City of Irvine Great Park Audit Report of Special Counsel
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CITY OF IRVINE GREAT PARK AUDIT REPORT OF SPECIAL COUNSEL March 24, 2015 Prepared by: David J. Aleshire, Esq. & Anthony R. Taylor, Esq. TABLE OF CONTENTS Page I. EXECUTIVE SUMMARY ...................................................................................... 1 A. INTRODUCTION AND OVERVIEW. ......................................................... 1 B. NARRATIVE SUMMARY OF REPORT. .................................................... 3 C. FINANCIAL TIMELINE. ............................................................................ 10 D. THE AUDIT PROCESS. .......................................................................... 12 E. METHODOLOGY. ................................................................................... 14 F. ORGANIZATION OF REPORT. ............................................................... 15 G. FINDINGS. ............................................................................................... 15 II. PARTICIPANTS AND CHRONOLOGY OF EVENTS ........................................ 21 A. ELECTED OFFICIALS, MAJOR CONTRACTORS AND DEPONENTS. ......................................................................................... 21 B. DEPOSITIONS AND INTERVIEWS......................................................... 23 C. CHRONOLOGY OF EVENTS. ................................................................. 25 III. FINANCIAL FEASIBILITY OF PROJECT.......................................................... 32 A. SUMMARY. ............................................................................................. 32 B. FINDINGS. ............................................................................................... 34 C. DISCUSSION. ......................................................................................... 36 1. The City’s Initial Projections For Revenue For Park Development Were For $353 Million And Presumed The Land Would Be Donated, And This Was Reported To The Community In 2003. ...................................................................... 36 2. The Revised 2004 Business Plan For $401 Million Was Based On Revenue Assumptions Developed With The Sale Of The Property To Lennar, And Projected A 5-7 Year Development Program. ................................................................. 37 3. No Cost Limitations Were Included In The Competitive Selection Process For Design, Planning And Constructing The Park Although Chairman Agran Had Proclaimed $401 Million Cost Only A Few Months Previously. In Fact, Chairman Agran Knew That The Design Studio’s Internal Cost Projection Was $1 Billion. ..................................................... 39 4. Design Costs Were Exponentially Higher Than Anticipated With The Operative $401 Million Estimate When Design Studio Was Retained Tripling To $1.24 Billion Two Years i Table of Contents Later, And Increasing To $1.6 Billion Later In The Year, But Internal Estimates By Gafcon Were Actually $3-4 Billion. ............. 41 5. A New 2009 Business Plan Was Developed After Appointment Of A New CEO, And This Plan Was Premised On Redevelopment Financing, But Projected Bonding Capacity of Only $60-64 Million, As It Included Repaying A $134 Million Loan From The City’s General Fund. ........................ 42 6. Neither The Recession Nor The Loss Of Redevelopment Tax Increment Was The Reason The Great Park Project Was Scaled Back, As This Funding Was Never Sufficient For The Design Studio Plan. ......................................................... 44 D. CONCLUSION. ........................................................................................ 48 E. REPRESENTATIVE STATEMENTS........................................................ 49 IV. CORPORATE STRUCTURE AND GOVERNANCE .......................................... 51 A. SUMMARY STATEMENT. ....................................................................... 51 B. FINDINGS. ............................................................................................... 52 C. DISCUSSION. ......................................................................................... 53 1. While The GPC Was Originally Intended To Have Broad Based County Representation After Annexation Of The 4700 Acres Into The City Of Irvine, The City Ultimately Assumed Control, And On April 25, 2006 By Resolution 06-42 Made The GPC An Advisory Entity And This Change Was Ratified By Irvine Voters By Measure R, Approved November 4, 2008. ............................................................................................. 53 2. Two Of The Most Difficult Problems In Modern Public Administration Are (i) The Multiplicity Of Governmental Entities, And (ii) The Conflict Between Policy Making And Administrative Roles. .................................................................... 62 3. In Fact There Was Overwhelming Testimony That The Policy-Making/Administrative Dichotomy Broke Down And That Chairman Agran Directly Interjected Himself In The Administrative Operations Of The Great Park, And This Ultimately Affected How The Managers’ Performed Their Function. ....................................................................................... 68 4. Management Was Not Able To Perform Its Function As Provided By City Ordinance Due To The Fact That The Consultants Themselves Had Strong Connections to Chairman Agran And Were Not Responsive To Management And, They Took On A Management Function Themselves, According To Deposition Testimony. ............................................. 71 ii Table of Contents 5. There Is Testimony That The Staff Of The Great Park Were Intimidated From Exercising Their Responsibilities By Consultants, Due To Consultants’ Influence On Board Members. ...................................................................................... 74 D. CONCLUSION. ........................................................................................ 76 E. REPRESENTATIVE STATEMENTS........................................................ 78 1. The Effect Of The Governance Structure. ..................................... 78 2. Failure To Abide By Clear Demarcation Of Roles. ........................ 79 3. Exercise of Administrative Authority. ............................................. 80 V. CONTRACT FORMATION AND ADMINISTRATION ........................................ 83 A. SUMMARY STATEMENT. ....................................................................... 83 B. FINDINGS. ............................................................................................... 84 C. DISCUSSION. ......................................................................................... 86 1. The Great Park Consultants Were Selected Through A Complex Competitive Process, But The Design Team Finally Assembled Had No Past History Working Together On Large Projects. ........................................................................................ 86 2. City Contracting Requirements Were Not Followed Consistently, As One-Third Of 83 Contracts Over $100,000 Were Not Bid Competitively Or Subject To “Open Competition,” Nor Was A Consistent Record Made Justifying Sole Source Awards. ..................................................................... 92 3. A Project Management Plan Including Goals And Cash Flow Projections Was Contractually Required Of Design Studio But An Adequate Plan Was Never Produced Or Approved, Depriving The Project Of What Could Have Been A Valuable Management Tool. ......................................................... 94 4. There Is Testimony From Various Managers That They Tried To Achieve Contract Compliance From Design Studio Without Success But Decisive Action Was Not Taken Until The Close-Out Process. ................................................................ 96 5. As Primary Project Management, As Contemplated By The 2004 Business Plan, The GPC Awarded A Contract To Bovis Lend Lease For “Program Management,” But They Now Contend These Services Needed To Be Performed Only At Specific Milestones. ...................................................................... 98 6. Significant Project Change Orders Are Generally A Sign Of Lack Of Definition Of Project Scope At The Beginning Of The Project, Or Poor Project Management, And With The Great Park There Are Numerous Examples Of Change iii Table of Contents Orders Aggregating More Than 25% Amounting To Millions Of Dollars. ................................................................................... 101 7. A Close-Out Agreement Was Negotiated With Design Studio Which Paid Them $1.39 Million In Disputed Invoices And Gave Releases From Contract Claims Where The Council Motion Had Been To Pay $554,585, And The Actual Agreement Was Never On A Council Agenda. ........................... 105 8. Forde & Mollrich Was A Subcontractor Engaged In Strategy And Media Activities, And Was Paid $7.0 Million Over The Course Of The Project. Their Contract Relations Went Through Four Phases From A Fixed Fee Of $50,000 Per Month, To Time And Materials At An Average Of $70,000 Per Month, To $100,000 Per Month, And Back To $50,000 Per Month. There Was No Clear Evidence Justifying A Doubling Of Cost In One Period And Halving It In Another. ........ 107 9. Contracts Contained Explicit Provisions Giving City Access To Books And Records And Permitting Audits Of Contract Performance And Certain Contractors Have Resisted Compliance With These Requirements. ...................................... 110 D. CONCLUSION. .....................................................................................