After a months-long review of the Connecticut Port Authority, the State Contract Standards Board questioned on Friday whether the authority – a quasi-public agency – had the authority to sign a development agreement for the New London State Pier, or pay a $523,000 “success fee” to a contractor tasked with finding a port operator in 2018.
Those findings are disputed by Connecticut Port Authority, Office of Policy and Management, and, to an extent, the Office of the Attorney General – and Standards Board Chair Larry Fox admitted that there may be legitimate disagreements regarding how the state statutes are interpreted.
But Fox said it was clear that the “success fee,” in particular, was a bad business practice that harmed the public’s trust in the State Pier redevelopment, and the state legislature should ban the practice if it isn’t banned already.
The contracting standards board, which first received complaints about the Port Authority’s State Pier redevelopment in December 2020, found in a report approved on Friday that the state statutes that allow state agencies and quasi-public agencies to enter into “Public-private partnerships” lapsed on Jan. 1, 2020 – a month before the Port Authority signed its Harbor Development Agreement with port operator Gateway and the offshore wind partnership of Eversource and Ørsted.
The Port Authority and OPM, in joint written comments, disputed whether the public-private partnership – a widely-used term – was of the type that governed by that statute, which would have required the Governor and the legislature’s Finance, Revenue and Bonding Committee to approve the State Pier development agreement.
The agencies claim that the statute only applies to projects that turn over control of public facilities to private entities that will build and operate a development, according agency officials. In the case of State Pier, the Port Authority will continue to own the facility.
“We are very surprised to see this recommendation here since it did not come up in any of our prior conversations so that we could have had this discussion before the 11th hour,” the agencies wrote in response.
The agreement was made prior to the Standard Board gaining oversight over the Port Authority, Fox said, meaning that the board “clearly doesn’t have the jurisdiction” to decide that question. The legislature, Fox said, would have to determine whether the statute applied to the development agreement.
“There would have been a very different process, with a lot more opportunity for the public to weigh in, if they had been following that statute,” Fox said.
The port authority, OPM and Attorney General’s office also disputed that the “success fee” paid to Seabury Maritime Capital amounted to a finder’s fee prohibited by state law. The state agencies argued that the fee was common in the industry..
The Standards Board also found that the Port authority’s initial request for bids failed to include any mention of a success fee. A proposal from Seabury did outline a success fee, and the port authority responded at the time by revising its request to specifically prohibit success fees, according to the board’s report.
Seabury then responded with a revised proposal that did not include success fees, which the Port Authority accepted, and later amended to include a success fee.
The fact that Henry Juan, a managing director at Seabury, resigned from the board shortly before the contract was awarded, created at least the appearance of a conflict of interest, as Juan could have known that the Port Authority was willing to pay a success fee, the board found.
“It’s just terrible in terms of open, fair bidding,” Fox said of the success fee, which other prospective bidders would have believed to be off the table. “I can’t think of anything that’s less fair.”
Fox said the Standards Board believes that success fee paid to Seabury amounted to a finder’s fee prohibited by law. The Attorney General’s Office, in a letter to the board, questioned its basis for saying the success fees aren’t allowed by law.
If success fees are allowed by law, Fox said, that’s something lawmakers should put a stop to, since it’s unclear what benefit the state receives for paying a contractor an additional fee simply for completing the work they are contracted to do.
Doubting the oversight of quasi-public procurements
Board member Lauren Gauthier, the primary author of the report, said the board found that the Port Authority lacked comprehensive procedures for procuring contracts. Instead, it maintained a policy that gave the Port Authority’s executive director wide latitude to “pretty much determine procurement as they see fit, with the [Port Authority] board’s approval.”
Especially concerning, according to the report, was the Port Authority executive director’s ability to sidestep the bidding process for any expense of less than $50,000, and for larger projects when the executive director determines a competitive bid isn’t possible.
The Port Authority and OPM acknowledged the shortcomings of the Port Authority’s original procurement policy, but said those issues pre-dated current Executive Director John Henshaw and Board Chair David Kooris’ tenures, and that the policies were updated in April 2020 based on a report by Whittlesey Advising.
Standards Board member Bruce Buff said the issues identified in the Port Authority’s procurement policies highlights a common issue found across quasi-publics, state agencies and organizations like the State Teachers Retirement Board – that they are faced with running procurements without professional procurement personnel on staff.
Buff said there should be a central procurement organization for the state.
The Standards Board indicated a willingness to work with the Port Authority to improve its procurement policies, and Port Authority officials expressed a willingness to consider “concrete” suggestions that fit with its organization – but Fox said the problems uncovered by the Standards board are more far-reaching than the Port Authority.
“There is an underinvestment by this state in the infrastructure for agencies that have to do [procurement], and there is certainly underinvestment in the watchdog that’s supposed to watch out,” Fox said. “What could possibly go wrong?”