Pfeffer Files $37 Million Damages Claim With State Over LIO Deal

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This morning developer Mark Pfeffer officially filed a $37 million claim with the Legislative Affairs Agency (LAA) over the Legislature’s decision to move the Anchorage Legislative Information Office out of the recently renovated 716 W. Fourth Avenue building.

In a prepared statement, Pfeffer’s spokeswoman Amy Slinker said of the claim:

“716 West Fourth Avenue, LLC filed a legal claim today with the Legislative Affairs Agency Procurement Officer arising from the Alaska Legislature’s announced decision to abandon the 2013 lease extension contract awarded by the Legislative Affairs Agency (LAA) for the Anchorage Legislative Information Office (LIO). 716 is seeking full reliance damages relating to the 2013 lease procurement, in the amount of $37,016,021.”

“We still believe we can achieve a pathway to savings and are disappointed that we are forced to take this step. We are willing to work with the legislature to achieve savings but without the legislature’s cooperation, we have no choice but to seek legal recourse.”

Under Alaska Statute 36.30.620, the process for a contractor to claim damages related to a state-awarded contract is for that contractor to file the claim with the contract’s procurement officer. In this case, that is Sen. Gary Stevens (R-Kodiak) by virtue of his position as Chairman of the Legislative Council. Stevens will have 90-days to rule on the claim.

When Stevens denies, the claim — Stevens has worked consistently to get the Legislature out of the current LIO — the next step will be for Pfeffer to appeal that decision to an administrative law judge in the Department of Administration. After that, the appeal process goes to the Commissioner of Administration, then to the State Superior Court, then, finally, the Alaska Supreme Court.

It is very possible this case will exhaust that entire process, involve all three branches of state government, take years to resolve and end with the Legislature owning two different office buildings in Anchorage.

The Long Road To This Point

After 13 failed attempts to find a suitable solution to the deteriorating condition of the Legislature’s office space in Anchorage, in 2013 they turned to Pfeffer. In May of that year, the developer presented Legislative Council, the committee of legislators that manages legislative office space, with three options for renovated office space. Legislators chose the most expensive option, a full renovation and expansion that would encompass their old office building, the building next door, and their adjacent parking structure.

The total price for the legislator’s chosen project came in somewhere well north of $40 million.

Ever since the project was announced, the size, scope, and opulence of the project chosen by legislators have drawn sharp criticism from almost all corners of Alaska.

This March, a lawsuit brought by neighboring building owner Jim Gottstein succeeded in having the lease between Pfeffer’s group and the Legislature effectively voided due to the Legislature’s failure to comply with its own procurement rules in the deal.

After that ruling, Legislative Council began looking for other office space and have since announced an intention to purchase and relocate to the Wells Fargo Building at 1500 W Benson Boulevard for $12 million.

The decision by legislators to move to the Wells Fargo Building leaves Pfeffer and his financiers on the hook for tens of millions spent renovating their current building.

Pfeffer’s Claim

In the claim letter Pfeffer sent Monday morning to Stevens, the developer lays out the basic premise of the claim brought by his group 716 West Fourth Avenue, LLC (716):

“Through every step of the procurement process 716 did exactly what was asked of it by the LAA, within the schedule set by the LAA, and at the contractually agreed upon lease rate. To fulfill its contractual obligations to the State pursuant to the Lease, 716 arranged for the investment of approximately $37 million.”

“716 relied on the Lease and the express and implied promises and representation by the LAA, and fully performed under the contract during the last three years at great cost. Under Alaska law, despite the court’s order, the Legislature cannot impose the entire cost and burden of its flawed procurement process, and the effort and expense contractually required of 716, on 716’s shoulders.”

In plain English, Pfeffer’s argument says that it was the Legislature that wanted the new building, the Legislature that contracted for a new building, and the Legislature that was found by a court to have messed up their procurement for the new building, therefore it is the State and the Legislature, and not the private developer, who are legally and financially responsible for the costs of those decisions.

Price

The claim letter shows Pfeffer is seeking a judgement in the amount of $37,016,021. If Pfeffer is successful in his claim and receives a ruling for that full amount, the Legislature would end up not only paying for two Anchorage LIO’s — their current space and the Wells Fargo Building —- but also paying $4.5 million more for the building they currently occupy than Pfeffer had “conceptually” agreed to sell the building to the Legislature just over four months ago.

That deal eventually fell through as legislators searched for less controversial space to call their own.

Public Interest Claim

One of the more interesting elements of Pfeffer’s claim is its discussion on what this very high-profile battle means to the public interest.

It’s probably fair to say most members of the public in Alaska are perfectly OK with the full brunt of this contracting debacle being laid at the feet of Pfeffer and his business associates simply because doing so relieves us, the public, of its multi-million dollar costs.

Pfeffer, points out the Alaska Supreme Court has recognized such rationale in their 1988 ruling of Earthmovers of Fairbanks, Inc. v. State, Department of Transportation, explained that while that thinking may be satisfying to some, it is neither just nor ultimately in the public interest. Pfeiffer’s claim continues:

“Although one purpose of the procurement code is to protect the public purse, the public interest in this context is construed far more broadly: the Supreme Court in Earthmovers explained that it “has also recognized that treating contractors honestly and fairly serves the public interest. The Court then noted that it was necessary to balance the two policies to reach a fair result.”

Or, as Pfeffer puts it more bluntly:

“The LAA’s conduct in this instance should serve as public notice of the State’s willingness to abandon its contractual obligations in the name of expediency, regardless of the consequences to those entities providing services to the State.”

Sole Sourcing….Again

One of the most publicly criticized and legally contentious issues at play in the renovation project of the current LIO was the use of a sole source contract. Yet legislators are using it once again with the decision to purchase the Wells Fargo Building rather than opt for the transparency and free market competition of the request for proposals (RFP) process.

Doing so allows Stevens and his colleagues in the Legislature to negotiate with a single vendor for a specific product, without putting the service out to competitive bid via RFP. Thus, the public has no way of knowing what criteria legislators are using to decide if the Wells Fargo Building is their best option and no other property owners or developers will have any opportunity to submit their own project for consideration. We’ve already seen Anchorage Municipal authorities denounce the relocation based on municipal land use plans that seek to locate government administrative buildings in the downtown area.

Timing

Pfeffer’s decision to file a claim over the matter comes as Stevens has stated the Legislative Council is moving forward with buying the Well Fargo Building in the next week, though this issue is not on the agenda for the committee’s meeting scheduled for later this afternoon.