Friday, April 26, 2013

Did McKinstry change its story?

School District attorney says energy company altered its commitment

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By TERRY SMITH
Express Staff Writer

    Though McKinstry Essention is suing the Blaine County School District for about $7 million in cost overruns, records show that McKinstry representatives told the district board of trustees in 2010 that the company would cover any such overruns.
    That commitment came at a March 8, 2010, special board meeting prior to the board’s approval of a $15.1 million contract with McKinstry for energy savings work at eight Blaine County schools and facilities. The board voted to approve the contract the following day at its regular March meeting. Later, another $3.5 million was added to the McKinstry work through change orders for mainly non-energy-related improvements at the facilities.
    The written commitment can be found in a McKinstry overhead presentation when company representatives David Naccarato, Mike Johnson and Jason Hynes on March 8 were trying to sell the project to the school board.
    “Cost overruns covered by ESCO,” is the wording in the document. “ESCO” is the acronym for energy services company, a designation McKinstry was awarded in 2009 by the district. Designation of an ESCO, under Idaho law, allows government entities to award contracts without going through a bid process.
    At the same March 8 meeting, the McKinstry representatives told the board that the “financial and operational performance is guaranteed by the ESCO, eliminating the risks typically associated with the traditional low-bid approach to construction projects.”
    The guarantee was explained by McKinstry representatives to mean that if energy savings from the work were not what was expected, the company would pay the district the difference.
    McKinstry representatives made the same guarantee at a July 20, 2010, open house at Bellevue Elementary School in explaining to the public the supposed financial benefits of the work.
    Naccarato then referred to the project as a “financial no-brainer.” Both verbally from Naccarato and in writing in a McKinstry handout available at the meeting, the company claimed the Bellevue work would save $436,000 in energy costs over the next 20 years.
    Even earlier, in August 2009 and prior to passage of a $59.8 million School District plant facilities levy, which was the major funding mechanism for the
McKinstry work, the company made the same commitment to the district levy committee.
    An overhead presentation from the meeting regarding the proposed energy savings work states: “The savings would be guaranteed by the energy services company.”
    The contract between the district and McKinstry states that the company would guarantee energy savings. However, records show that McKinstry never submitted a final document that was to be added to the contract to establish what those savings should be.
    Statements seemingly at odds with previous McKinstry commitments and guarantees were made at a hearing Monday in Blaine County 5th District Court concerning fraud claims that the district has made against the company.
    Quoting from depositions given by McKinstry employees, School District attorney Kyle Kring said the employees are now saying that they never intended to guarantee energy savings.
     “This is not what they represented to the district [before],” Kring said.
    Regarding the energy savings that were to be realized as a result of the work, McKinstry attorney Paul Cressman said both the district and McKinstry knew before the work was even started that the project wouldn’t pay for itself.
    “If there’s a levy that pays for it, if there’s a bond paying for it, it doesn’t have to pay for itself,” Cressman said. “They knew it wasn’t going to pay for itself. Everybody knew the same thing.”
    Kring countered that the district would not have entered into the contract had McKinstry representatives not provided assurances that the project would pay for itself.
    Litigation between the School District and McKinstry started in May 2012. McKinstry has claimed it performed work worth about $26 million and that the district still owes it about $7 million. The district claims it authorized work worth only $18.6 million and is claiming damages against the company for at least that amount.
    A jury trial is scheduled to begin Oct. 15.

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Terry Smith: tsmith@mtexpress.com

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