State, contractor could land in court over project

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A construction company is alleging it is out $217,499 and accusing Wisconsin officials of violating procurement rules by insisting on the use of a particular product for a veterans home project.

In May 2011, Hudson-based J&L Steel and Electrical Services Inc. won a $2.2 million electrical contract calling for, among other things, the installation of a “Rauland Responder 4000 or approved equal system” on the project in Chippewa Falls. A Responder 4000, a product made by Rauland-Borg Corp. of Mount Prospect, Ill., is a communication system for patients and nurses.

Officials at J&L Steel understood the phrase “or approved equal system” to mean they were not strictly bound to install a Responder 4000, said Jon Reger, manager of J&L’s electrical division. So they found a replacement system made by Chicago-based Jeron Electronic Systems Inc. that helped them submit the low bid on the project.

The Department of Administration, which oversees state construction projects, approved J&L Steel as the electrical contractor for the project but then, months later, rejected the company’s plans to use the replacement nurse-call system. The reason for the rejection, according to a DOA explanation quoted in the state Senate Journal, was that the product was not “the manufacturer/vendor listed in the specifications” and “this project was specified to provide a particular manufacturer and model (in this case Rauland Responder 4000 …”

Those words, said Jason Terasak, an attorney representing J&L Steel, prove the DOA had set out to have a particular name brand product even though state rules prohibit so-called sole-source procurement in most cases. Terasak said the quoted statements show the DOA was aiming for de facto sole-source procurement, regardless of what the bid specs for the project called for.

The few exceptions allowed, according to a DOA procurement guide, are for goods and services that can be obtained only from a particular seller, that are needed to respond to emergencies or whose use is required as a condition of spending grant money. But such sole-source procurement cannot take place for projects worth more than $25,000 without the approval of the governor.

Terasak said no such approval was given in J&L Steel’s case.

“We are confident in our position,” he said. “We think it’s only a matter of time before we get paid.”

A spokesman for the DOA could not be immediately reached for comment or to provide the bid documents. Representatives from Rauland and Jeron also could not be immediately reached.

Reger said J&L Steel is preparing to sue the state over the dispute. The latest step in that plan came Thursday, when two Republican lawmakers who represent the district that includes the company introduced Senate Bill 280, which calls for reimbursing J&L Steel the $217,499 the company says it is owed for “increased bidding costs, witness fees and attorney fees.”

But a legislative aide for the bill sponsor, state Sen. Sheila Harsdorf, R-River Falls, said the proposal probably will not move forward. Such bills are not uncommon, said Matt Woebke, Harsdorf’s aide, and introducing this particular one was merely a procedural step to show J&L Steel had pursued all possible remedies under the law short of suing.

“It is exceedingly rare that these sorts of bills are passed,” Woebke said, “although we feel they have a pretty compelling case.”

J&L Steel’s first attempt at redress came in a May appearance before the Wisconsin Claims Board, which makes decisions in cases involving money disputes with the state. The board, which is composed of representatives of the Senate, Assembly, the DOA, the Department of Justice and the governor’s office, then decided J&L’s complaint would “best be resolved in a court of a law,” according to minutes from the meeting.

Terasak said the case largely will hinge on a technical distinction, one that Wisconsin law makes between a “substitute” for a product and an “approved equal.” The specs for the electrical work, he said, stipulated that J&L Steel could not go forward with plans to use a substitute for a Responder 4000 system without having the modification approved 10 days before submitting its bid on the project.

The DOA, according to the Senate Journal, contends it did not learn of the proposed change until four months after the bid opening.

Terasak said those plans were put before the Division of Facilities Development, which is under the DOA, and the Department of Veterans Affairs at a meeting in September 2011, four months after the bid was approved. He said the company received at least a verbal approval at that meeting.

Moreover, Terasak said, J&L Steel proposed using an approved equal, not a substitute. According to the Senate Journal entry, J&L Steel claims DOA officials changed their minds only after being contacted by a seller of the Responder 4000, who said J&L Steel had failed to give the state the required 10-days advance notice of its intent to use another system.

“It was a dramatic about-face,” Terasak said. “Suddenly, the state’s tune was changed.”

Reger said he wonders how many other companies have similar grievances but lack the money needed to fight the state in court.

“If you were a smaller contractor, you would never do it for $10,000 or $20,000,” he said. “Only if the dollar value is so high.”

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