The no-bid contract Luzerne County Community College awarded to a company overseeing $20 million in construction projects allows for the firm to collect a fee that is four times the amount charged by firms that recently signed contracts for similar-sized projects in the county.
The fee arrangement with Precept Associates of Hanover Township is among a number of unusual provisions contained in the contract that could allow the firm to reap excessive profits from the taxpayer-funded project, two construction experts said.
Those issues prompted Luzerne County Commissioner Chairwoman Maryanne Petrilla on Friday to suggest the college “tear up the contract and start from scratch.”
The contract, approved by LCCC’s board of trustees, calls for Precept to earn 8 percent of the project’s actual construction cost, or roughly $1.6 million. The contract was signed by LCCC President Tom Leary and Precept Associates President Robert Higdon in May 2007.
The fee is exceptionally high, several contractors said, noting the fee for a project this size typically ranges from 2 percent to 5 percent. Construction manager fees for two projects recently awarded in Wilkes-Barre were lower.
The city’s 2008 contract with Premium Builders, the construction manager for the $11.7 million Coal Street Park renovation project, calls for the firm to earn $204,750, or 1.75 percent of the cost. A contract signed in March 2006 with Sordoni Construction, manager for the city’s $14.1 million intermodal transportation center, set a base fee of $275,000, or 1.95 percent of the cost.
The Precept contract also lacks several provisions designed to protect the project owner, said the construction experts who reviewed the contract at the request of The Times Leader. The lack of those protections allows Precept to collect additional fees far above fees that construction managers are typically able to recoup, they said.
“It looks like an open checkbook to me,” one expert said.
The experts each have dozens of years of experience in the field. They spoke on the condition they not be identified because they deal with public officials with their businesses and feared retaliation for criticizing the LCCC contract.
In an interview Friday, Leary said he could not explain why the college would agree to terms that are being questioned because he did not take part in negotiating the contract. He conceded no one from his administration reviewed the document before he signed it.
“I can’t believe anyone would sign a contract without having a professional look at it,” a stunned Petrilla said when told of Leary’s comments. “I don’t sit and read every contract I sign, but there are staff in place to read it and make sure nothing is put in that’s not reviewed over and over again.”
Leary said he reviewed the contract, but was not in a position to thoroughly analyze the terms.
“I looked at the contract, but I was not familiar with the compensation and stipulations you are referring to,” Leary said.
Leary acknowledged he signed the contract one month before it was officially voted on and approved by the board of trustees – something Petrilla said should never happen except in cases of an emergency.
“You don’t sign contracts until they’re approved,” she said. “I find it hard to believe this is even a valid contract. They should tear it up and start from scratch.”
The contract has been mired in controversy since it was revealed the college did not seek bids for the work. College officials previously said they did seek request for proposals, or RFPs, from at least one other company.
But Leary on Friday said he is not sure whether RFPs were sent out. He said Precept was chosen by the trustees’ finance committee based on the recommendation of the project’s architect, A&E Group. He did not know whether A&E sent out RFPs.
That issue further rankled Petrilla.
“In a case like this where there is $20 million in county and state money involved, absolutely, no questions asked, there should have been request for proposals or it should have been bid out,” she said.
The experts who reviewed the Precept contract said there are a number of problems with the terms, some of which differ significantly from standard construction manager contracts.
The contract allows Precept to add expenses into the project cost that are not included in standard construction manager contracts. That will increase the company’s profit because the profit is based on the percentage of the total cost. The higher the cost, the higher the profit.
Among the key issues:
• The contract allows Precept to collect 8 percent of the fee charged by the project’s architect, even though Precept has no involvement in that work. It allows the firm to include its own fee when calculating the total contract cost. That means it will collect an additional 8 percent on its own $1.6 million fee, or another $128,000. These provisions are “unheard of” in standard construction manager contracts, the experts said.
• The contract allows Precept to include “soft costs” associated with the project, but does not identify what those costs are or provide a dollar estimate of the costs. Again, that is not a standard arrangement in construction manger contracts, the experts said.
• The contract does not include a breakdown of reimbursable expenses that are to be paid to the company. Reimbursables are not profit, but expenditures the construction manager makes on behalf of the owner that it is then reimbursed for, usually at cost with a 10 percent markup. They include things like computer expenses, job cleanup, housekeeping and trash removal.
In the Coal Street and Intermodal contracts, Premium builders and Sordoni Construction provided a detailed list of dozens of reimbursable items. Each expense is capped at an “amount not to exceed.”
The Precept contract contains no such document. Without that document, the college has no way of knowing what it will be charged for and what it will cost, the experts said.
“They don’t give you a ‘total not to exceed.’ You should know that number. How can you generate your own project budget if you don’t know what wild card is out there,” one expert said.
In addition to the higher than normal fee, the contract takes away from Precept the responsibility of analyzing the amount and type of labor needed and from receiving and analyzing construction bids and providing a recommendation to college on the award of the bids.
That duty is normally a standard responsibility of the construction manager, the experts said.
Contacted Friday, Higdon, president of Precept Associates, acknowledged his fee is higher than prevailing rates typically charged. He staunchly defended the contract, saying he incurred significant additional expenses due to delays in implementing various phases of the project.
Higdon said the first phase of the project, the Public Safety Training Institute, has been completed. The next phase is the renovation of the Kanjorski Center in Nanticoke, but that has been put on hold while the college continues to negotiate lease terms.
“When you have a job and finish up one phase and you don’t start another right away, you can’t just tell people we’re laying you off,” Higdon said. “I still have overhead. I have to pay the mortgage, the lights, the heat. I can’t just shut down an office, wait until they’re ready and open a new office in a couple of months.”
As for the contract terms, Higdon said the modifications were reasonable. If LCCC disagreed, the college should not have signed the contract.
Petrilla said issues with the contract uncovered by The Times Leader have increased her concern with the agreement. She said she plans to speak with Leary and believes the county should get involved and seek to alter the contract.
“I would hope with this coming to light that the contract is so out of the norm for a construction manager contract that our legal team could sit down and renegotiate the contract, or terminate it and re-bid it,” she said.
Leary said he is amenable to that suggestion.
“It’s obvious it is raising concerns, as you are suggesting. Anytime there is a concern raised, it is incumbent upon the leadership of the college to review those concerns,” Leary said.