UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA. Plaintiff, COMPLAINT. Preliminary Statement

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1 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 1 of 14 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA C.S. McCrossan Construction, Inc., No. v. Plaintiff, COMPLAINT Minnesota Department of Transportation; and Charles Zelle, Commissioner of the Minnesota Department of Transportation, Defendants. Preliminary Statement 1. C.S. McCrossan Construction, Inc., submitted a proposal to design and build the approach to the new St. Croix bridge for $52,326,236. Although McCrossan s proposal had the lowest price and was judged by the Minnesota Department of Transportation to have the highest technical score and the most favorable adjusted score, MnDOT awarded the contract to another proposer whose price was $5.8 million higher than McCrossan s. MnDOT rejected McCrossan s proposal after concluding that McCrossan did not prove it had made good faith efforts to meet the project s 16.7% DBE (disadvantage business enterprise) participation goal. In this lawsuit, McCrossan asks the Court to determine that MnDOT s determination was unlawful and void either because MnDOT did not comply with 49 C.F.R. Part 26, or because MnDOT s actions violated McCrossan s equal protection rights under the Fourteenth Amendment to the U.S. Constitution.

2 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 2 of 14 Parties 2. McCrossan is a highway/heavy contractor incorporated in Minnesota with its principal place of business in Maple Grove, Minnesota. 3. The Minnesota Department of Transportation is an agency of the State of Minnesota and is responsible under Minn. Stat. Chapter 161 for planning, building, and maintaining Minnesota s state highways and other transportation facilities. 4. Charles Zelle is MnDOT s Commissioner. Jurisdiction and Venue 5. This Court has jurisdiction under 28 U.S.C because McCrossan challenges MnDOT s compliance with federal regulations and the U.S. Constitution. 6. Venue is proper in this Court pursuant to 28 U.S.C. 1391(b) because all of the parties to this action reside in Minnesota and all of the events giving rise to the claims occurred in this judicial district. Facts A. Design-Build versus Design-Bid-Build 7. Unlike traditional design-bid-build procurements, in which contractors bid on fully-developed plans and specifications prepared by the owner, design-build procurements require contractors to propose on a broadly defined design concept that the contractor will both design and build. Because proposals for design-build contracts must be submitted before the design and work scope are fully developed, proposers cannot easily divide the work into scope packages that can be quoted by potential subcontractors and suppliers. In design-build procurements, proposers do not receive firm quotes from 2

3 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 3 of 14 subcontractors and suppliers and cannot negotiate subcontract prices until the design is completed and the scope of the work is established. 8. MnDOT s design-build procurements are governed by Sections through of the Minnesota Statutes. When choosing to conduct a design-build procurement, MnDOT must first publish a request for qualifications (RFQ), which provides only: (i) performance and technical requirements, (ii) conceptual design, (iii) specifications, (iv) functional and operational elements for the delivery of the completed project, and (v) the experience requirements that the contractor must meet. After evaluating the responses to the RFQ, MnDOT compiles a short list of up to five qualified contractors and then publishes a request for proposal (RFP) to each of the short-listed contractors. 9. Contractors design-build proposals are necessarily based only on their preliminary design assumptions and estimates. After receiving proposals, MnDOT scores them using a number of factors and then must award the contract to the responsive and responsible bidder with the lowest adjusted score based upon the cost and technical merits of each proposal. Only after award does the successful contractor then complete the design and prepare final design documents for construction. Until MnDOT approves the final design, the design-build contractor cannot estimate with final assurance the anticipated amount of work that can be procured from subcontractors and suppliers. B. DBE Requirements on Federally Funded Projects. 10. Under 49 C.F.R. Part 26, the U.S. Department of Transportation requires recipients of its funding to comply with regulations designed to ensure 3

4 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 4 of 14 nondiscrimination in the award and administration of DOT-assisted contracts in the Department s highway, transit, and airport financial assistant programs. 11. States receiving funds are to establish overall DBE participation goals based on empirical data and to meet those goals by race-neutral means wherever possible. States may also establish DBE goals for each contract. C. The Procurement for the Approach to the St. Croix River Crossing (S.P ). 12. In the fall of 2012, McCrossan responded to MnDOT s RFQ for State Project No , a contract to design and build the approach to the St. Croix River crossing. 13. MnDOT set a DBE participation goal of 16.7% for the project. 14. MnDOT short listed proposers on October 23, The short list included McCrossan, the Ames Construction, Inc./Lunda Construction Company Joint Venture, and the Hoffman Construction/Shafer Contracting Joint Venture. 15. In November 2012, MnDOT issued its request for proposals to the entities on the short list. 16. On February 15, 2013, MnDOT opened proposals for the project, which are summarized in the table below: Bidder Bid Amount Technical Score Adjusted Score McCrossan $52,326, , Ames/Lunda Joint Venture $58,116, , Hoffman /Shafer Joint Venture $68,512, , McCrossan s proposal was low by nearly $5.8 million and had the highest technical score (where higher numbers are better) and the lowest adjusted score (where 4

5 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 5 of 14 lower numbers are better). McCrossan certified a DBE commitment of 10.69%, but also certified its commitment to continue using good faith efforts throughout the project to increase DBE participation. Unless it rejected all proposals, MnDOT was obligated by law to award McCrossan the contract as long as McCrossan was responsible and its bid was responsive. 18. McCrossan was the responsive and responsible bidder with the lowest adjusted score and should have been awarded the contract unless MnDOT had rejected all bids. D. MnDOT s Rejection of McCrossan s Bid. 19. After opening of proposals, McCrossan timely submitted documentation demonstrating its good-faith efforts to meet the DBE participation goal. 20. On March 11, 2013, after considering the factors set forth in Appendix A to 49 C.F.R. Part 26, MnDOT s Office of Civil Rights (OCR) determined that McCrossan s proposal was not responsible because McCrossan did not demonstrate good faith efforts to meet the DBE participation goal. 21. MnDOT denied McCrossan s request to conduct a contested case hearing under the Minnesota Administrative Procedures Act, but it appointed an Administrative Reconsideration Panel to review the OCR s determination. The Panel upheld the OCR s original decision on March 27, 2013, after a non-evidentiary hearing. 22. On April 1, 2013, McCrossan submitted a protest pursuant to the protest procedures in Section 3.10 of the Instructions to Proposers. 5

6 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 6 of On April 12, 2013, McCrossan s protest was denied by Commissioner Zelle, which constituted MnDOT s final decision. 24. MnDOT has awarded the contract for the project to the Ames/Lunda Joint Venture. 25. McCrossan asked MnDOT to stay its execution of the contract and issuance of the notice to proceed while McCrossan sought judicial review. As of April 22, 2013, MnDOT has not responded to that request. 26. On April 17, McCrossan filed a petition for a writ of certiorari to the Minnesota Court of Appeals, challenging MnDOT s actions in awarding the contract for this project. The Court of Appeals issued a writ of certiorari on April 18, COUNT ONE MnDOT VIOLATED FEDERAL LAW 27. As a recipient of federal funds for the project, MnDOT must comply with the rules in 49 C.F.R. Part 26. On this project, MnDOT violated that regulation in several ways C.F.R. Part 26 precludes MnDOT from applying DBE goals in the same way on design-build projects as it does on design-bid-build projects. a. 49 C.F.R (e) indicates that it is inappropriate to use the usual design-bid-build DBE good faith efforts analysis for design-build projects, and instead the recipient should have the prime contractor establish contract goals for its subcontracts after award as the progress of the design develops. Similarly, the U.S. Department of Transportation s (USDOT) official comments to 49 C.F.R state that, on design-build projects, the usual DBE analysis does not fit 6

7 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 7 of 14 the contract award process well because [a]t the time of the award of the master contract neither the recipient nor the [general] contractor knows in detail what the project will look like or exactly what contracting opportunities there will be. ( b. One of MnDOT s consulting engineers has recognized that the good faith effort requirements and analysis used by MnDOT were developed for design-bid-build projects and are inappropriate in the design-build context. Because the specific work and material requirements for a design-build project are not well defined, it is difficult for the [DBEs] to estimate costs and commit to firm bids, and the prime contractor should not be required to commit an exact dollar amount of the bid to [DBEs]. (March 22, 2001, memo from Gonderinger to Huston available at The consulting engineer suggested that in design-build projects, prime contractors either agree to achieve a certain level of DBE participation (by listing anticipating DBEs with rough contract values) or submit a subcontracting plan that ensures that the good faith effort requirements will be met once the design has progressed to a level of completion where firm quotations for work can be obtained. c. MnDOT s own Information to Proposers, at Item 1.8 of Addendum No. 11, recognizes the difficulties in achieving the DBE participation on a designbuild project at the time of proposal: 7

8 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 8 of 14 Because the Project is at a limited level of design completion when the Contract is awarded, the level of subcontracting opportunities is not fully known. As the design progresses, the full level of subcontracting opportunities becomes known. * * * The Contractor is encouraged to maintain regular and ongoing communications throughout the Project with business associations representing DBEs. The purpose of such regular communications shall be 1) to promote awareness of additional subcontracting opportunities, 2) to provide information on the scheduling of such subcontracting opportunities, and 3) to provide summary information on the current and projected participation of DBEs in the Project. The Contractor is recommended to schedule such meetings on a regular basis as frequently as design progress warrants. This is one of many activities that could count toward meeting Good Faith Efforts requirements. 29. MnDOT s refusal to recognize post-proposal negotiations in evaluating McCrossan s good faith efforts violates Section D(1) of Appendix A of 49 C.F.R. Part 26 and is a failure to narrowly tailor the practices and procedures of its affirmative action program to achieve its stated goals. That provision requires proposers to negotiate in good faith with DBEs and make portions of the work available to them. In rejecting McCrossan s proposal, MnDOT stated that McCrossan should have negotiated with DBEs before submitting its proposal in an attempt to get those DBEs to lower their proposed prices. This interpretation was contrary to previous procurements in which MnDOT allowed proposers a number of days after submitting their proposals to negotiate with DBEs. MnDOT s previous interpretation recognized that, in practice, contractors rarely have the opportunity to negotiate seriously with subcontractors and suppliers before submitting their proposals. Because they do not want their quotes on the street 8

9 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 9 of 14 before bidding and subject to being underbid by competitors, potential subcontractors and suppliers usually wait until the last minute to submit their lowest quotes to proposers. As a result, there is barely enough time to evaluate the quotes and identify the lowest, much less actually negotiate with the subcontractors on their quotes. Contractors must consider the flurry of last-minute quotes for their proposals to be competitive, which does not allow time for serious pre-proposal negotiations with DBEs. Proposers can legitimately negotiate with DBEs only after receiving all of the other quotes and knowing the competing numbers. MnDOT s position that price negotiations with DBEs must occur before the proposal is submitted prevents negotiations from occurring because, as a practical matter, it is virtually impossible to conduct price negotiations before bid opening. MnDOT s policy, therefore, violates the federal regulations because MnDOT s policy effectively prevents those efforts. Indeed, MnDOT will count a contractor s failure to negotiate with a DBE subcontractor against contractors when analyzing goodfaith efforts, yet MnDOT s policy actually causes this problem. MnDOT is unreasonably and incorrectly interpreting the timing of negotiations on S.P and thereby failing to narrowly tailor its affirmative action program. 30. Even when they have the time to negotiate price with DBEs before proposals are submitted, MnDOT s interpretation forces proposers to engage in unethical bid shopping (the contractor forwards a subcontractor s bid to others in an attempt to obtain a lower bid) and bid chopping (the contractor tells a subcontractor that it must decrease its bid by a certain amount to obtain the work). This coercive behavior runs 9

10 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 10 of 14 counter to the purpose of 49 C.F.R. Part 26, which seeks to encourage fair DBE participation in projects. 31. In assessing McCrossan s DBE efforts, MnDOT acted illegally by misinterpreting the requirement in Section D(2) of Appendix A to 49 C.F.R. Part 26 and unconstitutionally creating a de facto quota. That provision requires a proposer to accept a DBE s price even if it is higher than competing quotes as long as the price difference is not excessive or unreasonable. In determining whether the price difference between a DBE s cost and a competitor s quote was excessive or unreasonable, MnDOT compared that difference to the total price of McCrossan s proposal, which assured that even large price differences would be deemed de minimus and created a de facto quota. If the method MnDOT uses to calculate price differences between non-dbe and DBE subcontractors never produces unreasonable price differences between subcontractor bids, then there will never be a legitimate reason not to use a DBE quote. Thus, general contractors will always have to meet the stated DBE goal because MnDOT s methodology will never recognize as legitimate any reason not to reach the goal. In fact, MnDOT recognizes that its methodology produces a de facto quota, because one of its administrators told McCrossan that the only way McCrossan would be found to have made good-faith efforts is to meet the DBE goal. 32. In further violation of 49 C.F.R. Part 26, upon information and belief, MnDOT did not comply with all the requirements of Part 26 in setting its DBE goal on the project. 10

11 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 11 of Part 26 requires, for example, that states receiving funds base their DBE participation goals for each contract on empirical data and meet those goals by raceneutral means wherever possible. 34. Based on information and belief as well as a statement by MnDOT s East Metro Regional DBE Specialist, Andrea Robinson, to McCrossan s president, Thomas McCrossan, MnDOT treated the 16.7% as a quota and not a goal in violation of Part Under 28 U.S.C. 2201(a), McCrossan is entitled to a declaration that MnDOT s decision to reject McCrossan s bid is unlawful and void because MnDOT failed to comply with 49 C.F.R. Part McCrossan is also entitled to an injunction precluding MnDOT from proceeding with the Ames/Lunda Joint Venture on the project. McCrossan is likely to succeed on the merits of its claim because its application of 49 C.F.R. Part 26 clearly conflicts with the regulation s text and the interpretation of the USDOT, a MnDOT consulting engineer, and MnDOT s own specifications. McCrossan will be irreparably harmed unless the project is enjoined because McCrossan cannot recover damages from MnDOT for MnDOT s failure to follow competitive bidding law. Finally, McCrossan s interests in having the project properly awarded substantially outweigh the slight delay in beginning the project. COUNT TWO AS-APPLIED CONSTITUTIONAL CHALLENGE 37. MnDOT s application of the design-bid-build DBE framework to the project violated McCrossan s rights under the Fourteenth Amendment of the United States Constitution. 11

12 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 12 of A state s application of 49 C.F.R. Part 26 is subject to strict constitutional scrutiny because it relies on race-conscious criteria. MnDOT s application of the designbid-build DBE framework to the project is constitutional only if it is a narrowly tailored measure[] that further[s] compelling governmental interests. Adarand Constructors, Inc. v. Peña, 515 U.S. 200, 227 (1995). 39. MnDOT s application of DBE requirements to the project, and specifically to McCrossan, violated the Constitution in at least two ways. a. First, MnDOT treated the project s DBE goal as a quota. MnDOT DBE Specialist Andrea Robinson told McCrossan after proposals were submitted that it must meet the project s DBE goal to be awarded the project. Additionally, in its decision rejecting McCrossan s proposal, MnDOT stated that McCrossan should have measured the percentage of price difference between subcontractor quotes based on the entire contract price rather than between the quotes themselves. This method of comparing subcontractor quotes ensures that any price difference between subcontractors will almost always be de minimus. MnDOT s method effectively precludes proposers from using price as a reason for rejecting a DBE quote, which is de facto quota and is therefore unconstitutional. b. Second, MnDOT s application of the DBE goal and measuring good faith efforts is not narrowly tailored to meet a compelling governmental interest. There are alternative methods of ensuring contractors use DBEs in the designbuild context that are more effective, more flexible, and have a lesser impact on bidders on design-build projects. 12

13 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 13 of As a result of MnDOT s violation of McCrossan s constitutional rights, McCrossan is entitled to a declaration from this Court that any contract executed with the Ames/Lunda Joint Venture is void. Additionally, for the reasons set forth above McCrossan is entitled to an order from this Court enjoining MnDOT from proceeding with the Ames/Lunda Joint Venture on the project, and from applying the same good faith efforts text and criteria in the design-build context as in the design-bid-build context. WHEREFORE, McCrossan prays that the Court enter judgment against Defendant and in favor of McCrossan as follows: 1. A declaratory judgment declaring: that MnDOT s decision to reject McCrossan s proposal and to award the contract to a bidder that has a higher cost, lower technical score, and higher adjusted score was unlawful; that a contract executed with the Ames/Lunda Joint Venture is void; and that MnDOT must either re-bid S.P in compliance with 49 C.F.R. Part 26 or not award completion of the project to any proposer other than McCrossan; 2. A declaratory judgment declaring: that MnDOT s application of its DBE contract goals and measuring good faith efforts on the project violated McCrossan s constitutional rights; that a contract executed with the Ames/Lunda Joint Venture is void; and that MnDOT must re-bid S.P in compliance with 49 C.F.R. Part 26; 3. An injunction preventing MnDOT from proceeding with the project using the Ames/Lunda Joint Venture; 13

14 CASE 0:13-cv RHK-JSM Document 1 Filed 04/22/13 Page 14 of An injunction preventing MnDOT from applying the same good faith efforts factors when evaluating design-build proposals and design-bid-build proposals and from using other unconstitutional practices and procedures; 5. Awarding McCrossan its bid preparation costs; 6. Awarding McCrossan costs, disbursements, and reasonable attorneys fees incurred in this lawsuit; and 7. Awarding McCrossan such other and further relief as the Court may deem just and proper. Dated: April 22, 2013 s/ Robert J. Huber Robert J. Huber (#047740) Liz Kramer (# ) Benjamin D. Eastburn (# ) LEONARD, STREET AND DEINARD, Professional Association 150 South Fifth Street, #2300 Minneapolis, Minnesota Telephone: ATTORNEYS FOR PLAINTIFF 14