Ethical questions revealed surround a lucrative KCPS construction project

A 41 Action News investigation

UPDATE | Kansas City Public Schools promised full video of an interview with a District leader on its website. However, after taking a closer look, 41 Action News discovered the most revealing part of the 40-minute interview was missing .

KANSAS CITY, Mo. - Serious ethical questions are surrounding a pricey project to make some Kansas City school buildings more energy efficient.

A 41 Action News investigation scrutinized the bidding process for an estimated $32 million project with Kansas City Public Schools and discovered that an Overland Park businessman who acted as a District adviser early in the process eventually founded his own company and won the contract.

After reviewing emails and hundreds of pages of company bid documents, 41 Action News is publicly asking the same question being privately whispered by critics: Was it all a lucrative inside deal?

Pouring millions into aging schools

In early 2011, Kansas City Public Schools decided to spend millions of dollars retrofitting a list of school buildings. Citing decades of neglect and deferred maintenance, the District said the refurbishment work would improve the learning environment for students.

Many of the area's largest and most-recognizable construction companies competed for the estimated $85 million project, spending thousands of dollars assembling bid packages that stacked hundreds of pages high.

District staff relied on outside help to wade through the complicated selection process. Chief Operating Officer Mike Rounds brought in two paid consultants to oversee the process.

Rounds also enlisted Dayton "Buddy" Hahs as an adviser. Hahs is a Johnson County businessman with a lengthy background in energy conservation. He founded an Overland Park-based company in 1992 called Custom Energy and ran it until it was sold in 2008. He also served a two-year term as chairman of the National Association of Energy Service Companies.

Note: Kansas City Public Schools issued a news release before the 41 Action News investigation aired. Go to http://bit.ly/xaTuqT to read it.

Emails obtained by 41 Action News through a Missouri Sunshine Request show Hahs reviewed bids, crafted questions and expected answers of bidders, and sat in the room during interviews.

In an extensive interview with NBC Action News, Rounds said he asked Hahs for help because of his expertise in the industry. He also noted that Hahs did all of the work for free.

Click on the videos to watch the entire interview with Rounds.

"He wanted to make sure that when we selected an energy performance contractor that it went well," Rounds said.

All bids rejected, no explanation provided

On August 30, bidders received an email, informing them all bids had been reviewed with "external assistance" and it would be in the best interest of the District to "reject all responses submitted."

Several companies tell 41 Action News no further explanation was provided.

"If you are being good government, there should be a detailed explanation after people spend all that time and money," said William Black, a law professor at the University of Missouri-Kansas City with a focus on governmental and business ethics. Black is also a former banking official who regulated large commercial construction projects.

Rounds said there was ample communication with companies up until the final decision was made. He added Hahs did not provide advice to reject all bids, but said that recommendation came from the paid consultants.

Following rejections, relationship with adviser continues

The same day bidders received the rejection emails, Rounds wrote to Hahs saying, "I would still really like to sit down with you to discuss the way forward on our infrastructure requirements."

A couple weeks later, Hahs brought a business partner to a meeting with District personnel.

Rounds said he also met or spoke with other companies about how the District planned to proceed with refurbishment work. However, several companies deny that claim, saying they only discovered a new bid proposal through word of mouth.

On October 7, the District issued a Request for Proposal (RFP) for what it called "Project 360." Instead of tackling all the work at once, the District decided schools would be ranked in different tiers, depending on the urgency of their renovation needs.

The RFP asked bidders to provide an estimate for the first tier of construction work along with a fee for acting as project manager.

Mysterious company wins bid

Many of the same companies competed to win the Project 360 bid . However, the District opted for a mysterious new company no one had previously heard of: HMM Construction Services.

State records show the paperwork establishing the company was filed on October 11 , just a couple weeks before the deadline to submit bids. The founder of the business? Buddy Hahs.

READ THE CONTRACT

Although Hahs and other members of his HMM team have an extensive background working on similar school projects, critics point out

that the company itself has never completed a single project.

The RFP placed a heavy emphasis on companies' track records and references. Documents asked companies to list "your company's experience" and "references from facilities your firm has managed."

A large chunk of bid scoring was dedicated to these categories, while a small amount of scoring was provided for individual resumes.

"The criteria was not how long have you been a company. It was how long you have been doing great refurbishment work in schools," said Rounds.

Bid award leads to "inside deal" accusations

At their Nov. 16 meeting, school board members approved the selection of HMM Construction Services, signing off on a $2.1 million cost for the company to manage the project.

Although HMM's construction estimate was about $2 million higher than the lowest bid, the District gave itself flexibility by saying project cost would be key, but would not be the sole determining factor in the selection.

Despite the price tag, the approval sailed through the process on the Board's "consent agenda," meaning there was no discussion from board members or questions from the public.

Board President Airick West said all items for board approval are automatically placed on the consent agenda until a board member or the superintendent asks to have it pulled to the regular agenda.

West did not learn about some of the concerns surrounding the selection of HMM Construction Services until contacted by 41 Action News.  He was asked if there should have been more scrutiny.

"All healthy organizations should engage in an ongoing process of reviewing and revising their policies and practices. KCPS is no different," West said in a written statement. "If this appears to be a situation in which such a review is in order, the school board and administration will work together to do so."

After reading all documents obtained by NBC Action News, Black was candid in his assessment.

"This bid destroys the heart of what it means to have competitive bidding," he said. "This is screwing up the process going forward for years potentially."

41 Action News called and emailed Hahs for weeks without getting any response. When he was finally reached outside his Overland Park office, Hahs declined an interview, saying it was "not in the District's best interest."

Should project winner have been allowed to bid?

Industry experts told 41 Action News it should be standard protocol for consultants or advisers to sign a non-disclosure agreement. This essentially prevents them from using inside information to their financial advantage. But Hahs never signed one.

"That boggles the mind. It should've been the first instinct of anyone trying to do it right," Black said about the absence of a non-disclosure agreement. "It is competitive bidding [level] one. It's well before 101."

41 Action News also obtained an email, showing the District's legal counsel recommended non-disclosure agreements be signed during the initial bid process.

When asked why this did not happen, Rounds said: "As the individual running the process, should I have done it? Maybe, but it's something I have to go back and assess now."

A written statement from Johnson Controls to 41 Action News addressed what the company perceived as a lack of fairness in the process, echoing sentiments heard from other companies.

"Mr. Hahs has a clear advantage over the bid participants," the response said. "Further, he had the ability to influence the District's decision-making process by being allowed to interact with all decision makers on the prior project, while other competitors were under a gag order."

41 Action News learned one of the paid consultants from the initial bid process, CTS Group, also was allowed to submit its own bid on Project 360. CTS Group did not sign a non-disclosure agreement, either.

"I never questioned the process, even though I lost," said David Harvey with CTS Group. "I completely trusted that whatever the process they used, it must have been both fair and also in the best interest of the District."

But 41 Action News found Harvey's opinion in the minority during our investigation. Despite the criticism surrounding the process, Rounds defended the selection.

"My process is focused on getting the best value for the taxpayer and providing the best possible environment for kids. That's the only thing I'm responsible for," he said.

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 .

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