Posted earlier and updated with more from Mike O'Brien.

On Monday we found out that one of the three teams seeking to construct a deep-bore tunnel under Seattle had stopped work on the project and was no longer bidding. AWV Joint Venture's lead member, Kiewit Corporation, said the state's contract was "not compatible" with their business model. So that bidder is out of the picture, leaving only two bidders.

"If you believe in our capitalist model, we thrive on competition, and when there's only two bidders left, it's clearly problematic," says city council member Mike O'Brien.

But it turns out that AWV Joint Venture didn't drop out on Monday. The state has known for months that the third bidder was no longer developing plans, says Ron Paananen, Alaskan Way Viaduct Program Administrator for the Washington State Department of Transportation (WSDOT).

• WSDOT

Paananen says that the state had "never officially been notified that they stopped." But, he continues, "We kind of knew where they were at. We had an idea of where they were at but we don’t like to speak on behalf of contractors. They didn't think that the contract terms fit their business model. It wasn't one conversation, it was multiple conversations over time, I’d say, it was just an evolving discussion with them."

So over time—as early as last fall—the state knew there were problems with one of the potential bidders. Because the state was involved in an "evolving conversation" with a bidder that "was quiet ever since" February.

It was during this time that WSDOT and the Seattle Transportation Department (SDOT) were discussing a contract to build the tunnel. Rumors were swirling that the team wasn't bidding anymore—I heard the rumors, other reporters heard the rumors, people at city hall heard the rumors—so the city tried to find out if the bidder was still onboard.

"Approximately six weeks ago, we heard rumors that the Kiewiet had dropped out," says Mayor Mike McGinn. "At the direction of the mayor's office, an SDOT staffer contacted WSDOT and Ron Paananen to confirm or deny that rumor, and, at that time, WSDOT did not tell us that Kiewit did not intend to bid. They told us that there were still three teams in competition. We specifically asked if Kiewet was bidding or dropped out, and we were left with the impression that Kiewit was still an active bidder."

Officials at WSDOT told O'Brien the same thing on May 28. "I asked Ron Judd and Ron Paananen on the morning after the state announced they were extending the project completion deadline one year, specifically is Kiewet on board or not," says O'Brien. "They said, 'We have no idea where those rumors are coming from that Kiewit is pulling out. As far we know, they are onboard.'"

More after the jump.

But the state must have know that Kiewit was not an active bidder because, according to Paanaen, the state and the bidder were planning on how to respond if the media ever pressed them to explain if the company was still involved.

"We talked to Kiewit and said, 'If this comes up publicly, what do you want us to convey?'" Paananen told me. He says that they agreed on a statement that "we jointly agreed on what we could say" if questions were raised. And the company's statement said this:

At this time, AWV is not engaged in any pre-bid activities related to the project. The current contract model and our business model are not compatible. AWV will continue to be in contact with WSDOT about the status of the project. We cannot issue any other statement because, as a matter of common practice, we do not comment publicly on projects unless or until they have been awarded to us.

The state prepared a similar statement adding that, because the company hadn't officially dropped out (it just felt the project clashed with its business model and had stopped all work on it), the company "remain[s] interested in the project." But the state had no intention of releasing that statement until I called the state Monday morning and told them I had a quote from a Kiewit business manager who said, "As far as I know, we are not bidding it."

"When you left messages this morning," Paananen told me on Monday, "we started to get hold of Kiewit and say, 'Are you talking to the press or what?' and it took a while to get a hold of them and ask them what their position was and respond accordingly." (Incidentally, Paananen didn't respond to me until 6:45 p.m. that evening—because, he says, it took time to get ahold of Kiewit. That didn't stop him, however, from calling two other news outlets and providing them with interviews around noon to make statements about Kiewit, even though it was our reporting and my message in the morning that prompted the announcement.)

Why should we care about Kiewit dropping out? A few reasons:

First, this may be the first time WSDOT has had so few bidders. "I would have to go back and see if we have ever had fewer than three bidders," Paananen told me. He still hasn't reported back with the state running a project with only two team competing for the work—particularly on a megaproject.

• WSDOT

"There are only two teams on the whole planet willing to put out a bid on this thing," says O'Brien, noting that construction companies are more eager for work than ever during the recession. A fourth bidder dropped out in March. "It puts out a question about the risk of what they're bidding on," O'Brien continues. "Almost nobody is interested in doing this project, and that is frankly concerning."

And thirdly and most importantly: The state was not honest with the city—the state's "partner" in a $4.2 billion megaproject.

"When state law provides that Seattle is responsible for cost overruns," says Mayor McGinn, "then the project requires a great deal of coordination. We would expect that the state be forthright with us about the status of the project."

Lloyd Brown, the head spokesman at WSDOT, insists that this is a non-issue because, "We are saying they had not taken themselves out of participating in the bidding process." (But again, the company said it is not working on the bid, its business model clashes with the state, WSDOT hadn't heard from the company for months, the state has known about the problem since last fall, coordinated with the bidder to create talking points if any reporters called about not working on the project, the state went into damage-control mode when it realized that the bidder told a reporter that they weren't bidding, and, when asked by the city, the state said the bidder was still on board.)

"I have always operated under the assumption that WSDOT was being straight up and honest with me<" O'Brien says. "This game-playing around whether Kiewit was technically out or not really challenges how much I can trust WSDOT going forward."

Brown defends the state's actions: "I am standing behind how we communicate with our project partners."

But McGinn disagrees: "It is not a good sign for a productive partnership. WSDOT was not been straight with us on this issue."

Is there anything else the state isn't being straight with us about?