Indianapolis Taxpayers Paying $1.5 Million To Losing Criminal Justice Center Bidders

One aspect of the controversial Long Beach, California courthouse public-private partnership agreement ("P3") upon which the administration of Mayor Greg Ballard has based its plan to construct a more than half billion dollar criminal justice center at the site of the former GM Stamping Plant that critics belatedly learned about was a requirement the losing bidders be paid a stipend for participating in the RFP process, a requirement some critics of the project found "most unusual." The stipend was discovered when judges were reviewing the construction costs and learned there were two figures provided, a lower figure of $317.2 million referred to as "unadjusted construction cost," and a higher figure of $346.7 million. Among the more than $18 million in additional charges added to total construction costs was $1 million paid to the unsuccessful bidders.

A review of the RFP document the Ballard administration illegally withheld from public disclosure until after it announced the winning bidder reveals a provision allowing for a stipend payment of $750,000 to each unsuccessful offeror. The two losing bids are allowed to submit an invoice to recover their respective $750,000 stipends for participating in the RFP process no earlier than 30 days following the announcement of the winning bid, which must be paid by the later of 60 days following the submission of the invoice, along with a waiver and release of all claims against the City, or 45 days following the closing on the P3 project with the winning bidder, which is scheduled to occur on March 15, 2015. If the City cancels the procurement, which could happen if the Indianapolis City-County Council turns down approval of the 35-year P3 agreement, then the City will be on the hook to make the stipend payments to all offerors at a total cost of $2.25 million.

By all appearances, the Ballard administration knew it was going to award the project to the Meridiam-led bidding team from the outset. Many of the same lawyers and advisers involved in the Long Beach courthouse project were also being utilized to advise the City of Indianapolis on the criminal justice project as I've previously reported. With the guaranteed payments to the two losing participants in the supposedly competitive bidding process, it's further evidence the entire bidding process was nothing more than a sham from the get-go. Seriously, what kind of a bidding process requires participation payments to the losers? It renders the non-collusion requirements in our public bidding laws meaningless.

In the case of the Long Beach courthouse project, more than $10 million was paid out for nonconstruction-related costs associated with the project. An independent building expert was paid $4.6 million on the Long Beach courthouse project. Earlier this year, we learned the Ballard administration awarded more than $12 million in contracts for professional fees to lawyers, financial advisers, engineering firms and a lobbying firm to assist the City with the RFP process and selling the project to the council and the public. These expenditures were made without seeking an appropriation from the City-County Council. The administration diverted funds intended for use elsewhere to pay for the contracts. All of these costs, along with the $1.5 million paid to the unsuccessful offerors will be added to the total construction costs upon which the winning bidder's nearly $50 million a year annual service payments are based. If the City-County Council kills the project, taxpayers will be out at least $15 million, a cost the Ballard administration will no doubt blame on the council for rejecting the deal.

According to the financial plan submitted by WMB Heartland Justice Partners led by the French-based equity firm, Meridiam Infrastructure, which also won the Longbeach courthouse project, the Marion County criminal justice center project will be comprised of about $525 million in debt raised through private placement, or 90% of the cost, and $58 million in equity investment, or 10% of the cost, for a total of a little more than $583 million.

The Bank of Nova Scotia is acting as WMB's financial adviser, while Barclays is acting as the private placement agent for the project. Both banks are the subject of a lawsuit filed in New York federal district court accusing five large banks of conspiring to fix the price of gold. Barclays paid a fine of $298 million for doing business with countries sanctioned by the U.S., such as Iran, Cuba and the Sudan. The Bank of Nova Scotia also worked with Meridiam's equity investor, Walsh Investors, on the Ohio River Bridges project brokered in a backroom deal by the Daniels administration that will wind up screwing Hoosier taxpayers and motorists badly to the tune of billions of dollars for decades to come. About 20 private placement investors of unknown identity have been lined up to invest in the project. The interest those investors will be paid on their senior secured debt was not disclosed.

As the lead investor in the Long Beach courthouse project, Meridiam Infrastructure invested $48 million in the project. The debt was financed by several banks, including the Bank of Nova Scotia, BBVA, RBC, Credit Agricole, Deutsche Bank and BNP Paribus. The banks used a blended LIBOR swap rate to set the interest rate which determined the cost of the annual service fees paid to the state of California. Critics of the deal complain that little was ascertained by the state's Judicial Council in determining the honesty of the investors. In addition, Meridiam was not required to disclose the source of its funding for the project.

One particular cause for concern of many in California with the Long Beach courthouse project was the state's checkered past with P3 projects. California relied on a P3 deal to finance construction of a tolled roll along Route 91, a $130 million project. The private partners received a 35-year concession to operate the toll road in order to recoup their investment in the construction of the highway. The project turned out to be an utter failure, and the Orange County Transportation Authority was forced to purchase it for $208 million in 2003. A second P3 highway project, the San Diego South Bay Expressway, became a colossal failure after the private partner went bankrupt. Federal highway authorities had to abandon about $80 million in claims against the bankrupt company.

Another project in which Meridiam was one of the P3 partners, the Presidio Parkway in San Francisco, will cost taxpayers about $1.1 billion to build a highway 1.5 miles in length. A later legislative study confirmed traditional financing should have been used instead of a P3 agreement. According to the New York Times, the European investors realized a 14.2% return on their investment in the project. The P3 partner is being paid $173 million upon completion of the project next year and payments close to $30 million annually over a 30-year period to maintain the 1.5 mile stretch of highway. Critics of the Long Beach project complained that the state's Judicial Council did not consider these historic failures with P3 agreements before opting to use it is the means of financing the project.