Report: Building committee knew NDSU president's house was over budget

The committee charged with construction of the president's home at North Dakota State University knowingly picked a design that would exceed authorized costs and then knowingly added to those costs by adding a "bonus room," according to a State Board of Higher Education report released Thursday.

That committee also labored under a tight deadline adopted under pressure by President Joseph Chapman and his wife, Gale, the report said. The deadline alone would've put pressure on costs, but the bonus room pushed costs over the edge.

The first lady was a member of the committee.

The report, compiled by the board's attorney Pat Seaworth, also rapped UND and NDSU for spending more than was approved, a big part of which included site preparation and landscaping.

The board had authorized UND to spend $904,000 and NDSU $900,000 on their respective presidents' homes. Ultimately cost overruns at UND totaled $242,100 and at NDSU $984,300.

The report singled out Chapman and former UND President Charles Kupchella for failing to disclose to the board that the cost overruns included the use of public funds.

The universities already have the funds but need board permission to use them.

Chapman announced his resignation Wednesday and will leave office Jan. 2.

Both universities, the state board has said, should've asked for permission if they were to exceed the authorized expenditures, even if the funding is private. Each university got $1 million for their presidents' homes from Bill and Jane Marcil, who own Forum Communications, which owns the Herald.

The board will hold hearings today in Fargo and Grand Forks to discuss the matter with officials from both universities. The Herald solicited comments from spokespersons at NDSU and UND but did not receive a reply at press time.

Deadline blamed

As was the case at the September board meeting, NDSU got the most heat for its cost overruns. The president's home there not only involved much more public funds that the board said was not authorized but also had more troublesome governance issues.

One of the main sources cited by the report is an Oct. 9 letter from NDSU Development Foundation Executive Director Jim Miller answering questions posed by the board. It essentially laid most of the blame on the "unrealistic" deadline imposed by the Chapmans' desire to move in within less than a year of the project starting.

Architect Terry Stroh had said 18 months was the minimum it would take to design and build the home.

From the start, the foundation committee responsible for the project had anticipated costs to exceed $900,000. Miller wrote that committee members meeting in May 2008 were "optimistic" that "numerous 'in-kind gifts' from the community" would offset any cost overrun.

In fact, in-kind gifts, meaning free goods and services, such as Stroh's services, would ultimately total $372,400. The board did not include that amount in the cost overruns.

Because the Chapmans' deadline, which Miller said the entire committee agreed to, Stroh "was forced to proceed with laying the foundation and starting the construction process before a final budget was prepared and firm prices were secured on all services and products."

Work began in July 2008, and the Chapmans' wanted to be in by June 2009.

At some point during construction, the committee decided to add the "bonus room," totaling 1,210 square feet and adding $120,000 to the cost. The original plans called for a two-story house with 5,060 square feet.

'Shocked'

Because of the "dynamic" nature of the project, Miller wrote, it was difficult for the committee to get a cost estimate from Stroh. But, by December 2008, committee members were "shocked" to learn the budget had ballooned to $1.3 million, he wrote.

"Discussions were held immediately to find ways to cut the budget," he continued. "However, construction had progressed to the point where substantial cuts were not possible."

"To compound the problem, the economy turned downward in the fall of 2008 and the 'in kind' contributions did not materialize," the letter said.

The foundation started fundraising to help.

Asked what role the Chapmans played in the cost overrun, considering Gale Chapman was a member of the committee along with President Chapman's assistant and facility manager, Miller did not blame the couple directly.

He wrote that the committee as a whole made the decisions that led to the cost overruns. Nevertheless, he did note the committee and the architect "were getting pressure from the Chapmans" to meet the deadline.

Other than the Chapmans' representatives, most of 11 voting members of the committee are foundation officials, including Miller himself.

Construction cost of the home, in the end, totaled $1.4 million; all but $1,300 came out of private donations. Other costs, such as landscaping and site preparation added up to more cost overruns.

Small oops

UND's explanation of its cost overruns was not as dramatic.

It maintained that, from the start, it respected the $900,000 limit imposed by the state board (There was an error at the board level that added another $4,000, but UND did not know that at the time.).

"Throughout the project development and construction, the original scope of work approved by President Kupchella was maintained through value engineering procedures," said the university in its response to the state board's questions. "Contractors were routinely reminded of the cost ceiling."

When costs did exceed expectations, UND said it used cheaper material to finish the interior.

In the end, the cost of the home totaled $919,600, not including landscaping and site preparation.

UND had said that about $23,000 of that cost had been mistakenly charged to another fund, instead of the fund for the president's home, so university officials simply didn't know they were over budget until recently. At the time the home was completed, they thought they were under budget for the home.

The board report accepted that explanation without comment.

Big oops

Where UND -- and NDSU, as well -- got in trouble was in so- called "exterior" costs and furnishings.

Both universities believed, or said they believed, that the state board's limit of $900,000 applied only to the houses, not landscaping or site preparation or furnishings and appliances.

The board report said this was true in the case of the furnishings. Minutes from a finance committee meeting proved the board agreed to that.

But the report said "there was an understanding" at the time of the Marcils' donations that $100,000 of their funds would go toward furnishings. Foundation officers, it said, had participated in those conversations.

Instead, both universities used public funds for furnishings and appliances. NDSU spent $155,300 and UND $47,700.

Of the landscaping and site preparation, both universities had told the board that, in the past, it had allowed them to spend public funds on exterior costs for other projects. The board report doesn't quite refute this, but it said that's not board policy now and, if it ever was normal practice in the past, university officials would need to provide some documentation to prove that they hadn't knowingly violated board rules.

Exterior costs are a big part of the cost overruns. At NDSU, they totaled $502,300, at UND $226,500. Much of this came out of public funds.

The NDSU Development Foundation now says it will pay $373,900 of the exterior costs.

UND said some of its exterior costs were tied closely to extension of the steam line past the president's home to serve the future Alumni Center, a project the university got board permission to do. The board report said UND should've separated the exterior costs between the two projects.

The steam line cost $30,000 and the site preparation $31,400, both coming out of foundation funds.

Both universities also used a mix of private and public funds to move their presidents to temporary housing and back again. UND spent $52,900, 95 percent of which came from the UND Foundation. NDSU spent $89,700, 36 percent of which came from the NDSU Development Foundation.

The board report did not specifically address these expenses.

All in all, UND spent $263,800 in public funds, 42 percent of which came from state appropriations and tuition. The rest came from locally-generated revenue, such as leases and royalty income. NDSU spent $574,000 in public funds, none of which came from appropriations or tuition. Nearly all came from local revenue.

Blame

So, who is to blame for all this?

The board report noted that while the projects were done by the universities' respective foundations, the university presidents are responsible. Resolutions from June 2008 that were included in the report also made the vice presidents of finance at both universities responsible.

That would've been Robert Gallager at UND, who has since left and been replaced by former budget officer Alice Brekke, and John C. Adams at NDSU.

The report indicated that the presidents should have told the board of cost overruns when they happened and asked permission to use public funds.

Reach Tran at (701) 780-1248; (800) 477-6572, ext. 248; or send e-mail to ttran@gfherald.com .