No state funds for stalled hotel project — City forfeits another state grant but recent MOU fails to acknowledge

June 30th the City lost $500,000 it has been touting as state support for the downtown hotel. The State Department of Housing and Community Development (DHCD) says it is no longer funding the Frederick hotel project. In January 2016 the City was awarded $500,000 in ‘strategic demolition’ funds for purchase of land for the hotel. The City issued a celebratory press release in which the project director Richard Griffin was quoted as saying the money was “critical to advancing the project.” (2016/01/19)

The $0.5 million has appeared as a ‘source of funds’ ever since. It is included in the project budget contained in the City-Plamondon MOU (Appendix B) approved by the Mayor & Board at the recent June 21 meeting.

But like so much City verbiage about its hotel project this is make-believe. The DHCD grant to the City was conditioned on negotiating the terms of the land purchase, organizing matching sources of funds and being ready to ’settle’ the land purchase within two-and-a-half years. Early 2016 Mayor Randy McClement signed for the City committing it to the 30 month term ending June 30, 2018.

Sara Luell, spokesman for the DHCD emailed us recently: “Our grant agreement with the City of Frederick expired at the end of the fiscal year. (June 30) Any questions on how this project may move forward should be directed to the city or county.”

Second time mismanagement has lost state $s

This is the second time the City received a state grant to help with the hotel but lost the money because it failed to fulfill the commitments it made and the grant agreement ended without a dollar moving from the state to the city. Mid-2017 the City forfeited a $350,000 DHCD grant for the hotel announced in 2014 after the state agency declined to extend the deadline a second time.

Not only are state funds for the hotel project forfeited, but the Maryland Historic Trust (MHT) has ended historic mitigation negotiations with the City.

Historic mitigation talks discontinued

MHT was told some months ago by DHCD that it should suspend work on the mitigation agreement with the City of Frederick because the hotel project was not getting state money. MHT consults on local government projects like the Frederick hotel at the request of involved state agencies. With the DHCD discontinuing funding, an MHT official told us last Friday, there is no basis for further work on a historic mitigation agreement between the MHT and the City. The site chosen by the City contains three ‘historic assets’ — the Trolley building planned for restoration, the Birely Tannery planned for demolition, and a major archeological site needing to be meticulously dug and catalogued. All three are recognized elements of the downtown historic district and are collectively on the National Register of Historic Places. And the trolley and tannery buildings are classified as individually eligible for the National Register of Historic Places comprising structures found to be of “unusual importance” historically. All this calls for a ‘mitigation plan’ if the hotel project should proceed in order to compensate for the demolition of the Tannery and construction on a major archeological site. State law requires Maryland Historical Trust agreement for any state funds to flow. (MODIFIED AFTER FIRST POST)

Mayor O’Connor stating his personal commitment to historic mitigation

Mayor Michael O’Connor said at the June 21 hearing he was committed to following through with the historic mitigation process: “I think we will get at some point an agreement with MHT which will come before this Board of Aldermen for their concurrence. If that doesn’t happen we will have to bring it back here to talk about how we will resolve this mitigation question. But I have said on the record and I will, continue to say: I am committed, I can’t speak for you, I remain committed to following through with the historic mitigation process. So if it comes to that they will bring it back and we will get an agreement.”

Alderman Donna Kuzemchak called the historic mitigation agreement a “dealbreaker” issue. She wants a much stronger mitigation effort than envisaged in a City draft agreement written for the Maryland Historical Trust, but never agreed by it.

Alder Donna Kuzemchak

Kuzemchak at the June 21 hearing: “And so for me this is a dealbreaker. I want to be very clear. This is a dealbreaker.”

Maryland Historic Trust officials indicate they can only resume consideration of the Frederick hotel mitigation plan if asked to do so by another state agency. The project has been so poorly managed it has now burned and crashed at three state agencies, none of which seem likely to wish to hear more of the project.

For some years the Maryland Stadium Authority went along with it, suggesting consultants, doing costing etc. But in November 2016 MSA dumped the Frederick project, its board of directors voting unanimously. By the end of the year it was clear the Maryland Economic Development Corporation (MEDCO) would not take its place. Now DHCD wants no more to do with it.

The dead $500k misrepresented in MOU2018 as live funds

Nonetheless the new MOU went to the Mayor & Board of Aldermen (M&B) June 21 with the dead $500,000 presented as a live source of funds.

Another ‘clarification’ is needed!

Most of the drama at the M&B meeting came from rewrites on the issue of which party bears the risk of cost overruns in the City’s part of the project — which consists of land purchase, site preparation, historic preservation mitigation including archeology work at the site, hazardous materials disposal, foundation pilings, construction of the underground works including the parking garage, hotel loading dock and trash handling, construction of a street-level podium engineered to support the developer’s hotel and conference center, utilities including roadways and ramps, drainage, and landscaping on- and off-site.

The version of the new MOU attached to the agenda of the Mayor & Board meeting was unequivocal in assigning risk to the City: “The City affirms, and the Transaction Documents will memorialize the understanding that the City bears the construction and financial risk of completion of construction, and opening, operating and maintaining the Public Podium/Garage.”

This was logical.

A party undertaking to build something normally takes on the risks. Plamondon was taking on the risks of his portion of the project (the hotel and conference center,) so symmetrically the city would take on the risks of its construction. Of course it is usually possible to insist on a fixed price contract, but in a risky project like this with many difficult-to-predict kinds of work a fixed price contract will be a lot more expensive upfront than the kind spelled out in the agenda-MOU. A compromise sharing of risks with a contractor usually involves contingency provisions, which may add 5 or 10 percent to the cost. If you are building a risky structure in risky terrain, as the City proposes under the hotel, you pay for those risks one way or another.

Project director Richard Griffin

Trouble was the Executive Summary sent to the Board of Aldermen and public said the opposite of the MOU itself, claiming: “any cost overruns for public infrastructure not caused by a city initiated scope change are solely the responsibility of PHP (Plamondon.)”

We’d pointed out this misrepresentation several times, but in the context of longer screeds making multiple critical points. It didn’t seem to register. Time for shock treatment! So late on the evening of June 18 we emailed the five aldermen the following:

All: This downtown hotel project is under the control of a man who if he were selling you a used car could breezily say “You’re getting a great five years warranty on repairs. Five years!” when the fine print of the sales contract stated: “Buyer accepts this car as is. Seller provides no warranty against defects.”

The Executive Summary for the downtown hotel hearing June 21 misrepresents the MOU on risk to City.

see: http://frederickhotelboondoggle.us/2018/06/black-is-really-white-executive-summary-misrepresents-new-mou-on-city-hotel-construction-risk/

Peter Samuel (end email)

We don’t know what, if anything, happened as a result of this shock email. The aldermen may have noticed the contradiction themselves, or had others draw their attention to it. Anyway some aldermen did, we know, make inquiries of City staff about the disconnect between the Executive Summary and the text of the MOU on the matter of cost overrun risk.

And mid-afternoon on June 21, just a few hours before the long-scheduled 7pm meeting the City issued a memo from the City Attorney and another revised MOU, the major point of which was to align the MOU with the Executive Summary on the matter of City/developer liability for cost overruns.

At the evening meeting project manager Richard Griffin said: “We received a number of comments both from the aldermen and from the public. And as a result of that staff has been working diligently with the Plamondon team to continue to clarify language in the memorandum of understanding and there is both on the website for this evening’s public hearing and I believe emailed to each of you and I believe a memorandum from Saundra Nickols city attorney in which case she identified by bullet point some additional changes that have been made to the MOU to address those items that were identified and to clarify those items.”

Most consequential of the changes in the MOU’s paragraph II (b) was deleting the passage “The City affirms, and the Transaction Documents will memorialize the understanding that the City bears the construction and financial risk of completion of construction…” In its place was substituted the statement that the construction contract “will require the City to pay all amounts necessary to complete construction of the Public Podium/Garage in accordance with the….contract… subject however to the covenant by the developer to bear the risk of any cost overruns as set forth in subsection (e)….”

It was a U-turn, a 180 degree change of direction. (Calling the change a mere ‘clarification’ was absurd.)

But what about the subsection (e)?

Move to another page to find that.

Ah here it is.

“(e) Construction Oversight; Cost Overruns.” is the heading.

And so in the new subsection (e) everything from subsection (b) is repeated until the last sentence which reads: “The Developer shall bear all responsibility for Cost Overruns for the Project beyond the amounts set forth as contingency in the Final Development Project Budget.”

Ah the Contingency

This is the first time there has been mention of a ‘contingency’ sum in the cost of the podium/garage being built by the City. It’s a logical way to handle risk. If the developer and the contractor are expected to carry the risk of cost overruns in the riskiest part of the construction then adding a contingency is reasonable and logical. You can’t go from an agreement in which the City agrees to carry all the risk of cost overruns which was the case in all the drafts until the 3pm June 21 revised version to one in which those risks are sloughed off onto the developer without paying a price. The price is going to be reflected in the ‘contingency.’

Trouble is MOU’s project budget in Appendix B remains completely unchanged. There is no mention of a contingency in the project budget. Having the developer assume the overrun risks is presented in the new MOU as costless. More make-believe.

Maybe they didn’t have time to work up estimates of the cost to redo the project budget?

The basis for all the cost estimates in the project budget is unclear anyway. Detailed engineering drawings have not yet been done. The general design isn’t even firmed up. The site plan submitted to City staff last year provoked a long list of critical questions, none of which have been answered in about eight months since. There have been negotiations with the Eagles who own the parking lot and building to the east of the main site of the hotel. An acquisition of that may change the design.

Why needed?

So why is the new MOU needed? The official line was that an update would reflect the changes that have occurred in the two-and-a-half years since the first MOU was signed on December 23, 2015. Another issue never discussed is the fact that the first MOU granted the Plamondons exclusive legal rights to negotiate the hotel with the City for 30 months. On June 23, just two days after the Mayor & Board hearing on the new MOU that exclusive negotiating right of the Plamondons expired. The new MOU extends the Plamondons exclusive negotiating rights to the end of 2019, another 18 months.

NOTE: The initial posting contained some rude comments about the grammar of the MOU. But since my own posting contained several similar, small mistakes I’ve deleted those comments as of 9am.

PSam 2018/07/17

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