Judge upholds local bid preference

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Milwaukee's local bidder preference Monday withstood legal challenges filed by sewer contractors that lost projects because of the law.

Milwaukee County Circuit Court Judge William Pocan ruled the city of Milwaukee can apply the preference to sewer and water projects that receive low-interest loans from the state's Clean Water Fund.

Contractors that sued the city over the local preference argue the laws and rules governing the loan program either forbid the preference or require justification for it.

"Here, we don't have a competitively bid process anymore," said attorney Joseph Olson with Milwaukee-based Michael Best & Friedrich LLP. "We used to have a competitively bid process."

A city law gives Milwaukee-based companies a 5 percent bidding cushion, with a cap of $25,000, when bidding on city contracts. Monday's ruling capped a lawsuit filed by American Sewer Services Inc., Rubicon, and United Sewer and Water Inc., Menomonee Falls. The contractors sued the city in October after losing contracts to Milwaukee-based M.J. Construction Inc. because of the preference.

The ruling only affects projects for which the city receives Clean Water Fund loans. The city received $16.2 million in 2009 and $1.2 million in 2008 from the state loan program. The increase in 2009 is because the state received stimulus money for the program.

Olson, who represented American Sewer and United Sewer, called on the city of Milwaukee to prove contractors benefiting from the bidding preference are not making an unreasonable profit, which would violate state rules. The city should analyze bids from contractors relying on the local preference and prove it does not give builders a higher profit margin than the industry average, Olson said.

With materials and labor costs uniform among different contractors, the extra price of the bid most likely will be profit, said Dennis Biondich, president of American Sewer. But thereís no way of knowing because the city hasnít studied it, he said.

"They don't care," Biondich said.

To perform that kind of study on every contract awarded under the local business enterprise preference would take too much time and is not required by state rules, said Deputy City Attorney Katherine Block.

"The process itself is competitively bid," Block said. "The LBE program influences the award, but the process is competitive."

Biondich rejected that argument as being counter to the logic of competitive bidding.

"If someone ends up second or third," he said, "how is that a competitive bid if they get the job?"

Pocan sided with the city and agreed Milwaukee is competitively bidding out its contracts, even if a local preference means the contract does not always go to the lowest bidder.

Pocan's rulings Monday settled the core arguments of the case, but left one point undecided. He said he will decide by early July the final argument over whether the city must write a legal justification to the state every time Milwaukee applies the preference.