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Local firms bypassed in $1B project - El Paso Inc.: Local News

Local firms bypassed in $1B project

Contractors get less than 6 percent of work on new hospital

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Posted: Sunday, October 27, 2013 6:00 pm | Updated: 10:30 am, Mon Oct 28, 2013.

When the Army announced plans to build a $1-billion hospital on Fort Bliss to replace the aging William Beaumont four years ago, many in the construction industry in El Paso rejoiced.

The nearly $5-billion expansion of Fort Bliss, which had been a boon to the local construction industry for years, would soon end, and contractors expected work to dry up. It did, starting about two years ago.

“We really suffered,” says local contractor Carlos Ornelas, president of the Southwest Specialty Contractors Association.

But so far local contractors have seen little benefit from the $1-billion project, where $649 million will be spent constructing the buildings, and more than $300 million to buy equipment and add infrastructure.

Much of the project is already spoken for, and many of the construction contracts have already been awarded to out-of-town companies.

“El Paso just kind of got kicked aside on this thing,” Ornelas says.

Last year, the Army Corps of Engineers awarded the $649-million construction contract to Clark/McCarthy Healthcare Partners II – a joint venture of Maryland-based Clark Construction Group and Missouri-based McCarthy Construction Companies.

Since then, Clark/McCarthy Healthcare Partners has selected most of its subcontractors, including a small fraction from the El Paso region, according to data provided to El Paso Inc. by Clark/McCarthy.

So far Clark/McCarthy has directly issued 82 subcontracts, accounting for all but $24 million of the construction cost.

Contracts totaling $38 million, or less than 6 percent of the total construction cost, were awarded to local companies. Clark/McCarthy would not release the list of local subcontractors, citing company policy, but said it considered a subcontractor local if it maintained a permanent office in the region.

“At the same time that it is exciting that there is all this investment coming into the community and a full-service active duty military hospital, it is deeply disappointing that more of this work didn’t go to El Pasoans,” says U.S. Rep. Beto O’Rourke, D-El Paso, who serves on the House Veterans Affairs Committe.

O’Rourke took office at the beginning of this year, shortly after Clark/McCarthy was awarded the construction contract.

Nonetheless, Clark/McCarthy estimates the project will draw a local workforce of about 2,000 people, and the impact of that employment on the El Paso economy is expected to exceed $180 million.

And many in the local construction industry remain hopeful that they can work with the subcontractors, who are expected to source some of their labor and materials locally.

“The whole thing just sticks in our craw that we couldn’t get any of these projects split up where the local subcontractors could benefit,” Ornelas says.

The 1.1-million square foot medical campus, which will replace the 1970s-era William Beaumont Army Medical Center in Northeast El Paso, will be located on a 270-acre site at the intersection of Loop 375 and Spur 601 in Far East El Paso.

Plans call for a seven-story hospital, two clinic buildings, an administration building, a clinical investigation building with laboratories and a central utility plant.

Site preparation is already under way. The Corps of Engineers awarded Phoenix-based Sundt Construction the $43-million contract to clear and grade the site, as well as build roads and install utilities.

Sundt is doing the work out of its El Paso office where it employs 200 people. It opened the office in El Paso five years ago, according to the company.

Clark/McCarthy project executive Tim York said he expects to begin “vertical construction” in the coming months, and the hospital is scheduled to open in November 2016. The company would not grant El Paso Inc. a phone interview but responded to questions by email.

Challenges

Many of the challenges preventing local contractors from working on the new Beaumont hospital – bonding requirements, narrowly written contracts and an overall lack of capacity in the region to handle such massive projects – are the same ones that have plagued the industry since the multi-billion dollar expansion of Fort Bliss began in 2005.

“This is not an isolated situation,” said Cindy Ramos- Davidson, CEO of the El Paso Hispanic Chamber of Commerce. “We have been battling this at a national level for a long time.”

The Corps of Engineers proposal required firms bidding on the project, like Clark/McCarthy, to preselect all its mechanical, electrical, plumbing, steel fabrication and erection subcontractors – more than half of the value of the project.

And each of those subcontractors had to demonstrate the successful completion of three hospitals valued at more than $300 million and larger than 500,000 square feet in the last 10 years – a bar that excluded most, if not all, local companies.

“A very legitimate concern I hear from local businesses is that these requirements were so narrowly written that only a few companies, and almost none of them in El Paso, could have met the requirements,” O’Rourke said.

John Rindt, a senior vice president at HUB International, formerly JDW Insurance, said Clark/McCarthy’s procurement team walked into his office about three weeks ago seeking advice.

The agency is one of the top local providers of surety bonds. Bonding requirements, Rindt said, can be a major hurdle for smaller construction companies that want to work on a big project like this one.

Bonds ensure a job gets done in accordance with the specifications of the contract and everybody gets paid in the event a contractor defaults.

Contracting entities often require bonds, but it can be challenging for smaller contractors to meet the credit and financial requirements. HUB International in El Paso, Rindt said, has provided about $14 million in bonding to local contractors for work on the new Beaumont.

Outreach

Although there are no federal contracting requirements for local business participation, Clark/McCarthy has held 15 outreach events since the beginning of last year, according to York.

It has invited partner organizations to participate on the project’s small business advisory committee, York said, and a “ThinkELP” brand has been developed around the project.

“They are doing the letter of the law,” opines Larry Trejo, executive vice president of the local chapter of the Associated General Contractors.

But local officials who have been working with Clark/McCarthy to boost local participation, groups like the Small Business Administration and Hispanic Chamber, said it is not from a lack of trying on the part of Clark/McCarthy that most of the subcontracts so far have gone to out-of-town firms.

O’Rourke said he has asked Clark/McCarthy to update his office periodically on what it is doing to reach the local contracting community.

“I just want to make sure they are not just going through the motions in those meetings to check off a box,” O’Rourke said.

He added, “We are really in a position now of having to learn about what has taken place over the last seven years and applying it to future opportunities that may come our way.”

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Email El Paso Inc. reporter Robert Gray at rsgray@elpasoinc.com or call (915) 534-4422 ext. 105.

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