Lawrence commissioners pleased with main findings of Rock Chalk audit, but some concerns remain

The results of a city-ordered audit should make the public feel more comfortable that it got a good deal on controversial, no-bid Rock Chalk Park construction work, several city commissioners said on Friday.

Unanswered questions

At a Jan. 13 meeting, city commissioners reversed course and delayed an approximately $1 million payment for Rock Chalk Park infrastructure work after a new batch of documents created new questions about the accounting of the project.

The recently-released audit doesn’t appear to have addressed some of those questions. Among the questions raised at the Jan. 13 meeting but not addressed in the audit report are:

• Multiple documents signed by subcontractors on the project attest that they received payments from Bliss Sports II. But when the KU Endowment Association turned over canceled checks, it showed multiple subcontractors were not paid by Bliss Sports II, but rather were paid by its sister company Bliss Sports. The development agreements talks about the city paying for costs incurred by Bliss Sports II but does not spell out responsibilities for reimbursing Bliss Sports.

• Canceled checks show Bliss Sports II is seeking reimbursement for payments Fritzel entities made to Lawrence-based Landplan Engineering dating back to October 2012. The city didn’t have an agreement with Fritzel to begin work at the Rock Chalk Park site until July 2013.

City Commissioner Bob Schumm said he was pleased that the audit made strong findings on two points: The infrastructure work at the site either “met or exceeded” the standards set out by the city, and the prices charged to the city compared reasonably to other construction projects that the city had bid in the past.

“The two major issues to me were answered in spades,” Schumm said.

But the report also left some commissioners — even supporters of the project — confused about how the city and its private partners had significantly different views about how the project should be accounted for. The auditing firm McDonald & Associates found that the city, the Kansas University Endowment Association and private contractor Bliss Sports II were not in agreement on key provisions of how to pay for the project.

The audit found the city interpreted the development agreement as one where the city would reimburse KU Endowment and Bliss Sports II for their actual costs spent on the infrastructure, plus a 2 percent management fee. The city would not be obligated to pay more than $22.5 million for the entire project, which included both the infrastructure and an adjacent city-owned recreation center that did go through the city’s normal bid process.

But the audit report states that KU Endowment and Bliss Sports II viewed the contract as a “lump sum agreement.”

City Commissioner Jeremy Farmer said he was pleased with most of the findings of the audit, but said he was confused about how the parties could have such a significant disagreement about the development agreement. Farmer said he is not certain which interpretation of the development agreement is correct. Farmer said the parties likely needed to have more discussions about the agreement before it was approved in July 2013.

“If I knew then what I know now about the development agreement, I would have asked different questions and probably wouldn’t have voted for it,” Farmer said.

The audit report — released Thursday — recommends the city make a final payment of about $1 million that is due on the infrastructure work. Commissioners are scheduled to discuss the audit at a special 5:45 p.m. meeting on Monday.

The differing interpretations of the development agreement are expected to draw questions from commissioners.

City Commissioner Terry Riordan said he was “shocked” to see the finding that KU Endowment and Bliss viewed the development agreement differently than the city. But Riordan said he didn’t want that issue to overshadow the main finding of the audit.

“I’m real pleased with the fact that they agree we have gotten a good return,” Riordan said.

The audit found that the Thomas Fritzel-led Bliss Sports II spent about $13.2 million for the infrastructure project, which provides roads, parking lots, utilities and other such items for both the city-owned recreation center and the sports stadiums that are privately-owned by a Fritzel entity but are leased to Kansas Athletics. In total, the city is being asked to pay $11.3 million of those costs.

The differing interpretations on the development agreement, though, likely are linked to another finding in the audit. The auditors determined that Fritzel’s Bliss Sports II “did not provide a complete accounting for the project.” Specifically, the auditors found that Bliss Sports II did not keep a “formal job ledger” for the infrastructure project, which would have provided an accounting of how various funds were spent on the project.

In a project where the contractor is being reimbursed for his actual costs, such a ledger would be important. In a project where a lump sump payment had been agreed to beforehand, the ledger would be less important, city officials said on Friday.

Farmer said he wanted to have conversations with the city’s staff about how the city and KU Endowment/Bliss Sports II had reached such different conclusions about the structure of the deal.

“The unfortunate part of this is I don’t interpret development agreements for a living,” Farmer said. “I have to rely on the interpretation of our professional staff. It is clear our staff was interpreting this one way, and KU and Bliss was interpreting it another.”

Fritzel, leader of Bliss Sports II, did not return an email seeking comment for this story.

Dale Seuferling, president of KU Endowment, issued the following statement: “We are pleased with the very positive report from the independent auditors. They confirmed that the completed project met or exceeded the established specifications, and the costs were compliant with the terms in the Development Agreement. Moreover, the auditors stated that the backup documentation supported costs in excess of the agreement cap. Most importantly, the audit confirmed that this public/private partnership delivered an excellent value for the Lawrence and KU communities.”

The Endowment Association declined to provide any additional details to the Journal-World when asked if it would take specific questions about the audit’s findings, instead deferring questions to city officials.