Which is it: An unusual scenario or a leap of blind faith? A request for proposals put out by the Department of Public Works to build new schools on Guam has “municipal leasing” lisping off the tongues of contractors and lawmakers.
Depending on whether you are a bidder interested in building schools on Guam or the Guam Contractors’ Association there are several schools of thought.
The municipal leasing plan on which the RFP is based would allow for the construction of seven new schools and the refurbishment of the 37 existing public schools. The department of the Interior approved on April 14 the use of $6.1 million in one year’s Compact Impact funding for the initial construction phase of the plan. A second phase would deal with renovation of existing schools.
Sen. Vicente C. “Ben” Pangelinan speaker of the 27th Guam Legislature introduced Bill No. 256 on Feb. 1. “To provide funding for the construction and repair of public schools new medical facilities and safety upgrades to the prison facility by adding a new Article 14 to Chapter 22 of Division 2 of Title 5 Guam Code Annotated.” The bill was vetoed by Gov. Felix P. Camacho on May 7 and subsequently overridden by the legislature on June 18.
The speaker introduced the bill to allow compact impact money to underwrite a bond loan rather than paying outright for construction of the schools. He did it he told the Journal “Because I believe it is going to be less expensive.” He said that a contractor that is awarded the project under lease-design-build-maintain will need to obtain financing as part of the project.
“These people still have to get their money back. Somewhere in the lease payment will be the cost of borrowing.”
Pangelinan said his bill would allow comparison between the cost of building schools under the leasing program and using the Compact Impact money to underwrite a bond loan.
The RFP issued on April 14 is due to close for bids on July 2 although the Department of Public Works said there have been verbal requests for extensions but no formal letters yet.
Joseph P. Morcilla president of the Guam Housing Corp. heading the governor’s capital improvement projects effort said the leasing project could be awarded by the end of July. “We’re hoping to get this project off the ground some time in July — at least a decision on who will be awarded the project.”
He said municipal leasing was discussed with Bank of America the government of Guam’s financial advisers as a possible way to build schools. “We talked to them about the different options. Municipal leasing is an avenue that government entities are using to build schools and other facilities.”
Pangelinan said his measure now a public law (the governor’s office had not assigned a number as of press time) would be expedited quickly. “I don’t think that’s a problem. Now with the override GEDCA [the Guam Economic Development and Commerce Authority] is required to issue an RFP. Our bill will require GEDCA to issue the RFP within 15 days. It will require the government to go out and determine the cost of borrowing to build the schools.
“I thought the best way to use the DOI money was to use it to guarantee a bond loan. It’s not subject to the borrowing capacity of GovGuam.”
He said the process of using federal grant money to secure loans was a common one. “We did the same with tobacco settlement funds.” The comparisons could then be made between the two programs he said.
“We can compare what we get and determine what is more effective for us to do.”
The municipal-lease RFP has attracted criticism from the Guam Contractors’ Association.
In a letter sent to Gov. Camacho’s chief of Staff Anthony P. Sanchez the GCA notes that the government of Guam is inexperienced with this type of financing scheme.
John M. Robertson Guam Contractors’ Association member and chairman of it’s Government and Labor Affairs Committee is critical of the current request for proposals. He wrote “Unfortunately the government of Guam is inexperienced with this program and initiated the process too quickly and immediately created major concerns. First the makeup and substance of the RFP actually discouraged participants. Combining the unrealistic expectation of the RFP with GovGuam’s poor fiscal history had the construction and financial communities questioning the sincerity of the government.”
Robertson told the Journal “We believe the concept the government has come up with for financing new schools under a municipal lease program is excellent and we fully support it. However the membership of the contractor’s association feels that RFP was hastily drawn up and what is out there today is doomed to fail and I doubt anybody would be willing to take it the risk as it [RFP] stands today.”
He said that many members of the contractors’ association have experience in this type of financing design/build program and suggests that the government slow down and follow the example of Guam Waterworks and the Port Authority of Guam in upgrading by hiring the appropriate consultants to walk them through this important first-ever attempt.
“In order to prevent a bad circumstance to occur the RFP must be modified and the financial package bifurcated from the design build and maintain portion of the proposal. Adequate time allowing intelligent planning is a must if Guam wishes to make a success of the design/build concept. The financial segment of the RFP can proceed forward on its own merits but the design and construct elements demand more time and input to insure the government will be provided a quality product that it certainly envisions and more important owes the people of Guam.”
Morcilla said he understood why the contractors have problems with the leasing option. “This is a new way of doing this so it’s new to the contractors. Some of the questions that the contractors raised would not be asked if they were familiar with building schools.”
“Whatever questions they had we responded. We’re trying to give them as much information as possible.” He said contractors had toured possible sites which are in the north and central districts of Guam bar one.
“We’re continuing to provide them with information but we’re not supplying them with specific plans.” Morcilla said the $6.1 million per year for 20 years offered a different type of contract. “We would like to build seven schools but we’re giving the contractors the flexibility to build four five six or whatever it will be.”
He said the award could be divided depending on financial backing that contractors could secure. “It could be several contractors. It’s not necessary to go with one contractor but if one says we could do all of this — the 20-year program it will be one contractor.”
Pangelinan said the RFP did have problems. “They don’t have the specs they don’t know how many classrooms they want in each school how many toilets. That’s what we need. These guys are hammering it through so quickly.
“If it is subject to change orders it could end up costing us more than 30% of the bid. If we do a municipal-lease plan we should at least know what we want to bid. What gets us into trouble are cost overruns.”
Richard Inman is one contractor likely to bid on the municipal-lease plan.
He is principal of Atlanta Ga.-based Pruvient Energy involved in managing the Tanguissan Power Plant since April 2003. Inman attended the Washington D.C. conference in September 2003 to hear of new investment opportunities in Guam. The project to build schools was also brought to his attention locally.
Criticism of the RFP by the contracting community was understandable Inman said given its source. “Someone who is used to building a building — that’s the mindset.”
He said the proposal did lack some technical specifications but that was not unusual. “If I was a general contractor it would be confusing to me as well.”
Inman in Guam the week of June 14 met with the Journal on June 17. He is by profession an investment banker and was president of Tucker Federal Bank in Atlanta with $1.2 billion in assets. Tucker Federal was sold to the Royal Bank of Canada but prior to that made the loan to the owner of the power plant. “After the sale of the bank I was involved in investing in a variety of different private entities.”
The lease-design-build program Inman said “would maintain schools more efficiently than the government of Guam.”
His facility group in Atlanta Inman said included three former school superintendents but the RFP would provide local construction opportunities. “We have a team of subcontractors that is 100% local. They are all people who have built schools here but not necessarily the usual suspects.” Inman declined to be more specific.
Mindful of “best value to Guam ” Inman said the company was not only planning new schools for the Department of Education but had also considered the labor component. “We have limited the contractors’ usage of H-2 labor. We want to deliver value for Guam. We are really trying to put a proposal together that touches all the buttons.”
The RFP was also criticized for the proviso that if the agreement was defaulted on the builder had the right to evict the tenant the Department of Education.
Merchant Capital whose executive James Wilson accompanied Inman to Guam was Inman said a public and private capital investment bank.
Merchant concluded a $3 million leasing program for Winette County in Atlanta Inman said. “It was for a smaller system but AA rated. Guam is not double AA rated.
“This is not debt it’s a lease. Yes the person that constructs the schools has the right to evict in a leasing program — but banks are very uncomfortable with annual appropriations risk — the determination of analysis in underwriting comes from the essentiality of the product to the lessee.”
Merchant had funded at least 30 municipal-leasing programs Inman said including schools police departments and a variety of public buildings.
Inman’s assessment of the growth of other island populations was that it would continue. “That population seems to be growing and in my opinion will continue to grow. Lease financing is a creative way to get some schools built on Guam.”
The timing was right Inman said for Guam to improve its products because of the upturn in the economy. “It requires some creative thinking and some creative financing techniques.”
Inman would be interested in other opportunities in Guam. He said “My first foray here was Tanguissan. I started seeing opportunities here on Guam. At first I was much more focused on real estate assets but there are some interesting opportunities here in more of a public-private arena in view of what the military is going to do here.”
Inman met with Simon A. Sanchez II owner of Guam Dry Cleaners and chairman of the Consolidated Commission on Utilities and Frank S.N. Shimizu president of Ambros Inc. and member of the commission. Inman said “I have had a lot of experience with public/private partnerships. I see a lot of opportunities with public/private partnerships to improve the infrastructure of Guam.” He described the Guam Power Authority privatization as “a challenging project.” MBJ
