School building panel CEO quits as audit details waste Report questions 'high' fees to project management firms Friday, March 10, 2006 • BY DUNSTAN McNICHOL • Star-Ledger Staff Change and charges of waste continue to plague New Jersey's Schools Construction Corp. The latest chapter played out yesterday when the acting chief executive officer stepped down at the agency's monthly meeting and the state auditor raised questions about hundreds of millions of dollars in agency expenditures. The auditor's critical report on the agency's first three years of operations added new detail to allegations of mismanagement and waste that had been outlined in earlier outside reviews of the agency. In particular, the auditor questioned hundreds of millions of dollars in payments to 12 major construction companies that were hired to oversee the $6billion building program as project management firms. The firms have been paid $283million of the $540million they are scheduled to collect under contracts that award them fees worth 11 percent of the work they oversee. The auditor said those fees have been inflated by various factors, and the 11 percent rate "seems high" when compared with the 3 percent construction industry standard for project managers. Even accounting for additional tasks the state assigns to its PMFs, the auditor says, the fee should be no more than 7 percent. Applying that 7 percent rate to the PMF contracts would reduce their costs by $199million. In addition, the auditor questioned "mark-ups" of up to 192 percent for benefits, indirect costs and profits that the private firms add onto the salary charges they bill to the state. While the SCC and its project management firms pay comparable salaries, the audit said, "the $182million staffing costs for the 14 PMF contracts reviewed exceeded the comparable costs of the corporation's staff (including benefits) by $59million -- or 48 percent." In other areas, the auditor questioned why the SCC replaced a construction cost limit of $143million that was set by the Legislature with its own $218-per-square-foot standard -- and further noted that even that higher limit was largely ignored. One school addition, for instance, cost $621 per square foot to erect, the auditor noted. The auditor also cited millions of dollars wasted because of a "Fastrack" policy adopted to speed the construction of new schools in the needy communities. Under Fastrack, various project steps like land acquisition, design and site development were undertaken simultaneously to compress the time required for building a school by 20 months. "Although the Fastrack Approach may have its theoretical benefits, its implementation on the corporation's projects was not successful because there were too many uncontrollable variables associated with the initial phases of the project which resulted in additional costs to the project," the auditor noted. Ultimately, the Fastrack approach resulted in wasted design and construction costs of $65million to $105million, and led to the spending of another $90million on projects that have been suspended or canceled, the report notes. In responses filed with the audit, SCC officials said they have stopped using Fastrack. They also said they are reviewing PMF payments and contract terms, and will seek refunds for any payments deemed inappropriate. The auditor's review is the latest to find deep problems in SCC management and oversight. Last year, after a Star-Ledger analysis that found the SCC's building costs were 45 percent higher than costs for other New Jersey school projects, the state inspector general reviewed the agency and found management problems that left the program open to "waste, fraud and abuse of taxpayer dollars." Overseeing the agency beginning Monday will be Scott Weiner, a former state environmental commissioner who was named special counsel to the schools corporation by Gov. Jon Corzine a month ago. Weiner will be the agency's fourth CEO in just over three years. The current chief, Peter Maricondo, is retiring about six months after he was named acting CEO upon the resignation of his predecessor, Jack Spencer. Spencer's departure last September capped a turbulent year at the agency, in which officials announced they had allocated the entire $6billion that lawmakers authorized them to spend on a court-ordered makeover of decrepit public schools, even though hundreds of school projects remained unbuilt. Maricondo was brought in to be the SCC's first chief financial officer last year as part of a sweeping overhaul by former Gov. Richard Codey. He is credited with setting realistic budgets and accounting standards for the 100 projects still in the works. "We made some good progress," he said yesterday. "I just feel that this point in time is an appropriate time to retire." Since his appointment to the board in February, Weiner has been working on a report scheduled to be delivered to Corzine next Wednesday on options for changing operations at the corporation. Weiner said the agency hopes to complete an ongoing search for a permanent chief executive within several months. Dunstan McNichol covers state government issues. He may be reached at dmcnichol@starledger.com or (609) 989-0341. © 2006 The Star-Ledger. Used by NJ.com with permission.