07 - Music Center Costs - Part 1 The Management Agreement
When council announced the Recreational Complex, Phase 1 of that project was expected to cost $6 million. They managed to make it cost $10 million. On March 25th Council voted to go ahead with the project and to enter a Management Agreement with Ken Conaway LLC. In my estimation this agreement will cost 30% to 70% more than is needed in order to get the same finished product.
The video above shows the discussion of the Management Agreement from the Mar 25, 2013 Council Meeting. I've added annotations that expand my points. You can watch the raw video directly from the city's website. The music center discussion starts about 34 minutes into the meeting: March 25, 2013 council meeting
I have a long article planned. In that article, I'll talk a lot about contracts and employee compensations. I intend to highlight this is Ken Conaway LLC's first management contract and is invaluable as a first opportunity. This project will set up Mr. Conaway's business for years to come.
Tonight, I'm a little short on time so in this short version lets look at the costs of Ken Conaway LLC compared to the city hiring a dedicated program manager. First, the project length is expected to be at least 16 months so a direct city hire is possible.
Here is what I'm looking at when computing how much a direct hire would cost the city. The City Manager was just hired on a 1 year contract for $107,000 a year with no pension contribution. Second we know the typical compensation for a Project Manager as an employee of a company such as 201LLC is somewhere between $85,000 and $110,000 a year. Conveniently, the city pay scales were part of the same March 25, 2013 meeting. There we can see that for a City Manager, Economic Development Director or City Engineer the most we would pay in salary is $136,813, $119,400 or $111,191 respectively. Assuming it cost about $50,000 in benefits and taxes then the most the city would spend for any one of these positions is $186,813 per year. Conclusion for $186,813 a year the city would be able to hire a Project Manager with the highest recommendations and qualifications.
Here is what the city just approved when they decided to hire Ken Conaway LLC. $9796.88 per month in Project Management Fees = $117,562.56 per year. Additionally, $16,466,67 a month in Management Service Fee = $197,600 per year. This is a total (yearly) cost of $315,162.60. This is the total cost unless Ken Conaway LLC hires an additional person. In that case there is a provision for charging the city more.
Comparing the direct hire cost of $186,813 per year to the Management Agreement cost of $315,162.60 per year and we see the city has already decide to overspend by 68%. Note: This is a multiyear project. In some documents it shows as 16 months in others 18 months.
This was meant to be a short article but I can't help but mention that a direct hire would have conflict of interest clauses and restrictions on incentives such as free cruises written within that person's contract with the city. There are no such items within the Management Agreement between the city and Ken Conaway LLC as published in the March 25 PDF packet (agreement is located a little more than half way into the packet - pg 39 of 62).
Interestingly when I look at the budget numbers found within the March 25th PDG packet, I don't see the Project Management Fee ($9796.88 per month, approx. $156,000) in the budget. Does this mean it was added after this budget was submitted? Why? Does this mean it was accidentally left out 30% of the management agreement cost? If this 30% is not in the budget how many other parts of the budget show 30% less than what they are actually going to cost? Is this fee labeled something else?