Wednesday, June 23, 2010

North Carolina Agency Issues Large Change Orders

The Alcoholic Beverage Control (ABC) agency for New Hanover County, North Carolina was criticized for avoiding state bidding laws by excluding from bidding documents all of the known interior or core work for the construction of new liquor stores, and adding that work by change orders. 

All Core Work Done by Change Order:  ABC bid only the shell of the buildings, with the same contractor, Lee F. Cowper, Inc. being awarded most of the contracts as the low bidder.  ABC then issued large change orders to Cowper for the interior work such as the electrical, plumbing, ventilation systems, flooring, counters, etc. 

ABC Hand-Picks Subcontractors:  ABC's longtime Administrator Billy Williams, who retired in February 2010, used the questionable contracting mechanism to hand pick the key subcontractors for the projects.  According to a former ABC board member, Williams did so because of the good relationships he enjoyed with the subcontractors.

Change Orders Up to 385% of Original Contract:  The following chart illustrates the original contract and the change orders issued for four stores, all awarded to Cowper.

Professor Criticizes ABC's Practice:  A professor at the University of North Carolina's School of Government in Chapel Hill, Frayda Bluestein,  commented on the situation:  "It seems to me if you know this is part of the work, I don't see any reason why you shouldn't or couldn't bid that as part of the original bid or do a separate bidding process.  Doing the second part without bidding - there doesn't seem to be a justification for that."

 Additional Information:
  • February 20, 2010 Star News Online article on the change orders
  • February 21, 2010 article on the change orders and Administrator Billy Williams hiring Cowper to do construction work on Williams' personal residence.
  • A search of news articles from the Star News Online for "Alcoholic Beverage Control" brings up dozens of articles about management, legislative, and ethical issues at various ABCs
Washington State Change Orders:  The Washington State Auditor's Office has announced they will begin scrutinizing change orders on all public agencies in the state when they conduct their annual audits.  Click here to read my previous blog entry on this subject.

Lessons Learned:  Change orders should relate to the project and not be work that could or should be separately bid.  ABC's actions are clearly outside of the norm and expectations for public contracting.  Make sure your agency has an independent internal review process for change orders and that they are reviewed for validity to ensure they are not cardinal changes outside the original scope of work for the project.  If you know of certain work that must be performed, include it on the bid form so that you can obtain competitive prices for the work.

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