The new high school could be finished early and on budget thanks
to a financing method new to the district.
Gilroy – The new high school could be finished early and on budget thanks to a financing method new to the district.
When the Gilroy Unified School District chooses a developer for Christopher High School, it will likely enter into a lease-leaseback agreement with the company. The agreement will set a guaranteed maximum price for the project and encourage the developer to finish it early, district proponents said.
“It’s an exciting opportunity for the school district to look at this,” said trustee Javier Aguirre. “It’s trying to save taxpayers money while speeding the construction process. The traditional bidding process – it takes a long time and you run into cost overruns.”
When building schools in the past, qualified companies bid on the project and the district selected the lowest bid, as required by law. However, if the price of materials or labor rose during the project, the district had to shoulder the increased cost. Similarly, if the project took longer than expected, the district continued to pay employees until work was complete,
In a lease-leaseback arrangement, the district is free to choose any developer that meets a minimum set of qualifications. Thus, it can select the developer it feels will do the best job, even if the company does not have the lowest price.
While some critics of lease-leaseback agreements say this process could allow cronyism, the district is not culpable because it remains focused on getting the best deal, said Steve Brinkman, assistant superintendent of business services.
“You’re going to look at the bid first, and then you’re going to look at the contractor,” he said.
An advantage of the lease-leaseback arrangement is that the district and the chosen company agree upon a guaranteed maximum price beforehand. As a result, any increase in material costs fall on developer. In addition, the developer only gets paid as it completes contractual benchmarks. However, the district is still liable for unforeseen costs, such as land modifications not specified in the agreement.
As the risk of construction and labor costs increase as the project continues, the developer has an incentive to finish early, said trustee Francisco Dominguez.
The developer is “going to be driving to get that price in below that (projected cost),” he said.
This will not detract from quality because the building must still meet all state and federal requirements for new schools, said Brinkman. In addition, the developer must adhere to the same labor laws as the district, including paying prevailing wages.
The arrangement has worked in other districts, where projects have been built weeks and months ahead of schedule. Sacramento’s Natomas Unified School District was one of the first districts to use the lease-leaseback process, contracting a company to build a 2,000-student high school in 2003. The project, estimated at about $58 million, was finished $2.5 million under budget and six weeks ahead of schedule.
Since then, dozens of districts have used this method to build scores of schools. Christopher High School would be the first to be built in the district using this method.
While past successes do not guarantee the district will see a stellar school built that is under budget and finished ahead of schedule, it is in the developer’s best interest to do both, Aguirre said.
“Eventually we’ll be building more elementary schools, more middle schools, more high schools,” he said. “It’s to the best interest of the firm to complete the project on schedule if they want to come back in.”
