Florida Keys News - Key West Citizen
Saturday, July 19, 2014
New $28,000 wrinkle in HOB audit

The never-ending audit of the $37 million Horace O'Bryant School construction project has hit yet another snag: McGladrey LLP of Chicago is requesting more money for its services as the firm's employees have had to make physical visits to the contractor's offices.

The bill for the audit of Coastal Construction Group of Miami was originally in the neighborhood of $49,500. According to Stuart Kessler, chairman of the Monroe County School District's Audit and Finance Committee, that figure could rise by as much as $28,000.

"I'm hearing all this second-hand from [district counsel] Dirk Smits, but McGladrey is requesting extra money because of the way the audit is being done," Kessler said Thursday. "Generally, they'd ask for copies of documents. But it's going to cost more money to make in-person visits, and that's enabled Coastal to have their own auditor to watch them as they work."

Superintendent of Schools Mark Porter will ask for approval of the extra funds during the school board's next meeting, taking place at 5 p.m. July 29 in Key West.

At presstime it wasn't certain whether the in-person visits had been demanded by Coastal, or whether the auditor simply felt that it was necessary to proceed with the audit in that manner.

However, Porter on Thursday evening stressed the audit was on track and Coastal has been cooperating with McGladrey's requests.

"Lack of cooperation is inaccurate. I've spoken to McGladrey, and they've told me that they're on-site and have been since Monday," Porter said. "They've also said that they're on course to finish their preliminary report by the deadline of Aug. 5."

Porter conceded, however, that an extra $28,000 was probably the minimum that would be required to pay off McGladrey.

"I expect that [the extra payment] would be an addition of $20,000," Porter said. "However, I'll be asking for a little extra just in case. It's an outgrowth of the mediated agreement, where we agreed to conduct a side-by-side audit, which entails more time for McGladrey. Regardless of the amount, I'd be bringing it before the board because it's in addition to the original amount. The board should approve any addition to what we agreed in the contract."

Asked why the extra time, and thus money, wasn't allowed for in the original mediation agreement, Porter replied that he had "attempted to reach McGladrey on the day of the mediation" to discuss the matter.

"It was unclear at that point whether it would cost more," Porter said. "I would express some disappointment at this additional cost. We will attempt to recoup these costs at the end of the process."

Coastal Construction has refused to discuss the ongoing situation with the HOB aftermath since the issue first arose. McGladrey representative Terri D. Andrews said that the company does not "comment on client matters."

However, Kessler claimed that "this is all happening because of the way the parties agreed to allow the district to look at its own records."

"They'll only produce them at their own site," he added. "Once they're handed over, they become public records, though I think they're already public records. Of course, that's what this whole fight has been about, whether or not these are public records."

Board member Ed Davidson of District 3 was the driving force behind the audit. On Thursday, he called the need for additional funds proof of a lack of good faith on the part of Coastal.

"McGladrey is the fifth largest such firm in the country, and when they bid on the review of the problematic $37 million HOB construction project, they had no idea that Coastal would go to court repeatedly to refuse to produce the cost documents required by their own contract firms -- something that has never happened to this auditing firm anywhere else in the entire U.S.," Davidson said. "Because of Coastal's refusal to cooperate fully over the last eight months, McGladrey realized they were going to have to send teams to Coastal's head offices and personally and physically pull and review original document files to a far greater extent than they originally expected. This will result in significant additional costs that nobody foresaw during the original bid process.

"In addition, these deliberate delaying tactics by the contractor have cost the school district in excess of $40,000 in legal fees, which, however, we should recover in the final settlement -- along with several million dollars in apparent overcharges that I fully expect the auditors to confirm, now that they have finally gained physical access to the original records since this past Monday."

School board Chairman Ron Martin on Friday said that he would vote to approve the extra cash.

"If we want the audit done, I guess we're going to have to prove it," Martin said. "I wouldn't vote to go along with it again and again, but we do need to get this done. I don't think it's the superintendent's fault, or anybody's fault, Of course, when you see another $28,000, you think, that's almost half of some teacher's salary, but it's just something that's happened. It's the cost of doing business."

The district and its former contractor inked a deal back in June to try to bring an end the long standing legal battle over the construction project.

The nonjudicial agreement, signed in the presence of former Keys judge and mediator Sandra Taylor, specified that McGladrey, whom the board hired back in October, would have unfettered access to all documents related to the construction of HOB.

The audit had ground to a halt in early January when Coastal refused to cooperate with McGladrey. The district sued Coastal in state court on Jan. 15 for breach of contract, and for contravening Chapter 119 of the Florida statutes, which covers public records requests.

The contractor promptly countersued, resulting in a legal stalemate. According to the terms of the mediation agreement, Coastal had 60 days from June 5 to comply with all demands made by McGladrey.

In return, the district withdrew the delinquency status of Coastal, without prejudice, which would have prevented the company from bidding on district projects, and could potentially blemish Coastal's reputation.

Also hanging over the proceedings was the possibility of debarment proceedings against Coastal, which would have prohibited the company from bidding on any public construction jobs in the state, a potentially devastating blow to its business.

Following the audit, the district and Coastal were to again appear before mediators to sort out any issues which may arise as a result of McGladrey's work.

In addition, Coastal asked to be able to conduct a "dual-tracked" audit of its own. The contractor also agreed not to bid on any district contracts for 90 days.

Change orders were at the heart of the tussle between the district and Coastal, representing possible savings on the cost of the project to be split 60/40 between the district and contractor. Key West CPA Steven Pribramsky conducted an "attestation" of the project last spring to ensure the savings were achieved through cost efficiencies and working smart, not by cutting corners on essential elements of the process.

The final check to Coastal was cut on June 19 of last year. The school opened on time and under budget.


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