SAN JOSE — Going a step beyond state auditors’ findings, the Alum Rock Union School District’s own attorney has advised that contracts with controversial Del Terra Real Estate for construction management may be illegal — and may expose district employees and board members to liability.
In a memo to the five-member board, attorney Rogelio Ruíz wrote that two contracts with Del Terra could violate state prohibitions on self-dealing and should be terminated. Even renegotiating them, as the board has directed its staff to do, could still violate the law, Ruíz wrote.
“Such violations could expose the district and its employees, board members, officers and involved consultants to criminal prosecution and/or civil liability and/or penalties,” Ruíz wrote in the memo, which the Alum Rock board discussed in closed session Nov. 8.
In an email, Del Terra CEO Luis Rojas called the Ruíz opinion an “incorrect analysis” and that his recommendation “should be rejected.”
“Del Terra has not acted to award itself a contract and does not approve construction management invoices or change orders,” Rojas wrote. “Del Terra did not participate in the ‘making of [the construction management] contract.’”
The Alum Rock board, which has narrowly rebuffed efforts to dump the Del Terra contracts, does not appear in a hurry to act on its attorney’s warning.
“The legal issues raised in that memo deserve a full review by legal professionals who are not otherwise involved in the issues impacting the school district,” board President Esau Ruíz Herrera wrote in an email. Herrera added that he thinks a new attorney the board plans to hire next month should conduct that review.
Ruíz argues that Del Terra must abide by a California law, known as Section 1090, that prohibits public officials from having a financial interest in contracts they make. Ruíz cites two California court cases that have extended prohibitions against self-dealing to cover corporate consultants and independent contractors like Del Terra.
Ruíz’s memo challenges the dual roles that Del Terra plays in Alum Rock. It has contracts to manage the district’s entire bond program, earning 4 percent of the $125 million Measure J bond program and the subsequent $140 million Measure I bonds.
In addition, the Southern California-based firm has contracts to manage individual projects — such as constructing multipurpose rooms at middle schools and adding heating and cooling systems at elementary schools. It takes a 6 percent cut on each of those.
Ruíz points out that a program-management contract calls for Del Terra to seek bids for the Measure J construction-management role, which it never did.
He noted that Terri Ryland, a business consultant working for the district last fall, pointed out the fees for overlapping program-management and construction-management work, costs she termed “absurd.”
For Del Terra, “there are financial incentives to let costs rise and no requirement that true oversight or management of the contracts occurs,” Ryland wrote.
The conflicts and high costs also were flagged in June by a critical state audit, which advised renegotiating the construction-management contract.
But Ruíz goes a step further, arguing that any contract with Del Terra to oversee individual projects could be a conflict of interest and therefore illegal. He labeled his memo confidential, but the board later voted, 3-2, to release it and a previous Ruíz memo alleging improprieties in Mathson Middle School contracting. Trustees Khanh Tran, Andrés Quintero and Karen Martinez favored disclosure, with Herrera and Dolores Marquez dissenting.
The board’s other hired attorney, Luis Saenz, recommended against making the memos public.
Quintero said the recent memo vindicates his opposition to Del Terra’s latest contract. “Furthermore,” he wrote, “my actions to move to sever ties with our program/construction manager have also been justified by attorney Ruíz’s memo.”
