Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Archive for July, 2008

A role for nonprofits in the subprime crisis

Posted by David Kassel on July 21, 2008

Nonprofits have come off looking a lot better in the subprime mortgage scandal than their counterparts in the for-profit banking industry and the federal government, says Rick Cohen of The Nonprofit Quarterly

Cohen maintains that community development corporations (CDCs) and other nonprofit housing development organizations have been careful not to push new homeowners into risky mortgages.  And while the federal government has largely been interested in protecting investors, nonprofit organizations have been busy, trying to help homeowners in trouble. 

Cohen cites the work already done of groups such as Neighborhood Assistance Corporation of America (NACA), which he contends is “among the most aggressive and most successful national nonprofits engaged in refinancing the mortgages of families facing subprime-induced foreclosures.”  In addition, the Center for American Progress in partnership with Enterprise Community Partners has proposed the Great American Dream Stabilization (GARDNS) Fund, to be capitalized by a $10 billion Community Development Block Grant appropriation.  The fund would be used to help low and moderate-income homeowners purchase foreclosed and abandoned properties.

As a January report on the GARDNS Fund plan by the Center for American Progress notes:

…debating whether subprime borrowers were more at fault than unregulated mortgage companies is no more productive than arguing about whether the negligent camper or the neglected forest clearance practices contributed more to the rapid spread of a wildfire-
the first order of business is putting out the fire before it consumes more homes.

Cohen also suggests in “How Foundations Can Heal the Housing Crisis,” that nonprofit charitable foundations will have an increasing role to play in financing the rehabilitiation of abandoned properities across the country due to foreclosures.

Foundations can help now before federal money starts flowing, Cohen suggests, by providing grants to municipalities and nonprofits to begin rehabilitating properties and to manage rental units and rebuild neighborhoods.  Cohen maintains that:

now is the time for them (foundations) – and other organizations with vast tax-exempt endowments – to put billions of their dollars to work as a capital base for groups that are trying to stimulate new investments in financially challenged neighborhoods.

Cohen adds that smaller and medium-sized cities, in particular, that have been hit hard by the property-foreclosure crisis, don’t have access to large foundations with “signficant track records in housing and community-development investment.”

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Posted in Corporate responsibility, Governance, Nonprofit, Private, Public | Tagged: , , , | 1 Comment »

How not to undertake a public project

Posted by David Kassel on July 14, 2008

(Part 2 in a comparison of public projects)

In the previous post on this site, I described a successful project to design and construct a new public library in my hometown of Harvard, Massachusetts.  It’s interesting to compare some of the key managerial decisions and actions in that case with a public construction project in Iraq.

Clearly, the construction of the Basrah Children’s Hospital in Iraq, now three years behind schedule, is being done under much more difficult conditions than was the Harvard town library.  Yet, many of the basic management decisions involved in these two public projects are the same.  The Basrah Children’s Hospital project in Iraq is an example of a public project beset by managerial problems, and in many ways it seems to symbolize the overall U.S.-led reconstruction effort in Iraq.

In August 2004, the U.S. Agency for International Development issued a job order to Bechtel National, Inc. to construct the 50-bed pediatric facility in the city of Basrah. The construction of the hospital was to be part of the overall U.S.-led effort to rebuild the Iraqi infrastructure following the invasion of the country in 2003. Congress authorized $50 million in funding for the hospital project, which was intended to improve the quality of care and life expectancy for women and children in that war-torn country. 

The hospital project was apparently one of some 20 projects being undertaken by USAID under a single $1.4 billion contract with Bechtel.

The scope of work was expanded in July 2005 to increase the number of beds to 94 and to upgrade the faciity to be an oncology center, according to a 2006 report by the Special Inspector General for Iraq Reconstruction.  The schedule and projected cost of the project, however, remained the same.  The hospital was projected to be complete as of December 2005.

According to a July 2006 report by the Special Inspector General, USAID’s accounting systems and processes were inadequate, and the agency failed to identify and report project costs to the U.S. Chief of Mission in Iraq and to Congress.  The Special IG noted that the completion date of the hospital had slipped by nearly 270 days as of March 2006, and the projected construction cost had risen to between $150 and $170 million.

Corner view of the Basrah Children\'s Hospital. March 2008, from SIGIR April 2008 quarterly report

Corner view of Basrah Children's Hospital, March 2008 (SIGIR)

 Here are some highlights from the Special IG’s report on the construction of the hospital through July 2006:

  • USAID did not establish an appropriate program management structure for the hospital or for its other reconstruction projects.  The agency relied on one “administrative contracting officer” and one “cognizant technical officer” to manage the entire $1.4 billion in projects under contract with Bechtel, and never appointed a program manager with sole responsibility for the hospital project.
  • Even though Bechtel briefed USAID in March 2006 that the hospital project was 273 days behind schedule, USAID’s report to Congress the following month reported no problems with the project schedule.  In addition, the agency continued to report the project cost as $50 million, even though Bechtel was estimating the cost at $98 million by April 2006.
  • USAID did not include the installation of medical equipment in its cost estimate for the hospital.
  • A consultant to USAID recommended that the agency discontinue Bechtel as the prime contractor for the hospital project.  The consultant, Louis Berger Group, projected that discontinuing Bechtel would reduce costs by some $8 million, primarly from the reduction in contractor overhead.

In the wake of the Special IG’s report, the U.S. Mission in Iraq transferred the the hospital project from USAID to the U.S. Army Corps of Engineers.  In addition, the U.S. Mission ordered Bechtel to stop work on the project, at least until the Corps of Engineers could take over management.

As of now, the hospital is still not finished.  An April 2008 quarterly report by the Special IG listed the project as 85 percent complete.  The total cost of the project, now projected to be finished by February 2009, is pegged by the Special IG at $163.6 million–a roughly 227 percent increase over the original cost estimate.

To me, a key difference between the hospital project and the Harvard town library that jumps out is the level of involvement by public managers in each case.  It appears there was a higher actual number of public-sector managers overseeing the construction of the $7 million Harvard library than were overseeing the entire $1.4 billion USAID reconstruction effort in Iraq, including the $163.6 million Basrah Children’s Hospital.

Posted in Governance, Oversight, Private, Public | Tagged: , , | Comments Off on How not to undertake a public project

Undertaking a successful public project

Posted by David Kassel on July 7, 2008

The new library in the center of the town of Harvard, Massachusetts, where I live, is a clear example of a successful public project.

Construction of the library was completed a little over a year ago, on time and on budget.  CBT, a Boston-based architect, came up with a design that seamlessly matched a new brick structure to the existing historic Old Bromfield school.  Inside, the refurbishing of the old has been done with sensitivity and the new has been matched to it just as flawlessly.  The project recently won an award from the Massachusetts Historical Commission.

Heading the project were three longtime town residents, two of whom chaired a volunteer town building committee that shepherded the project to completion.  A couple of months ago, I had the opportunity to interview the three citizen managers for a book I’m writing for the American Society for Public Administration on managing public projects.  Given that the prevailing perception of public projects is that they are plagued by cost overruns, schedule delays, and poor quality construction, I was curious to find out what steps were taken to ensure that the Harvard library project didn’t end up fitting that prevailing view.

 

View of Harvard libary with Old Bromfield building on left and new building on right

View of Harvard library with Old Bromfield building on left and new building on right

Sitting down in the library’s elegant first-floor conference room, Roy Moffa, Pete Jackson, and Mary Wilson had a lot to say about how they were able to make the library project succeed.  It came as a shock to me to find out a few days later that Moffa, a retired software company executive and entrepreneur, library trustee, and avid bicyclist, had suddenly passed away, at the age of 65. I’m glad he was able to realize the biggest dream of his retirement and to know it was a success.

Speaking in our interview specifically about the private funding that supplemented the library project’s public funding (private funding was, in itself, a key reason for the project’s success), Moffa noted:

We raised this money…on the commitment that we were going to build something extraordinary, something that was worthy of their contributions. We’d made a lot of promises. ‘We’re going to take your money, but we’re going to treat the money well and we’re going to communicate with you and show you what we’re going to do,’ and I don’t think we’ve disappointed a donor yet.

Here are some highlights of the planning and construction process for this project:

  • Moffa, Jackson, and Wilson exercised maximum due diligence in selecting the architect.  They personally visited and toured more than 30 libraries in Massachusetts that had been designed by four architects they picked as finalists in the selection process.
  • The three citizen managers, building committee, and other key project supporters undertood, involved, and satisfied the potential stakeholders in the project.  For instance, they agreed to cap the town’s financial exposure at $2.6 million, no matter what happened during construction.  This forced the managers to critically assess the project’s risks and take steps to keep costs under control.
  • The managers and the entire building committee stayed involved in the library design process and  established an effective partnership with the architect, CBT. That partnership was characterized by frequent brainstorming of design alternatives. One example of that was a decision to redesign the planned children’s room, which had originally been designed to be split between the old and new buildings, and locate it entirely within the new building.
  • The three managers attended all of the weekly construction meetings with representatives of the general contractor, architect and project manager. The three were at the site so often, in fact, that they got to know all the subcontractors.
  • The three pushed hard in support of moving forward with construction in the fall of 2005, rather than waiting until spring when costs, particularly for steel and glass, were expected to be much higher. The brainstorming over the design had to come to an end. “My words to the rest of the building committee was ‘it’s time for pens down'” Jackson said.
  • The three developed an effective and quick process for analyzing and approving change orders.  Jackson, a former project manager with the U.S. Army Corps of Engineers, was given discretion to approve changes in consultation with a professional project manager.  The process was done via email.

In the end, the undertaking of successful public (and private) projects comes down to effective leadership and teamwork, and it’s clear that was the case with the Harvard library project.  As Wilson, a former town librarian, who became library director in 2002, put it:

This was the last shot.  In our lifetimes, this was the only chance we would have and we wanted to make sure we did it right.

Posted in Governance, Oversight, Private, Public | Tagged: , | 2 Comments »