Four proposals presented for single-terminal KCI
The selection committee charged with recommending who Kansas City will partner with on building a new single terminal at Kansas City International Airport appears ready to move ahead with its work, despite a call Tuesday by Burns & McDonnell to restart the process.
Jolie Justus and Jermaine Reed, two council members on the KCI selection committee, said they plan to meet with the entire Kansas City Council on Wednesday to brief them on their latest deliberations.
“Hopefully, we will be able to get to a conclusion some time (Wednesday), but obviously, as we have said all along, the most important thing is making sure we get the best deal for Kansas City,” Justus said.
Burns & McDonnell, one of the four teams pitching Kansas City on a contract for a new single terminal at KCI, publicly called Tuesday for Kansas City to abandon its current evaluation of four proposals for the project. That came one day after Burns & McDonnell accused Charles Renner, a Husch Blackwell attorney who is advising the Kansas City Council on its deliberations on KCI, of having a conflict of interest.
Burns & McDonnell pointed out that Renner had represented a competing proposer, Edgemoor Infrastructure & Real Estate, in a major facilities project at the University of Kansas.
Edgemoor, based in Bethesda, Md., is one of the teams with a proposal before the KCI selection committee. AECOM and Jones Lang LaSalle are the others.
“I want to make sure our client’s position is clear. Terminal Developer wishes to see KCI Airport redeveloped,” said David Frantze, a lawyer representing Terminal Developer LLC, a joint venture between Burns & McDonnell and Americo Life formed for the KCI project. “Terminal Developer believes that the flaws and irregularities of the current process have precluded a fair decision. Rather than proceed with a selection that is subject to challenge, Terminal Developer believes that the current RFQ/P process should be terminated and a new, open process commenced.”
Renner and his law firm both denied that there was a conflict because the firm’s work with Edgemoor ended in the middle of 2016, about a year before Renner was tapped by the Kansas City Council for legal advice on the KCI project.
Kansas City’s municipal attorney, Cecilia Abbott, also said she did not believe Renner’s work with Edgemoor put him in conflict with Burns & McDonnell. Justus said the selection committee would seek a written legal opinion from the city law department on the matter.
Kansas City Councilwoman Katheryn Shields suggested Tuesday that Burns & McDonnell’s protest could indicate it was not doing well in the selection process. But Burns & McDonnell representatives insisted that was not their motivation. They said they thought their team’s proposal was quite strong, but that the entire process was vulnerable to a challenge.
Tuesday’s developments represented another fractious chapter in a selection process for KCI that has been marred by other accusations of conflicts of interest, unethical behavior and favoritism.
What started as private discussions in March with a few key city leaders for Burns & McDonnell to receive a sole source contract for designing, building and privately financing a single terminal became a competitive proposal process after the plans were revealed publicly in May.
The solicitation fetched four interested teams, but rancor among the competing teams and claims of conflicts of interest at City Hall over a contract that would likely exceed $1 billion have thrown the selection process into a state of public confusion.
The City Council unanimously approved ballot language last month for a Nov. 7 election that asks voters simply whether they want a new terminal at KCI that won’t require general taxpayer dollars to pay for it.
When asked if it’s possible for Kansas City voters to decide on a new terminal in November without a specific proposal chosen by the council, Justus said, “It absolutely should be on the table.”
However, she added, “I am very confident that this process has been a fair and equal process.”
If the city fires its legal and financial advisers, it would be an expensive do-over; they have already spent more than $475,000 on two outside law firms for advice on the selection process.
Justus said the public may be wary of an airport terminal without a specific plan behind it, but pointed out that voters in April approved $800 million in general election bonds for public infrastructure projects without a selected company put forth to represent the plan.
Still, council members were undecided Tuesday on what to do with the selection process.
“There are pitfalls and pratfalls no matter how you go,” said Councilman Dan Fowler.
Fowler, a lawyer, said that under Missouri’s rules of professional conduct, Renner had no existing conflict of interest. Fowler agreed that the political situation is more dicey, but he said he’s learned as a council member that “you can make a political challenge out of just about anything that you do.”
Councilman Scott Wagner said he would like to think that the city could move forward on the strength of a very good recommendation from the selection committee. But he said it’s very “unfortunate” that at least the most high profile proposers, Burns & McDonnell and AECOM, are talking about some form of litigation or some sort of fight against what the council intends to do.
“What’s clear is the level of competitiveness is such that they are more than willing to use whatever strategy is available to them, whether it helps the process or not,” Wagner said.
Wagner thought the city could have an election to just determine if the voters want a “better KCI” but he’s not sure if that’s a winning approach, without an actual proposal for a new airport terminal.
Kansas City Mayor Sly James said that as far as he was concerned the latest flap doesn’t jeopardize the election because the election and the proposal selection are two different things.
“You don’t just pass ballot language and erase all of that,” he said. “As far as I’m concerned the issues are separate.”
Is Burns & McDonnell worried?
Shields, a Kansas City councilwoman, said she was not surprised on Tuesday to learn that Burns & McDonnell was calling for a new selection process.
“My impression would be that the selection process is not going well for Burns & McDonnell,” Shields told The Star. “I’ll just leave it at that. It’s not surprising to me that they would want to start over.”
On Tuesday, The Star obtained a legal opinion for Kansas City’s bond counsel, Kutak Rock, that raised questions about Burns & McDonnell’s and Americo Life’s financing approach to the KCI project.
The Kutak Rock memo obtained by The Star, dated Aug. 25, said that its interpretation of the Burns & McDonnell financing approach is not consistent with the city’s master bond ordinance. The master bond ordinance, highly summarized, spells out how and in what order revenues generated at the airport pay for a long list of needs, including operations and maintenance, reserve funds and existing debt service.
The Kutak Rock memo repeats a concern that was apparently raised during Burns & McDonnell’s Aug. 14 presentation to the KCI selection committee, which is whether the new debt issued to pay for the single terminal would be equal or higher priority in the master bond ordinance than existing debt on the airport from a renovation project in the early 2000s. The city wants existing debt to be on par or higher on the list of priorities than the new private debt.
Burns & McDonnell and Americo have said new debt would be subordinate, or lower priority, to the city’s existing debt at the airport. But the Kutak Rock memo questions that conclusion.
“We cannot agree that any private financing would inherently be subordinate to the existing and future airport revenue bonds because it is a private financing,” the Kutak Rock memo reads. “Whether or not the specific private financing would be subordinate would depend on the actual terms of both the existing and future airport revenue bonds, and the existing and future private financings.”
The memo suggests that changes could be made to the master bond ordinance, or that the existing debt could be defeased before the private financing is in place. But it cautions the city about agreeing to an arrangement that gives special legal entitlements to airport revenues and operations because it could challenge the city’s ability to issue tax-exempt bonds for the airport.
“We cannot say at this time, whether the private financing structure that Terminal Developer, LLC, proposes would cause any such special legal entitlements, in the absence of any kind of specifics,” it reads. “However, if the City did wish to pursue this proposal, we recommend that the specifics, when developed, be closely scrutinized so that the City would be fully aware of any tax-exempt bond consequences...before it makes a final decision.”
Gary Anderson, a bond attorney for the Gilmore Bell law firm who represents Terminal Developer, said he believed the financing approach did meet the terms of the city’s master bond ordinance. He said has a different opinion of the Terminal Developer’s financial approach than the city’s bond counsel.
“I think Terminal Developer’s approach has been let’s figure out the best financing for the project and hopefully be the lowest cost financing because that benefits everybody,” Anderson said.
He said much of the existing bond debt matures in 2019 and 2021 and would be gone by the time the new terminal opens.
“If you’re borrowing $950 million, do you want to let a couple hundred million dictate how you structure your financing long term?” Anderson said.
Burns & McDonnell representatives categorically denied that they were motivated by any concern that they weren’t faring well in the selection process.
“We were extremely excited,” said Mike Brown, president of international operations for Burns & McDonnell, adding that the company was pleased when the airlines serving KCI issued a statement over the weekend, saying they would prefer to work with the Burns & McDonnell-led KCI Hometown Team for the airport project. “We view that as the ultimate stamp of approval.”
Instead, Frantze told The Star that the company very reluctantly decided to call for a do-over. He said the company thought its chances of selection were quite good but wanted to anticipate how opponents might challenge the selection.
“We identified the Renner Husch Blackwell representation on the KU project, and it appeared to us that that’s the kind of thing that could give rise to a challenge from somebody,” he said. “While we would love to be selected and move forward, it is more important that we have a challenge-proof process that voters will look at as fair, and we don’t think we’re there right now. We very reluctantly called on the city to reboot.”
Brown said it’s crucial that the city’s process be open, transparent and conflict free, and that’s not the case currently with this process.
“We’re advocating for a new airport,” Brown said. “We need to make sure the process is the best possible path to success.”
Does Renner have a conflict?
Jeff Simon, managing partner of Husch Blackwell’s Kansas City office, pushed back on claims that Renner and the firm had a conflict of interest.
“This is not true,” Simon said in a written statement. “Husch Blackwell’s representation of Edgemoor, one of four bidders for the airport work, had nothing to do with the city or the airport, and was concluded in May 2016. Edgemoor’s status as a former client of our firm does not give rise to a conflict of interest regarding the Edgemoor airport proposal.”
After Renner submitted a solicitation to City Hall on May 17 to help guide the city’s KCI process, Husch Blackwell and Burns & McDonnell negotiated an agreement on how to handle Renner’s work for the city, given that Husch Blackwell worked with Burns & McDonnell on issues unrelated to KCI.
On May 31, Husch Blackwell partner Kenneth Slavens wrote a letter to Burns & McDonnell general counsel William Quatman asking for the company to consent to a limited waiver of conflict on the KCI issue.
“Since I and others at the firm have the pleasure of representing Burns & McDonnell on other matters (even though such matters are unrelated to the Airport Expansion Matter), this creates a conflict of interest, and we therefore need to obtain your consent,” Slavens’ letter reads.
Slavens’ letter said that Burns & McDonnell could choose to not waive the conflict and that Husch Blackwell would then be unable to take on the KCI assignment.
Quatman signed the waiver of conflict, which was limited in nature.
“We have agreed that this conflicts waiver shall be limited only to negotiation and similar transaction work on the Airport Expansion Matter,” Slavens’ letter reads.
On Tuesday, Quatman sent a letter to Kansas City municipal attorney Galen Beaufort, saying that Burns & McDonnell believed Husch Blackwell’s advice exceeded the scope of the conflict waiver.
City officials on Tuesday seemed to largely dispute that there was a conflict of interest.
Justus said she didn’t think there was a legal conflict, but she wanted to hear from other members of the selection committee and from her council colleagues as to the best path forward.
Councilwoman Teresa Loar said she has always believed that trying to select a proposer before voters authorize the city to pursue a single terminal process was backwards.
“If, in fact, we terminate this process, then I would suggest that we wait until after the vote before we move forward with a contractor,’ Loar said.