Saturday, December 27, 2014

Indianapolis Taxpayers Paying $1.5 Million To Losing Criminal Justice Center Bidders

One aspect of the controversial Long Beach, California courthouse public-private partnership agreement ("P3") upon which the administration of Mayor Greg Ballard has based its plan to construct a more than half billion dollar criminal justice center at the site of the former GM Stamping Plant that critics belatedly learned about was a requirement the losing bidders be paid a stipend for participating in the RFP process, a requirement some critics of the project found "most unusual." The stipend was discovered when judges were reviewing the construction costs and learned there were two figures provided, a lower figure of $317.2 million referred to as "unadjusted construction cost," and a higher figure of $346.7 million. Among the more than $18 million in additional charges added to total construction costs was $1 million paid to the unsuccessful bidders.

A review of the RFP document the Ballard administration illegally withheld from public disclosure until after it announced the winning bidder reveals a provision allowing for a stipend payment of $750,000 to each unsuccessful offeror. The two losing bids are allowed to submit an invoice to recover their respective $750,000 stipends for participating in the RFP process no earlier than 30 days following the announcement of the winning bid, which must be paid by the later of 60 days following the submission of the invoice, along with a waiver and release of all claims against the City, or 45 days following the closing on the P3 project with the winning bidder, which is scheduled to occur on March 15, 2015. If the City cancels the procurement, which could happen if the Indianapolis City-County Council turns down approval of the 35-year P3 agreement, then the City will be on the hook to make the stipend payments to all offerors at a total cost of $2.25 million.

By all appearances, the Ballard administration knew it was going to award the project to the Meridiam-led bidding team from the outset. Many of the same lawyers and advisers involved in the Long Beach courthouse project were also being utilized to advise the City of Indianapolis on the criminal justice project as I've previously reported. With the guaranteed payments to the two losing participants in the supposedly competitive bidding process, it's further evidence the entire bidding process was nothing more than a sham from the get-go. Seriously, what kind of a bidding process requires participation payments to the losers? It renders the non-collusion requirements in our public bidding laws meaningless.

In the case of the Long Beach courthouse project, more than $10 million was paid out for nonconstruction-related costs associated with the project. An independent building expert was paid $4.6 million on the Long Beach courthouse project. Earlier this year, we learned the Ballard administration awarded more than $12 million in contracts for professional fees to lawyers, financial advisers, engineering firms and a lobbying firm to assist the City with the RFP process and selling the project to the council and the public. These expenditures were made without seeking an appropriation from the City-County Council. The administration diverted funds intended for use elsewhere to pay for the contracts. All of these costs, along with the $1.5 million paid to the unsuccessful offerors will be added to the total construction costs upon which the winning bidder's nearly $50 million a year annual service payments are based. If the City-County Council kills the project, taxpayers will be out at least $15 million, a cost the Ballard administration will no doubt blame on the council for rejecting the deal.

According to the financial plan submitted by WMB Heartland Justice Partners led by the French-based equity firm, Meridiam Infrastructure, which also won the Longbeach courthouse project, the Marion County criminal justice center project will be comprised of about $525 million in debt raised through private placement, or 90% of the cost, and $58 million in equity investment, or 10% of the cost, for a total of a little more than $583 million.

The Bank of Nova Scotia is acting as WMB's financial adviser, while Barclays is acting as the private placement agent for the project. Both banks are the subject of a lawsuit filed in New York federal district court accusing five large banks of conspiring to fix the price of gold. Barclays paid a fine of $298 million for doing business with countries sanctioned by the U.S., such as Iran, Cuba and the Sudan. The Bank of Nova Scotia also worked with Meridiam's equity investor, Walsh Investors, on the Ohio River Bridges project brokered in a backroom deal by the Daniels administration that will wind up screwing Hoosier taxpayers and motorists badly to the tune of billions of dollars for decades to come. About 20 private placement investors of unknown identity have been lined up to invest in the project. The interest those investors will be paid on their senior secured debt was not disclosed.

As the lead investor in the Long Beach courthouse project, Meridiam Infrastructure invested $48 million in the project. The debt was financed by several banks, including the Bank of Nova Scotia, BBVA, RBC, Credit Agricole, Deutsche Bank and BNP Paribus. The banks used a blended LIBOR swap rate to set the interest rate which determined the cost of the annual service fees paid to the state of California. Critics of the deal complain that little was ascertained by the state's Judicial Council in determining the honesty of the investors. In addition, Meridiam was not required to disclose the source of its funding for the project.

One particular cause for concern of many in California with the Long Beach courthouse project was the state's checkered past with P3 projects. California relied on a P3 deal to finance construction of a tolled roll along Route 91, a $130 million project. The private partners received a 35-year concession to operate the toll road in order to recoup their investment in the construction of the highway. The project turned out to be an utter failure, and the Orange County Transportation Authority was forced to purchase it for $208 million in 2003. A second P3 highway project, the San Diego South Bay Expressway, became a colossal failure after the private partner went bankrupt. Federal highway authorities had to abandon about $80 million in claims against the bankrupt company.

Another project in which Meridiam was one of the P3 partners, the Presidio Parkway in San Francisco, will cost taxpayers about $1.1 billion to build a highway 1.5 miles in length. A later legislative study confirmed traditional financing should have been used instead of a P3 agreement. According to the New York Times, the European investors realized a 14.2% return on their investment in the project. The P3 partner is being paid $173 million upon completion of the project next year and payments close to $30 million annually over a 30-year period to maintain the 1.5 mile stretch of highway. Critics of the Long Beach project complained that the state's Judicial Council did not consider these historic failures with P3 agreements before opting to use it is the means of financing the project.


Anonymous said...

Another fact-filled report about the uber-corrupt Ballard Administration that Marion County residents will never see in the local Gannett rag.

Ballard proved for the duration of his accidental mayorship to be to Marion County what Barak Obama is to the United States- an accomplished liar skillful in deception and delay tactics to avoid blatant fact and truth. To be completely fair, the old guy who has been reputedly forced to retire from both the Marines and from a position at Bayer under less than pure circumstances could be just plain dumber than dirt (apologies to dirt)- but I believe it is more of a "bought and paid for" than merely being stupidly moronic.

Similar to "If you like your plan and your doctor, you can keep your plan and your doctor, PERIOD," the criminally stupid Indianapolis mayor wants taxpayers to believe a very expensive new Criminal Justice system constructed by obviously favored out of town contractors will cost less (!) and save money (!) over what is currently in place. (Remember... Obamacare was to cover millions more Americans with added services and bennies and still save taxpayers $2,500 annually by reducing the deficit. That's worked out quite well... and we have more of the same with just about every POS deal our bloated ex-soldier passes off as a boon to Indy taxpayers.

It stretches belief that many Democrat City Councilors and Indy "elites" champion this boondoggle for the special interests insofar as this overt conversion of tax dollars has been peddled. but then again, Democrats are just as guilty of lying and stealing from the taxpayers as has the ignominious Greg Ballard.

Anonymous said...

You're wasting your time. This is a done deal. Nobody wants to know the facts.

Anonymous said...

Yep just like the scummy Water Company deal! The guy is a POS.
We're all stuck with higher water and sewer rates (Which are not tax deductible on Schedule A of your 1040. Instead it is just to cover debt payments. 3P's are never in the best interest of a taxpayer.

Sort of like comparing a Mutual Insurance Company to a Stock Insurance...

Anonymous said...

Ballard loves to burn $100 bills

Anonymous said...

So what if it's a "done deal"?

Through his blog, Welsh documents how that SOB fat bastard Ballard is a total tool of greedy attorneys and financial house paper traders- not just in this foolish Criminal Justice deal but in ALL the asinine deals Ballard jumped in to after being whined and dined on his multiple world tours snd whispered sweet nothings by the entourage of connected sycophants who trailed along. Most important, Welsh documents how local establishment RINO crony capitalist Republicans AND smarmy self-interested Democrats (but I repeat myself) will root for any deal they can carve a piece out of for themselves. But it's "about downtown" or "it's about public safety" or it's about "fill in the meaningless emotion-driven slogan of the day".

I remember our loser mayor telling at least one local news media newsreader about that stunningly screwed up east side soccer field for Ersal, after being questioned how little Indy residents seem to care let alone know about soccer, and Greg says something like it's his job to educate people how important and beloved soccer is. Makes about as much sense as "Everyone wanted the ROC at Eastgate that's why I wanted it at Eastgate."

How this jerk made it to the Marines and Bayer is beyond all rational thought. Yes, it is true, no one right now wants to know the facts. At least Welsh is placing truth to power for the record.

Anonymous said...

224: Facts bring Grand Jury's and truth and justice. It will never be too late with statutes... Sleep well all.

Flogger said...

The Stipend Payment to the Losing Bidder is interesting. I have been in the Financial Industry since 1975 and never heard of a losing bidder being awarded a Stipend. Think of it this way: You decide to shop your Homeowners and Personal Auto Insurance to a couple of Agents and several companies. You make your choice. The losing Agent and companies do not receive a Stipend or Payment from you. The same procedure is followed if you want a quote on your Commercial or Business Insurance.

So the interesting aspect is this now SOP for bidding on a construction project?? The losing bidder is now allowed to recoup their costs of bidding?? Who established the Amount of this Stipend??

As I have said before I would be shocked if the Democrats some how block this scheme. There are a lot of tentacles here. Perhaps some Democrats may be given permission slips to trumpet their opposition. Smoking Joe Hogsett has been very silent on this issue. Silence is a statement.

Anonymous said...

Is it true Joe Hogsett will earn $1 million for his 15-month stint at Bose McKinney & Evans where he is not required to bill any hours? Why would a law firm's partners allow so much money be paid to a partner with no minimum billing requirements so he can devote his time and energy running for mayor in a race the Republicans have already decided to forfeit? Just what do they expect in return when he becomes mayor? Ponder it all.

Anonymous said...

Don't forget Ballard is paying Hogsett's law firm $750,000 to "sell" the council on this deal. It's no skin off those partners' back. The taxpayers are footing the bill to enrich the Hogsett household before he takes over the mayor's office and continues this sad legacy of corruption.

Anonymous said...

Anon 2:24 & 7:16, what do you mean this is a "done deal"?

Can any of the lawyers out there please tell me if there are legal options available to us lowly taxpayers out here to stop this project?

Anonymous said...

Stipend payments to losing bidders/teams are actually common in large P3 and design-build projects around the country. INDOT has used them on many projects. The reason for it is because typically some level of design, say 25-30%, has to be done by architects and engineers on each team in order for contractors to estimate construction costs. Plus financing, building management, and legal services for P3 and you've got a heck of a lot of professional services required just to submit a bid and have a chance at a project. The intent is to cover bare bones costs of the losing bidders, but not so that they make any profit. Without these payments there's way too much cost to prepare a legitimate bid, therefore too much risk, and you'd see most respectable firms walk away from the opportunity.

750k per team is more than I've ever heard of in the midwest. Plus there was a team of (well connected firms) who already started the first leg of design, legal, etc for 10M, which really makes me think 750k is way too generous.

Does anyone know if the bonds for this project are somehow being run through the city so the financing can be tax-free? Municipal bonds would carry a much lower interest rate because they are (a) backed by a city with a great credit rating (believe it or not), and (b) they are tax free. The interest is something we taxpayers will have to cover - so if we're going to do this project we should at least ditch the P3 arrangement and keep the savings by issuing the bonds ourselves.

Gary R. Welsh said...

No bonds are being issued. A private placement offering is being administered by the Bank of Nova Scotia and Barclays to raise the money. We don't know the identity of the investors who have already been lined up or the amount of interest that is being paid on the senior secured notes.

Anonymous said...

This is totally unprecedented in this state's history. I challenge anyone to identify a procurement process for a public works project where a governmental entity laid $15 million on the line just to pick a winning bidder, all of which will be washed down the drain if the fiscal body refuses to accept the deal handed to it for approval. If this is legal, then it proves how weak our laws are, particularly after all the BS we were told about how great those property tax reforms were. This is one of the largest public works projects in the city's history and it won't even be subject to a referendum process.

Anonymous said...

The stipend payment would appear to engage competitive bidders in specification development. This would also be subcontracting the scope of a known to be "needed" project which might also silence any criticism from knowledgeable competitors.

Anonymous said...

Great, so the bonds are not tax free munis. The taxpayers seem to get screwed around every corner with this project.

Where can I find the procurement documents you mention? I'll keep an open mind when reading but in my years of experience in this industry I think P3 and design-build are stupid ways to procure this kind of project.

Anonymous said...

I don't understand why strings are being pulled to go the P3 route. Is it a hedge fund / financier type who will effectively act as the "middle man" on this project - who has our leaders in his back pocket? Or is it part of the effort to avoid a referendum? All the usual downtown mafia types lose some level of control by putting this P3 middle man first in line. If the City pursued this project in a traditional design-bid-build format, the politicos would get to directly pick their favorites to do all the work (bonds, legal, architecture, engineering, construction management, equipment and furnishings, facility management, etc). That's a lot of money that could have been leveraged for political gain!