SDUHSD cancels construction contracts due to lawsuit threat

The San Dieguito Union High School District (SDUHSD) terminated four construction contracts at its Jan. 19 meeting after being threatened with litigation.

The Carlin Law Group was retained by the California Taxpayers Action Network (CalTAN) to remedy San Dieguito’s “illegally entering” into four contracts without complying with new transparency and fair-bidding requirements — attorney Kevin Carlin sent a letter to the district on Jan. 12 asking it to rescind the four contracts or CalTAN would file a lawsuit.

“The most important thing to me is that we get the projects done,” SDUHSD Superintendent Eric Dill said, advising that the board terminate the contracts, repackage them and go out for a traditional bid process. “We have the ability to turn around and still make sure these projects happen on the same timeline and to get these out of the ground over the summer. If we were to decide to challenge or fight or not do this I can see a situation where all the projects would be put on hold until it’s resolved between the two parties, and with construction costs escalating over time we would certainly suffer that if we were to go later as opposed to sooner in letting out those bids.

“At this point I think it makes sense as a business decision to terminate these to avoid any of that entanglement which could possibly end up costing us a whole lot whether we prevail or not prevail in that matter.”

In December, the board approved lease-leaseback contracts for four Prop AA projects, including Torrey Pines High School’s new performing arts center, a second classroom building at Pacific Trails Middle School, San Dieguito High School Academy’s new classroom building and science classroom, and Crest Hall improvements at Oak Crest Middle School.

With the lease-leaseback method, a school district has the flexibility to select a contractor not just by the lowest bid, but on the ability to complete the project. The property is then leased to the contractor, usually for a low amount. The contractor then builds the project and leases the property back to the school district.

In September, Governor Jerry Brown signed a new law on lease-leaseback programs that went into effect on Jan. 1, 2017. The bill deleted the language that a school district can enter into a lease-leaseback method “without advertising for bid” and replaces it with a competitive bid process. School boards must also adopt criteria, or a scorecard, to determine what gives the district “best value.”

Prior to the law’s passage, Dill said SDUHSD had always used competitive bid process and issued requests for proposals for construction manager. There is also a competitive process built into the contract — the construction manager receives three to five bids per subcontractor trade and the district requires that they select the lowest bidder.

In December, Salazar voiced concerns about liability because the district was aware of the new law and appeared to be trying to get projects in before it took effect. He wanted to ensure that “terminate for convenience,” the action stated on the board’s agenda, and “rescind” the language requested by the attorney, meant the same thing and that the district wouldn’t be open to further legal action.

“If we ‘rescind’ are we admitting that we made a mistake of some sort?” Salazar asked, questioning why the use of the language of “terminate for convenience.”

Dill said the action taken by the board that night was the most straight-forward as they have a clause in the contracts that allows them to “terminate for convenience.” He said normally the district would not bring a contract termination to the board — he could have done it last week with a simple letter to the construction managers but brought it to the board to send a message to the attorney that they were complying and hopefully the clients would be satisfied.

Trustee Mo Muir said she has been very vocal about her dislike of lease-leaseback contracts.

“The teachers have picketed us saying that we were against needed classrooms and could not be trusted,” Muir said of last year’s demonstrations against herself and Salazar. “We just wanted the district to do construction legally and keep our district litigation-free. It’s unfortunate that the threat of litigation has made this board follow the law…I just wish we would’ve done it sooner.”

Trustee Beth Hergesheimer argued that what they did last December was legal and that the attorney was being a “bully,” using the power of litigation to keep the district from doing something it had every right to do.

Salazar and Muir said if that was the case, they should go to court. But the other trustees said going to court would simply freeze all the projects and they wouldn’t get done.

“We can’t say ‘We did everything fantastic and legal and we’re just the greatest but oh we’re going to rescind,’” Salazar said. “The means don’t justify the ends. The fact is that we need to do things legal. And we were jumping the gun. I brought up all these potential allegations or potential concerns at the last meeting and I was told ‘Hey, you’re being silly.’ And apparently not.”

SDUHSD Board President Amy Herman said she wanted to clarify that the district has used lease-leaseback for several projects and they have been very successful, bringing projects in on time and on and under budget with very few changes. She said they “stringently” complied with the previous law and they were confident that lease-leaseback was the best model to use for managing projects when they unanimously voted on the contracts in December.

“I stand by that decision but I understand our need to do this now under threat of litigation so that we don’t slow the projects down,” Herman said.