School developer’s use of $41 million called into question

School developer’s use of $41 million called into question

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About a quarter of the $175 million intended to rebuild Buffalo’s crumbling schools during the fifth phase of a massive renovation project cannot be publicly accounted for, leaving two members of the project’s oversight board wondering how much money developer LPCiminelli received as profit.

The $41 million in question is just for the final phase of the $1.4 billion decadelong project to rebuild the city’s schools, leading School Board members Carl P. Paladino and Larry Quinn, who also are on the Joint Schools Construction Board, to demand an audit of the entire project.

In response to continuing questions raised about the difference between what Ciminelli has been paid for its work and how much money was actually spent on project construction, company executives have repeatedly stated that the nature of the project agreement does not require the type of disclosure that some members of the board are demanding.

Buffalo’s “design build” agreement, which required special state legislation in 2000, required the project manager to meet all of the district’s school design and reconstruction requirements and timetables, and assume all construction-related risks, such as cost overruns, in exchange for a fixed payment amount.

This type of arrangement is not common locally for large privately or publicly funded construction projects. It eliminated the traditional requirement for a lengthy and elaborate bidding process with multiple contractors in favor of hiring a single project manager who assumed control of all construction with oversight from the Joint Schools Construction Board and the state.

Given the school district’s poor track record of building schools on time and on budget, and the promise of guaranteed funding from the state, Ciminelli representatives said the design build model was a natural fit for the district.

A tour of the 48 reconstructed schools, which have repeatedly drawn high praise from district administrators and architects, as well as from the mayor, support the decision, they said.

“The role of the Joint Schools Construction Board is to say, ‘Did we get what we paid for?’ And no one has disputed that to this day,” company spokesman Kevin C. Schuler said Tuesday. “You can drive around to every school around this city and see where this money went. To imply that the district did not get what they’re paying for, that’s not true.”

A school district review of the fifth and final phase of the project, which was obtained by The Buffalo News, shows that Ciminelli spent $106 million of the $175 million on subcontractors.

Additionally, there was $28 million spent on “incidental” costs, although it’s not clear what those were. A summary of the remaining $41 million is not explicitly accounted for, though Schuler said money not spent on subcontractors covered a long list of in-house expenses, including Ciminelli’s field staff, insurance, legal fees and equipment costs and Buffalo Public Schools staff hours that were billed to the project.

“A gap somehow implies there’s missing money,” said Schuler, who has worked with program manager Eugene T. Partridge to provide the Joint Schools Construction Board the information it is seeking. “There’s no missing money.”

The company would not, however, provide a public summary of Ciminelli’s internal costs.

“That information is proprietary,” said Schuler, who responded after The News requested to speak to company owner Louis P. Ciminelli.

As a private corporation, Schuler said, the company – like any other company bidding on public work – is not obligated to provide an accounting of its own costs.

But that hasn’t stopped Paladino and Quinn from wanting to know exactly how the public funds were spent. Paladino and Quinn joined the Joint Schools Construction Board as district representatives this past fall.

“We are being put in the position once again of being asked to approve additional payments when we don’t even know where the first billion, four hundred million went,” Quinn said at the construction board’s last meeting in November. “We don’t know who it was paid to; we don’t know what amounts. … My feeling is, I don’t want to approve anything anymore until we get fundamental information, which is not unreasonable to expect.”

Paladino seconded that sentiment, telling the board that it was not “appropriate to consider any more applications for payment to the program manager until such time as we have had the opportunity to see the results of an audit and familiarize ourselves with the specifics of the entire contract.”

Ciminelli has repeatedly refused to turn over its project costs to the board ever since board members Paladino and Quinn – who also are developers – started asking questions several months ago. Paladino and Quinn called on the board of city and school officials to demand an audit of the project and withhold a remaining $817,000 in payments until the company produces the information.

On Christmas Eve, Ciminelli turned over documents for the $175 million fifth phase, showing that it paid $106 million to subcontractors on the projects.

The schools construction project is considered by local architects to be the largest historic preservation project in the state. It substantially renovated 48 Buffalo public school buildings over the last decade and resulted in the closure or consolidation of roughly 20 others.

It also involved extensive planning and the temporary relocation of thousands of students to vacant “swing schools” that were later closed.

More than 90 percent of the project cost was borne by the state. Schools were built with union labor and ambitious goals laid out for construction work done by minority- and women-owned businesses.

Still, Paladino and Quinn have aggressively questioned how much money Ciminelli kept for itself and how much the company may have received as profit. They have also raised questions about Ciminelli’s political ties and its role as a major player in the region’s development.

In response, Schuler said Paladino’s accusations related to the Joint Schools Construction Board project are nothing more than a political vendetta against Ciminelli, the company’s owner.

“Ten years later, Carl Paladino calls into question a program that educational leaders across the state agree is a huge success,” Schuler said. “He wants to dive into our proprietary information and hints that something nefarious went on … even though he can see our high-quality work product in every school in the city, and he has zero proof that we did not fully deliver what was expected and contracted for. Carl knows full well the cost information he is asking for it out of bounds, but he has a desire to try to cast aspersions on LPCiminelli and the Ciminelli name.”

The firm, the largest general contractor in Western New York, has had a hand in construction of the University at Buffalo’s Greiner Hall, Ralph Wilson Stadium renovations and Erie County Medical Center’s long-term care facility.

More recently it won the bid to develop the RiverBend site in South Buffalo as part of the state’s Buffalo Billion economic-development initiative.

The schools project faced many hurdles early on. The city was already near its debt limit when it first embarked on the project, prompting it to look for a private company to shoulder the burden of borrowing the money to finance the construction. Ultimately, Ciminelli was able to gain financing through the Erie County Industrial Development Agency.

During the first few years of the project, public officials and community members raised questions about the company’s struggle to meet minority hiring goals, cost overruns and general accountability regarding how money was spent.

A 2006 state comptroller’s audit criticized the Joint Schools Construction Board for lack of oversight, and criticized Ciminelli for subcontracting work to its own company, a practice that was subsequently banned. It also flagged $24 million in expenses that auditors could not verify. Ciminelli called those expenses “proprietary” and still maintains that such in-house expenses are not subject to public review.

This past October, the board asked the state comptroller to conduct another audit of the project now that work has been completed.

Still, many city, district and community leaders have hailed the project, including Mayor Byron W. Brown. Although timetable snags, funding and accountability concerns dogged the project in its early years, there was little public controversy the last five years.

That changed when a new majority took over the School Board last year and appointed members Paladino and Quinn to the construction board. Both have development backgrounds and have repeatedly demanded more information from Ciminelli accounting for how taxpayer money has been spent.

“We’re asking for full disclosure,” Paladino said recently.

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School reconstruction

The fifth phase of the Joint Schools Construction Project included the following seven schools:

• Dr. Antonia Pantoja Community School of Academic Excellence, School 18

• Community School 53

• Charles R. Drew Science Magnet, School 59

• Early Childhood Center, School 61

• Frederick Law Olmsted, School 64

• Roosevelt Early Childhood Center, School 65

• Grover Cleveland High School