20080415_2220.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
CO MMISSI 0 NER KEMPTON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:CURTIS THADEN
DATE:APRIL 11 2008
RE:FORMAL COMPLAINT OF MCKAY CONSTRUCTION SEEKING
REVERSAL OF UNITED WATER IDAHO, INC. DECISION TO NOT
ADD ADDITIONAL CONTRACTORS TO APPROVED CONTRACTOR
LIST.
On February 19, 2008, the Commission received a "Formal" Complaint (Attachment A)
from Mr. Mike McKay on behalf of McKay Construction against United Water Idaho Inc. (UWI).
Mr. McKay objects to the decision ofUWI to not add new contractors to its Approved Contractor
List for 2008. Mr. McKay was unsatisfied with the outcome ofthe informal procedures to resolve
his complaint and has filed this "Formal" Complaint as a result. Mr. McKay requests that the
Commission require UWI to evaluate McKay Construction s Application and reinstate McKay
status as an approved contractor on the Approved Contractor List. (McKay Construction was
previously on UWI's Approved Contractor List).
BACKGROUND
McKay Construction has over 30 years experience working on UWI projects building water
reservoirs as well as water transmission lines. McKay Construction was placed on the UWI list of
approved contractors (residential development) in 1997 after meeting all the necessary
requirements. In 2005 , McKay Construction failed to carry the required $5 million minimum
insurance requirement. Because of the building boom in 2005, McKay Construction was working
on many projects outside ofUWI's area of impact. Because of this, Mr. McKay decided to drop
the $5 million coverage that UWI required for approved contractors. Mr. McKay noted that the
cost of coverage for UWI was above the $2 million standard requirement for the construction
DECISION MEMORANDUM APRIL 2008
industry. As a result, UWI removed McKay Construction from the Approved Contractor List in
October 2005.
In June of2007, Mr. Steve Snead, Project Manager for McKay Construction, contacted
UWI to re-establish the company as an approved contractor. Mr. Snead was told that McKay
Construction would have to go through the approval process again by submitting a pre-
qualification package. In December of 2007, Mr. Snead submitted the required paperwork to UWI.
In January 2008 Mr. Snead was notified by phone that UWI was not going to add any new
contractors to the Approved Contractor List in 2008.
In response to McKay Construction s informal complaint, UWI sent a written response
(Attachment B) to the Commission.
In summary, UWI maintains that because of the costs associated with administering new
contractors , the length of training, the recent decrease in construction, and the lack of projected
projects in 2008, it is not going to add new contractors to the Approved Contractor List in 2008.
Mr. McKay filed a "formal" complaint on February 19 2008. Mr. McKay provides reasons
why he believes McKay Construction meets UWI's qualification requirements and should be
reinstated to the Approved Contractor List.
Mr. McKay states that McKay Construction previously met the requirements to be on the
Approved Contractor List. He also states that McKay Construction has worked on previous UWI
projects and is fully experienced with UWI specifications for installation. Furthermore, McKay
Construction states that they have projects lined up with a few developers but are at a disadvantage
because they have to subcontract the water project to another contractor on the Approved
Contractor List.
Staff notes that in Order No. 26898, Case No. UWI-96-, the Commission approved a
Stipulation and Settlement Agreement that put into place a process allowing developers to choose
from a list of approved contractors to install facilities within residential subdivisions. The
Agreement allows contractors to install water mains and services if they meet certain requirements.
UWI was ordered to implement a system of procedures to monitor the Labor in Lieu of Cash
program to ensure that the program does not result in an increase in costs to UWI and its
customers. Neither the Stipulation nor Order places a limit on the number of contractors who can
participate in the program. Likewise, there are no limits specified in UWI's tariff. UWI decided
earlier this year to not add more contractors to the current list consisting of 10 contractors. Prior to
DECISION MEMORANDUM APRIL 11 , 2008
this Order, UWI facilities were exclusively installed by one contractor; UWI did not allow other
contractors to participate.
ST AFF RECOMMENDATION
McKay Construction was not satisfied with the outcome of the Informal Complaint.
Consequently, Mr. McKay filed a "Formal" Complaint. See Rules 23 , 25 and 54, IDAPA
31.01.01.023
, .
024 and .054.
Staff recommends that the Commission issue a Summons to UWI directing the United
Water Idaho to file a response to the Complaint.
COMMISSION DECISION
Does the Commission wish to accept Mr. McKay s "Formal" Complaint? Does the
Commission want to issue a Summons or proceed under Modified Procedure?
1laol--
Curtis Thaden
i:udmemoslDecision Memo #rev 7 McKay Construction.doc
DECISION MEMORANDUM APRIL 11 , 2008
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McKAY CONSTRUCTION CO., INC.
GENERAL CONTRACTOR
PO BOX 2450 EAGLE ill 83616
OFFICE 208-939-6300 FAX [phone] SERVING THE BOISE VALLEY SINCE 1946
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Idaho Public Utilities Commission
Jean Jewell - Secretary
PO Box 83720
Boise, ID 83720-0074
February 15, 2008
RE: Formal Complaint Request - United Water Idaho, Inc.
Dear Jean,
I am petitioning the Public Utilities Commission to request that
a formal complaint be considered against United Water Idaho,
Inc. based on the stated facts below.
In December of 2007 United Water Idaho, Inc. (UWI) provided us aPre-Qualification Contractor Package to re-establish our
standing as an approved contractor. On December 14, 2007 St~ve
Snead of our office met with John Lee of UWI at his office to
present and review the pre-qualification package. After review
of the packet with John, Steve forwarded a couple of additional
items via email on December 17 , 2007 that John requested to
complete our package. In January Steve made several calls and
left messages to inquire on the status of the packet review and
was contacted by Scott Rhead of UWI . and informed that they had
made a decision not to add any new contractors at this time.
After Steve s conversation with Scott, I directed Steve to
contact the Public Utilities Commission to look into our options
to dispute their findings. After numerous discussions between
Curtis Thaden of your office and Steve, and Curtis s efforts to
resolve this issue on our behalf with UWI through the informal
complaint process , UWI issued the February 5, 2008 letter
(enclosed) .
In response to the February 5, 2008 letter addressed to your
office from United Water Idaho, Inc., I wish to summarize their
position and refute each item as follows:
Page 1
1. In the third paragraph it begins......In the labor in lieu
program the contractor works directly for the
Developer .........Uni ted Wa ter has learned tha newer, less
experienced contractors will lower the quali ty
installation which often increases future operation and
maintenance costs.
We have worked on numerous UWI prior to 2005 and have
continued to work wi thin other municipalities and have
never had our quality of installation questioned or been
considered a "new " contractor since our company has been
doing business in the valley since 1946.
2. In the third paragraph it continues......Once a contractor
knows the process and begins their ini tial project on a
Uni ted Wa ter installa tion the Uni ted Wa ter inspector will
often be required to spend two to three times more than
normal inspection time for similar projects. This is
because newer contractors are not familiar wi th Uni ted'
specifications for installation from hands-on prospective.
This statement
a long history
same people wejurisdiction.
makes little or no sense because we do have
wi th UWI and continue to employ most of the
did when we were working in UWI
3. On page two, first paragraph it states......Through this past
experience United Water has learned that each newly
approved contractor will go through a two year learning
curve before the contractor becomes efficient in Uni ted
Water process. During this two year time frame United Wa ter
incurs more administra ti ve and inspection time.
Again , this statement is incorrect in regards to our
previous work history as stated above.
4. On page two, second paragraph it states......Taking all this
into account and due to the recent housing market downturn
and lack of anticipated projects for 2008, and the
associated cost of administrating new contractors, United
Water decided not to add any new contractors to our
approved list in 2008.
Page 2
I am puzzled why the downturn in the market has any
relevance on their decision. We have four developers that
have requested us to be placed on UWI contractor list so we
can provide them our services. They all feel there is a
good chance they will start construction this year. We
would be happy to provide letters from each on their intent
if requested. Because of the downturn in the market, it has
become extremely competi ti ve bidding on proj ects. Because
of their decision not to add us, this gives the approved
contractors an unfair advantage to solicit work that we are
not able to. Secondly, I would think UWI would take
advantage of the downturn to bring on new contractors if
the learning curve is such as they have stated, and theirinspectors additions man-hours required.
5. On page two, item #1 under The following are answers to
your specific questions: At the end of December 2007
Uni ted Wa ter made its decision..................McKay Construction was
previously an approved contractor but choQse not to keep
Uni ted Water insurance requirements and was dropped off the
approved list in October of 2005 (See enclosedcorrespondence wi th McKay Construction)
. "
This is a correct statement, However; please refer to the
UWI letter dated August 22, 2005 (attached) specifically
paragraph 2 which states.........When you are able to meet the
required insurance coverage minimums you will be allowed
perform construction on Uni ted Wa ter Idaho proj ects.
Wi th their statement I feel not only should we be accepted
because we followed their pre-qualification process, but
even more strongly that we should have been placed back on
their list in December when we provided them an insurance
certificate letter from our insurance agent that our limits-
could be increased when required.
In conclusion I am petitioning the Public Utility Commission to
review our dispute and if accepted by the commissioners begin
the process of formal legal proceeding to have UWI reinstate
McKay Construction Co., Inc. as an approved contractor.
Sincerely,
Page 3
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JOHN LEE
Construction Coordinator
(~()
United Water
HECE:'~~ez.UNITED WATER IDAHO INC.
8248 West Victory Road, Boise, 10 83709
O. Box 190420, Boise, 1083719-0420
Tel: [phone] . Fax: [phone]
john.lee~unitedwater.com FES - 7
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February 5 , 2008
Mr. Curtis Thaden
Idaho Public Utilities Commission
PO Box 83702
Boise , I D 83702-0074
Dear Mr. Curtis:
United Water has received your letter regarding complaints from Mckay Construction and
Schmidt Construction. We want you to know why United Water did not add these
contractors to the approved list and that United Water believes it made its decisions
based on what we believe is best for our customers.
In the Idaho Public Utilities Commission Case No. UWI-96-4 1997 Stipulation and
Settlement Agreement United Water was ordered by the Commission to "implement such
systems and procedures as are necessary to monitor the implementation of a labor in lieu
of cash program to insure that implementation of the program does not result in
increased administrative and inspection costs for United and its customers generally
In the labor in lieu program the contractor works directly for the developer and is
frequently more interested in serving the developer s desire of lower initial cost than
trying to achieve lower future operation and maintenance cost , therefore from past
experience United Water has learned that newer, less experienced contractors will lower
the quality of installation which often increases future operation and maintenance costs.
When a new contractor is add to the approved list United Water administration must
invest a significant amount of time and effort training the contractor in estimating, in
construction standards , and in providing as-built information which is all necessary
before the contractor can even provide developers with accurate bids base on United
Water standards. Once a contractor knows the process and begins their initial project on
a United Water installation the United Water inspector will often be required to spend
two or three times more than the normal inspection time for similar projects. This is
because newer contractors are not familiar with United's specifications for installation
from a hands-on perspective.
There were initially six contractors approved in 1997 when the labor in lieu program was
implemented. Since then , based on contractor performance, United Water has dropped
some and added some so that now there are ten approved contractors on the list. The ten
contractors have been able to provide the development community with competitive
pricing during the recent building boom.
WWW.UNITEOWATER.COM
Through this past experience United Water has learned that each newly approved
contactor will go through a two year learning curve before the contractor becomes
efficient in the United Water processes. During this two year time frame United Water
incurs more administrative and inspection time.
Taking all this into account and due to the recent housing market downturn and lack of
anticipated projects for 2008 , and the associated cost of administrating new contractors
United Water decided not to add any new contractors to our approved list in 2008.
The following are answers to your specific questions:
1.) At he end of December 2007 United Water made its decision not to add
contractors and thus did not invest the time to review the six pre-qualification
packages which were submitted to United Water in December of 2007.
Therefore we have not made any determination as to if McKay Construction and
Schmidt Construction meet all requirements. McKay Construction was previously
an approved contractor but chose not to keep United Water insurance
requirements and was dropped off of the approved list in October of 2005 (See
enclosed correspondence with McKay Construction).
) During any given year United Water will receive requests through out the year
from contractors wishing to become approved United Water Idaho contractors. In
order to efficiently implement the labor in lieu program United Water will give
the pre-qualification package to any contractor requesting the information and at
the same time , tell the contractor that United Water does not review completed
packages until January of the next year and mayor may not add contractors.
) All six of the contractors submitting completed pre-qualification packages were
notified in writing with a letter stating that United Water is not adding any
contractors to the approved list in 2008. Some contractors phoned and inquired
about approvals and were informed of the decision prior to the written letter.
) United Water currently has ten approved contractors.
If you have any questions, please feel free to call me.
Sincerely,
Construction Coordinator
CC: Patty Foss , Scott Rhead , Greg Wyatt
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United Water
'. ,
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United Water Idaho Inc.
8248 W. Victory Road
O. Box 190420
Boise, 10 83719-0420
telephone [phone]
facsimile 208 362 3858
July 15, 2005
McKay Construction, Inc.
Mr. Mike McKay
PO Box 3066
Boise Id 83703
Dear Mr. McKay:
United Water is in the process of revising our pre-qualification contractor requirements
for installing water mains in the United Water Idaho s certificated area. Previously
approved contractors will not be affected by the new pre-qualification requirements.
Along with the new pre-qualification requirements we are also implementing an annual
review process for all contractors. We will evaluate each contractor on each project. I am
enclosing a copy of the evaluation form. The form is intended to smooth the flow of
projects and capitalize on both Contractor s and United Water s time. You will be ratedon a scale from one to five on various stages of your projects. Five is a favorable rating
anything below four is unacceptable. These forms will aid us in our annual review
process.
We also need to have updated information regarding the insurance requirements that
United Water contractors are required to carry. I am enclosing a copy of page 3 of our
standard contract that refers to the insurance coverage amounts. Please send us your
insurance coverage information by July 27 , 2005.
If you have any questions , please feel free to call.
Sincerely,
John Lee
Construction Coordinator
Enc: Evaluation Form
Page 3 Main Extension Contract
www.unitedwater.com
..:s. ~ e
United Water
(8)
Unitad Water Idaho Inc.
8248 W. Victory Road
O. Box 190420
Boise, 10 83719-0420
telephone [phone]
facsimile 208 362 3858
August 16 2005
McKay Construction
Mr. McKay
PO Box 3066
Boise, ill 83703
Dear Mr. McKay:
On July 15th I requested information from you regarding proof of insurance coverage
necessary to become an approved United Water contractor. As of this date I have not
received any proof of insurance from you.
Our files indicate that we have not received any insurance information from you since
January of 2004. It is imperative that you send your proof of insurance by September 1
2005. United Water will not allow McKay Construction to start any new projects until we
have received information from your insurance agent that proves McKay Construction
meets the necessary limits.
I am enclosing a copy of my previous request and the insurance liability minimums
required.
If you have any questions, please feel free to call.
Sincerely,
Construction Coordinator
Enc: Letter Dated July 15, 2005
Page 3 Main Extension Contract
www.unitedwater.com
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United Water
, ,
(ID
August 22, 2005
McKay Construction, Co, Inc.
Mr' McKay.
PO Box 2450
Eagle, JI)83616
Dear Mt.McKay:
United Wateildaho hic.
8248 w.Victoiy Road
, P.O. BoX1 90~20 :
Boise; 10837.19-0120;
telephone [phone]
facsimile 208 362 3858
Thank you for your response to my request for updated insurance information. The
infonnation, which you sent to us, indicates that you do not have the minimum irlsprance
necessary to be an approved -United Water Contractor.
. "
When you are able to meet the required insurance coverage minimums you will be
allowed to perform construction on United Water Idaho projects.
If you have any questions , please feel free to call.
Sincerely,
John Lee
Construction Coordinator
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McK~y Construction, Inc
PO Box 2450
Eagle, ID 83616
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United Water Idaho Inc.
8248 W. Victory Road
O. Box 190420
Boise, 1083719-0420
telephone [phone]
facsimile 208 362 3858
September 19, 2005
Mr. McKay
McKay Construction, Inc.
O. Box 2450
Eagle, ill 83616
Dear Mr. McKay:
We still have not received verification from either you or your insurance provider
that your company carries the minimum insurance required by United Water
Idaho to be an approved contractor. If we do not receive verification ofthe
necessary insurance minimums by September 30, 2005, we will have noalternative but to remove McKay Construction, Inc. from our approved contractor
list.
If you have any questions, please feel free to call.
Sincerely,
John Lee
Construction Coordinator
Enc: Letter Dated August 22, 2005
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United Water Idaho Inc.
8248W. Victory Road
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Boise, 1083719-0420
telephone [phone]
facsimile 208 362 38(38
October 4, 2005
Mr. McKay
McKay Construction , Co , Inc.
PO Box 2450
Eagle , ID 83616
pear Mr. McKay:
The letter is to inform you that McKay Construction , Inc. has been removed from
United Water Idaho s list of approved contractors. This decision results from a
f;:lliure to provide our office with a Certificate of Insurance from your insurance
carrier guaranteeing minimum insurance coverage as required by the contract.
stipulated in our September 19 2005 letter to you , this Certificate of Insurance
was to bein our office by September 30, 2005.
If you have any questions, please feel free to call.
Sincerely,
Construction Coordinator
Enclosure:, Letter Dated September 19 , 2005
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