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SPECIAL REPORT * Community college district awarded $10.7-million construction contract designed to save money on utility bills. But as lack of competitive bidding is criticized . . . : Questions Cloud Project

December 19, 1999|JILL LEOVY | TIMES STAFF WRITER

FEMA regulators say they are awaiting the results of the independent reviews being done by the state and the district before deciding whether to take further action.

At issue, said Paul Jacks, deputy director of the disaster assistance division at the emergency services office, is FEMA's general directive "to ensure that maximum competition has occurred" in awarding contracts for construction work.

Procurement laws aim to ensure fair and open competition for government contracts and to make sure government is getting the best price.

The district did arrange for FEMA jobs and a portion of the state-funded work to be done at City College to be put out to bid.

But in an unusual arrangement, the district allowed the bidding to be done by Viron itself, not district officials. And the cost of the work to be done was agreed upon beforehand--included in a lump sum to be paid to Viron. The cost was the maximum amount of available FEMA and state grants for the included projects, paid to Viron as a flat fee under the contract.

In essence, Viron's role, though unstated, was that of a general contractor, subcontracting out to other companies--a fact acknowledged by Greg Coxsom, Viron's professional engineer on the project.

Legally, consultants, and even construction managers paid with consulting fees, can be selected through less rigorous competitive processes. But general contractors are a different matter.

General contractors control entire project costs, and must be selected through competitive bidding, said Strough of the emergency services office. Last year, Strough's agency issued a letter allowing use of energy conservation projects, but the agency also said such work must be competitively bid.

The Viron deal is a relatively large undertaking for the community colleges, containing $7.2 million in FEMA and state funds in addition to $3.4 million in borrowings to be paid back through energy savings.

Miscalculation of Savings Estimate

Moreover, the calculations of projected energy savings over 15 years don't take into account what financiers call "net present value"--the term used to describe the reality that a dollar today is worth more than the promise of a dollar several years in the future.

Because the calculations do not account for the present value of money, the estimate of savings the project is supposed to generate is larger than it would otherwise be.

Moreover, the contract projects energy savings of about 40% from what the district is currently paying on utility bills, even though air-conditioning is being added to about nine buildings, Coxsom said.

That is a relatively large, though not unknown, savings rate: "If I see someone saving 40%, I get nervous," said one Northern California-based energy consultant who asked not to be identified.

"Forty percent is a lot, and all our projects don't save that much," said Coxsom. But he said the City College project is exceptional because the college had been using such highly inefficient equipment, including outdated air conditioners, and a high-pressure steam system that provides heat.

City College officials praised Viron's work despite the controversy. The college had a critical need for air conditioning, which Viron has made possible, said President Mary Spangler.

Spangler added that she was under the impression that a sole-source contract was warranted because Viron was the only company that could do the type of work involved.

In fact, Viron is just one company in the highly competitive field of energy-services performance contracting.

One potential competitor, Siemens Building Technologies Inc., is sufficiently piqued by Viron's arrangement with the district that it sent its representatives to a trustees meeting recently, asking to be allowed to compete for future projects.

For the moment, Drummond has put a halt to any expansion of Viron's role with the district. An apparent addition of $6.7 million worth of work to Viron's City College contract without bidding was pulled from a board of trustees agenda in November.

And while Viron has made presentations to other community college district campuses to do similar work, Drummond said he favors screening competitors before any new contracts are awarded.

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