A contract that was supposed to provide air conditioning for 150 schools has instead cost the school district $19.3 million without buying a single air conditioner, the Weekly has learned.
The $19.3 million went to a consortium of contractors headed by Denver-based CH2M Hill, which was to have managed the installation of the A.C. units. The money was for a contract buyout and to cover the costs of advance work that never quite included actually installing an air conditioner.
That original $155 million deal, signed three years ago, was the culmination of a highly publicized, nearly two-year struggle involving major construction firms, the region‘s largest energy providers, and political figures including unsuccessful mayoral candidate Steve Soboroff, former Mayor Richard Riordan and state Senator Richard G. Polanco. At one point, even the now-bankrupt energy giant Enron became a player.
Eventually, the district went for a package arrangement to provide both air conditioners and electricity for much of the school system. This solution was heavily influenced by outside political pressure, but also was born of a genuine desire to break a logjam of delays and failure in the school-construction program. Instead, the deal raised the bar for school-district futility: Officials decided that a $20 million loss was preferable to going forward with the contract. The all-in-one approach, it turns out, was either dead wrong from the start or would have required, to be successful, a level of sophistication in negotiation and management that the school district lacked.
This battle royal was front-page news only on the front end, when the contract was fought over and approved. When the school board quietly approved a costly escape last summer, it didn’t even get reported. The issue has surfaced recently because a local activist perked the interest of the independent committee that oversees local school-bond spending. The elected school board is now revisiting the matter because of the Enron piece. And information about the entire chain of events has been referred to the school district‘s inspector general for possible investigation.
The roots of this debacle go back to April 1997, when voters approved Proposition BB, the $2.4 billion bond to pay for building and upgrading L.A. schools. Air conditioning for schools was a major selling point for voters, especially in the San Fernando Valley, where summer temperatures regularly reach triple digits and overcrowded campuses are forced to operate year-round. But five years later, about 100 schools remain without air conditioning and other schools have recently installed cooling units that are too noisy. Officials estimate that the school bond will fall $600 million short of completing projects that it was expected to fund.
Soon after the bond passed, the chair of the school-bond oversight committee, Steve Soboroff, began pushing a seductive solution: Hire a single group of contractors to air-condition all the schools, he suggested. The work could be done faster and at lower cost. Soboroff added another wrinkle as well: Why not throw into the package the cost of electricity for schools?
In retrospect, it’s a stretch to imagine that a construction firm would sell cheaper air conditioners in exchange for the school district agreeing to purchase energy from an unrelated outfit, or vice versa. But that‘s the combination advanced by Soboroff, who is a developer by trade. The notion met with immediate resistance from school-district staff, who questioned the underlying motivation of Soboroff, who also was a senior adviser to then-Mayor Richard Riordan.
”Mr. Soboroff, in his capacity as chairman of the BB Oversight Committee, is actively promoting this agreement, even though the Department of Water and Power (a department of the city of Los Angeles) has a financial interest in the outcome,“ wrote Roger Rasmussen, the head of the district’s Independent Analysis Unit, in a memo.
At the time, Mayor Riordan and city officials were concerned about whether the city‘s DWP would survive the deregulated energy market. If the DWP failed, city revenue would decline and thousands of jobs could be lost. In his defense, Soboroff insisted that he was only recommending an approach, not a vendor, although senior staffers recall that his initial interest was to involve the DWP specifically. Whatever the case, Soboroff made a compelling argument.
”I think without Steve bringing this proposal to our board, it would not have gone anywhere,“ recalled David Barulich, a businessman who served on the school-bond oversight committee from April 1997 till January 1999. ”Steve brought this concept to our committee of an entity that would be willing to take the risk to get this done on an accelerated timetable at a fixed price.“
With Soboroff, Mayor Riordan and the oversight committee on board, there was substantial pressure for the school district and then-Superintendent Ruben Zacarias to adopt the package approach. The final consortium included CH2M Hill to manage construction and at least three major subcontractors to provide air conditioners and installation. The primary energy provider was to be PG&E Energy Services, a subsidiary of Pacific Gas & Electric, the giant Bay Area utility. The DWP, ironically, was left with scraps, making its participation short-lived and almost irrelevant. For his part, Soboroff soon veered much of his focus toward other matters, including an unsuccessful campaign for mayor. Soboroff, who is now spearheading the Playa Vista development on the Westside, did not respond to an interview request.
