How KCI committee reached its Edgemoor pick for airport project
A high-stakes competition to be selected for a new $1 billion KCI Airport terminal project ended Wednesday with the hometown team led by Burns & McDonnell losing to a team led by a Maryland-based firm.
A selection committee of city council members and city staffers recommended Edgemoor Infrastructure and Real Estate over other teams led by AECOM, Jones Lang LaSalle and Burns & McDonnell, which had waged a high profile public relations campaign about its benefits as the local engineering behemoth.
Edgemoor kept the lowest profile of the proposers. While the other teams publicly released extensive information about their airport design and financing approaches, Edgemoor chose to maintain confidentiality.
The recommendation still must go to the city council for approval. That process could start Thursday, but the negotiation on a contract could stretch for weeks.
And Kansas City voters still have the final say on any airport improvements, with an election currently scheduled Nov. 7. Polling in the past has suggested that it may be a challenge to get a positive vote.
City Manager Troy Schulte said the selection committee’s due diligence on one of the biggest public works projects in the city’s history ended with a recommendation “that will allow a new terminal at KCI to go forward, hopefully with a vote of approval in November.”
The path to picking a winning proposal to do that airport work has been filled with setbacks, acrimony and allegations of conflicts of interest and favoritism.
Schulte acknowledged that there has been a lot of “noise” surrounding the selection process but thought the city could be proud of the outcome.
“I think there will be a hardy debate about the outcome, but that’s OK,” Schulte said.
Councilwoman Jolie Justus, a member of the selection committee, said the group “felt that the Edgemoor team brought the best deal to the people of Kansas City,” with a track record of over $60 billion of aviation projects at 27 airports across the country and over $10 billion in public and private infrastructure projects.
Justus said Edgemoor’s proposal “when it comes to financing was frankly the lowest cost option to the city, provided the most flexibility and gave us an option for more project and less cost to the city, and throughout the entire process their financing proposal preserves the city’s credit.”
Edgemoor is based in Bethesda, Md. Other members of its team are Clark Construction Group and the Weitz Company. Its local partner is Kansas City-based Clarkson Construction.
Geoffrey Stricker, managing director of Edgemoor, said he was looking forward to working with Kansas City.
“I think we were confident in our proposal we put forward and our strategy in putting forth the best value for the client,” Stricker said in a brief interview with The Star.
After the announcement Burns & McDonnell released the following statement:
“We are incredibly proud of the great efforts of our KCI Hometown Team and the commitment these 30-plus local companies, and their thousands of local employees, made to their hometown. We know, like us, they are heartbroken. We would also like to say thank you to the airlines and the local labor organizations for their support of the KCI Hometown Team. Just like them, we believe our team was the best choice for Kansas City.”
AECOM, based in Los Angeles, had no comment after the recommendation.
The committee announced its choice after a special closed session with the city council.
After Wednesday’s announcement, Mayor Sly James praised Burns & McDonnell for proposing earlier this year to help move the airport debate forward, with a plan for a no-bid contract to build and privately finance the new terminal. After public pushback over that no-bid idea, the process was opened up this summer to competitive proposals.
“If it wasn’t for Burns & McDonnell, we wouldn’t be standing here,” James said Wednesday afternoon.
Still, the mayor pointed out that he had deliberately stayed out of the selection process and he praised the recommendation as a “win for Kansas City.” He said his whole focus will be to persuade voters to approve the new terminal, regardless of who builds it.
“I’m focused on Nov. 7 and making sure that people understand that despite all this drama, despite all this intrigue and all this controversy, it doesn’t change the basic question,” James said. “We need a new terminal.”
Schulte said all the proposers were qualified to do the work. But the Edgemoor financing approach seemed to put the team over the top.
Schulte said the Edgemoor proposal envisioned a range of options, including 100 percent debt financing. Selection committee members thought the possibility of full debt financing could save money.
“They were the only proposer to bring forward that idea saying we might do a 100 percent debt option which was an intriguing idea as we try to make sure we maximize value and minimize cost,” Schulte said.
That’s different from $50 million in equity contemplated in the Burns & McDonnell plan and $115 million in equity from the AECOM-led KCI Partnership plan.
“There’s a price you pay for private equity,” Schulte said.
Generally, private equity on a project like KCI could require a return of 7 to 12 percent. That compares to roughly 4 percent interest on debt.
Stricker said Edgemoor’s recent Central District student housing and student union project at the University of Kansas was an example of a project that was done with 100 percent debt financing.
Burns & McDonnell’s plan was undone by an apparent flaw in its financial proposal.
The Star reported on Tuesday that Kansas City’s bond counsel had determined that Burns & McDonnell’s plan did not conform with the city’s master bond ordinance, which lists and sets priorities for how airport revenues will fund various needs at KCI, including operations, maintenance, debt service and so on.
Kansas City’s bond counsel raised concerns that the Burns & McDonnell plan would prioritize the new private debt for the single terminal project over existing debt from when the city renovated KCI more than 10 years ago. That could affect the city’s ability to issue tax-exempt debt, according to a legal memo.
“I was as big a homer as possible for Burns & McDonnell,” Schulte said. “They had a very good proposal, they had the hometown team, but there was this technicality.”
The Burns & McDonnell plan was one of the first two proposals to get cut from consideration, according to a city memo. The other was from Jones Lang LaSalle, which sought to build a new terminal north of Terminal A at KCI and was considered “non-responsive and deficient.”
That left the AECOM-led KCI Partnership and Edgemoor.
Schulte also said that he appreciated that Edgemoor kept a low profile during the selection process. Burns & McDonnell held rallies and eventually raised conflict of interest concerns late in the process, while an AECOM executive last month criticized the city for asking each company to answer the selection committee’s financial followup questions. Karl Reichelt, an AECOM Capital senior manager, said at the time that the questions were “moving the goalposts” and allowing other competitors, namely Burns & McDonnell, to alter their proposals.
Then on Monday, Burns & McDonnell alleged a conflict of interest against attorney Charles Renner, who has been advising the airport selection committee and the city council, because Renner represented Edgemoor in the KU facilities project. Renner and the city attorney said there was no conflict of interest because that KU representation ended in May 2016.
On Tuesday, Burns & McDonnell argued that the whole selection process was so tainted that it should be halted and a new selection process begun.
The committee didn’t take that advice and met Wednesday morning, coming to a conclusion about noon.
“We’ve been responding to (requests for proposals) for 16 plus years now,” Edgemoor’s Stricker said. “One thing that is critically important to us is to respect our client and the integrity of the procurement process.”
Council members praised the committee’s time and effort, but said they would aggressively preserve their prerogative to make the final choice.
Councilman Quinton Lucas said he wanted more in-depth information about how the committee weighed the proposals, along with specifics on how Edgemoor planned to include local and minority firms.
He did not rule out the possibility that the council could still go in a different direction.
“We can accept the recommendation, reject the recommendation and go to the number two team (AECOM), or we can terminate the process entirely,” he said. “It’s still on the table that we can terminate the procurement process.”
Councilwoman Alissia Canady said that while Burns & McDonnell officials are “model corporate citizens in Kansas City,” the company’s conduct during the selection process “may have tarnished their brand.”
As for Edgemoor, Canady echoed Lucas in saying she needed to know much more about the firm’s intentions with regard to minority hiring and economic development.
“This needs to be a transformative development project for Kansas City,” she said, “and from what I’ve seen so far they have not supplied any of the specifics that would make it that.”
Councilwoman Katheryn Shields said she was comfortable with either Edgemoor or AECOM, calling them “both very credible” as prospective airport contractors.
“With either one of them we can come to a successful negotiation,” she said.
The rejection of Burns & McDonnell was deeply disappointing to some in the labor community. Pat Dujakovich, president of the Greater Kansas City AFL-CIO, had joined other labor representatives back in May in strongly endorsing Burns & McDonnell’s airport proposal.
After Wednesday’s announcement, he said he still thought having Burns & McDonnell lead the project would provide the best value for the city. Still, he said that the most important thing is to get a public vote for a new terminal. Dujakovich said local labor will work with whomever is picked for the job.
Joe Reardon, president and CEO of the Greater Kansas City Chamber of Commerce, has also advocated for a new airport terminal. In a statement Wednesday, he said the announcement “marks an important step in the effort to build a better KCI.” But he also said the chamber wants to learn more about Edgemoor’s plan, since the company so far has not publicly revealed any details of what it is proposing.