Not Such a Hot Deal

At the school district, negotiations between the consortium and the school district bogged down. The consortium had trouble delivering a ”guaranteed“ price without guessing high, because the huge number of old and diverse school sites presented construction challenges that were difficult to cost out en masse. On the other side, district administrators, unimpressed with the consortium’s offer, were either bravely resistant or merely intransigent, depending on the interpretation. ”Fast track was just about the slowest thing going,“ commented one district veterano.

Rasmussen also weighed in again. ”We believe that cost considerations favor the normal competitive-bidding process,“ wrote the internal analyst in a July 1998 memo. ”Spending an extra $16 [million] to $20 million for air conditioning would mean less [bond] money for other needed repairs and construction of new schools.“ Rasmussen‘s numbers incorporated presumed savings of $11 million in energy costs, so the real disparity between the package deal for air conditioners and the district’s calculation of appropriate charges was even greater.

Nonetheless, the single-contract approach had some touted advantages: The price was fixed, so that costly ”change orders“ could be avoided; and the consortium would take on management and oversight duties that the district would otherwise have to pay for. Or at least that‘s what was advertised. A new district analysis, released just last week, contends that these presumed advantages were overstated.

The mammoth air-conditioning contract was not signed until January 1999, a nearly two-year delay that, by itself, nixed the premise of a quicker path to cool classrooms.

Another problem loomed because the district had not used the traditional competitive-bidding process. To avoid a future legal challenge, the school district asked a Superior Court judge to validate the contract. After a review, the judge refused, ruling that the matter was outside the court’s jurisdiction. Which is where state Senator Richard G. Polanco joined the fray.

Polanco‘s staff contends that the senator was merely acting at the behest of the school district when he accepted a rider to an unrelated Senate bill. This addendum declared the LAUSD air-conditioning contract, by legislative fiat, to be eligible for state funding. Governor Gray Davis signed the legislation in September 1999.

Just last month, in an unrelated transaction, Polanco took a media drubbing for coaxing board members to adopt a $6.3 million software contract that later was canceled because of alleged improprieties involving Polanco. But on the air-conditioning deal, Polanco, apparently, was merely a willing middleman for the school district’s legislative maneuvering.

By this time, the school district had removed dozens of schools from the consortium‘s contract, because the stalled fast-track plan was holding them up and state funds for such projects were rapidly evaporating. In the process, an unsettling discovery was made. These schools were installing air conditioners at a dramatically lower price than that offered by the consortium. The consortium, meanwhile, adjusted its per-school price upward, asserting that the 92 remaining schools would cost $146 million.

After the departure of Superintendent Zacarias, a new group of district officials quickly judged the A.C.energy deal a bust. Even with the $19.3 million buyout, they concluded the district could save millions of dollars by bidding the work anew. The savings for 58 schools alone are in the range of $5.8 million to $9.6 million, reported Tom Rubin, a consultant for the bond-oversight committee. A.C. jobs at about 180 schools are finished or under construction. Work is not yet under way at about 90 schools.

The entire episode was brought to the oversight committee by community activist Gene Krischer, who has pored over air-conditioning transactions for more than four years. In a tribute to Krischer’s research, Rubin included him in the official staff presentation.

”One lesson here is that laws requiring competitive bidding exist for good reason,“ said Krischer. District staff also validated Krischer‘s discovery that the contract would have permitted air conditioners that surpassed maximum noise levels permitted by the district’s own specifications. These decibel levels also far exceeded widely accepted industrywide standards for classrooms. And while CH2M Hill never installed any A.C., the same ill-conceived noise thresholds were permitted in installations that did take place. Recognizing that noisy air conditioners make it difficult for students to learn, the school system is currently reviewing the extent of the problem, said James L. Delker, acting deputy chief for facilities.

The energy part of the deal had its own peculiar and happier fate. The DWP continues to power most of L.A.‘s schools and at a discounted rate that has nothing to do with the installation of air conditioners.

As for the consortium deal, PG&E Energy Services held up its part of the bargain, which was to provide energy for 120 L.A. Unified campuses that lie outside the city of Los Angeles, within the territory of Southern California Edison. When the PG&E subsidiary was sold off, Enron ended up with the school-district contract. This portion of the deal has saved millions of dollars, according to the school district. Still, it’s hard to imagine why air conditioners ever needed to be part of such an arrangement. They aren‘t any longer.

And this week, Enron also got the boot. Even though the Enron rates were better than SoCal Edison’s, district officials have nailed down a better arrangement, with the city of Corona, of all things. Corona will provide surplus power to the school system at a price that significantly undercuts Enron.