Governor and Commercial Real Estate and State Government and Brokers and State Agencies and Government & Economic Development and John Bales and Real Estate & Retail

Officials steered lease deal to Bales

January 21, 2012
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Local broker John Bales is facing criminal charges over a lease deal for the state's Department of Child Services office in Elkhart. (IBJ file photo)

State officials in 2005 vowed to run a competitive process to select a private firm to handle real estate leasing for public agencies.

The Indiana Department of Administration sent out a 20-page request for services to more than 400 potential bidders, setting a 65-point scale for evaluation of proposals.

But the entire request for services procedure was a sham, according to three people with knowledge of the process, including two members of the selection committee.

Gov. Mitch Daniels’ administration already had its man: John M. Bales, an up-and-coming real estate broker who had advised the newly elected governor and made large political contributions.

Bales Bales

So when the selection committee’s evaluation process gave a scoring edge to competing firms, the Indiana Department of Administration twice adjusted the scoring formula to favor Bales’ company, now known as Venture Real Estate, the people said.

Venture wound up with 50.82 points, according to an IDOA memorandum obtained through a public records request. Next up was Resource Commercial Real Estate, with 49.2 points, followed by NAI Olympia Partners with 47.78 points.

“They changed the values to make Venture win,” said Marsha White, a member of the selection committee who at the time handled leasing for the Bureau of Motor Vehicles. “Not until the third try did Venture actually win.”

A second member of the six-person selection committee corroborated White’s story but declined to be named, fearing it could harm business relationships. The selection committee members said IDOA officials changed the weighting assigned to certain categories, including experience, in its new calculations.

Bales, 44, who brokered office leases for state agencies from 2006 to 2010, was indicted last month on felony charges stemming from a lease deal he arranged for a building in Elkhart.

He has denied wrongdoing.

Process altered?

Jason Barclay, a Barnes & Thornburg partner who represents Bales, bristled at the suggestion that the state changed the review process to ensure Venture would win.

“If someone was pressured to do something, the question would be, why in the world didn’t they notify anyone?” Barclay said. “I am not aware of any facts, including in discovery provided by federal prosecutors, that support that contention.”

Bid-related documents obtained by IBJ suggest that the scoring process may have changed after the state issued its request for services.

The original request says an evaluation team would rate proposals on a 65-point scale, in categories including adherence to requirements, management assessment/quality and compensation structure.

But a memorandum from then-Deputy Commissioner Rob Wynkoop recommending the state select Bales’ firm describes a different process, in which the evaluation team was responsible for only 30 of 65 total points.

“The remaining 35 points were scored and awarded by IDOA,” Wynkoop wrote on Dec. 16, 2005. “The total average of these scores became the respondents’ total scores.”

It wasn’t clear why Wynkoop—now IDOA’s commissioner—used the word “average” when the total possible score still adds up to 65 points.

Department spokeswoman Connie Smith said no one was willing to discuss the process that led to Venture’s selection. She also would not identify all the members of the selection committee.

IBJ requested the scoring sheets for individual proposals, but IDOA denied the request, citing an exemption in the state’s public records laws for deliberative documents.

That doesn’t sit well with Judy Nadler, a senior fellow on government ethics at California’s Santa Clara University.

“The public has a right to know who got the bid and under what circumstances,” she said. “There should be nothing hidden about the process.”

She said members of the public deserve to know whether anything other than the firm’s qualifications led to its landing the contract.

‘Ham-handed’

Even if a bidding process is set up to favor a particular company, it isn’t necessarily illegal, said Carla Miller, a former federal prosecutor who now runs City Ethics, a Florida not-for-profit that advises municipalities.

“Contracts go to people in power,” she said. “On paper, everything looks like it was done correctly, but there are conversations and things that go on around that—favoritism—in those contracts. There are a lot of instances where it’s completely legal, even if it doesn’t seem right.”

It wouldn’t be unusual for an elected official to steer business toward a firm that’s also a political ally, even by writing an RFP tailored to the firm’s strengths, said a local real estate broker who has done deals with government agencies.

But the broker described the state’s handling of the Bales’ contract as “ham-handed”. If the state wanted Venture, it should have just hired Venture. The state isn’t required to seek bids for professional services, including the leasing of office space.

The state’s request for leasing services emphasized it wasn’t giving up its discretion on picking a real estate broker: “The commissioner of IDOA or his designee will, in the exercise of his sole discretion, determine which proposals offer the best means of servicing the interests of the state.”

Throwing weight around

Bales earned the trust of state officials with a mix of good ideas, a rare talent for salesmanship and a bit of rhetoric about how the old real estate leasing team had been overcharging the state, real estate brokers have said.

He also wrote a lot of checks. From 2003 to 2008, Bales and his companies gave at least $52,000 to Daniels and state Republican committees.

Bales began throwing his weight around immediately after Daniels took office.

Officially, he was just a consultant until he won a contract to dispose of surplus state real estate in 2005 and the leasing contract, which took effect in January 2006. (The state also contracted with the second-place firm, Resource, for some of the work.)

“John made no bones about the fact he had made major contributions to Daniels,” said White, the former leasing chief for the Bureau of Motor Vehicles. “He inferred he was owed business.”

At one point, White said she asked Venture to scout a potential location for a license branch outside of Indianapolis. All she got back was the results of an Internet search.

“Essentially, they were looking to be paid for not doing anything,” she said. “The work they wanted to do for me I easily could have done myself. I found them to be pretty ineffective.”

A parade of state officials confronted the firm, over issues including questionable expenses for which Venture sought reimbursement, the firm’s hardball negotiating tactics with the state’s landlords, and Bales’ reputation for acquiring buildings that wound up with government tenants, IBJ reported in December based on a review of thousands of pages of public records.

But Venture and Bales continued to do work for the state until 2010—after the FBI began investigating the Elkhart deal—thanks at least in part to a well-cultivated relationship with the Governor’s Office.

‘Venture got by with everything’

Bea Tate, who served as the state’s director of real estate from 1989 through 2006, described Bales as a talented salesman and a smooth talker who bragged that he had the governor’s cell phone number.

He and the other Daniels appointees and consultants seemed to distrust anyone who had served in state government before their arrival, she said. It was clear the new bosses were poised to put their faith in private-sector contractors, and they weren’t keen on giving anyone in the bureaucracy the authority to rein them in.

“They wanted to hand it over without any accountability,” Tate said in an interview. “Venture got by with everything—they did whatever they wanted to do.”

The basic test Tate said she applied to every decision for 17 years—whether a deal could embarrass the commissioner or the governor—was thrown out with Bales.

Tate said she resigned at the end of 2006, following a tangle with Bales that led to her demotion. Shortly thereafter, she says, IDOA “unleashed” the upstart broker to handle lease deals in every corner of the state.

Federal prosecutors have accused Bales of violating his contract with the state by effectively having an ownership stake in an Elkhart building leased to the Department of Child Services. They say he floated a down payment for a partner to buy the building and entered into an agreement to share in any profits on the deal.

The 14-count indictment in U.S. District Court for the Northern District of Indiana also names Venture chief counsel William E. Spencer and Indianapolis attorney Paul J. Page.•

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