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IBM deal filled with questions, secrecy

Tuesday, June 29, 2010 | 5:46 p.m. CDT; updated 10:18 a.m. CDT, Wednesday, July 7, 2010
Construction workers attend to their work at the IBM construction site on LeMone Industrial Boulevard. Originally a rundown manufacturing building, the site is currently being torn down to its metal skeleton to be transformed into a new site for IBM.

*This story has been modified to clarify the role of Communication Workers of America.

COLUMBIA — IBM required two things from Columbia during talks about whether it would come here: speed and secrecy.

The city — and others involved with the negotiations — met those demands.

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IBM required a fast-tracked process that would allow it to move into its Columbia location in a matter of months. The Columbia Area Jobs Foundation, a private not-for-profit organization unaccountable to the public, accommodated that stipulation.

IBM also insisted on absolute secrecy during talks that led to more than $31 million in state and local incentives. The involvement of the jobs foundation not only catered to that ultimatum, but it also allowed Little Dixie Construction, the company in charge of renovating IBM's building, to avoid a public bidding process on subcontracts for improving what will become a city-owned structure.

The city will pay $3.05 million for the building at 2810 LeMone Industrial Blvd., which was sold by the Robert M. LeMone Trust. The trust also owns Little Dixie. The city gave the foundation $500,000 for a down payment to help it acquire the building.

The jobs foundation can work around city purchasing policies and procedures. Dave Griggs, chairman of Regional Economic Development Inc., said that enabled the city, IBM and REDI to negotiate a timely agreement and quickly start work on the building.

IBM's need for speed

IBM originally told the city it had to move into a building by September. By mid-May, however, the company had pushed the deadline back to November. Griggs said IBM's target date was always Oct. 1, but negotiations took longer than expected. As it stands, construction is set to be done by Oct. 15.

IBM needed to be in the building by Nov. 1 to keep its promise to clients, company spokesman Bruce McConnel said.

"When we announced the agreement to locate the new facility in Columbia, we indicated that it would be operational by fall 2010," McConnel said in an e-mail.

First Ward Councilman Paul Sturtz, who supported the IBM deal but asked lots of questions about it at the Columbia City Council's May 24 special meeting, said the speedy time frame is a common IBM strategy.

"IBM, I think, has a history of manipulating cities into rushing through the process," Sturtz said in an e-mail. "This kind of rushing around to get employees into new buildings is all a big farce when you look at how East Lansing and Dubuque are understaffed."

IBM, which has promised as many as 800 jobs in Columbia, opened similar call centers in East Lansing, Mich., and Dubuque, Iowa, before announcing its decision to come here. Sturtz noted that annual reports from IBM show its numbers of U.S. employees dropped from 121,000 in 2007 to 105,000 in 2009. 

Lee Conrad of Communication Workers of America, a telecommunications union that advocates for IBM employees but isn't formally recognized by the company and has no collective bargaining rights, couldn't answer questions about whether IBM always employs a fast-tracked timeline.* But he said the company typically looks for incentives when choosing a new location.

A Jan. 17, 2010, article in the Telegraph Herald in Dubuque, the site of IBM's newest facility, echoes Sturtz's questions about IBM and its employment policies. After a year in Iowa, IBM's employment numbers were still "difficult to pin down," according to the article. It said IBM had not released firm employment numbers, but  Dubuque leaders insisted IBM was meeting its employment benchmarks.

Kay Snyder, spokeswoman for the Iowa Department of Economic Development, had  no specific employment numbers for IBM's Dubuque facility. A previous Missourian article reported that IBM had about 870 workers in Dubuque. The company promised to hire 1,300 by the end of the year.

Snyder said IBM has given the state the information it needs to ensure it remains eligible for promised tax credits.

Confidentiality and IBM

The jobs foundation became involved in negotiations with IBM because of the company's demand for confidentiality. But that arrangement, Sturtz said, meant elected officials got no chance to weigh in on the deal before the May 17 celebration welcoming IBM to Columbia.

Although he doesn't know if the city used the jobs foundation specifically to bypass public input, Charles Davis, executive director of the National Freedom of Information Coalition, said the lack of public accountability was "certainly part of the process."

Sturtz agreed.

"This is as much about eluding any kind of normal government oversight by elected officials, any kind of media scrutiny, any open-bidding process that wouldn't go through Paul Land and his friends at (the jobs foundation)," Sturtz said. Land is the former president of the jobs foundation and the real estate agent who handled the sale of the IBM building.

IBM said it needed confidentiality to remain competitive.

"As is typical in a competitive review, the details of the process are kept confidential until an agreement is reached," McConnel said.

Sturtz said that while he understands the high-tech world demands secrecy, he doesn't think that confidentiality should extend to the council.

"When it comes to public funds, there needs to be more oversight by elected officials," Sturtz said. "This strikes at the heart of democratic governance and whether we feel that's important in our country."

Former Third Ward Councilman Karl Skala agrees the council should have had more input.

"There was probably quite a bit that both REDI and the city administration could have done to bring the City Council into the loop," said Skala, who was still on the council during early talks with IBM.

As public representatives, the council deserved more information, Skala said. "The council should have been brought in since that is the public's conduit to the city government."

At the May 24 meeting where the council — including Sturtz — voted to approve the IBM deal, Columbia residents also questioned the confidentiality agreement.

"There should have been more time for the public to absorb this," Joan Beard said then.

Not all council members were completely against the secrecy. Second Ward Councilman Jason Thornhill said the city knew early in the talks that IBM would move on if it weren't guaranteed strict confidentiality.

Both sides have strong arguments, Davis said. Columbia wouldn't be able to lure a large business to town through a totally transparent process, but the public still has a right to know more about the negotiations.

"It's very, very difficult," Davis said. 

Working around public process

The Columbia Area Jobs Foundation was set up in 2008 to promote economic development. It is a charitable 501(c)(3) organization, according to documents filed with the Missouri secretary of state.

The jobs foundation was created with the idea that Columbia and Boone County must be able to provide land of certain sizes and acreages if it wants to attract companies and jobs to the area, said Ken Pearson, Boone County presiding commissioner and jobs foundation board member.

City attorney Fred Boeckmann said the foundation speeds up the process of bringing jobs to town.

"The city has a lot of procedures that we have to go through," Boeckmann said, and that can become a "kind of a lengthy, drawn out process." The jobs foundation can avoid that because it is not accountable to the public, its attorney, Erick Creach of the Van Matre Law Firm, said.

Sturtz doesn't like the private nature of the jobs foundation's role in the IBM deal. "I feel that it's done in order to avoid public scrutiny."

Thornhill, however, said it was necessary. "(The jobs foundation) enabled us to fit the time frame without risk of the deal falling apart before it really happened."

Ben Londeree, chairman of the Boone County Smart Growth Coalition, said he understands the need for privacy but argued that the public deserves to know the details once negotiations are done.

"As taxpayers, I think it's important that we know how much money we have in the pot and how much risk there is to us," Londeree said.

Jobs foundation bylaws require that its board of directors include a member of the Boone County Commission and a representative of Columbia's city government.  Pearson and City Manager Bill Watkins currently fill those roles.

The jobs foundation is not funded by public money, nor is it meant to be a money-earning venture. It gets its money through donations and grants, Creach said.

"It's not intended to make a profit for anybody," Pearson said.

The construction agreements

Little Dixie Construction landed the contract to complete the $10 million renovation of the IBM building.That's because the company is owned by the Robert M. LeMone Trust, which sold the building to the city, John States of Little Dixie said.

The two came as a package deal, Boone County Southern District Commissioner Karen Miller said.

"They own the building, they said they would remodel it and this is what the total project is," Miller said.

Little Dixie was in on the deal from the beginning, Mac LeMone, operations manager for the company, said.

"Little Dixie Construction was the original contractor for the building and was part of the original development team that worked with IBM since they were first interested in Columbia," LeMone said.

Miller said Little Dixie probably is renovating the building for less money than other companies could.

LeMone said the sale of the building was not contingent upon Little Dixie being chosen as the contractor.

Little Dixie picked subcontractors for the renovation without public bidding.

"It was opened up only to the people that were invited to our team," States said, adding that subcontractors were chosen "based off many years experience" working with Little Dixie.

IBM's decision to come to Columbia was uncertain right up until the end of talks, so it would have been hard to get companies to give accurate numbers and submit competitive bids, Thornhill said.

Time constraints also played into the decision not to bid out the project, Griggs said.

The date was "purely a standard set by the company even before REDI was involved," Griggs said. Subcontractors, he said, probably were chosen for their ability to get the jobs staffed and done within the time frame.

The subcontractors became involved in the project after a teleconference with IBM that settled the budget for the construction.

Griggs' company, Flooring America, got a $350,000 flooring contract for the building. While he couldn't speak for the other subcontractors, Griggs said his company's costs for the job are "substantially under market price."

Flooring America was willing to offer competitive pricing in order to bring IBM to Columbia, an attitude Griggs said he thinks is shared across the board.

"I would like to think, and I really do think, that all of the subcontractors look at it the same way," Griggs said.

Some Columbia residents remain skeptical. Local attorney and past council candidate John Clark said Little Dixie should have considered multiple companies when choosing subcontractors. That, he said, would have made the process more transparent.

Conflicts of interest?

Griggs is chairman of REDI and a member of the jobs foundation board. He also was closely involved in the negotiations to bring IBM to town. But he said there's no reason to view his flooring contract as a conflict of interest.

"We've done millions of dollars of work with Little Dixie over the years," Griggs said, adding that any local business person can become involved with REDI.

"Any community member that wants to volunteer their time has the same opportunities that any other member does," Griggs said.

Flooring America probably will have 10 to 15 people working on the IBM building. "This is a very nice job," Griggs said, adding that any boost his company can get in a down economy is a good thing.

Although this is not Flooring America's biggest contract, Griggs said it is one of the largest. Flooring America also has done work for Columbia Regional Hospital and for some Columbia schools.

Griggs said he attended about 60 percent of the meetings regarding IBM's interest in Columbia. Those included meetings with bank and city representatives. He also was involved in all the meetings with the IBM site selection teams.

"I was pretty deeply involved but not at all the meetings," Griggs said. He called himself "the chief salesman for the city" in the talks and said he acted as a facilitator between IBM and the companies involved on Columbia's end.

Griggs had little involvement in meetings between IBM and Little Dixie, he said.

Land, the real estate agent for the IBM building, was president of the Columbia Area Jobs Foundation before the IBM talks began. Brooks said Land stepped down from that role to avoid any perception of a conflict and that neither Land nor his company, Plaza Commercial Real Estate, made any money on the deal.

"To the best of my knowledge there was no commission paid to a Realtor," Brooks said, citing closing documents related to the sale.

REDI and the Columbia Area Jobs Foundation both have fairly vague conflict of interest policies.

REDI's policy states that its objective is to "maintain an organization guided and governed by the highest standards of conduct and ethics" and that "it is important to avoid not only any situation that is an obvious conflict of interest but also any situation that might give the appearance of being a conflict of interest."

The jobs foundation policy is similar. It says it is important to avoid not only "an obvious conflict of interest, but also any situation that might give the appearance of being a conflict of interest."

Neither policy clearly states what constitutes a conflict.

Griggs doesn't believe his involvement poses a conflict, but others question that.

"I suppose it could be viewed as a conflict of interest," Thornhill said.

Sturtz called it "very questionable" for REDI board members to serve as subcontractors on the IBM building. City ordinances, he noted, would prohibit any similar situations involving council members.

"We need to understand that REDI is a group of businesspeople in the community, and they are looking out for their own interests in part," Sturtz said.

Boeckmann, the city attorney, said there's no conflict involved in a REDI board member serving as a subcontractor for the project.

Regarding the jobs foundation, Pearson said he didn't know whether it would be a conflict for board members to work as subcontractors, but he said they are trying to avoid any direct conflict.

"That's not the purpose here," Pearson said.


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Comments

Phil Wilkinson June 29, 2010 | 6:55 p.m.

Sounds like to me, that some of the Counsel/Board members are upset that someone else manipulated the system before they could....Just a though is all.

(Report Comment)
hank ottinger June 30, 2010 | 7:45 a.m.

Regardless of what one thinks of this IBM deal, this is a remarkably informative and thorough piece of investigative journalism beside which the afternoon paper in town pales. Kudos to Ms. Rogers and her editors.

(Report Comment)
Glenn Rice June 30, 2010 | 9:19 a.m.

Agreed Hank, this is top-notch reporting. My compliments to Ms Rogers, her editors, and the Missourian.

(Report Comment)
Jimmy Bearfield June 30, 2010 | 11:37 a.m.

Good story. Hank, see also www.columbiatribune.com/news/2010/may/27...

(Report Comment)
hank ottinger June 30, 2010 | 12:00 p.m.

Mr. Bearfield: Thanks for the link; I admit I had missed the Trib coverage, having been out of town a while back.

(Report Comment)
Mike Martin June 30, 2010 | 9:47 p.m.

Talk about a debate that is too little and too late!

(Report Comment)
Joy Piazza July 9, 2010 | 9:18 a.m.

More reason to question this deal is found in a July 2010 report by the Kaufman Foundation: Kauffman Foundation Research Series: Firm Formation and Economic Growth. Excerpt:

"...job-creation policies aimed at luring larger, established employers inevitably will fail, said the report's author, Tim Kane. Such city and state policies are doomed not only because they are zero-sum but because they are based on unrealistic employment growth models, added Kane."

"These findings imply that America should be thinking differently about the standard employment policy paradigm," said Robert E. Litan, Kauffman Foundation vice president of research and policy. "Policy makers tend to focus on changes in the national or state unemployment rate, or on layoffs by existing companies. But the data from this report suggest that growth would be best boosted by supporting start-up firms."

Their recommendation: policies that invest in start ups who have, for decades, created the vast majority of the nations jobs. In contrast, they find, older companies "lose more jobs than they create, the gross flows decline as firms age."

JP

(Report Comment)

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