Tourism's $7M contracts not open for bid

By Kevin Woster, Journal staff | Tuesday, December 30, 2008

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The Lawrence & Schiller agency in Sioux Falls is a big fish in a relatively small South Dakota advertising and promotion pond.

But these days, it’s also a trophy target for those critical of the way state government awards no-bid contracts worth millions of dollars a year to private business interests. And nobody plays that contract game better than Lawrence & Schiller.

The 32-year-old agency currently holds exclusive contracts with the South Dakota Department of Tourism and State Development worth more than $7 million. And since Gov. Mike Rounds took office in January of 2003, Lawrence & Schiller has been awarded more than $23 million in state contracts, most with tourism, and virtually all without competitive bids or alternative proposals from other firms.

During that time, Rounds received thousands of dollars in campaign contributions from Lawrence & Schiller officials, something that critics say poses ethical issues that need to be addressed in state law.

“I would hope pay-to-play is not taking place here,” said state government reform activist Lee Breard of Pierre. “But I will let the taxpayers of South Dakota draw their own conclusions.”

The no-bid contracts and donations by the people who get them are all legal under state law. And tourism officials are quick to point out that more than 80 percent of the state contract amount to Lawrence & Schiller is “pass-through” money that goes for the purchase of media advertisements and promotion that have helped South Dakota outperform other states in visitor spending.

The connection between the Lawrence & Schiller contracts and their political contributions means less to competing advertising executive John Fiksdal than the contracts themselves. As president of the Media One agency in Sioux Falls, Fiksdal sees the apparent Lawrence & Schiller monopoly as a personal affront to his agency and others in the state.

“I’m professionally and personally offended by the no-bid contract that Lawrence & Schiller holds,” Fiksdal said. “The assumption that no one else is suitable to handle this business is absurd.”

Some state lawmakers agree that the system of awarding professional-service contracts needs to be more transparent and competitive, similar to what is already required for most equipment purchases and construction work.

Some professional-service contracts also are subject to bids or competitive proposals, but it isn’t mandatory. And it isn’t the norm.

A preliminary proposal by Senate Democratic leader Scott Heidepriem of Sioux Falls would require agencies like tourism to seek multiple proposals when professional service contracts come up for renewal, generally on an annual basis. The Democrat’s proposal wouldn’t necessarily stipulate that the state accept the lowest bid, as the state requires for most major equipment and materials purchases or construction work.

That makes sense to Fiksdal. He thinks it would be “absurd” to require agencies to take low bidders on contracts for services such as advertising and promotion. But he said more competition could bring new ideas and potential cost savings while giving other agencies the legitimate consideration they often don’t receive now.

“At least open up the dialogue, for crying out loud,” Fiksdal said. “Sit down at the table with different groups and see what other minds and ideas are out there.”

Rapid City advertising executive Robert Sharp praised Lawrence & Schiller’s work and can’t argue with South Dakota’s growth in visitor spending during the contract years. But in a state with a strong tourism tradition, active state staff and high-quality attractions, Lawrence & Schiller can’t take all the credit for increased visitor spending, Sharp said.

“Lawrence & Schiller does a wonderful job. But they get an awful lot of assistance,” he said. “It isn’t just Lawrence & Schiller out there shaking hands and kissing babies. There are hundreds, thousands of South Dakotans who make it work.”

Sharp agreed that more competition would serve the state and the taxpayers well and would allow for new ideas from other firms.

“I think they lose that chance when they don’t put it up for bids or competitive proposals,” Sharp said.

Lawrence & Schiller officials said they’re more than happy to compete for their tourism contracts in the future.

“We stand on our performance,” said company vice-president John Pohlman. “We play by the rules. And if the rules change, we’ll play by them.”

The agency has been playing the state government contracts game for some time. It had handled most state tourism promotional work from 1978-94 under Republican Govs. Bill Janklow, George Mickelson and Walter Dale Miller. But when Janklow returned to office in 1995, Lawrence & Schiller lost out.

“We had a governor from ’94 to ’02 who ran things with an iron fist,” Lawrence & Schiller president and chief executive officer Scott Lawrence said. “My brother (Craig) got crossways with him on something, and we kinda got banned for about eight years. That’s about as straight up as I can get.”

Janklow remembered it differently.

“There was no one who was banned. They were invited to submit a proposal. They made the finals, but they were not selected because the evaluators felt their proposal was hokey,” Janklow said. “I never saw another proposal from their company, and I never paid attention to any of the advertising contracts that were issued for any of the agencies for any purpose after that one tourism contract.”

Janklow’s reluctance to turn the whole tourism account over to Lawrence & Schiller also had its roots in a three-year period in the mid-1980s when the state agency did most of its own work. Marshall Damgaard directed a creative group in tourism and state development during those years, and Lawrence & Schiller worked project by project.

“One of the advantages of doing so many things in-house was that we shared them with local private-sector tourism and development promoters all over the state,” Damgaard said. “Basically, they could use anything we had at no cost, if they just gave credit to the office.”

That wouldn’t have worked as well under an exclusive contract to one advertising agency, Damgaard said. But the department migrated back toward more exclusive work with Lawrence & Schiller after George Mickelson succeeded Janklow in 1987.

When Janklow returned to office in 1995, state tourism relied more on department staffers and work by other agencies. But the state turned back to Lawrence & Schiller in a big way after Rounds took office in 2003. And growth in tourism spending took off, Pohlman said.

The average annual growth in visitor spending was 9.3 percent when Lawrence & Schiller dominated tourism contracts from 1984-94, but dropped to an average of 3.8 percent from 1995-2002, Pohlman said. Since Lawrence & Schiller came back to tourism, a period that included some high-gas-price years, the growth rate has been 7.26 percent.

Last year, it was 8.8 percent, compared to national growth of 5.9 percent, Pohlman said. South Dakota Tourism and State Development Director Rich Benda confirmed those numbers, which surpass the national average.

“As long as we’re beating the averages and can look to our service provider for the kind of quality we want, aren’t we doing our jobs?” Benda said.

Rapid City and Black Hills area tourism promoters agree that the tourism contracts with Lawrence & Schiller have paid off. Michelle Lintz, executive director of the Rapid City Convention & Visitors Bureau, said Lawrence & Schiller was the contract agency in recent cooperative projects between the local bureau and the state. And they didn’t disappoint, she said.

“The proof is in the numbers. You can’t find many cities and states throughout the country that were nearly as successful as we were this past year,” she said. “I’ve paid attention to what they do and how they work the past few years and I’ve been very impressed.”

Bill Honerkamp, president of the Black Hills, Badlands & Lakes Association, said Lawrence & Schiller earns its contract pay, which isn’t nearly as lucrative as the impressive dollar amounts might imply.

“Again, so much of that is pass-through money, with 85 percent going to media purchases,” Honerkamp said. “It’s not as juicy as it sounds.”

Honerkamp worries that forcing competition for contracts could bring short-term savings that come with a long-term price if the promotions aren’t as good, he said.

“We just finished buying a guide book, and I can put printer against printer. That is a very objective process,” Honerkamp said. “But who’s the most creative? Who has the best ideas? That’s just so subjective. Mostly you look at their credentials, their staffs, their talents, their strengths and make a good guess.”

Lawrence & Schiller gets the contract edge because they have developed promotional and marketing strategies that have proven to produce, Honerkamp said.

“Things of this nature always seem to take on an ominous tone, like there’s something insidious happening,” he said. “And it’s really pretty straightforward, nothing particularly secret or insider or anything else.”

Contact Kevin Woster at 394-8413 or kevin.woster@rapidcityjournal.com

Title: No Bid Contracts Date: December 26th, 2008 Every year, businesses throughout South Dakota are given no-bid contracts by Gov. Mike Rounds and state government. The openness of those contracts helped launched a ballot issue to open up the process. The ballot measure failed, but the issue remains. VIEW PRESENTATION »