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Democrats question $12M in consulting contracts

August 13, 2014

Democrats on the City-County Council are questioning the legality of more than $12 million in consulting contracts signed by Republican Mayor Greg Ballard's administration for work on the proposed criminal justice center.

The city, which has paid about $800,000 to consultants so far, doesn't have enough money available to cover the full cost of the contracts, said Bart Brown, chief financial officer for the Democratic-majority council.

Brown contends that the contracts were signed in violation of state procurement law, which requires council approval for multi-year obligations that aren't already funded. He said the administration has only $2 million available for the contracts, and that money wasn't expressly appropriated for consultants' fees.

Brown called it a "bait-and-switch." Ballard spokesman Marc Lotter couldn't speak to the legality of the contracts, but he said the city won't be on the hook for the full amount. Lotter said the city's consultant fees will be reimbursed by whichever development team is chosen to build the justice center. That's assuming the deal goes forward.

"You don't necesssarily need an appropriation when you're going to have it reimbursed on the back side," Lotter said. He added that getting an appropriation from the council would have been difficult. "They don't necessarily move at the speed of business," he said.

Where did the mayor's office find $2 million? Brown said the city deferred a rent payment to the Marion County Building Authority by one month, from December to Janauary. The maneuver freed up money in the city's 2013 budget, which follows the calendar year, but it was neutral to the building authority, which follows a July 1 fiscal year. The building authority is an entity that was created to own and manage the City-County Building.

Brown said he's discussed the procurement-law issue with City Controller Jason Dudich, who signed off on the contracts. Brown said he doesn't know what, if anything, the council will do now that they're in place.

The largest contract, signed in February, is with architectural consultant Hellmuth, Obata & Kassabaum Inc., also known as HOK. The firm stands to make $4.7 million if the city closes on a deal for the justice center. That may include a closing bonus and finance charges on the deferred fees, according to the agreement.

Financial consultant KPMG can earn up to $3 million, and that includes a potential bonus, or "success fee," if a deal closes. KPMG is working at a discounted rate of $212.50 per hour. If the deal closes, the bonus will be calculated with an hourly rate of $637.50.

Legal consultant Bingham Greenebaum Doll's retainer is worth up to $1.5 million, but it can be amended if fees accrue beyond that amount. Deputy Mayor for Economic Development Deron Kintner, who entered the agreement with Bingham in October, used to work at Bingham's predecessor firm, Bingham McHale LLP.

Bingham's sub-consultant, Los Angeles-based Nossaman LLP, can earn up to $2.5 million, according to an agreement, also entered by Kintner in October.

Public relations and lobbying firm Bose Public Affairs Group is charging $750,000 in three installments. Bose senior consultant and former mayoral staffer John Cochran is working on the justice center project, communicating with City-County Council members and residents affected by the new courts and jail. The justice center is slated to be built on the site of the former General Motors stamping plant on the western edge of downtown.

There are also two smaller contracts, one with local building consultant John Klipsch, who could earn up to $100,000, and one with risk-management consultant Bickmore for up to $50,000.

Lotter said the size of the contracts shouldn't come as a surprise to council members, because Council President Maggie Lewis signed a memorandum of understanding in December which states that the city may incur costs up to 2 percent of the total project. 

With fees of $12.65 million, the construction cost could be as much as $632.5 million.

The fact that the city's legal, financial and architectural advisors won't receive the bulk of their fees until a deal closes raises the question of whether their interests and the city's are aligned.

It's not up to the consultants to advise against entering a deal, Lotter said. "They are providing the expert counsel to make it go forward," he said.

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