Friday, July 6, 2012

McKinstry’s side of the story

Energy contractor claims district abandoned contract protocol

Express Staff Writer

Blaine County School District Business Manager Mike Chatterton is shown here in October 2009 at a public meeting regarding an upcoming vote on a 10-year $59.8 million plant facilities levy to fund proposed district construction projects. The levy was later approved, providing funding for the geothermal resource development work contracted to McKinstry Essention. Photo by Mountain Express

A missing piece to the Blaine County School District and McKinstry Essention contract puzzle is "amendment 1," a document that was supposed to be added to the contract to account for additional costs beyond the original contract price.

The document was never amended to the contract, but work continued anyway, with the district and McKinstry apparently agreeing to settle up once the project was complete.

Settling up now is in the hands of Blaine County 5th District Court, where McKinstry is seeking an additional $7 million for energy conservation work it performed for the district beginning in 2010.

The district and McKinstry entered into an "energy savings performance contract" in 2010 for geothermal resource development, heating, ventilating and air conditioning system upgrades and various other improvements at eight district schools or facilities.

In an email sent Thursday to the Idaho Mountain Express, district Business Manager Mike Chatterton stated that the district did not authorize any costs beyond the $18,665,771 that it agreed to for the McKinstry work in the original contract and in 28 change orders approved after the contract was signed. Chatterton's email was in response to an Idaho Public Records Act request by the Express for any written authorizations, including emails, for McKinstry to accrue costs beyond the agreed-upon amount.

The original contract price was $15.1 million, and the change orders added about another $3.5 million. But even the change order costs were not added to the contract language.

McKinstry is claiming in its court filings that it incurred expenses of $25.8 million and that the district still owes the company about $7 million. In a counterclaim, the district is alleging that it incurred damages at least equal to the money it has already paid McKinstry.

Because of the litigation, McKinstry and the district have been reticent to discuss details of the contract dispute. However, McKinstry's side of the story can be ascertained from its complaint filed with the court on May 15.

McKinstry complaint

The McKinstry complaint tells a story of a cart-before-the-horse approach to construction, with the company claiming that the $15.1 million contract price was arrived at before final designs were even finished.

McKinstry claims that rather than having it complete all the designs and then adjusting the contract price through "amendment 1," the district directed the company to complete designs piecemeal and start work on each of the eight facilities once a design was approved.

Work was well underway on the early projects before designs were completed on the later ones, McKinstry claims.

McKinstry alleges in its complaint that in its rush to get the work done, the School District abandoned the contract protocol and "agreed to pay McKinstry on a cost-plus basis."

The district has denied that it agreed to a cost-plus basis, but has also declined to state why work was allowed to continue even after the district learned as early as August 2011 that there were significant cost overruns.

McKinstry claims in its complaint that any work that the company or its subcontractors performed was at the direction and authorization of school district officials. McKinstry further alleges that the district continually promised to amend the contract to reflect changes in costs, but that amendment 1 was never written or approved.

According to the contract, district oversight was to be provided by Howard Royal, the district's director of buildings and grounds. As business manager, Chatterton was responsible for overseeing funding.

Contract history

The energy savings performance contract was the fourth contract between the School District and McKinstry, a company with which the district became involved in 2009 after the district issued a request for proposals for an energy services company.

At a public meeting on March 9, 2010, when the energy savings performance contract was approved by the district board of trustees, Chatterton said four companies responded to the request for proposals and that the district "chose McKinstry to lead us down that path."

"We've done a lot of research—it took us a long time to get comfortable with this project," Chatterton said then.

The first contract with McKinstry was for $63,000 to prepare a report in 2009 to show what energy savings and other improvements could be made at district facilities. Information from that report was used in preparation of the district's 10-year $59.8 million plant facilities levy, which was approved by Blaine County voters later that year and provided the bulk of the funding for the McKinstry work.

A second contract for $26,000 was approved the same year for McKinstry to help with obtaining a $4 million grant from the U.S. Department of Energy to help pay for energy upgrades. The grant was later approved and even raised to $5 million.

A third contract for $269,901 was approved in February 2010 for McKinstry to get started on designs for the $15.1 million energy savings performance contract, which was approved the following month.

The district has not complained publicly about McKinstry's performance on any of the three earlier contracts.

Terry Smith:

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