No guarantees, no proof: How did Mt. Diablo school district’s $50 million energy contract go so wrong?

Oversight officials want an investigation into whether deal with Schneider Electric was mishandled.

CONCORD — When Mt. Diablo Unified School District staff first presented a plan that promised quick-build, money-saving retrofits in the fall of 2021, trustees of the cash-strapped district got on board without objection.

But what district staff failed to say was that by quietly signing a string of Schneider Electric’s “energy services” agreements for new ceiling tiles, light fixtures and HVAC systems districtwide, the board was waiving its right to negotiate guarantees that the purported savings in utility bills and operational costs would exceed the project’s $50 million sticker price — a key legal requirement of the deal.

It’s unclear whether the MDUSD board was aware that its unanimous vote may have crossed the line into problematic — while still technically legal — territory, according to several attorneys knowledgeable about this project, who spoke to both oversight officials and this news organization.

California’s complex web of contract laws aims to weed out corruption, fraud, favoritism and mismanagement by setting strict standards for how local agencies can dole out funding.

But MDUSD took advantage of an exception to these traditional rules; the projected energy savings tied to the deal allowed the district to expedite Schneider’s contract to design and build the multiphase construction project.

In total, less than an hour was set aside for open discussion about Schneider’s plan over the course of five meetings, which ultimately gleaned no public input on the contract’s proposed energy-efficiency projects — marketed as “low hanging fruit” with the “quickest lead times” to see savings.

“I know this was a lot of information, but why not just hit the pause button and do a little bit more research?” said Dave Johnsen, one of the first people to publicly scrutinize Schneider’s contracts. He is particularly concerned that Schneider sold the board on a complex deal that may not have fully represented what was actually finalized in the $50 million contract’s fine print in 2023. “They put it at the very end of the three-hour board meeting. It’s just odd that they only spent 10 minutes in public talking about the expenditure of these funds.”

Johnsen, who facilitates labor and public contract code compliance involving public projects for a regional nonprofit, said he believes Schneider’s contract needs to be audited for improperly inflated costs and misrepresented energy projections, especially for such small-scale work on lighting fixtures, ceiling tiles and HVAC systems.

He’s not the only one. Oversight officials are concerned the district circumvented best practices on a project that now accounts for one-third of a $150 million property tax bond, Measure J, that voters approved in 2018.

“It’s important for the public to be informed on how and why the board is making decisions,” said David Snyder, executive director of the First Amendment Coalition. “In fairness, that’s not always possible, but best practice is to provide as much opportunity for public comment and discussion as possible — especially on items that have such a hefty price tag.”

Several district administrators who helped shepherd this project across the finish line have either rejected any concerns of wrongdoing or left the district entirely, including the former chief business executive and former general counsel.

An initial agreement was approved in February of 2022, anchored in Schneider’s analysis that its construction projects would save $900,000 annually on electric and gas utilities. Two months later, the district awarded Schneider a $385,000 contract to design the multiphase energy savings plan.

But rather than putting the next multimillion-dollar stages of construction out to bid — an industry standard for awarding publicly funded contracts — the district opted to instead amend Schneider’s contract in May 2022 to $24.3 million, which paid for the first phase of the project to replace LED lighting fixtures and ceiling tiles districtwide.

In March of 2023, a contract revision more than doubled the total to $49.4 million, adding a second phase of construction on HVAC systems which was also not put out to bid. The district effectively took Schneider at its word that MDUSD’s cumulative savings would hit $1.8 million — 80% of their annual utility expenditures — after one year, and surpass $53 million within 20 years, according to the March 2023 contract.

However, Schneider’s initial rosy promises of energy cost savings were watered down and eventually withdrawn by the time district officials greenlit the company’s final plan 14 months after the first agreement was inked. In the year after the first phase of the project was complete, the district’s energy savings were only 7%, according to Schneider’s own numbers.

The current agreement explicitly stipulates that the company’s data on projected savings must be approved without any additional measurement or verification. Additionally, the agreement includes a carve-out that Schneider “is not providing any energy or efficiency savings guarantees in connection with the project or the contract,” which appears on the same page as the prerequisite finding that Schneider’s work provides energy savings.

In a last-ditch effort to delay any decision on the final deal last year, Johnsen contacted district trustees directly — including an in-person conversation with district Superintendent Adam Clark — and the Measure J Citizen’s Bond Oversight Committee (CBOC), the volunteer body assigned to ensure the district spends its Measure J money as promised.

“(Local governments) have to be so careful if they’re sole-sourcing $50 million worth of work — it’s problematic,” Johnsen said in an interview. “There was no urgency until I was like, ‘Oh gosh, they’re going to try to get another $25 million.’”

Elliot Feldman, a program manager for Schneider Electric, rejected critics’ assertions that the company is overcharging for its work. While he conceded that the company typically provides savings guarantees for projects that are financed by banks, Feldman said that wasn’t the best practice for MDUSD’s energy services contract, which he said will allow the district to redirect money to other priorities, such as preserving job positions and school programs.

“I’m very confident that you will see (the projected savings),” Feldman said during a March 2023 school board meeting. “Once the (first phases) of the project is complete, absolutely you will see really great progress from a utility saving standpoint.”

Superintendent Clark asserts that the project is legal and was properly awarded — citing a February 2022 public hearing, which lasted only one minute.

Clark’s continued support of the project was echoed by MDUSD’s former chief business officer, Lisa Gonzales, who received a no-confidence vote by union leaders in 2022 due to a lack of transparency on district finances. She took another job in Washington state shortly after the ink dried on Schneider’s final contract. Similarly, former general counsel Cesar Alvarado resigned in January, according to public records.

The CBOC has unsuccessfully requested public records and independent reviews of Schneider’s contract since it was finalized. Complicated by the recent departures of Gonzales and Alvarado, the CBOC claims that the district is stonewalling their attempts to investigate this deal, perhaps in violation of California law.

Gina Haynes, the committee’s chair, said one of the biggest red flags appeared after Alvarado admitted to the CBOC that he did not directly review Schneider’s final $50 million contract revision, saying that not all contracts are reviewed and that district staff members determine their value. Despite not evaluating the March 2023 agreement, he maintained that it was “proper and valid.”

Haynes worries that the ongoing lack of open communication will jeopardize MDUSD’s ability to ask taxpayers for more money in the future, especially since there is not much funding left for additional upgrades through Measure J.

“They’ve burned through their trust,” Haynes said. “If (MDUSD’s trustees) really do want to be transparent and want all of us constituents to trust them, they’re not allowing that.”