No-bid contracts show city schools' lack of oversight

System official's longtime friend gets part of lucrative deal

Consultant collects interest

May 30, 2000|By JoAnna Daemmrich and Liz Bowie | JoAnna Daemmrich and Liz Bowie,SUN STAFF

Not long after he was promoted to a new job that gave him power over all school contracting in Baltimore, Wilbur C. Giles Jr. undertook an ambitious project to cut utility costs.

He had little trouble convincing the city schools chief and school board that it would be worthwhile. What they did not realize was that the first to benefit would be two consultants who got lucrative, no-bid contracts to finance and manage the $12.3 million project.

One is Columbia financial broker J.P. Grant, whose company is making, by the school district's estimate, at least $1 million in fees - up to eight times the industry standard. Grant is a friend of Giles' and the two went on a four-day golfing trip together in late March at a luxury resort in Puerto Rico.

The other is a Baltimore energy planning firm, Carnegie Morgan Resource Management, for which Giles arranged a $670,000 management contract that wasn't even shown to the school board.

If school officials had been more vigilant, they might have saved about $800,000 in fees that went to Grant - enough to send 1,500 students to summer school or give 2,000 teachers a week of intensive training.

The way in which Grant and Carnegie Morgan were hired reveals a lack of safeguards commonly required by other governments in Maryland to protect tax dollars and make sure work is properly done.

Three years after the Baltimore school system became independent, taking over millions in contracting and purchasing that used to be handled by City Hall, it still does not have its own spending rules in place.

Contracts no longer must be scrutinized by the Board of Estimates, the city's financial review panel, nor are they audited by the city comptroller.

Fiscal oversight is largely left up to the school board, run by nine leaders from the private sector who have little experience in government, and only one of whom follows business matters closely.

Education chief Robert Booker, hired for his financial expertise, now acknowledges that he was unfamiliar with many details of the consulting agreements. He said he did not know that the Carnegie Morgan contract wasn't properly executed, and only in the past two weeks did he review the fine print of the financing deal that discloses Grant's fees.

His chief financial officer, Roger Reese, handled the financing and signed for Booker. Reese, who is Giles' boss, did not consult with the school treasurer as is customary, or get quotes from other brokers to determine whether Grant's fees were reasonable.

"Unbelievable," said Charlie Feinstein, a financial adviser in the San Francisco Bay area. "Traditionally, you try to keep your fee to less than 1 percent. It doesn't sound like a good deal."

Booker contends that he has "a fairly good system of fiscal and business controls" and said he had been led to believe that the school district "got a good deal." But he acknowledges that mistakes were made and said he plans to "strengthen internal controls."

In two interviews, Booker said he is particularly concerned by the financing agreement and that he is hiring an outside auditor to look at it. He said he wants to know "whether [Grant's] gross profit was excessive."

"If I find out we did not get the best deal," he said, "I will take appropriate action."

This is the second time in three months that Booker has been forced to take a closer look at the district's management of multimillion-dollar contracts.

He also has ordered an audit of a school technology contract that doubled in costs within a year as the company billed for subcontractors and work that had not been publicly discussed or approved.

Common-sense savings

The energy project, now under way in 30 elementary and high schools across Baltimore, was billed as a common-sense way to save on heating and lighting costs.

Giles says he is "very satisfied" with Carnegie Morgan, which he credits with devising a creative retrofitting of old schools. The project, he says, is "under budget and ahead of schedule."

But the school system has given up a significant degree of internal control to the two consultants. Interviews with those familiar with the contracts and a review of several hundred pages of financial documents, internal correspondence and billing records obtained by The Sun reveal key details:

The idea was to modernize 30 schools at once, without spending limited construction funds to replace lights, caulk windows and buy boilers one building at a time. The project, which was to pay for itself, was conceived by Carnegie Morgan, a firm brought on by school board as its "energy consultant" in October 1998.

But Carnegie Morgan's role quickly expanded. The company wrote Giles' first presentation to the school board, delivered at a closed-door session Jan. 26, 1999, picked the 30 schools and played the leading part in selecting two national contractors to install the energy-efficient equipment.

Then, without considering any competitors, Giles made Carnegie Morgan the project manager.

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