Why JCI’s business model needs a little sunshine

Why is Johnson Controls so worried about our efforts to shine a light on the inner workings of their contracts regarding the St. Louis County School District’s $78.8 million facilities plan?

I’ve been wondering about that for months as the company has steadfastly defied our efforts to review their contracts with its subconsultants, like Architectural Resources and other companies, that have provided professional services on the project under the JCI umbrella.

Our efforts will now shift to the Court of Appeals, where we anticipate the court will quickly reverse yet another clearly erroneous decision issued by the Office of Administrative Hearings. The same OAH judge who had earlier dismissed our complaint against JCI, only to be reversed by the OAH’s chief judge, wasted little time in dismissing our effort once again last week. We’re not about to let a poor judicial decision by an administrative law judge stand in the way of enforcement of the law and the public’s right to access information that is clearly public under the Minnesota Government Data Practices Act.

It’s becoming clearer to me what’s at issue here for JCI. As company representatives told some members of the school board last week, they find our efforts to crack the veil of secrecy surrounding their subcontracts so troubling because it has the potential to upset their business model and the close relationships the company has cultivated with a number of subconsultants and subcontractors.

Almost certainly, these close (perhaps cozy?) relationships had allowed all involved to maintain higher margins than might otherwise be possible in a system that was more open and competitive. JCI and its subs appear to be afraid that by exposing the pricing structure built into their contractual arrangements, it will allow competing businesses to offer lower prices and, essentially, break up a very lucrative private party.

While it’s certainly understandable that the companies involved would want to protect this arrangement, and are willing to spend tens of thousands on expensive lawyers to do so, the public has a clear interest in seeing this particular business model exposed to some scrutiny.

There’s a reason that this information is supposed to be public. It’s because the state of Minnesota has rightly determined that only through an open and competitive process can taxpayers obtain the best value on public projects.

If companies, like JCI, can establish these umbrella-like contracts and keep the public from examining the pricing structures within, it will seriously undermine the public’s ability to determine whether the prices they are charged for services are fair. For example, if an architect charges JCI $500,000 for design work under a subcontract, and JCI turns around and bills a school district $1 million, the public should know that because the next time around, any rational school board will opt for a more cost-effective arrangement.

What’s more, the business model that JCI has established is riddled with conflicts of interest. While JCI is ostensibly serving as project manager on our school projects, and is supposed to be representing the interests of the district, it isn’t clear that’s been happening. And because JCI has long-standing relationships, in many cases, with its various subs, they are less likely to pressure those companies to make good on their own screw-ups. We’ve seen this repeatedly in regards to the cost of all the code violations in the original school designs. An aggressive project manager, who really represented the school district, would have fought to have the architect pay for the added costs incurred because the corrections had to be made through the change order process, rather than re-bidding, which pushed costs higher.

Instead, JCI’s project managers have actively discouraged the school board from pursuing any claim to recover the district’s losses. Indeed, it seems the project manager’s role is more to keep the school board massaged and in line, than it is to ensure that the project is being run efficiently and in the interests of taxpayers.

That’s not surprising given that JCI has a close and ongoing business relationship with the architectural firm and many of the other companies involved in the project. The various parties appear to be working in each other’s interests, rather than in the interests of the school district and the taxpayers.

That’s not how these public projects are supposed to work.

And that’s why we’ve been continuing to fight to shine a light on this cozy arrangement that JCI has established. This goes well beyond the St. Louis County School District project. This same business model is being employed by JCI all over. It’s undoubtedly netting the company enormous profits, but I’m convinced it’s anti-competitive and that it’s serving taxpayers very poorly.

Public examination of all the contracts involved in this project, and others, is the only way that taxpayers can know for sure, whether or not they’re being taken for a ride.