companies have a harder time bonding their work. A bond is financial assurance that the job will be finished satisfactorily. If it’s not, the bond covers it.
“Bigger contractors have more bonding power,” he said.
Northland Concrete and Masonry of Burnsville, Minn., was awarded a handful of large contracts for concrete work. Project manager Brad Streeter said his company outbid other contractors by large margins for concrete work, but was outbid every time by local companies for masonry work.
“We have not been able to compete against local masons,” he said, adding that there are few larger concrete companies in Duluth, so that work was easier to get.
Those larger companies that come from out of town have hired plenty of local subcontractors, said Kevin Strong, program manager for Johnson Controls.
“Some of that money comes back into the local economy through subcontracts through local suppliers,” he said.
About $31 million in work is left to be bid out for the Red Plan. As that commences, Kasper hopes the work can be spread more evenly to the core areas of the Twin Ports.
“(The Red Plan) has generated some local jobs,” he said. “But I know there are many people sitting on the bench at the union halls.”