Joseph B. Rose is executive director of the Citizens Housing and Planning Council.
Why does the State Legislature steadfastly refuse to repeal an unnecessary law that costs at least $300 million in tax money each year? This is what the Wicks Law, a statute governing public construction projects, costs New Yorks state and local governments, according to a 1987 study by the New York State Division of the Budget. Despite the persistent entreaties of the governor, municipal officials, newspaper editorial boards, and civic groups, New York States legislators persist in defending this law. They are beholden, it seems, to the narrow interest groups that benefit from Wicks—specialized building contractors and organized crime.
The Wicks Law causes the hemorrhage of public funds by preventing public construction projects from being efficiently managed. Normally, when a private developer plans a building, he hires a general contractor to deliver a finished project for an agreed-upon price. The general contractor then hires subcontractors with particular expertise in specialized construction tasks such as plumbing or wiring. The general contractor supervises the subcontractors, making sure their work is properly coordinated, on time, and up to specifications.
The Wicks Law requires that government agencies in New York State (except some state and local authorities, which are exempt) directly hire four separate contractors for general construction, plumbing, electrical work, and heating and ventilation. No contractor has authority over the others, so government officials must then try to coordinate the various contractors. The result is usually chaos. In one notorious incident, an entire public housing project was delayed while two contractors argued about whose job it was to sweep the floor.
Under the single-contract method, this sort of problem is avoided by vesting authority in the general contractor, who in his own financial interest, carefully selects subcontractors and replaces those that prove troublesome. Wicks, on the other hand, mandates that every contract be awarded to the lowest responsible bidder. The requirement that bidders be responsible lacks teeth, for companies can be declared irresponsible only after a contract is bid—and when they are, they often sue. Constrained by the threat of costly, disruptive litigation, public agencies are unable to screen out contractors with a history of conflicts and delays.
The Wicks Law raises government costs in a variety of ways. One is the administrative burden of preparing and bidding at least four individual contracts for each project. While not factored into any particular projects budget, the cost of employing engineers and bid administrators to prepare, review, and award each contract is significant. Robert Landsman, deputy commissioner of New York Citys Department of General Services, which oversees most city construction, estimates that complying with Wicks consumes between 25 and 30 percent of his divisions resources, or as much as $9 million out of a total annual budget of $29.7 million. Since the Wicks Law applies to any project costing more than $50,000 per year (a threshold that has not been adjusted for inflation since 1964), even small office renovations can trigger an extensive contract review process that includes the state attorney general and comptroller.
In addition to the increased administrative expense, the initial bids themselves are often higher under Wicks than they would be under a single-contract system. Delays caused by Wicks raise the cost of doing business, and contractors compensate by bidding higher. Many refuse to bid on public projects at all, further raising costs by diminishing competition among contractors.
Policymakers have known for years that Wicks raises initial bids for construction. In 1964, for example, Brooklyns Downstate Teaching Hospital was bid on both a multiple- and single-contract basis, to see which would come in cheaper. (The project was built by the State University Construction Fund, which is exempt from the Wicks Law.) The multiple-contract bids were 8.7 percent higher than the single-contract ones—a difference of more than $2 million (in 1964 dollars) on a $25 million project. Likewise, a 1980 New York City Housing Authority study found that bids for housing construction were as much as one-third lower under the single-contract method. The West Tremont project in the Bronx, for example, was bid at $45,677 per unit under the Wicks procedure; Brooklyns Bedford Stuyvesant project, which was bid the same year under a single contract, came in at only $34,213 per unit.
Not only are bids higher under the Wicks Law, but the complex construction process makes cost overruns more likely. Government agencies constrained by Wicks must devise carefully coordinated schedules to ensure that various tasks are completed in the proper order. For example, installation of a heating duct by one contractor demands that the appropriate wall openings be prepared by another contractor, who must accommodate the electrical wiring configurations of yet another contractor. If only one of these contractors fails to adhere to the original schedule, the whole process may collapse.
Because government agencies are in effect unable to screen out future bids from contractors on the basis of past performance, individual contractors have no incentive to perform their jobs responsibly. As a result, minor construction problems can turn into disasters. This is illustrated by the case of a housing project built in the Bronx in 1988. The citys Department of Housing Preservation and Development was rehabilitating a group of abandoned buildings on Southern Boulevard to house homeless families. In November, the HPD field supervisor instructed the plumbing contractor to drain the plumbing system so that the pipes wouldnt freeze. Although this is a simple procedure, the plumber balked, arguing that it was the general contractors responsibility. The general contractor claimed it was the plumbers job. In fact, each company had a contractual obligation to protect against damage from the elements. But while they argued, the pipes froze in December, damaging the plumbing system, walls, ceilings, hardwood floors, tiles, kitchen cabinets, and paint. The project was finished a year behind schedule and cost half a million dollars more than had been bid.
Many responsible contractors refuse to bid on public projects for fear of being forced to work with disreputable or unreliable companies. Public agencies, however, have little choice. One firm, which had 85 outstanding lawsuits against the city from earlier jobs, won a contract to rebuild the Betsy Head Pool in Brooklyn. The contractor then challenged every item on the project as being beyond the originally outlined scope of work. Under a single-contract system, no general contractor would have hired a subcontractor with such a history.
Delays are the most obvious result of poor construction coordination. A 1971 report by New York Citys Office of Construction estimated that projects subject to Wicks took an average of 20 percent longer to complete than the original schedule provided. In fact, most major projects were delayed for more than a year. In 1971, the New York City Housing Authority found that a simple apartment rehabilitation job took 134 days under Wicks, compared with only 103 days under single-contract bidding.
While contractors squabble about who is responsible for what work, time lapses and inflation drive up the costs. Many contractors then file damage claims against the government, claiming that the delays have increased their expenses and forced them to forgo other job opportunities. These claims are often legitimate, and the courts have upheld the governments liability for them—even when the fault lies entirely with one of the contractors.
In 1986, the electrical contractor working on the Queens Sanitation Garage walked off the job. Although the electrical contract constituted only 3 percent of the total work, the job was stalled while the city tried to arrange an alternative. Unwieldy contractor replacement procedures gave the disruptive contractor leverage in negotiating how it would allow the city to complete the work. The contractor threatened to sue to prevent another contractor from being hired. In order to avoid the threatened lawsuit, the city had to cut a deal with the original contractor in which its electricians were paid for the work they did not do. Wicks-related problems contributed to a delay of some three-and-a-half years in the projects completion.
Knowing that delay can dramatically escalate costs, individual contractors may threaten to stall the project in order to extort change orders—contract modifications that grant them additional funds. Large multiple-contract projects often have cost overruns of 15 percent or higher. A 1986 study by the states Office of General Services found that the average multiple-contract project cost 5.8 percent more than the original bid. The average cost overrun for single-contract projects was only 3.4 percent. In other words, cost overruns are an average of 60 percent higher under the multiple-contract scheme—even though the bids are higher to begin with. The high number of change orders undermines the purpose of competitive bidding: A contractor that has been awarded a project on a low bid often can recoup any discounts it offered in its original bid.
In 1981, former New York City Council President Carol Bellamy and Comptroller Harrison Goldin found that the average cost overrun on large city projects was 11.9 percent—twice as much as state overruns—and that more than two-thirds of the change orders resulted from operational problems caused by Wicks. Scrutinizing the construction records for Manhattans Fashion Institute of Technology, Bellamy and Goldin discovered that more than 750 change orders—400 from the general construction contractor, 213 from the electrical contractor, 86 from the heating and ventilation contractor, and 56 from the plumbing contractor—had increased the projects cost by $2.3 million, even before the contractors filed additional damage claims for $14 million. A former official of the federal Department of Housing and Urban Development acknowledges that he routinely added 10 percent to his cost estimates for city projects to account for the effects of Wicks. As a result, some city proposals exceeded HUD cost guidelines and were deemed ineligible for federal funding.
Even after a project has been built, the agency responsible may spend years in court defending itself against lawsuits for improper coordination of contractors. In one two-year period (1979-80), for example, New York City was sued for a total of $42 million in such damages.
Poor coordination and inadequate screening procedures can also result in shoddy workmanship. Major public projects—notably Police Plaza, Woodhull Hospital, and Martin Luther King High School—have required large expenditures to redo work that was botched by the original contractors. The entire roof at Police Plaza required replacement, at a cost of nearly $1.9 million. Less than ten years after Woodhull Hospital was built, the Health and Hospitals Corporation had to spend $2 million recaulking construction joints and replacing roof systems, and another $300,000 rehabilitating the cooling tower.
The Origin of Wicks
State legislators passed New Yorks first multiple-contracting law in 192 1. They believed that individually awarded subcontracts would foster greater competition and lower prices and that forcing the government to supervise its own projects would trim costs by eliminating the general contractors profit margin. It soon became apparent, however, that separate contracting actually made contractors unaccountable: Each was able to point to the others to excuse delays and shoddy work. Government agencies watched helplessly as timetables unraveled and costs escalated.
In 1946, the Legislature passed a bill, sponsored by State Senator Arthur Wicks, that required multiple contracting for all construction by public housing authorities in New York State. Since then, his name has been associated with all of New Yorks multiple-contracting statutes.
Over the years, many prominent public officials have called for the repeal of the multiple-contracting laws. New York City mayors, including Robert Wagner, John Lindsay, Edward Koch, and David Dinkins, have been among the strongest voices. Koch joined the battle in 1984 with the publication of a report that conservatively estimated the citys annual cost from Wicks at over $100 million. This past February, Mayor Dinkins released his own report calling for the repeal of multiple-contracting mandates.
State officials, too, have frequently criticized Wicks. The 1975 State Charter Revision Commission for New York City called Wicks an archaic statute that had become an administrative nightmare. The exhaustive Study of Public Construction Laws and Procedures, prepared in 1977 by the New York State Division of the Budget, also called for the repeal of Wicks. In May 1987, Governor Cuomos Division of the Budget issued an analysis, Fiscal Implications of the Wicks Law Mandate, which demonstrated that the Wicks Law adds at least 20 percent to project expenses. The report meticulously compared construction costs for three types of public facilities—academic buildings, prisons, and fire stations—and contrasted Wicks projects with those that were bid under a single contract because they were exempt from the laws requirements. The report concluded that the Wicks Law costs state and local governments more than $300 million a year.
Even judges have publicly criticized Wicks. In a 1966 opinion, Forest Electric Corp. v. State, the New York State Court of Claims awarded a damage claim to a contractor suing the state for poor construction coordination. The courts opinion included the unusual comment that the Wicks Law should be studied with the express purpose of either eliminating or amending the law to permit the State to let such contracts as this to one bidder.
Despite the overwhelming consensus that Wicks should be repealed, the State Legislature has consistently obstructed efforts to do so. In 1988, for example, Felix Rohatyn attempted to exempt New York Citys School Construction Authority from multiple-contracting mandates. Rohatyn had unusual leverage: $600 million of Municipal Assistance Corporation surplus funds that he unilaterally controlled. He promised the money for desperately needed school construction—provided the work would not be hampered by Wicks. Mayor Koch, Governor Cuomo, and the United Federation of Teachers supported the plan. Nonetheless, State Senate Majority Leader Warren Anderson termed the proposal dead in the water, and proclaimed that the Wicks Law is a good law. Pressure from New York City Republicans in the State Senate, who feared the political consequences of turning down the funds, forced Anderson to keep the issue on the table. Ultimately Rohatyn and the Legislature negotiated an elaborate compromise, granting the School Construction Authority a temporary Wicks exemption in exchange for numerous concessions on costly labor practices and a promise from Governor Cuomo not to press the Legislature to repeal the Wicks Law for at least five years.
Last year, during the depths of the fiscal crisis, a coalition of local governments, construction professionals, business groups, and school boards joined forces in an attempt to repeal Wicks. The group was unable to find a single legislator willing to sponsor its bill. This is an outrage, said Louis Grumet, executive director of the State School Boards Association and one of the members of the anti-Wicks coalition. Not repealing Wicks is like putting a surcharge on the education of children. A spokesman for the Legislature blithely responded: The Governor and the leaders pledged there would be no tinkering with the Wicks Law.
Why is the Legislature so attached to Wicks? Because of heavy lobbying by those who benefit from it: associations of plumbing, electrical, and specialized mechanical contractors, and several construction trade unions. These groups argue that repeal of Wicks would allow general contractors to squeeze subcontractors to the point where construction quality would suffer. They claim that the Wicks Law prevents bid shopping, in which a general contractor wins a government contract and then strong-arms subcontractors into working for such small amounts that the subs must use inferior construction materials, employ fewer workers at lower wages, cut corners, and ignore plan specifications. Wicks supporters also fear that general contractors will procrastinate and skimp on forwarding payments for work as it is performed. Such concerns could easily be addressed, however, by requiring general contractors to specify their chosen subcontractors and cost estimates when they submit bids and to pay their subcontractors promptly. Wicks advocates also claim, despite all the evidence to the contrary, that multiple contracts actually save money. Yet when separate contracts have been sought by specialists not covered by Wicks (such as sheet metal contractors), mechanical trades contractors—staunch defenders of their own privileges under Wicks—have argued that such a measure would increase costs, impair job coordination, and dilute responsibility.
It is neither surprising nor scandalous that contractors and construction unions would defend a law that benefits them economically. But a recent study reveals that the beneficiaries of Wicks include criminal enterprises. Organized crime uses the construction industry in New York as both a profit center and a screen for its other activities. The complex world of construction creates opportunities for featherbedding to give mobsters legitimate jobs (John Gotti, for instance, was on the payroll of a plumbing contractor), extortion to guarantee the timely delivery of materials and absence of labor trouble, fraud and money laundering in the inflation and doctoring of invoices and substitution of materials, and collusion and coercion among contractors when submitting for jobs.
In 1990, the New York State Organized Crime Task Force published its final report, Corruption and Racketeering in the New York City Construction Industry. (The task forces interim report, published two years earlier, had included only one policy recommendation: Repeal the Wicks law immediately.) The 1990 report identified construction fraud as one of organized crimes main sources of income and singled out public projects in New York City as particularly vulnerable to corruption because oftheir size, complexity, and poor management largely due to the Wicks law. At almost every stage of the construction process, the task force noted, it is easier to extract money from public builders. The task force found that Wicks also obstructs the governments ability to audit construction billings and to evaluate unknowables such as the amount of concrete and other materials used, the number of workers actually employed, or the amount of overtime actually worked.
Time for Repeal
The Wicks law has long been a target for good-government advocates: The public officials who attack it are joined by newspapers, civic groups, and statewide associations of local officials. The New York City Bar Association, Citizens Budget Commission, New York State School Boards Association, New York Conference of Mayors, Association of Counties, Association of Towns, and many other organizations have vehemently condemned Wicks, often in detailed reports and analyses that have gathered dust for decades.
In 1988, the City Club of New York, a century-old good-government organization, wrote all of New York Citys state senators and assembly members, asking their position on Wicks. Initially, only two of the city s 24 senators and nine of its 59 assembly members responded, all favoring repeal. The City Clubs newsletter continued to list the reticent representatives names each month, but only three Wicks supporters eventually revealed their position. Each offered polite double-talk about how the Wicks Law is a valuable tool for lowering the costs of public construction. State Senator Leonard Stavisky, a Queens Democrat, wrote: It is my hope that those people who are most familiar with the individual building trades are best able to bid intelligently in their respective areas of responsibility. Assemblywoman Nettie Mayersohn, also a Democrat from Queens, argued that repeal would only benefit a small group of large general contractors at the expense of thousands of small-businessmen and their employees.
Given the huge body of evidence that the law wastes public funds and the unsavory nature of some of its beneficiaries, it is not surprising that most legislators prefer not to discuss their support for Wicks. Partisanship and ideology have little to do with the issue: Wicks Law supporters come from both parties, as do the laws opponents in Albany and around the state. The case for repeal is overwhelming, but a clear majority of state legislators have shown unswerving allegiance to a small cohort of contractors and unions and, at least incidentally, to the economic interests of organized crime. Were they so steadfast on behalf of the public interest, New Yorks prospects might not seem quite so grim.