Jail Break

The legal battle between Wayne County and a team of contractors over cost overruns at the shuttered jail project in Detroit reveals a dysfunctional government structure, and an inconclusive FBI investigation, and an ongoing grand jury criminal probe.
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Long before the first shovel hit the ground in February 2012 to kick off the construction of the new Wayne County Jail in downtown Detroit, the earth was already shifting under the project’s shaky financial foundation.

The seeds of the eventual shutdown might have been sown in an early decision to put the work on a “fast track” schedule, which sped up construction by allowing work to start even as the design remained in progress. 

While on that fast track, the scope of the 2,000-cell, 700,000-square-foot jail, at Gratiot Avenue and across St. Antoine Street from the Frank Murphy Hall of Justice, became a moving target as county officials repeatedly changed plans that led to costly revisions in design, engineering, and construction.

In spite of those facts, an assessment of meeting records from the county’s project review teams fails to support the county’s claim that it was blindsided by as much as $91 million in cost overruns when it suspended work on the project in June 2013.

In fact, until the work was stopped, the most senior county administration officials, headed up by Wayne County Executive Robert Ficano, were holding weekly project status meetings that were chaired by Ficano and attended by the top executives of the construction, management, and architectural companies involved in the project.

Summaries of minutes of those executive meetings, held in a county conference room in the Guardian Building from February until May 2013, reveal discussions centered on whittling down construction costs, setting timetables for achieving those savings, finding additional funding, and devising a strategy palatable to the Wayne County Board of Commissioners in case Ficano had to ask them for more money.

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Similarly, minutes of monthly meetings in 2012 of the project’s Oversight Committee, a istant CEO June Lee, Assistant Corporation Counsel Steven Collins, county jail officials, and others who were charged with monitoring the project, reflect routine discussions of the jail’s budget.

In fact, an entry on Oct. 10, 2012, noted, “The current project cost summaries were reviewed and discussed. The budget is now just over $370 million, down from the $385 million previously carried.”

Those numbers were more than $100 million higher than the $267 million Guaranteed Maximum Price, or GMP, that was submitted to the county in May 2013, resulting in the suspension of the work two weeks later. The minutes of an Oversight Committee meeting in 2012 also showed that officials wanted to keep a tight lid on the finances associated with the project. “Any outside inquires to the Wayne County Building Authority, the Wayne County staff, county commissioners, (the) sheriff’s department, or any elected officials shall be directed to Carla Sledge for disposition,” read an entry dated April 12, 2012.

Another entry in the minutes of the Oversight Committee’s May 2012 meeting read: “Due to the sensitivity related to the budget and scope of the project, the Oversight Committee has requested that this material remain confidential.”

The Building Authority, a five-member unpaid board appointed by the county executive and confirmed by county commissioners, was the designated owner of the jail project. The group became dysfunctional when one member, Michael Rowley, never showed up for a single meeting after the authority took over ownership, and another member, Nathan Ford, resigned to take a job with the City of Detroit. Those members were never replaced.

Sledge, who has since retired, was Wayne County’s CFO at the time, and most of the authority’s functions were delegated to her. Records show that in the most crucial stretch of time in the construction, between November 2012 and June 2013, Sledge canceled eight scheduled monthly update meetings of the Building Authority.

Detroit-based Walbridge, the general contractor — which had entered into a joint venture partnership on the project with DCK Worldwide, a full-service construction company based in Pittsburgh — delivered the $267 million GMP.

While the shutdown came promptly after delivery of the $267 million GMP, what makes that decision puzzling is that the minutes of the Ficano-led status meetings include a series of charts showing the cost of construction was proposed to be reduced to $218 million, which was below the original estimated construction cost of $225 million.

The county budgeted $300 million overall for the completed facility, with the additional funds allocated to the purchase of furnishings, equipment, and detention-specific technology.

Earlier this year, Wayne County filed a lawsuit in Wayne County Circuit Court against the principal firms involved in construction of the jail (a similar case was filed last year, but the Wayne County Circuit Court dismissed it as meritless). The suit names Walbridge-DCK Worldwide; AECOM Services of Michigan Inc. and its parent company, AECOM Technical Services Inc., a Los Angeles-based construction company; and the Dearborn-based architectural and engineering firm of Ghafari Associates Inc., a subcontractor to AECOM.

In its suit, the county is seeking damages of $160 million — the amount it claims to have spent on the project. In addition to the civil lawsuit, an audit report on the project by the county’s auditor general, Willie Mayo, was turned over to the county prosecutor’s office for  a possible criminal investigation. That report is now the basis of a one-man grand jury probe being conducted by Wayne County Circuit Judge Timothy Kenny.

Alan Greene, a principal with Dykema, a law firm in Detroit whose practice includes construction and real estate development, represents AECOM and has filed a countersuit against the county. Greene says the county prematurely suspended work on the project, and alleges its claims against his client and the other two companies are baseless.

In the countersuit, Greene asserts all bills submitted to AECOM for actual construction work totaled $70.7 million.

“Whatever else they (the county) spent was not on construction. The issue of what this project was costing was a constantly evolving and discussed issue,” Greene says. “All the things they kept on adding and deleting, we always viewed it as a joint effort working with our client and the contractor on value engineer-
ing (and) on scope issues to keep the project within what they wanted, which was $300 million overall.”

Value engineering is standard operating procedure in many complex projects like the jail facility, where the principals and the client negotiate design and construction changes to bring down overall costs.

Greene says when Walbridge submitted their $267 million GMP in May 2013, AECOM analyzed the numbers and told the county not to accept it due to a lack of documentation and other key data. He says AECOM fully expected that county officials would then enter into negotiations with his client, and with Walbridge-DCK and Ghafari, to bring the price down.

Lee, Ficano’s chief of staff, says the project was stopped for the stated reasons that the projection of overruns was nearing $100 million. Lee declined to comment further. “Because of the civil litigation and the grand jury investigation, there is very little I can talk about,” he says. “I will let the pleadings (in the lawsuit) speak for themselves.”

Don Blevins, a shareholder of McAlpine PC, a law firm in Auburn Hills that represents construction contractors, says his client, Walbridge-DCK, was also prepared to look for more cost savings for the county.

“There were things that could still be changed that could lead to a substantial reduction in the cost of the project,” Blevins says. “There were opportunities to cut costs, but the county decided to go in a different direction. They are the customer. They are the owner. That’s their decision.”

Greene and Blevins agree that the county’s decision to pull the plug so far into a taxpayer-funded project is unparalleled. “I have never seen a (public) project that was started and progressed that far, then was shut down,” Greene says. “Nowhere else could you build something else for the cost of finishing this project.”

Lee, however, says it might be premature to say that the jail project along Gratiot is dead. He says the Ficano administration was charged by the Wayne County Commission to study the feasibility of completing the jail or moving the project to a prison the state closed two years ago on Mound Road, on the east side of Detroit.    

“The Commission wants to know the cost and feasibility in doing Mound. They also wanted to know the feasibility for finishing Gratiot, and for renovating or rehabilitating our existing facilities,” he says. “We’re looking at what it really costs, how much can we afford — and then you’ve got to factor in the development, you’ve got to factor in the amount of money that was spent (on the new jail), you’ve got to factor in the bond capacity, all of those things.”

Greene says AECOM-Ghafari has twice before analyzed the 39-acre Mound Road site, first in 2011 before work began on the jail in downtown Detroit, and again in 2013. He says the county rejected moving there because it would lose the efficiencies it would gain at the downtown site.

“Mound Road has lots of issues, too. Land use, zoning issues — there are a bunch of neighbors in that area that are going to fight it,” Greene says. “There’s a whole host of problems that would have to be resolved before they would ever get a project like that there.”

The lawyers representing the construction team say up until the time the new jail project was suspended and Walbridge-DCK was later fired, there were no complaints about the performance of any of the contractors.  

“At the time they shut down the jail, AECOM-Ghafari was working with Walbridge to reduce the price through value engineering,” Greene says. “There’s not a single letter on file that anyone was in breach or violation of the contracts. All project documents were filed online, so everyone had access to them.”

Blevins, Walbridge-DCK’s lawyer, agrees. “From our client’s perspective, there was no notice we weren’t performing, there was no suggestion there was any dissatisfaction with what Walbridge was doing,” Blevins says. “To the contrary, Walbridge was trying to bring to the county’s attention changes in the design that were presented to Walbridge (that were) leading to increased costs, and simply couldn’t get the county to at least be disturbed by it.”

Blevins says at one point Walbridge wanted assurances from the county that it had the funds to pay for the changes. “The county hemmed and hawed a little bit, and ultimately entered into an agreement promising that it would either stop the project pending further funding or would demonstrate that it could continue to go forward,” he says.

When Walbridge’s contract was terminated in August last year, two months after construction was halted, the county cited “convenience” as the reason for the dismissal.

In addition, AECOM was never fired but instead was asked by the county to continue working to close out the construction site. The
company estimated that the additional work would bring the county’s total construction costs to $85 million.

In its lawsuit, the county accuses Walbridge of breaching the pre-construction agreement and its fiduciary duty by exceeding the GMP for the construction.
Blevins says the county brought the suit to deflect its own responsibility for mismanaging the project, “They bought a Chevy and then gave us plans for a Rolls Royce, and then complained that we weren’t sticking by the price of the Chevy,” Blevins says. “Our position always has been that you, the county, had an obligation to provide us with a plan that could be built within that guaranteed maximum price, and you didn’t do that, and we notified you left and right that we didn’t think you were going to be able to do that based upon the bits of plans that we were receiving. We were just told to go forward.”

A county official who says he was not involved with the project when it first began maintains the groundswell of economic dev-elopment downtown that emerged in 2010 after Quicken Loans began moving more than 10,000 workers into the central business district may have contributed to the cancellation of the jail due to cost overruns.

“At the time the project was conceived, the development activity (by Quicken Loans and others) was not down there,” says the official, who asked not to be named. “Given the potential for all this new development on that site, with all the taxes that will come in from the development, does it make more sense for the city, the county, and the state as a whole to move this project to Mound so you can clear up that area for development?”

Last December, the Wayne County Commission gave Gilbert and his Rock Ventures real estate arm six months to perform due diligence on their proposal to buy the jail site and three other neighboring county justice buildings for $50 million. Rock Ventures would pay to demolish the unfinished jail and the surrounding buildings so it could create an entertainment district similar to L.A. Live in Los Angeles (Gilbert became a majority shareholder of Greektown Casino in spring 2013).   

The saga of the failed project began when the Wayne County Commission approved a $2.1 million feasibility study for the new jail in 2006.

Former Commissioner Philip Cavanagh, now a state representative for Detroit’s 10th District, stated last fall that the Commission was never given a copy of the study but was instead told the locations under consideration were the Coleman A. Young International Airport, the former Tiger Stadium site, and the dilapidated Michigan Central railway station. Cavanagh, a commissioner from 2001 to 2008 who is now running for Wayne County executive, says the project was rushed through Ficano’s administration with minimal examination and cost analysis. Wayne County spends about 75 percent of its general fund budget on criminal justice, including courts and incarceration.

Wayne County’s former economic development director, Turkia Mullin, and Azzam Elder, Ficano’s former chief of staff, were both proponents of building the new jail, according to county commissioners.

In 2010, the county commissioners voted for the project and authorized a bond sale of $300 million to pay for it. Shortly after getting the approval, the county’s Building Authority sold $200 million worth of bonds for the construction, with the intention of selling the remaining $100 million down the road when the money was needed.

In AECOM’s lawsuit against Wayne County, the architectural and engineering firm pointed out that the Building Authority sold the bonds for a project that “was not yet even designed, the Building Authority had not yet entered into the agreements with Walbridge-DCK, nor did it have any bids or proposals from contractors which would establish the likely actual construction costs.”     

In November 2010, AECOM’S preliminary estimate, based on information supplied by the county, was that the cost to build a 700,000-square-foot jail with 2,000 cells would be $203.8 million.

AECOM worked with county officials for months prior to that, considering various designs and concepts for a new jail that would consolidate the functions of three other county jails in Detroit and Hamtramck. According to the lawsuit, the goal was to save the county more than $25 million annually in operational costs.

That initial price, however, proved to be merely a starting point, as major changes in the project — dictated by county officials — kept widening the scope of the project while increasing its cost. For instance, AECOM’s estimated price assumed the jail would be constructed on property already owned by the county.

However, within months of receiving the $203.8 million price estimate, Mullin began negotiating with Greektown Casino to buy a vacant 7.6- acre parcel of land the casino owned at Gratiot next to the Frank Murphy Hall of Justice. The casino had acquired the land to build a permanent gambling facility and 400-room hotel before the city allowed it to expand its Greektown location to accommodate the development.

In July 2011 the county paid $14.5 million for the parcel, then chipped in another $6 million to $7 million for land cleanup and remediation. The unexpected land costs came off the top of the $203.8 million that was earmarked for the jail.

A month after acquiring the new site, the price tag was bumped up — first to $220 million, and then to $225 million when the county added another component: a prisoner processing center for the Detroit Police Department that required an additional 192 cells.

As part of that deal, Detroit was to pay up to $50 million toward the county’s construction costs, so AECOM and Ghafari redrew the jail plans to include the processing center for city prisoners. They later reworked those plans again, to remove the Detroit element when the city finances collapsed.

Detroit’s impending bankruptcy also impacted Wayne County’s ability to sell the remaining $100 million in bonds the County Commission had approved. That money would have gone toward outfitting and furnishing
the jail.

In addition to the impact of Detroit’s bankruptcy, the fate of the jail project was influenced by other well-publicized developments in county government. In August 2011, Mullin left her job as the county’s chief development director to become the CEO of Detroit Metropolitan Airport in Romulus. Mullin’s selection for the job, which came with a $250,000 annual salary, touched off a media firestorm when it came to light that Ficano had given her a $200,000 severance package (which she later repaid) for leaving her county job.

The generous payout attracted close media and law enforcement scrutiny of Mullin and the inner workings of the Ficano administration. More severance packages — including one for $16,000 for Mullin’s secretary, who was moving with her to the airport — were uncovered. Two months later, in October 2011, Mullin was fired. She later sued the airport authority for three years’ pay, and eventually won her claim in arbitration.

Meanwhile, Elder, Ficano’s chief of staff, resigned in November 2011 amid the furor over his severance package, which was worth up to $350,000, a deal he struck with Ficano if he left the county. He has since filed a whistle-blower lawsuit accusing Ficano of covering up the payouts.

Following those actions, the FBI launched an investigation that has since resulted in a flurry of corruption indictments, guilty pleas, and the conviction of some county officials. Mullin and Elder were reported to be targets of the FBI investigation, but neither has been charged with any crime to date.  

With the departures of Mullin and Elder, the jail project lost two of its main supporters in county government. What’s more, news reports revealed that a former top aide to Ficano, Charlie J. Williams — a county and city of Detroit political operative who dates back to the Coleman Young era — was paid a $420,000 fee by Greektown Casino for closing the deal on the land sale for the new jail.

Williams was also a member of the three-person search committee entrusted with finding a new CEO for the airport. Two weeks after receiving the $420,000 fee, Williams voted for Mullin to fill the airport job. Williams, who has a real estate company, has denied any wrongdoing in the matter.

Another Mullin connection with the jail project emerged when it was reported that John Rakolta, CEO of Walbridge, contributed $25,000 and served on the board of a nonprofit run by Mullin. Published reports said the nonprofit was located in a Birmingham home owned by Mullin. She was paid a $75,000 annual salary by that entity.

A more direct Mullin connection that helped derail the jail project was the county’s selection of Anthony Parlovecchio to be the on-site owner’s representative for the project.

Parlovecchio was an aide to Mullin in the county’s Economic and Neighborhood Development Department. In January 2011, he
incorporated Parlovecchio Building Inc. In February, within days of resigning his county job, the Building Authority awarded him a no-bid, nearly $2 million contract to be their representative on the jail project.

Parlovecchio’s tenure was short-lived. Before the end of the year, amid the chaos over the Mullin-Elder-FBI revelations, an embattled Ficano ordered the Building Authority to fire Parlovecchio. But just before he was dismissed, Parlovecchio set in motion the construction of the jail by authorizing $5.5 million for Walbridge-DCK to begin work on the foundation.

Parlovecchio’s departure left the county without someone in the vital role of on-site representative and decision-maker — a position that’s essential to a complex construction project. According to AECOM’s attorney Greene, the fact that there was no owner’s representative on-site meant untimely county decisions, which led to unnecessary and expensive delays.

An entry in the minutes of a meeting of the project’s Oversight Committee in August 2012, when the county was proposing an addition to the project, reflects the problems resulting from that situation. “Walbridge complained that the delay in deciding on the expansion was costing $10,000 a day,” the entry read.
In addition to managing the project, AECOM was tasked by the Building Authority to take over the owner representative function until they replaced Parlovecchio. The replacement, named later in 2012, was Robert Newton, a retired building consultant.

Parlovecchio filed a lawsuit against the county claiming he was fired for political reasons tied to Mullin. Court papers showed he billed the county $332,195 for six months of work. The lawsuit was dismissed by the Wayne County Circuit Court last year, and the Michigan Court of Appeals upheld that decision
in February.

After the shutdown of the project last August, the Building Authority hired consulting engineers Hubbell, Roth & Clark of Bloomfield Hills to investigate overruns and expenditures on the jail project. Their investigation alleges that AECOM and Ghafari approved $42.3 million in construction expenditures without the approval of the Building Authority.

The Building Authority’s contract with AECOM and the other contractors requires that all major changes to design, scope, function, or time frame be sent back to the county for approval.

But Greene dismissed the Hubbell Roth report as flimsy and without merit. “Hubbell Roth’s review was completed in two weeks,” he says. “Normally an expert would take months to review the thousands of pages outlining the obligations of the parties in a contract. AECOM and Walbridge had one interview with Hubbell Roth but never had a chance to review their findings.”

What’s next for the jail project is anyone’s guess. The county could decide to restart construction, although it might not have the funds to do so. It also may sell the project and neighboring buildings to Gilbert, but that still leaves the county without a new jail, courts, a processing center, and chambers. The county could continue to look at establishing a renovated jail and court system at the Mound Correctional Facility, but it may need to involve the state in order to line up financing and other needs.

Whatever the result, it’s clear the county executive who takes office in January 2015 will have to solve a jigsaw puzzle of competing interests, evolving real estate demands, civil and criminal investigations, and a voting populace hungry for effective municipal stewardship. db

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