As Paul Harvey would say,
“Here’s the rest of the story.”
As Paul Harvey would say, “Here’s the rest of the story.”
The Morgan Hill School District has finally received the long-awaited FCMAT report (written by the Fiscal Crisis Management Assistants Team, a state-appointed agency) from the Santa Clara County Superintendent of Schools.
Carolyn McKenann, the MHSD superintendent, issued a press statement on what the audit didn’t find. Over the past 18 months I’ve come to realize that much of the official comments from the district only tell half the story.
What about the rest of the story? What conclusions were made in the FCMAT report? I would like to share more quotes from the report with you.
Page 3: Executive Summary – “In 1999 the district passed a $72.5 million bond to construct two new schools and modernize existing facilities. At that time the district did not have an established construction program with suitable policies and procedures, nor any employees experienced in school construction. The district contracted with a construction management company to facilitate the program. However, the agreement was atypical, and the company had no experience in California school construction.
“The district entered into a contract, against the advice of legal counsel, that didn’t adequately protect the best interests of the district. There was no means for the district to control construction costs. As a public agency, the district abdicated its oversight responsibility and authority over the construction program and bond funds to the construction management company. There was ordinary negligence on the part of the district staff, relative to the selection of the construction company as sole contractor. Errors in judgment led to the cost overruns now being borne by the district.”
Page 5: Construction Contract – “The selection process (of a construction management company) was informal and not in keeping with the processes and procedures that would normally accompany entering into a contract of this size and complexity. The selection committee was given no guidelines for evaluating proposals or selecting the construction management company … . In March 1998 the district elected Sverdrup as the construction management company. An informal selection was followed, but adequate documentation about the process and how the proposals were evaluated was not maintained … . Ultimately, the superintendent recommended Sverdrup to the board, based on the informal selection process.
Because the district had no staff members with construction expertise, Sverdrup’s full service proposal was attractive. However, Sverdrup had no experience with California school construction. There was no documentation of which members of the selection committee endorsed Sverdrup, nor was there formal documentation of the rational for Sverdrup’s selection. Some of the people on the selection committee disagree as to whether Sverdrup was the unanimous choice of the committee …
“The district administration described this design/build contract as a “turnkey” arrangement in which the district would have minimal involvement. In essence, the district abdicated its oversight authority and responsibility …”
Page 6: “Under the traditional construction management agreement, there are checks and balances that were absent from Sverdrup’s turnkey approach … . The district’s legal counsel, who worked with Sverdrup’s legal counsel, designed the final contract but expressed concerns about the contracts with Sverdrup (who became Jacobs Facilities in September 1999) In a letter (to the district) the district’s legal counsel documented several issues with the initial contract, including:
• Sverdrup may inflate the construction price guarantee …
• Several provisions allowed Sverdrup to increase costs or bill additional costs above the guaranteed cost cap …
• Three cost categories had no cost cap.
• Sverdrup may bill back costs for damages to the district, even in the case of liquidated damages caused by Sverdrup
• Potential issues with California bid requirements, construction and job change order requirements….
Page 7: Construction Process – “… There often was no district approval of the job change orders …. District staff members were uncomfortable with some of the items billed, including Jacobs’ staff time for which there was no recorded back up, and significant travel and lodging expenses. Jacobs billed the district for a house and furniture for Jacobs staff members to live in while working at Morgan Hill … .
“Instead of contracting with an outside construction management consultant to help oversee the program, the district relied primarily upon people (district employees) with inadequate construction experience, and also upon Jacobs. Essentially, this gave Jacobs unchecked control and authority in the construction process ….
“Unrealistic construction estimates used in the campaign to pass bond (School Bond) increased the publics perception that the contract was significantly over budget. Little research had been done on the part of the district to verify the estimates used in the bond campaign. (were realistic)”
Page 9: Current Developments – “The Morgan Hill School District currently appears to be in a state of leadership crisis … . There is mistrust among the district’s upper management.
Employee moral is low, and the district is experiencing a high number of workers compensation claims … . Without an effective maintenance program, newer buildings will quickly become run down, and older buildings will become unusable.”
Page 11: Conclusion – “Saylor Consulting, one of the outside agencies that reviewed the entire contract structure (January 2000), i.e., design/build with a guaranteed maximum price, was ill-suited to build a California public school. In addition, this contract structure was more costly than a traditional construction agreement …. FCMAT concludes there was ordinary negligence on the part of the district staff, relative to the selection of Sverdrup as the sole contractor. The district staff provided the selection to the board for approval without seeking sufficient expert counse l… . FCMAT concludes that the district staff exercised poor judgment in not heeding the legal counsel’s concerns about the contract. These errors in judgment, given the cost overruns now being borne by the district, are of a material nature….
The district administrators exercised poor judgment in entering into a design/build construction agreement that was untested in California. By entering into such a contract with a firm that was unknown and un-experienced in California school construction, the district relinquished control of a process over which it should have maintained oversight. Administrators ignored the advice of their legal counsel who expressed concerns about the contract, and they did not seek assistance or advice from an outside expert. They did not plan or staff properly for the construction projects.
“The board approved the contract without appropriate policies and procedures in place for a construction program. While all of this adds up to poor decision making, and resulted in large amounts of money spent inefficiently, FCMAT found no evidence of fraud, misappropriation of funds, or other illegal practices.”
Now you know the rest of the story. You can request a copy of this Santa Clara County Office of Education AB 139 Extraordinary Audit of the Morgan Hill School District dated May 6, 2004 through the district office under the Public Information Act.
Harlan Warthen is a longtime school board watcher. Readers interested in writing a guest column should contact editor Walt Glines at ed******@*************es.com or 779-4106.
