Education

University of Iowa hires consultants without competitive bidding

Officials cite 'unusual' nature of potential utilities partnership

Steam rises from the University of Iowa Power Plant in Iowa City on Friday, Feb. 8, 2019. (Liz Martin/The Gazette)
Steam rises from the University of Iowa Power Plant in Iowa City on Friday, Feb. 8, 2019. (Liz Martin/The Gazette)
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In hiring consultants for its inquiry into monetizing its utilities operation, the University of Iowa skirted standard purchasing policies set by the state, Board of Regents and the UI — citing the project’s “unique and unusual” nature.

In October, November and January, the UI committed to or contracted with a law office, investment adviser and engineering firm — without soliciting bids — to help evaluate UI assets, identify possible partners and map out a plan for a potential public-private partnership.

A potential partnership, which the university recently started investigating, would allow an outside company to take over the UI power operation for 50 years — and receive annual UI payments for doing so — in exchange for a hefty upfront sum the university could put into an endowment supporting academics.

The university would maintain ownership of its system and require any operator sustain quality standards and sustainability efforts. The operator would benefit in that a deal would guarantee it 50 years of reliable revenue, with tax benefits the university isn’t privy to.

legal services exempt, UI says

Although UI officials have left open the prospective value of any partner’s upfront payment — which would go into an endowment that annually would support the UI’s “core missions” — Ohio State University privatized its utilities by securing an upfront payment of $1.015 billion.

UI officials have noted Iowa is half the size of Ohio State and, for that reason, likely wouldn’t get as much. But, because Ohio State was among the first universities to attempt such a deal, UI officials in October engaged the law firm it worked with — Chicago-based Jones Day — to “provide advice to the university regarding the possibility of monetizing certain of its energy assets.”

An Oct. 15 engagement letter for what is expected to be a monthslong, if not yearslong, process outlines payment for Jones Day services at $800 to $1,500 an hour for partners and $450 to $800 for associates.

State, regents and UI policies require competitive bidding for the purchase of all goods and services greater than $50,000, but UI officials told The Gazette that legal services are excluded and must only be approved by the Board of Regents’ office.

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“The university provided the Jones Day engagement letter for review to the board office, and its legal counsel provided verbal confirmation,” according to UI spokeswoman Anne Bassett. “This is the UI’s typical process for retaining outside counsel.”

Jones Day gave the UI names of financial firms experienced in public-private transactions, and the university conducted phone interviews with Barclays, Morgan Stanley and Wells Fargo Securities LLC, Bassett said.

Another exception to bidding policies

The university on Nov. 28 signed a contract through June 30, 2020, with Wells Fargo to pay it a cut of the value of any monetization transaction — meaning it could make millions — to, among other things, assess UI assets, propose a potential transaction value, identify potential partners, and close and complete a deal.

In choosing the three finalists and, ultimately, Wells Fargo for the job, the university did not issue any request for qualifications, quotations or proposals, as is required by UI, board and state policies. Instead, in early November, UI Chief Financial Officer and Treasurer Terry Johnson produced a “sole source justification” for the Wells Fargo selection.

“President (Bruce) Harreld and (Board of Regents Executive Director) Mark Braun support this recommendation,” Johnson wrote in a Nov. 9 email to an associate vice president.

The UI’s procurement policy lets it waive competitive bidding requirements for a variety of reasons, including if “there is only one person or firm that can provide the requirement.” The sole-source exception mandates “no other known person or firm is available with an equivalent service or supply.”

The sole-source document justifying the Wells Fargo selection without competitive bidding notes Jones Day recommended three financial services firms “with the experience and expertise required for this type of complex financial transaction.”

“All recommended firms have significant experience negotiating (public-private partnership) higher education deals,” according to the sole-source justification.

The university’s rationale for choosing Wells Fargo, as reported in its sole-source justification, highlighted the company’s willingness to consider a tiered fee structure, its work representing the buyer in the Ohio State energy deal, a recommendation from Ohio State and a strong telephone interview.

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In response to questions from The Gazette about how Wells Fargo qualified for a sole-source justification when it was among at least three firms recommended for the job, UI Senior Vice President Rod Lehnertz said the sole-source policy is written “primarily for material purchasing or capital project work.”

“And this is neither,” he said in an emailed response. “Every situation is unique and in unusual cases, like this (public-private partnership), we research and then interview best practice experts and then, even after considering more than one, because it is not typical, we communicate our efforts to the (Board of Regents) office and confirm their support/approval.”

Lehnertz added the university took an “extra step by interviewing and considering three potentially viable firms and then we requested a sole-source approval for the one that was most qualified.”

No public bid for engineering firm

With both Jones Day and Wells Fargo on board, the consultants recommended to UI four engineering firms for the job of developing an inventory report and high-level assessment of its central steam, chilled water, electrical and water treatment systems.

The university — using an “informal request for qualifications process” that did not involve public bidding — interviewed three of the four recommended firms, choosing Jacobs Engineering “due to its breadth of experience within the energy sector.”

Jacobs on Jan. 10 provided the university a “letter of interest for public-private partnership technical advisory services” and a detailed proposal specific to the UI project.

In that letter, a Jacobs executive reports, “We are excited to be considered as your technical adviser for this public-private partnership opportunity.”

In its 25-page proposal, the firm highlighted its successful track record and depth of experience, and promised a technical risk assessment and condition assessment report.

The university on Jan. 23 signed a one-year contract with Jacobs Engineering to pay it a lump sum of $185,000, not including expenses for consultants or potential upcharges for services outside the initial scope — with hourly rates ranging from $95 to $355.

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The university did not provide details about the “informal request for qualifications process” it cited in hiring Jacobs Engineering.

“Each of the consulting firms engaged by the UI on this project are industry leaders in their respective fields and engaged to help the university through its exploration of the public-private partnership process,” Bassett said in an email.

Regents praise UI for plan, transparency

A preliminary timeline for the UI public-private partnership exploration involves public information sessions March 5 on the west side of campus and March 6 on the east side. Administrators already have held informational sessions with staff and faculty, some of whom aired concerns.

The tentative timeline has the university issuing a request for qualifications in April and a request for proposals in June, in hopes of choosing a vendor in the coming fall semester and signing an agreement before the end of the year.

UI officials have said they’re considering this collaboration in response to the state’s disinvestment in public higher education that’s translated recently to midyear cuts and de-appropriations.

Earlier this week, during a regents meeting, Board President Mike Richards praised the UI for exploring the alternative revenue source and being transparent in the process.

“We will need additional resources in the future, and exploring ways to find new sources of revenue to add to our existing ones is helpful to all parties,” Richards said. “That should be encouraged and applauded.”

He specifically commended Harreld and his team for being deliberative and forward-thinking.

“They are also are being transparent about the process — having open discussions with a wide variety of constituents,” Richards said.

If the UI venture proves successful, Richards said, the board’s other public universities might consider following suit.

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“We have a lot of good indications it’s going to be a really positive thing,” he said. “And I’m sure that if it works out really well, we’re going to encourage the other universities to look at similar projects.”

l Comments: (319) 339-3158; vanessa.miller@thegazette.com

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