Following investigation, audit finds 'significant number of issues' with pricey KCPS contract

UPDATE | During an interview Friday morning with 41 Action News, KCPS Superintendent Dr. Stephen Green said the contract with HMM Construction Services is being terminated.  Visit KSHB.com for developing details and tune into 41 Action News starting at 6 p.m for Ryan Kath's full report.

KANSAS CITY, Mo. - An internal audit scrutinizing the selection and contract process for a lucrative Kansas City Public Schools construction project did not find evidence of fraud by district officials.

However, the report, launched in the wake of a 41 Action News investigation , did identify a “significant number of issues” and provided recommendations for avoiding similar issues in the future.

YOU CAN READ THE FULL AUDIT HERE .

As reported in March, KCPS hired McGladrey & Pullen to review the process surrounding “Project 360”—an estimated $32 million effort to make school buildings more energy efficient.

The audit came in response to a February investigation by 41 Action News, which raised ethical questions about the selection of the winning company. The report detailed how an unpaid adviser eventually established his own company, HMM Construction Services, and won the construction management contract.

Critics called it in an “inside deal,” arguing the former adviser was allowed to gain an unfair advantage and win with a company that had existed for less than a month.

The internal audit, released exclusively to 41 Action News by KCPS, based its findings on interviews with a list of district officials, consultants, and competing companies involved with the process.

“We do not believe that any person within the District intentionally acted fraudulently during the Project 360 RFP or intentionally, inappropriately impacted the selection process in favor of any particular supplier,” the audit concluded. “However, we did identify a significant number of issues where the District did not perform the RFP (request for proposals) or related processes within compliance to District policies or generally established procurement practices for public organizations.”

Among the findings:

• The Procurement Department, which should be the point of contact for bidders, was “not effectively involved in the RFP development and evaluation.”

• The rationale for selecting HMM, which did not have the lowest bid, was not clearly documented by the selection team.

• The evaluation team did not appear to vet the proposers’ financial strength and did not check any of the proposers’ references.

• Even though the District has established goals and guidelines for Minority and Women Business involvement (MBE/WBE), this category was not included in scoring for the project.

• The selection team did not appear to evaluate or consider local business preference, despite guidelines established by District purchasing policies.

• The District did not effectively communicate with bidders during the process. The audit noted that companies not selected for Project 360 still have yet to be officially notified.

• District officials should not have met face-to-face with proposers during a “communication blackout period.”

• Consultants and the unpaid adviser should have signed non-disclosure and confidentiality agreements before receiving proprietary information from proposals.

Many of the findings detailed in the audit were first uncovered by the 41 Action News investigation.

The Missouri State Auditor’s Office also confirmed it is conducting a follow-up report that will look at a list of recent KCPS contracts. Those findings are expected to be released in May.

In March, the District’s Chief Operating Officer, who was in charge of the Project 360 process, announced his resignation . Al Tunis is acting as interim COO and discussed contents of the audit with 41 Action News on Thursday.

Tunis said the findings will improve the process moving forward. He also said more involvement and a better working relationship with the Procurement Department will help avoid many of the issues.

Ryan Kath can be reached by email at ryan.kath@kshb.com. You can also follow him on Twitter or connect with him on Facebook.