Wonder what the failing of a nonprofit board's duty of loyalty can look like?
One of the best examples I've seen is described in detail in the following Chicago Tribune story. And, as a refresher, the most common failing of the duty of loyalty is conflict of interest -- that is, when board members make decisions that take advantage of their position as a board member and result in personal material gain. If there's a case for failing their conflict of interest, this is it. For shame, for shame, for shame!!!
College of DuPage backers with exclusive deals rake in millions
College of DuPage Trustee Dianne McGuire shows President Robert Breuder a newspaper clip before a special board meeting in January. McGuire has pushed for competitive bidding for college contracts.(Nuccio DiNuzzo, Chicago Tribune)
Officials at the College of DuPage have a long list of items to turn over to federal investigators by next week, including a trove of documents related to contracts with companies tied to board members for the school's fundraising foundation.
Here's what those records will show: Nearly half of the College of DuPage Foundation's 22 most recent board members are executives at companies doing business with the publicly funded school, and many of those companies have been awarded jobs without going through a competitive selection process, according to a Tribune investigation.
Those businesses have billed the college for nearly $200 million since July 2010 — while also ranking among the foundation's most generous donors. The Tribune's investigation, examining many of the same documents now being sought by federal authorities, raises questions about the confluence of business dealings and fundraising at the state's largest community college.
The foundation contracts are the latest legal and public relations battle for the Glen Ellyn school, which was served with two grand jury subpoenas this week as part of a federal criminal investigation. Since January, the school has been under fire for giving its president one of the largest buyout packages in state history, lavish spending by top administrators and its lax financial oversight.
A review of board minutes, emails and an audio recording shows that some school trustees raised foundation-related concerns more than a year ago. But President Robert Breuder repeatedly resisted calls for a more open contracting policy.
"I thought here in Illinois especially, even the appearance of pay-to-play or conflict of interest is dangerous," college Trustee Dianne McGuire said in an audio recording of a December 2013 board meeting.
McGuire, the board's liaison to the foundation, pushed for a more competitive selection process and suggested at that meeting that, based on an earlier conversation with Breuder, he agreed.
He didn't, the recording shows.
"I never weighed in," said Breuder, now also a target of the federal investigation. "I didn't go either way. I just sat there."
"I have to assume that at some point you saw there was some validity to what I was saying," McGuire replied.
"No," Breuder answered firmly. "It was an easy way to satisfy an interest that you had."
It's now an interest shared by federal prosecutors. The college has been ordered to provide documents showing all payments, reimbursements, contracts or loans between the college and foundation board members and their businesses, according to grand jury subpoenas obtained by the Tribune. The subpoenas also ask for documentation of any bids the companies submitted, their professional qualifications, and any efforts made to ensure the work was competitively awarded.
Including two members who resigned from the board this month, 10 of the foundation's 22 board members do business with the school, according to documents obtained under the Freedom of Information Act. Of those 10, nine have received non-competitive deals for a variety of business, including construction management, legal representation and political lobbying, the records show.
Nothing more than pay to play the Chicago way.RSOGA0AT 6:14 AM APRIL 17, 2015
The businesses, meanwhile, all have donated generously over the years to the college's foundation. In fiscal year 2014, each company — or the foundation board member employed by the company — gave at least $5,000, putting them in the President's Circle, the highest level of annual giving, according to the foundation's annual report. Three companies are also part of the Presidential Society, an honor bestowed upon those who have given $100,000 or more over a lifetime.
College and foundation officials met with the Tribune on Monday, before the revelation of the federal investigation. In a lengthy interview, they defended the relationships because in all but one case, they said, the contracts were awarded before the company employees joined the board. The foundation-connected vendors all joined the board between 2010 and 2014.
Records show, however, companies tied to at least seven board members received contract renewals, extensions or increases, or new business, after their executives joined the board.
Many of the jobs did not have to be competitively bid because they involve professional services, one of the few exemptions under the state's procurement laws, or because the college already had a "satisfactory relationship" with the company, according to the officials.
"These people were contracted long before and became good friends of the college because they became involved in the mission. They are community and business leaders," said Catherine Brod, the foundation's executive director.
Still, critics have said there is at least an appearance of impropriety.
"All of the transactions are completely legal if conducted at arm's length, but the pattern is troubling," said Adam Andrzejewski, founder of the watchdog group For the Good of Illinois and an outspoken critic of the college's spending.
Ethics vs. statutes
The nonprofit foundation serves as the college's fundraising arm, and while it is legally separate from the college, the school pays foundation employees' salaries and provides them office space. Foundation board members don't get paid.
According to the foundation's annual report, it gave away over $452,000 in scholarship money to more than 600 students last school year. It also awarded more than $130,000 to support faculty and staff projects.
"The people who are on our board are really very involved with their time. They are passionate about the college," said foundation board President Susan Lang Berry.
Board members are asked to donate at least $1,000 a year and make the foundation one of their top three charities, Berry said.
Community colleges nationwide have rules regarding vendor agreements between the schools and foundation board members, from policies prohibiting them to using conflict-of-interest statements to make the business dealings transparent. The College of DuPage Foundation's conflict of interest policy does not address board members' business dealings with the college, but cautions "most conflicts fall into a gray area where ethics and public perception are more relevant than statutes or precedents."
"Loss of public confidence and a damaged reputation are the most likely results of poorly managed conflict of interest," the policy adds.
Taken together, foundation-connected companies have billed the school for nearly $200 million in the past five years, records show. The companies include two construction firms, Chicago-based Power Construction Co. and Minnesota-based Mortenson Construction Co.; two local law firms, Robbins Schwartz and Fuchs & Roselli; lobbyist Scott Marquardt; architectural firm Wight & Co.; project management firm CCS International; and signage company Herricane Graphics.
U.S. Bank, which has a representative on the board, pays $1,500 a month to operate the only bank branch on campus, a noncompetitive deal approved by trustees in October 2012. The bank's Chicago market president, Marsha Cruzan, has served on the school's foundation since July 2010.
St. Charles-based Bison Gear & Engineering also has done a small amount of business with the college, selling $7,550 worth of equipment in the past year. A foundation official said Bison Chairman Ronald Bullock — a foundation member who donated $275,000 for student scholarships last year — would not have been aware of such a minor transaction at his company.
The companies and their foundation-connected representatives either did not return calls seeking comment or deferred most questions to the college.
Amid the Tribune's reporting, college attorneys Kenneth Florey, of Robbins Schwartz, and Steven Ruffalo, of Fuchs & Roselli, stepped down from the foundation board, citing personal and business reasons. Payments to their firms are included in the Tribune's analysis because they were sitting board members until earlier this month.
The college declined to provide contracts signed before July 2010 and didn't release any records until a Tribune attorney intervened. Officials also would not provide records showing proposals from those companies, though the officials contend all went through a competitive process before their first deal with the school. The vast majority of the payments were for construction work as the college has built or significantly renovated a number of buildings since Breuder became president in 2009.
A review of more than 900 pages of invoices, contracts and board minutes shows that the college has paid more than $192 million in the past five years to Mortenson Construction and Power Construction. The two companies have spearheaded projects funded by a successful referendum in fall 2010, when voters approved a $168 million measure to expand the campus' homeland security education center and renovate other buildings.
Nothing more than pay to play the Chicago way.RSOGA0AT 6:14 AM APRIL 17, 2015
College officials say the $192 million figure is misleading because it includes payments that passed through the construction companies to other contractors. They also said the amount includes both construction management fees — which were not competitively awarded — as well as construction work for which the companies submitted bids.
School officials declined a Tribune request to provide an itemized accounting of the payments made to Mortenson and Power. Both companies deferred questions to the college, which argued that no quid pro quo existed because neither firm had a seat on the foundation board until last year.
Though the foundation does not provide detailed information about contributions, records show the foundation-connected construction companies are among the largest lifetime donors to the group. Both Mortenson and Power have donated at least $50,000 each over the years, according to the organization's annual report. Mortenson — which served as construction manager for the McAninch Arts Center renovations — also donated $50,000 last year to be the "platinum sponsor" of the building's re-opening celebration.
The firms also have contributed financially in other ways.
In 2010, the two contributed to a political action committee started by college administrators to help promote the building referendum. Mortenson gave $5,000, and Power employees contributed $10,000 of the $65,000 raised in total, according to state campaign records.
Eight months after the referendum's passage, school trustees awarded both companies construction management contracts.
"You have this culture of pinstripe patronage," said Chicago attorney Mark Stern, who raised questions about the political action committee during the referendum campaign. "People are contributing money to the people making the decisions."
Leader 'comfortable' with deals
There have been signs that trustees and law enforcement officials have begun to recognize potential problems with the procurement system. Before the federal investigation, DuPage County prosecutors began looking into no-bid contracts awarded to Herricane owner Carla Burkhart, who joined the foundation board in June 2012.
The Tribune recently reported that Burkhart has billed more than $630,000 to design and install signs for the school over the past four years without submitting a single competitive bid, including a new project awarded in 2014. Much of the work was made possible through a contract that references her experience as an architect, though she is not one.
McGuire — who is spearheading a board review of foundation-connected contracts — said in the interview Monday that she now feels comfortable with the existing deals after the college recently compiled statistics showing the fees were within industry standards. She also applauded a recent decision to bid an architectural contract for a new Naperville facility.
A new vendor won that job.
She said she intends to recommend that the college seek proposals from several companies before agreeing to professional service contracts in the future.
"I don't want to make it a mandatory process," she said. "I think we want to leave some flexibility in place, but definitely encourage that."
Although McGuire had been rebuffed by Breuder in December 2013, emails last fall show she continued to push for an open and competitive contracting process.
"If a foundation board member is also a vendor of the college, then the board of trustees must be assured that any contracts they receive must be shown to be competitive with other similar service providers," she wrote in an October 2014 email to Breuder. "(O)therwise, it has the appearance of pay to play ... we must be able to defend that contract if questioned."
Breuder replied that the college had no legal obligation to bid contracts awarded to foundation members.
When McGuire asked what harm could be done by a competitive process, Breuder ended the discussion.
"I am comfortable where we are," he wrote. "That said, we can always look at another step at times. We will rely on our good judgment."
Two months later — at McGuire's urging — the college board approved a new competitive contract for lobbying services. Foundation member Scott Marquardt had handled the college's lobbying efforts since 2010, and had joined the foundation board in July 2012.
The college had been paying him $5,000 per month under several non-competitive contracts.
But, when it came time to renew the deal last year, the school solicited proposals from 33 lobbying firms.
In the end, Marquardt submitted the only proposal, but he lowered his price to $4,500 a month — saving the college $6,000 a year.
Tribune reporter Christy Gutowski contributed.
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