SAN JOSE — Alum Rock schools’ facilities director made a side deal with a construction company for a middle school renovation that would have cost taxpayers an extra $2.5 million and netted extra revenue for the firm and for the district’s controversial bond construction manager, Del Terra Real Estate, the school district’s attorney alleged in a confidential report obtained by the San Jose Mercury News.
The alleged deal, not authorized by top administrators or the school board, fell apart in May. The report by attorney Rogelio Ruiz recounts conversations that detail an unorthodox arrangement for remodeling bathrooms at Mathson Middle School and space at the former Mexican-American Community Services Agency (MACSA) building, which the Alum Rock district owns and intends to use as a multipurpose room for the adjacent Mathson.
In an email, Louie Moran, Alum Rock’s director of facilities, bonds and leases, wrote, “I do not make deals with anyone.” Instead, he wrote, “we work together to provide recommendations needed to resolve issues as needed to move forward within the law.”
Luis Rojas, head of Del Terra Real Estate, which manages the district’s bond program, disputed Ruiz’s account. Esau Ruiz Herrera, president of the Alum Rock school board, said about the report, “There was no such deal in the way it was conveyed to us.” And the district’s assistant superintendent for business, Kolvira Chheng, who originally flagged the deal, recently said that it actually was a “gap in communication.”
Ruiz of the San Jose firm Rehon & Roberts would not comment on the report he wrote May 26 and which the Alum Rock school board has kept under wraps as privileged, attorney-client communication.
While the two Mathson contracts did not turn out exactly as Ruiz’s memo says they were envisioned, the end result was similar.
CTG Construction of Southern California was the low bidder on both projects, but then sought to withdraw both bids due to “clerical errors.” The district allowed the firm to drop its $6.18 million MACSA bid, without forfeiting its $610,000 bid bond, which is akin to a deposit on the work.
CTG, however, agreed to take on the bathroom project, which it completed over the summer. It also painted the school’s exterior at no additional charge, a job worth about $150,000, and it paid Alum Rock $10,000 to cover attorney and staff costs.
Attorney Ruiz’s memo points out several problematic issues: a mid-level manager appeared to be engaging in side deals unbeknownst to and unauthorized by top administrators. The alleged deal called for Alum Rock to award the Mathson MACSA contract to the second-lowest bidder, which was $2.4 million more than the CTG bid. In doing so, Del Terra, which reaps 6 percent of every contract, would have netted $145,000 more as construction manager.
The purported deal also called for allowing CTG to tack on unspecified extra work, and charge the district $200,000 for it — a sum that Ruiz pointed out would exceed the percentage allowed for add-ons to contracts.
“I can’t imagine a scenario where a director of facilities could unilaterally make decisions of that magnitude,” said Jon Gundry, Santa Clara County superintendent of schools.
Ruiz’s report has been kept secret even from the Santa Clara County District Attorney’s Office, which is investigating Alum Rock and its bond-financed work. Investigators obtained a sealed search warrant for internet service providers connected to the district, presumably in search of email.
San Jose attorney Clark Stone is sifting through a cache of communications delivered in response to the warrant. He was appointed in July by Santa Clara County Superior Court Judge Elizabeth Peterson as her special master to identify any privileged material — presumably including Ruiz’s memo — that can legally can be withheld from law enforcement.
“My work is in progress,” Stone said.
Ruiz wrote that he was alerted to the unusual arrangement when Chheng called him May 9 with concerns about a deal engineered by Moran, a former employee of Del Terra.
Ruiz’s report includes emails to back up its account. Among them, Moran wrote CTG on May 8 stating, “Per our agreement the district will accept the withdrawal request” from the MACSA project.
But, Chheng noted, he had not authorized Moran to negotiate agreements with CTG, nor had the school board voted on the bids. He recommended against allowing CTG to withdraw its two bids, and two days later, the Alum Rock school board agreed with him.
After the votes, Ruiz said he was approached in the lobby by Moran and Del Terra’s Rojas.
“What the hell just happened in there,” said Moran, adding that he had “already cut a deal with” CTG, according to Ruiz’s account.
Rojas also mentioned that they had “brokered a deal,” Ruiz reported. He wrote that Moran displayed on his phone an email claiming to show a deal, and then uttered an expletive about Chheng. Rojas said he would get the board to rescind the contract awards to CTG, Ruiz wrote, and approve the previously arranged deal.
Part of the conversation was witnessed by parent Raymond Mueller, who chairs the district’s citizens bond oversight committee.
“Mr. Rojas was really agitated. His tone, his demeanor — you could see it was an aggressive conversation,” Mueller said. “He was very upset that (the board) had accepted the contract.”
Rojas denied discussing a deal, or even the existence of one.
“That conversation does not ring any bells whatsoever,” he said.
For his part, Costas Georgiou, president of CTG, said, “I cannot discuss stuff like this over the phone. This case is closed.” He called the bid “a mistake” then hung up.
CTG’s bids came in very close to the district’s estimated project costs. For both projects, BRCO of Rocklin was the second-lowest and only other bidder — circumstances that Ruiz said raised concerns.
The school district solicited new bids for the MACSA building rehab and on Sept. 28 received three proposals, from Fast-Track Construction of Culver City for $6.9 million, Cal-Pacific Construction of Pacifica for $6.95 million and Strawn Construction of San Jose for $7.1 million.
Given the events, Ruiz wrote, “we strongly recommend that the district review all past and ongoing communications between district staff and program manager (Rojas) and CTG and BRCO” about purported agreements.
So far, the board has not moved to do so.
S&P Global Ratings recently cut Alum Rock Union Elementary School District’s general obligation bonds to BBB-plus from AA-minus.