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Contract awarded to friend of Fenty's included fee that may mean extra $700,000

By Nikita Stewart and Paul Schwartzman
Washington Post Staff Writers
Thursday, April 15, 2010; A01

The job was to oversee a $50 million renovation of D.C. parks and recreation centers, and a friend and fraternity brother of Mayor Adrian M. Fenty's (D) was picked to manage the project. It was a lucrative prize for Fenty's friend, Omar Karim: Not only did his company receive a $4.2 million management fee, but it also got an unusual second fee that procurement experts say is generous and unorthodox in a public project.

The "consultant's markup" gave Karim's firm, Banneker Ventures, 9 percent of fees charged by each subcontractor working on the parks projects. The extra fee could add more than $700,000 to Banneker's earnings.

Fenty's aides call the arrangement "standard." But when Bill Slover, then chairman of the D.C. Housing Authority's board, learned of the additional fee in the fall, he called a special meeting of the board that oversaw the parks project. He urged the panel to halt Banneker's work and withdraw from supervising the project.

Deputy Mayor Valerie Santos, who serves on the housing board, immediately implored Slover not to delay the project. But Slover charged ahead: The Housing Authority issued the stop-work order Nov. 20. That same day, according to Slover, Tracy Sandler, who oversaw the mayor's appointments to boards and commissions, called to inform Slover that Fenty was removing him seven months after having appointed him chair.

Slover said he was given no reason. "I didn't ask. I knew," he said. "I haven't heard from them since."

Since the fall, the mayor and his aides have faced questions about D.C. contracts granted to a cluster of Fenty's friends. The D.C. Council is investigating the awards of the parks contracts to Karim's firm, questioning both the selection of Banneker and a deal some members called generous. The council canceled Banneker's contract in December and appointed a special counsel last month to determine whether Fenty's team showed favoritism in the contract awards.

The questions about contracts come as Fenty begins a reelection campaign in which his critics argue that a mayor elected as a populist reformer has run an administration that has enriched some of his friends. Fenty said that he has stayed out of decisions involving his friends and that those contracts amount to a tiny portion of the city's business.

The mayor and his advisers said they stayed within industry standards for compensation in crafting Banneker's deal. "I am extremely comfortable and confident with the fees that were negotiated," David Jannarone, who supervised negotiations with Banneker as the city's director of development, told the council. "They're well within market. I have no hesitation with the deal."

But administration officials have been unable to cite an example in which a project management team not involving Banneker has been awarded a flat fee plus a markup on subcontractors' charges.

Karim declined to comment for this article; he told the council that Banneker Ventures' "fee is very reasonable."

The unusual markup granted to Banneker meant that if a subcontractor such as Liberty Engineering charged $30,020 for a survey, as it did in November, Banneker collected 9 percent of that charge, or $2,701. With more than a dozen subcontractors working on the parks, the fee was expected to add $744,000 to Banneker's base fee of $4.2 million, Jannarone testified.

City officials say the markup is a way to compensate Banneker for taking responsibility for the subcontractors' work. Santos told the council that the 9 percent markup is "fairly standard industry practice" and gives a project manager incentive "to make sure that all subs are performing at the highest levels." But not everyone in the administration thought the Banneker contract was reasonable. In a meeting with Fenty in December, Allen Y. Lew, executive director of the District's public school renovation program, complained that Banneker's fees were "outrageous," according to a source with direct knowledge of the discussion. After the council canceled Banneker's contract, the mayor reassigned the parks project to Lew's agency, which replaced Banneker with a new firm. Lew, who declined to comment for this report, paid the new project manager a flat fee with no markup.

Attorney General Peter Nickles, who represents the city in settlement negotiations with Banneker, said he has no reason to believe the firm's fees were exorbitant. "I'm not an expert on fees, but I've also found people who say they were not out of line," he said.

Procurement experts and firms that do business with local governments said Banneker's deal -- the combination of the flat fee and the substantial markup -- appears to be unusually generous, particularly for a public-sector project. City officials in New York, Chicago and San Francisco said they seek to limit payments to a flat fee when they hire project managers from the private sector.

"Nine percent is ridiculous," said D. Kent Goodger, a veteran contracting official who teaches procurement classes for the federal government. "They're already getting a $4 million fee -- that's an equitable charge, maybe a little high. But the additional 9 percent, it's unconscionable. The D.C. government is getting ripped off."

David Orr, whose Reston management firm has for 21 years coordinated projects such as the National Children's Museum and a Fairfax County park for disabled children, said his company typically charges a fixed fee. "An additional markup," he said, "would be unorthodox and contrary to our principle of being an unbiased advocate for the owner."

A plan for parks

Early last year, the Fenty administration launched an ambitious plan to rebuild parks and recreation centers, a portfolio that would grow to 19 locations in neighborhoods from Glover Park to Columbia Heights to Rosedale. District officials say efforts to improve city parks had been hampered for years by the city's byzantine contracting regulations.

Hoping to streamline the process, Fenty's advisers used a strategy favored by his predecessor, Mayor Anthony A. Williams: They hired the Housing Authority, a quasi-independent agency, to oversee selection of a project manager. But Fenty's team didn't tell the council about the new approach. The council is required to approve any city contract in excess of $1 million.

Fenty's advisers said they enlisted the Housing Authority to gain speed and efficiency. The mayor, speaking on "The Politics Hour" on WAMU (88.5 FM), defended the process by which Banneker was chosen. "There's no dispute that it went through a competitive process," Fenty said. "There's no dispute that the competitive process was completely separated from the executive branch of government."

But three officials from the Fenty administration, along with two from the Housing Authority, made up the five-member selection panel that reviewed bids from 13 firms seeking the parks contract. The three city officials included Jacquelyn Glover, a project manager supervised by Jannarone. Both Jannarone and Glover knew Karim, who previously served as a development consultant for the Fenty administration. And Glover knew Karim because Banneker had offered her a job in June 2008, four months before she started work for the Fenty administration.

District agencies, when choosing a contractor, typically ask competing firms to state a price for completing the work. But in the parks contracts, cost was not a criterion, a decision Jannarone and other city officials attribute to the desire to speed up the process. David P. Gragan, the city's procurement chief, told the council that he would not endorse a selection process that failed to weigh bids by cost.

Instead, the judges evaluated competing companies in five categories, including their "familiarity with applicable D.C. and federal laws," "demonstrated experience" and "ability to coordinate complex projects."

The selection panel chose Banneker, which submitted its bid with Regan Associates, an experienced Herndon firm that served as a consultant to Banneker and did not receive the controversial markup.

Jannarone supervised negotiations with Banneker, approving the $4.2 million fee, $350,000 in bonuses, and the 9 percent markup. "The fees are my responsibility," Jannarone told the council.

The contract was sent to the four-member board that oversees the Housing Authority's development arm, an entity known as D.C. Housing Enterprises, which had to sign off on the contract for it to go forward. The resolution that the board approved made no mention of the markup.

'How could you not ask?'

Slover said Banneker and the other bidders should have been asked to supply a price for overseeing the project. "How could you not ask about fees?" he asked in an interview. "How do you know you're competitive?"

In October, after the council began investigating the contract, Slover learned that the city had awarded Banneker the additional markup. The "$4.2 million seemed extravagant on its own," he said. "That was only half the picture."

Asked to explain Slover's removal from the board, housing agency spokeswoman Dena Michaelson said, "It's the mayor's prerogative."

To replace Slover as chairman, Fenty appointed Laruby May, an executive at a nonprofit group in Southeast Washington who has given $2,000 to Fenty's reelection campaign. The new board then changed course and voted to expand the project from 10 to 19 parks, doubling the budget from $50 million to $100 million.

One subcontractor Banneker hired was Liberty Engineering and Design, which was started two years ago by Sinclair Skinner, Fenty's former campaign field director. Liberty Engineering billed $700,000 on the project. Skinner, who had never before overseen such work, is scheduled to testify before the council Thursday.

Banneker also hired an engineering firm owned by Delicia Gunn, who until two years ago was married to Karim's brother. Her firm billed the project at least $70,000. Through his attorney, A. Scott Bolden, Karim declined to comment on his former sister-in-law's work. Gunn also declined to comment.

In December, council member Kwame R. Brown (D-At Large) pressed Jannarone to list other D.C. contracts similar to Banneker's. Jannarone cited two projects, but Brown was not satisfied because both had involved Banneker.

"And?" Brown asked.

"And I can get you another list," Jannarone replied.

Four months later, Brown said, "We never received the list."

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