Auditors found Frostburg State failed to get proper approval or competitive bid for $2M energy facility

By Charlie Hayward

For MarylandReporter.com

Frostburg State University paid for construction of a $2 million Sustainable Energy Research Facility without documenting the reason for its site-selection decision, without obtaining required approvals from the Board of Public Works or the university system, and without requiring the developer to competitively bid construction, according to an audit released Wednesday.

Chief auditor Thomas Barnickle told legislators in a letter: “The selection of the site was critical because existing contracting arrangements for the location required the use of a certain developer who then used an affiliated contractor to perform the construction work.”

The report identified a potential conflict of interest involving a member of one of Frostburg State’s advisory boards and recommended the State Ethics Commission review the matter.

Building powered and heated with renewable energy sources

FSU oversaw design and construction of  $2 million building. The Sustainable Energy Research Facility is “off the power grid” meaning it’s powered and heated with renewable energy resources including solar, wind, and hydrogen fuel technology. The SERF building is used for renewable energy research, instruction, and demonstration by FSU faculty, students, and visiting experts.

According to the auditor, FSU paid approximately $2 million to the developer for this project — $1.6 million in FSU unrestricted funds and $400,000 in U.S. Department of Energy funds obtained with the help of then-Rep. Roscoe Bartlett.

SERF is located on land owned by FSU that is located on part of the campus known as the Allegany Business Center (ABC), the campus business incubator. FSU leases the land on which the ABC resides to Allegany County. The county sub-leases part of land to a private-sector property developer. The sublease stipulates the developer has exclusive rights to construct buildings on the site.

Lack of documentation to justify site, costs

The auditor found:

• FSU selected a construction site that required it to utilize this developer to build the facility rather than allow a competitive bid process. FSU did not, however, keep documentation of the rationale for choosing a building site that restricted construction options. Therefore, FSU couldn’t satisfy the auditors the $2 million construction cost was reasonable since the developer did not procure the construction contractor via open bidding process.
• FSU was required to obtain approval for the project from the University of Maryland, College Park Service Center at the time of the site selection in July 2010 because estimated costs exceeded the $1 million threshold. FSU never obtained that approval.
• FSU did not submit the construction contract to the Board of Public Works for approval, as required for construction projects exceeding $500,000.
• FSU did not obtain approval for the construction contract from the chancellor of University System of Maryland, as required.

The developer selected a construction contractor that appeared to be affiliated with the developer. The developer and the general contractor shared the same business address, and the owner of the general contracting company signed the contract with FSU as the managing partner of the development company.

A member of FSU’s Board of Visitors, an advisory board to Frostburg’s president, was associated with the developer and the general contractor.

The audit does not identify the developer or contractor, but a 2011 university press release identified the general contractor as Carl Belt Inc. It is owned by Carl Belt Jr. who has been a major donor to the university, and served on the board of its foundation and the steering committee of its $15 million capital campaign.

Ethics Commission asked to evaluate potential conflict

According to state ethics laws, a board member may not have a financial interest in or be employed by an entity having or negotiating a contract with the agency with which the member is affiliated.

After consultation with the State Ethics Commission, the auditor recommended the matter be evaluated by the commission to determine if a conflict of interest occurred in violation of state ethics laws.

William “Brit” Kirwan, chancellor of the University System of Maryland, responded to the audit by agreeing to submit the matter to the State Ethics Commission. Kirwan also said there has been no finding yet “…as to whether actual conflict of interest occurred.”

Charlie Hayward recently retired after 30 years’ experience with performance, IT, and financial auditing of a wide variety of government programs and activities. He is an avid reader of MarylandReporter.com. He can be reached at [email protected].