Mark Cate, the governor’s chief of staff, acknowledged to state legislators Tuesday that mistakes were made in handling a multi-million dollar contract for management of state buildings but declared the overall effort a huge success that other states now want to emulate.
Appearing before the Legislature’s Fiscal Review Committee, Cate said Gov. Bill Haslam’s administration entered “unchartered territory” in contracting with Chicago-based Jones Lang LaSalle with inherent “complications and confusion” occurring at times.
One mistake was in not being sufficiently transparent about the move to legislators and the public, he said. Another was not drafting the original, competitively-bid proposed contract to reflect the maximum value to the winning company, he said, instead of listing it just as a $1 million study and later changing the amount upwards as new duties were added.
Cate also said officials have decided to have “a fresh set of eyes” conduct another review on one of JLL’s recommendation – demolishing the Cordell Hull building, which stands next to the state Capitol and is one of six major structures statewide slated for demolition as “functionally obsolete.” This has triggered some controversy in Nashville because of what Cate called the building’s “perceived historical significance.”
The initial contract was as valued at $1 million to cover a review of buildings owned by the state and recommendations on what to do with them. Cate said it was drafted with the expectation that JLL would take on further tasks – including facilities management – at fees negotiated with industry pricing standards in mind.
The amendments were adopted as new state appropriations became available, he said, each duly approved by the State Building Commission. In one amendment, an expansion of JLL’s work to cover management of state facilities, included earlier, was dropped and a second round of bidding was required – with JLL winning the contract.
“In hindsight,” he said, the state’s maximum liability should have been stated up front and the terms better explained to legislators and the public.
“That’s the lesson learned,” he said.
Currently, the company stands to receive up to $38 million from its contract and up to a 4 percent commission from landlords renting space to house state employees losing their work space when buildings are demolished.
Counting pass-through costs such as rent and utilities, the company could be handling up to $330 million.
But Cate portrayed the payments to JLL as paling in comparison to taxpayer savings. Information provided to the committee projects saving up to $94 million over five years in pass-through charges through such things as lowered energy costs. Savings from overhauling work areas, closing the “functionally obselete” buildings and the like should conservatively reach $100 million over 10 years, Cate said.
“We are the first state in the country, so far as we can tell, that has done comprehensive, integrated real estate management,” he said, and other states are now inquiring about doing something similar.
“Have we gotten everything perfectly straight? No,” he said, but declared the administration is “100 percent confident” that the process was fair and “this is the right thing to do four our state” in keeping with Haslam’s goal of providing taxpayers the best possible service for the least possible money.
Cate also presented a grim picture of the conditions in many state buildings when Haslam took office in January, 2011. A slide show depicted a chunk of concrete fallen from a ceiling, narrowly missing an employee; an empty hole for a window; work areas cluttered with “junk,” fire extinguishers untested for years; hazardous chemicals improperly stored and the like. He described working conditions as “dire” and “demoralizing” to employees.
Even without taxpayer savings, Cate said the new management plan would be a blessing to the state through improved working conditions.
The legislators generally lauded Cate and the real estate management plan after his presentation.
A partial exception was House Finance Chairman Charles Sargent, R-Franklin, who said he had received reports on contracts that have been awarded for moving some 14,000 state employees from their current location to another workplace that indicated “the numbers have been changed” since the contracts were awarded. He asked Cate and others on hand to return at another meeting with details and an explanation.
Cate was asked at one point about Haslam hosting a dinner at his residence for JLL executives in March, 2012, while the contract was being expanded through amendments. Cate said the meeting was to let the executives present their findings on state building and for the governor “to communicate his vision” to them.
“The venue today allowed the administration to create the transparency by laying everything out on the table,” said Sen. Bill Ketron, R-Murfreesboro, after the session. “It probably was not handled in the best manner before… no transparency and accountablity. I think they understand that now.”
The panel also questioned Mike Perry, chief procurement officer for the state, on a state contract with Enterprise Rent-a-Car for furnishing vehicles to state employees. He acknowledged mistakes there as well – notably including language in the no-bid contract for hourly rental of vehicles when no hourly useage was contemplated.
But he insisted the arrangement was also saving taxpayer dollars, avoiding the need to buy 142 new state vehicles and spend $200,000 per year maintaining them. The state was also able to sell two lots previously used for motor pools for $1.6 million, he said.