The Kentucky Transportation Cabinet awarded more single-bid asphalt contracts between January 2018 and July 2023 than any other type of contract, according to a presentation Thursday by analysts from the Kentucky Legislature’s Oversight and Investigative Committee.
The legislative analysts briefed committee members on the prevalence of single-bid contracts during a one-hour meeting and detailed the cost impact they have on road paving in the state.
The presentation largely echoed the findings of a 2021 Kentucky Center for Investigative Reporting story which found that single-bid contracts, or contracts awarded to the only company that submitted a bid proposal, can lead to projects that cost more than the state’s estimates. KyCIR found that nearly a third of all road work contracts awarded between 2018 and 2021 were awarded to the sole bidder, costing taxpayers $9.6 million more than the state’s own estimates. In contrast, projects with multiple bidders cost neary $250 million less than state projections, according to KyCIR’s report.
At Thursday’s hearing, analysts Jeremy Skinner and Ryan Brown said the financial impact of single-bid contracts has been “inconsistent.”
According to their presentation, single-bid contracts cost an average of 100.5% of the state engineers’ estimate while contracts with two bidders resulted in costs at 93.5% of engineers’ estimates.
Rep. Jason Nemes, a Republican from Middletown, said he called for the analysis while he was a member of the Oversight and Investigations Committee after speaking with concerned citizens about the issue.
“I just want to make sure we are incentivizing multiple bids on any big project in Kentucky,” Nemes said. “So, what are we not doing that we could do better to increase competition, which improves performance and reduces cost.”
The state’s road paving industry has a history of alleged corruption. Leonard Lawson, founder of Kentucky-based Mountain Enterprises, was indicted on antitrust charges in 2008 when federal prosecutors accused him of working with the Kentucky Transportation Cabinet to rig bids. A jury acquitted Lawson and his co-defendants — two state transportation cabinet officials, including the then-cabinet secretary, Bill Nighbert.
Companies tied to the Lawson family came under scrutiny once again in 2017 when federal investigators raided the offices of ATS Construction and subsidiaries, all owned by Leonard Lawson’s son, Steve Lawson. The Transportation Cabinet confirmed at the time that it was cooperating with a federal antitrust investigation related to road contracts.
While most of the executive branch of Kentucky government follows the state’s model procurement code, the Transportation Cabinet is exempt from these rules for major projects such as asphalt work.
The cabinet accepts bids by first gathering a list of interested companies who are pre-qualified to accept state contracts based on their resources, experience and past performance. The list of pre-qualified companies is made public before the contract is awarded, so companies can see if direct competitors have expressed interest in a potential project. Bids are submitted through an online portal and are compared to estimates prepared by the cabinet’s own engineers. The cabinet can reject proposals that cost significantly more than the engineers’ estimates, but that usually means rebidding the project.
Analysts from the committee made six recommendations Transportation Cabinet officials could implement to increase competitiveness in the contract process. Those recommendations include:
- Keeping a list of potential bidders closed until after a contract is awarded to prevent potential collusion.
- Publishing written guidance for awarding or rejecting bids.
- Implementing an internal process to review engineers’ estimates.
- Using software to detect potential collusion among bidders.
- Monitoring single-bid contracts in central Kentucky, an area analysts flagged as rife with single-bid contracts in a region that should otherwise be more competitive.
- Stop posting bid prices publicly if a contract is not awarded. Currently, if the cabinet does not award a contract it will post the rejected bids before rebidding the project. This allows other companies to try and beat previous bids rather than basing their proposals on the actual cost of the project.
Cabinet officials agreed with all but one of these recommendations. They said publishing guidelines for accepting or rejecting bids would provide an unfair advantage to companies bidding for contracts.
James Ballinger, an engineer for the Transportation Cabinet, said the cabinet was already working to implement most of these recommendations before the presentation.
Lawmakers present at the committee hearing seemed nonplussed with the findings and mostly defended the powerful road paving industry and procurement practices of the Transportation Cabinet.
Rep. John Blanton, a Republican from Salyersville, said that Kentucky can’t just sit back and wait for companies to bid on projects they aren’t interested in.
“If we’ve got an open market, they’re choosing not to (bid), we’ve got to be moving forward with the work that needs to be done,” Blanton said.
“As I sit here and listen to all these different points, I'm trying to figure out, what's the problem here?” asked Sen. Reginald Thomas, a Democrat from Lexington. “I just don't see the problem unless I’m missing something.”
The problem, according to Andrew McNeill, president of the Kentucky Forum for Rights, Economics and Education, a think tank supporting free-market based policies, is that single-bid contracts reduce competition and lead to higher costs passed onto Kentucky taxpayers.
McNeill said the asphalt industry is influential in Frankfort, and likely played a role in shaping the message of the presentation.
“I think the industry lobbyists and Transportation Cabinet have been working with various members of that committee and others to spin this issue in the favor of the status quo, " McNeill said. “Lawmakers should give as much consideration to those that are paying for this work the taxpayers, as they do to those groups that are in Frankfort pitching their point of view day in and day out.”
The committee will release a final report based on the presentation's findings in January.
