Small group of contractors gets majority of state highway work

State highway contracts have grown on average by 55 percent sine 2010

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IOWA CITY — Find just about any road construction project on Iowa’s highways, and there’s a decent chance a crane, a backhoe, a plow or some other piece of heavy machinery has a “PCI” logo plastered on the side.

Offering a range of services such as retention walls, bridges and earthwork, Peterson Contractors Inc. of Reinbeck has worked in 46 of Iowa’s counties in the past five years.

A local sampling includes the $2 million contract to build a pedestrian bridge along Dubuque Street over Interstate 80 in Iowa City, $7.9 million for a railroad overpass of First Avenue in Iowa City, and $47 million for elements of the Highway 100 extension in Cedar Rapids.

“We have the right tools and the right people to do the job right,” company co-owner Gale “Cork” Peterson Jr. said.

Large contractors such as PCI get the most work from state highway contracts, and they also are among the more active politically pushing for more highway funding.

PCI and other contractors, such as Manatts Inc. of Brooklyn, backed a 10-cent per gallon gas tax hike, which passed earlier this year. It fueled a 20 percent increase in the Iowa Department of Transportation five-year highway spending plan, which jumped from $2.7 billion in 2015-19 to $3.2 billion in 2016-20.

Bigger contracts, few contractors

Even before the extra gas tax proceeds started rolling in April, highway contracts had been getting larger and larger, on average, with the majority going to only a handful of companies, according to a review of Iowa DOT contracts.

The Iowa DOT has awarded 4,905 contracts worth $4.5 billion to 305 contractors between January 2010 and April 2015, according to the contract data. In that time, 15 companies have received more than half the contract dollars, and contracts have grown on average more than 55 percent, from $737,430 in 2010 to $1.2 million in 2015.

According to an Iowa DOT report made available by the Federal Highway Administration, Iowa price trends for highway construction is up 16.7 percent this year through the second quarter, and it climbed 12 percent in 2014.

PCI has been one of the more successful companies in winning contracts.

The company founded in 1964 has been awarded 169 contracts worth more than $258 million since 2010, according to the contract data. PCI’s average contract has grown from $837,438 to $2.1 million, according to the data.

“It’s a big industry and we have a lot of competition, but we are cheap bidders. We bid less,” Peterson said.

At times, contractors partner on projects and bid as one entity, which may all them to share resources such as equipment or increase their bonding capacity for insurance. PCI partnered with four different contractors on 18 projects worth $94 million, in addition to their solo efforts.

Bill Gerhard, president of the Iowa State Building & Construction Trades Council in Bettendorf, said larger companies may have a leg up at winning contracts. In some cases, they may be able to afford insurance, which increases with project size, have a home-field advantage when it comes to getting supplies, such as aggregates for road work, and they may have the resources in terms of people and equipment to tackle a number of projects at once, he said.

“They are just big companies, so they can do more contracts,” he said. “They can bid more work.”

Low bid wins

For contractors to bid on an Iowa DOT project, they must be prequalified for the type of work in question, carry insurance bonds commensurate with the project and offer the best price.

“By the code of Iowa, we are bound to take the low bid, and it’s always competitively bid,” said Wes Musgrove, director of the contracts office for Iowa DOT.

No preference is given to Iowa companies, he said, although $3.9 billion or 86 percent of the highway contracts since 2010 went to Iowa companies. Wisconsin had the second most with $217 million, followed by Minnesota with $147 million and Nebraska with $143 million, according to the Iowa DOT data.

Musgrove agreed that a handful of contractors get a bulk of Iowa DOT work. It is likely a case in which fewer companies can compete for the bigger projects, of which there have been a wave in recent years, he said.

As for growing contracts sizes, the Iowa DOT has been packaging projects to help a project with many parts run more efficiently by holding a single company accountable, Musgrove said.

To foster trust in the process, the Iowa DOT works with the Federal Highway Administration to block contractors under investigation or convicted of wrongdoing, and the agency prepares an internal estimate for each project so staff can compare incoming bids to the expected price.

The guidelines help create competition when it’s lacking.

If only one contractor bids, the guidelines call for the bid to match the internal estimate, for two bids it must be within 5 percent, 10 percent for three bidders, and so on, he said. The higher the number of bids allows the market to dictate the state is getting a fair offer.

“It’s so we know Iowans are getting their money’s worth,” he said.

Political activity

While the DOT is designed as independent and shielded from political pressure of the Iowa Legislature, contractors and their associations are active in the political process, recently pushing for more transportation funding.

PCI and its top brass have donated more than $100,000 to Iowa political candidates and groups since 2010, including $70,000 to the Governor Branstad Committee, according to state campaign disclosure data. Another $20,000 went to candidates that have served or still are on the Iowa Legislature’s transportation committees or to pro-contractor political groups.

“I think it was long over due, and it’s probably the most fair user fee there is,” Peterson said of the gas tax.

Manatts had a registered lobbyist for the gas tax, and the company and members of the Manatt family have donated $16,500 to political candidates and the Associated General Contractors of Iowa PAC. The Associated General Contractors, which also lobbied for the gas tax increase, has received $1.5 million and spent $1.3 million since 2010, according to state disclosure date.

John Olivieri, 21st Century Transportation campaign director for U.S. Public Interest Research Group, said it is not uncommon for a small share of contractors to receive a lion’s share of contracts. His concern is about the political pressure of how to spend the money.

“What is concerning from our perspective is less on who is doing the developing, but what is being done with the money,” Olivieri said. “It is important to not just invest in new and wider highways.

“If states are going to raise the gas tax, they should be looking at investing in things like biking, walking, and public transit.”

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