Friday, March 19, 2010

Let’s Correct the Record

By now you’ve heard that the new Madison Central Library proposal is “dead.” I’m not interested in speculating on why this played out the way that it did. Let's just say that it is very disappointing to our entire team.

However, there have been some inaccurate impressions in recent media coverage about the price and process dispute between Fiore-Irgens and the City of Madison. So I’d like to set that record straight. Here are the facts:

1. Fiore-Irgens never raised its price on the grey-box library shell. In fact, we reduced it in August 2009 from the original price of $27 million to a then-current price of $23.9 million. We stood by this price through the Common Council deliberations and after.

2. Fiore-Irgens never changed the deal. In December 2009, we prepared a discussion memorandum on “Project Issues and Development Roles/ Responsibilities” in which we recommended an alternative delivery approach to the City that would bring process efficiencies and cost savings to the City to help assure completion within the budget. Here’s how we described our position:

The RFP issued by the City of Madison in September 2008 anticipated that a Library Condo Unit would be finished to “grey box” specifications, then sold to the City. The design and build out of the Library Condo Unit would be the responsibility of the City and be subject to the city’s Public Works Contracting Ordinances. Fiore-Irgens remains ready, willing and able to carry-out this request for turn-key development of “grey-box” building shell. However, given budget constraints, timing concerns and the political sensitivity of this project, Fiore-Irgens recommends that a developer services approach be taken, in which the City undertakes the entire Project as Owner and engages Fiore-Irgens as “development manager” to provide services that will mitigate normal development cost risks.
This recommendation was never explored by City Staff, who instead determined that they wanted to undertake the public works approach without our development team.

3. Fiore-Irgens never demanded $2.7 million for services rendered to-date. We did attempt to accommodate the City by offering to sell the site and project work. However, we were very clear that this price must include some compensation to our team for the many thousands of hours that we spent on bringing the project to this point.  We asked for $900,000 for development services to-date.

Tuesday, March 16, 2010

Fact Check and Chronology:
Fiore-Irgens Efforts on behalf of Library

The issues surrounding the Madison Central Library project are complex, and do not lend themselves to “sound bite” answers. So we have created this resource for those interested in factual background.

Price Commitment by Fiore-Irgens
In September 2008 the City requested proposals to build and sell a “Grey-Box Shell” to the City, which the City would then complete as a public works project.

As the Mayor prepared his capital budget in August, 2009, Fiore-Irgens recommended a minimum Project budget of $38.5 million, including the Grey-Box Shell at a fixed cost of $23.9 million (excluding construction period interest and future parking). This revised pricing represented a $3.1 million reduction from the original cost for the Grey-Box, and was achieved by savings under the current construction environment and across-the-board decreases in professional fees. It also anticipated a $1.6 million reduction in the subsequent City costs to complete the project.

We further advised the City that the cost of the grey box Shell could not be reduced by more than this $3.1 million without impacting the conceptual design of the building. Nonetheless, the Mayor and his Staff made a unilateral decision to establish a $37 million budget for the Project. Fiore-Irgens expressed concern about the adequacy of this budget, but affirmed our willingness to help find a way for the City to accomplish it. Fiore-Irgens’ responsibility was to deliver the shell for $23.9million. And it was the City’s responsibility to complete the project within the proposed $37 million capital budget. Here is the relevant correspondence on pricing for the Grey-Box Shell:

Madison’s Common Council approved the Mayor’s capital budget request on November 10, 2009, but amended the budget to provide that “The City will not commence any significant portion of the construction of its portion of the project until it has received assurance that the federal New Markets tax Credits are available.”

Fiore-Irgens met with Mayor and his staff on Nov 17, 2009 to discuss next steps. (Here is the meeting agenda.)  We suggested that a approach to consider may be a "developer services approach" for public works construction that could yield significant process efficiencies and cost savings by integrating the shell and interior work. Although questions were raised about the implications of “public works” on the schedule and development roles, the City Attorney confirmed that the City could choose to directly hire the professional services from the Fiore-Irgens team. We proceeded to explore this alternative approach in good faith.
Fiore-Irgens prepared a fairly comprehensive analysis of Project Issues and Development Roles / Responsibilities. This draft was intended as a collaborative document and was distributed to the Mayor and others on December 29th as background for emerging media inquiries.

On January 11, 2010 the Mayor informed us that the City wished to proceed with a public works approach, but without the participation of Fiore-Irgens. We met with City staff on January 15th and were told that the condo approach approved by the Common Council was now "off the table." Fiore-Irgens formally protested this decision in a letter to the Mayor. (No response received.)

Two weeks later, the City sent a draft Letter of Intent that excluded both Fiore and Irgens from any further development role, and required Findorff and EUA to bid for the right to perform their services. No price was proposed for the existing structure and no provision was reflected for pre-development services already performed by Fiore-Irgens. We immediately sent back suggested changes to the LOI that would allow it to be acceptable to our team.

The Mayor responded to our proposal with a written ultimatum on February 9th demanding i) a $2 million reduction in our price for the Library Shell (to $23 million including construction interest and future parking), or ii) sell the site to the City for public works process that would exclude the Fiore-Irgens team. Otherwise, the City would look at other options including remodeling or obtaining a site by “purchase or exercise of condemnation powers.” In order to evaluate these options, Fiore-Irgens requested a specific proposal for purchase of the site including structure in place and pre-development services already provided by Fiore-Irgens. The Mayor asked for clarification on the development services already provided, and we provided this response.

And here we stand today… Fiore has advised the City that we are disappointed to be unable to continue development under the City’s proposed approach, but we do wish to see this project completed. Therefore we have suggested a "project acquisition price" that includes the site (air rights, improvements in place, and underground parking) and compensation for developer services already provided by Fiore-Irgens.

Wednesday, January 27, 2010

Best Delivery Method for New Library?

You might be wondering what’s been going on recently with the library project. After gaining City Council approval in November 2009, the Fiore-Irgens development team and City Staff have been diligently reviewing i) the relative benefits of various project delivery approaches for the new Madison Central Library facility, and ii) structuring ownership to maximize the benefits available from the New Markets Tax Credit program. Concurrently, the City has been progressing through the selection process for interior design services.

As you may recall, the RFP issued by the City of Madison in September 2008 anticipated that a Library Condo Unit would be finished to “grey box” specifications by a private developer and then sold to the City. The design and build out of the Library Condo Unit would be the responsibility of the City and be subject to the city’s Public Works Contracting Ordinances. Fiore-Irgens remains ready, willing and able to carry-out the requested turn-key development of the library “grey-box” building shell at the price to which we committed. 

Current overall project budget constraints, timing concerns and the political sensitivity of this project have led Fiore-Irgens to suggest that an alternative project delivery method may be better suited for the library project. This alternative project delivery method is known as a “developer services approach”. This approach allows the project to be managed as a whole where the City undertakes the entire Project as Owner and engages Fiore-Irgens as “development manager.”

We believe a public works project utilizing a developer services approach is the best delivery method in order to achieve the $37 million cost target established by the Mayor and approved by the Common Council. Some of the advantages of this approach include:

  • Development management will encompass the entire project (both shell and interior) creating a single point of accountability. Full alignment of interests will eliminate potential cross-fire about where certain costs must be borne.
  • Time will be saved because fast-track construction processes that overlap shell and interior construction will be enabled.
  • The overall project budget can be better understood and managed by the City because all parts of the project are managed as one.
  • Value-engineering options will expand because trade-offs can be made across the entire project scope, i.e. shell savings can be applied to interior improvements and/or interior savings can be applied to shell enhancements.
  • Financial (and political) risk is mitigated because total Project costs will be fully understood before the City becomes obligated to acquire the site and start construction expenditures.
  • Most efficient utilization of New Market Tax Credit funding opportunity due to consistent ownership throughout project development, design, construction, and operations.
  • Total development, construction management and owners representation fees will be reduced. (The entrepreneurial return is shared with City.)
The developer services approach recommendation is based on our team’s interest in creating a structure best suited for the project and the City, creating as much value as possible by extending the buying power of the $37 million project budget, and providing a solution to give the project the best opportunity for success. Fiore has a unique long-term interest in the success of the Central Library development and the team we have assembled reflects our care.

We look forward to continue working with the City to create a world class library within the budget approved by the Mayor and Common Council.