Continued risk of city contracting with prohibited businesses

The city remains at risk of contracting with ineligible businesses for construction projects because of insufficient business verification, according to a new audit follow-up report from Denver Auditor Timothy M. O’Brien, CPA.

“Hiring a construction company that’s not qualified to do the work violates the City Charter,” said Auditor O’Brien. “The city selecting unqualified businesses over businesses that are qualified also sets unfair selection process.”

The Department of Transportation & Infrastructure and Denver International Airport co-manage the city’s construction contractor pre-qualification process. Contractors on city construction projects must meet certain requirements, including demonstrating financial capability, to obtain pre-qualification and compete for city projects. The city’s defined rules and the Pre-qualification Board decide which contractors pre-qualify.

Since our original 2024 audit, Transportation & Infrastructure updated the construction contractor pre-qualification application template, requiring applicants to disclose whether they are in arrears or in default on any city obligation. But the application is not yet implemented in city software, so the Pre-qualification Board may be receiving inadequate information about applicants. Without the necessary information, the board risks hiring contractors that are ineligible for pre-qualification.

Furthermore, when the board does reject a contractors’ application, we recommended the agencies establish a process for contractors to formally dispute the decision. Transportation & Infrastructure managers did not implement this process, saying they do not have the capacity or staffing.

We found the city’s process to assign and communicate financial limits still lacks transparency. Transportation & Infrastructure is not consistently following required processes when assigning contractors a financial level — which determines the type and value of the contracts a contractor can bid on. If the board approves a level higher or lower than what the contractor requested, it must provide a clear justification to the contractor. This did not occur in two of five applications we analyzed.

Without a more transparent pre-qualification process, city managers risk reducing the city’s pool of potential qualified bidders because contractors may choose to abstain from doing business with Denver if they believe the pre-qualification process is unfair or not transparent.

“If contractors cannot appeal application decisions and they are not told why they are assigned different financial levels, it leads to a less open and less competitive procurement process,” said Auditor O’Brien.

In a positive step forward for transparency and improved record keeping, the agencies developed and implemented a formalized procedure for reviewing application packages to ensure more accurate information. A pre-qualification coordinator prepares the packages and now a peer and supervisor also review the packages.

“Progress has been made, but if there are ongoing risks, we may consider them in a future audit,” Auditor O’Brien said.