Controversial lease-leaseback contracts have become popular in Mt. Diablo district

CONCORD -- The Mt. Diablo school district routinely avoids open bidding and contracts directly with favored companies, a practice critics says is unfair and possibly illegal.

For about two dozen contracts valued at more than $83.1 million, the district bypassed the usual open bidding requirement through a controversial process known as "lease-leaseback." The district leases property to its chosen construction company for $1 a year and then leases it back later for a price equivalent to the building costs for the projects, which range from security upgrades to classroom construction.

About 76 percent of the contracts, or $63.2 million worth, have been awarded under this process to one company -- Taber Construction in Concord -- while a dozen other firms have split the remaining contracts. District officials say lease-leaseback allows them to choose companies that have a good reputation for quality or a strong track record on similar projects, rather than simply picking the lowest price. But some district residents have been critical of the method, noting the small number of companies solicited for the jobs.

"All I'm looking for is a fair and consistent process and I haven't seen that yet," resident John Parker told the board last fall. "I don't have a problem with lease-leaseback per se. You want the best contractor to do the work. I just want to make sure that everybody else in the public knows that we're not just giving the job to our buddy down the street."

While many districts in the Bay Area avoid lease-leaseback, Mt. Diablo is one of several that use it, and it employs the method extensively.

The method has been cleared by attorneys hired by the district and works to its advantage, said Tim Cody, interim project manager for the district's $348 million Measure C construction bond projects, approved by voters in 2010. The leasing system also allows the district to invite requests for qualifications and proposals from selected, experienced contractors rather than advertising open bids. Once a contractor is chosen and a lease is in place, the contractor performs the construction work and leases it back to the district. The district makes monthly payments until the contracts are paid off, and then the lease ends. The Mt. Diablo district sometimes uses the system for projects that don't even involve construction, such as painting or security system installation.

District resident Alicia Minyen, who serves on the California League of Bond Oversight Committees -- a state watchdog committee that advises district bond oversight groups -- said she is concerned about whether lease-leaseback contracts are legal, in part based on challenges being raised in two California appellate courts.

"There are inherent risks, which have been expressed in a report from the State Allocation Board," Minyen said. "I have additional concerns because they are being used for projects that don't even involve real property. They are basically trying to circumvent the Public Contracts Code and frankly, I don't understand why they're pushing the envelope that way and I don't think it's worth it for taxpayers."

The risks include possible corruption and lack of competition to get the best deal for taxpayers on publicly financed projects, which is normally protected by the Public Contract Code, she said.

Lease-leaseback has drawn similar controversy elsewhere.

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Controversial lease-leaseback contracts have become popular in Mt. Diablo district