Wednesday, May 30, 2007 | 7:18 a.m.
.
.
.
Even as lawmakers debate how to pay for future highway improvements in Southern Nevada, history suggests that most of the work will be performed by two local companies that have dominated road building during the Las Vegas Valley's rapid growth.
Las Vegas Paving Corp. and Frehner Construction Co. are many miles of pavement - and many, many dollars - beyond the competition in terms of the number and value of publicly funded contracts they win to build and maintain roads and bridges throughout Clark County.
A Sun review of road work awarded from 1996 through 2006 by the Nevada Transportation Department, Clark County, Las Vegas, North Las Vegas and Henderson showed that Frehner won $661.9 million worth of contracts in the valley, followed closely by Las Vegas Paving's $634.6 million. Meadows Valley Contractors, with $349.6 million, and Wells Cargo, at $118.4 million, were a distant third and fourth, respectively.
On state projects, Las Vegas Paving and Frehner combined won 78 contracts valued at $688.5 million. The next eight most successful contractors combined for 28 projects worth $415.3 million.
If the lack of competition to build and repair valley roads is the most overlooked aspect of the highway cost debate, that is fine with major road builders. By nature, they're publicity shy.
"We like to lay low," Las Vegas Paving President Jay Smith said in declining an interview request. "It's a very competitive market. That's all I'm going to say."
Public works experts, though, say if the two dominant companies had stiffer competition, taxpayers could potentially save millions of dollars on each major project.
"It's always the case that if you have more bidders, you'll have better prices," said Tom Brady, manager of the North Las Vegas engineering planning division.
A road widening and storm drainage project on U.S. 95 near Searchlight awarded last October makes the point. Of the four companies that submitted bids, Wiser Construction of Moapa won the contract with a low bid of $11.4 million. Frehner bid $12.5 million and Las Vegas Paving, $13.6 million.
No one, not even companies consistently outbid by Frehner or Las Vegas Paving, points an accusatory finger at the companies or suggests there is anything untoward about how they have managed to grab such a sizable slice of road work over the past decade.
Rather, the two companies simply capitalize on their enviable assets - notably, local operations that make some of the raw materials of road work more readily and more cheaply available to them than many competitors - to take advantage of the system in place.
Moreover, when it comes to thin competition on road projects, Southern Nevada is not alone.
Prompted by concerns from several states, the American Association of State Highway and Transportation Officials in Washington recently published a report on strategies to address increasing highway construction costs and reduced competition. The recommendations included not being reluctant to reject noncompetitive bids and readvertise projects, finding ways to reduce contractor risk and two seemingly diametrically opposed ideas - bundling projects to attract larger contractors or dividing road work into smaller components to give small firms a better chance.
"We bid out a $45 million bridge and received only two bids," said Cal Gendreau, construction services engineer for the North Dakota Transportation Department. "There are only so many contractors willing to take the risks, especially on multiyear projects where you're asked to bid on material costs and hold those prices for two to three years."
Several factors explain Las Vegas Paving's and Frehner Construction's dominance. Both have local gravel operations, asphalt and cement facilities, large fleets of heavy equipment and experienced managers with extensive dealings with transportation and public works departments.
"We have a lot of 20- and 30-year people," Frehner Construction General Manager James Madsen said. "Without key people to deal with the agencies, you're dead."
Having ready access to large volumes of aggregate to build roads and the equipment to do the work are huge cost-savings that give the companies an advantage over rivals. That is particularly true of out-of-state companies that incur extra costs to transport equipment to Las Vegas or to purchase aggregate from a local supplier.
"The big key is having the aggregate," said Tony Illia, editor of the monthly publication Nevada Contractor. "That's why you have only a handful of companies that win contracts again and again. If you don't have your own aggregate or batch plants, it's an uphill battle."
There also are few companies that can obtain the high-dollar bonding capacity to perform major projects so that insurance is available if the deal to build or repair a road falls apart. Bonding companies, serving as the insurers, want proof that road builders have the resources and track record to complete projects. A builder that falls behind on a project or goes into default will find it difficult to get the bonding needed to land future jobs.
The Nevada Transportation Department tends to design large-scale projects instead of dividing them up into smaller jobs. Although that reduces traffic tie-ups that could result from multiple companies working on various phases, it also effectively eliminates smaller contractors that cannot obtain bonding for large projects.
"Our motto is to get in, get out and stay out," Rudy Malfabon, the department's deputy director for Southern Nevada, said. "It gives us more economies of scale and you have less disruption to the public than if you did several projects in a row."
The easiest way to measure competition is to look at the number of qualified bids that state and local governments receive when they advertise projects.
In the Transportation Department's case, 69 percent of the road contracts awarded in Southern Nevada from 1996 to 2006 attracted no more than three bids. There were 39 contracts that drew only two bidders (Las Vegas Paving was one of the bidders in 35), and 14 contracts with a single bidder, 12 of which went to Las Vegas Paving.
Although most of the state Transportation Department's pre-bid estimates fell in the ballpark of the eventual low bid, two examples from 2005 point to the financial peril that it can face when it advertises a major project and gets few takers.
Even Las Vegas Paving's winning bid exceeded the department's $87 million estimate .
Double-digit inflation in recent years for construction materials such as steel and asphalt - price hikes blamed largely on increased demand from China and skyrocketing oil costs - has made life miserable for the engineers whose job it is to estimate projects' costs for state and local governments.
Nationally, according to the American Road & Transportation Builders Association in Washington, prices for iron and steel scrap rose more than 40 percent during the past year, while asphalt paving, a petroleum residue, climbed 18 percent. During the same period, general inflation rose only 2.8 percent.
Driven by those increases, a mile of road pavement cost $185,074 per lane last year, more than 50 percent higher than the average cost of $120,464 in 2001, according to Transportation Department figures.
Despite the high price tags for major projects, builders' percentage profits are generally in single digits, experts say. The relatively modest profits are why, in Illia's words, it takes only "one bad project" for some road companies to go belly-up.
Some road contractors are unavailable for public jobs because they are working on privately owned developments, where they often enjoy greater profits and construction flexibility and less red tape.
"You have such a manifestation of construction activity here that the contractors are busy and they're not willing to allocate the resources for road projects," Majed Al-Ghafry, North Las Vegas' public works director, said. "We rarely get five bidders unless there's not a lot of work and they're desperate."
In addition, most road companies can handle only one large project or several smaller ones.
Las Vegas Paving is an exception.
Founded in 1958 by Robert Mendenhall, its current owner and chief executive officer, the company originated "with very little capital and a large amount of desire," according to its Web site. Since then it has laid 40,000 miles of asphalt, enough to circle the globe more than 1 1/2 times.
Under Mendenhall's guidance Las Vegas Paving's annual revenue exceeds $400 million, more than quadruple what it was in the early 1990s. The 1,200-employee company owns seven portable plants that it operates in Nevada, California and Utah to process recycled asphalt, concrete, caliche and limestone.
During the 11-year period surveyed, Las Vegas Paving won 109 road contracts combined from the county and Las Vegas, Henderson and North Las Vegas, 70 more than the 39 awarded to its nearest competitor, Southern Nevada Paving. Of the 45 other companies that also won road contracts during those years, only Frehner and Wells Cargo exceeded 20 projects each.
Frehner Construction, originally based in North Las Vegas, incorporated as a privately owned company in 1970. Garth Frehner sold the company to British-based Aggregate Industries in 2004 for $95.8 million. The next year, Aggregate was purchased by Holcim Ltd., a Swiss company that is the world's second-largest cement maker.
At that time, the local company had annual revenue of $168 million while operating with 600 employees in Nevada and Utah. The publication Southwest Contractor pegged Frehner's revenue at $220.5 million last year.
Although officials search for ways to generate stronger competition - and, they hope, lower prices - on road projects in Southern Nevada, they concede that one of the major impediments is beyond their control: the region's ongoing rapid growth.
As long as contractors have a seemingly unending supply of private jobs from among which to choose, the paucity of bidders on road projects is likely to continue.
As Leslie Henley, Clark County's deputy public works director, put it: "If people are simply looking for work, you'll get better prices."
archive
