The Charlotte company under scrutiny for how it got maintenance contracts at state prisons has received about $7 million annually from a no-bid contract to maintain jails in Mecklenburg County, records and county officials confirm.
The Keith Corp. and its executives, meanwhile, have in recent years given thousands of dollars in campaign contributions and consulting fees to Jim Pendergraph, a former Mecklenburg sheriff who approved the local contract in 1996.
FBI agents have been asking questions about other contracts awarded to a Keith Corp. subsidiary for maintenance at three state prisons. Those contracts were renewed over the objections of top state prison officials after Graeme Keith Sr., the company’s chairman, reportedly told state officials he had given a lot of money to political candidates and it was “now time for him to get something in return.”
A story last month by The Charlotte Observer and The (Raleigh) News & Observer showed how Gov. Pat McCrory – one of the politicians who benefited from Keith’s contributions – personally intervened on the company’s behalf.
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The citizens of Charlotte should ask whether they got the best value.
Contracting expert Paul Light
Records and interviews show how The Keith Corp. fostered ties with Pendergraph, who awarded the prominent commercial developer its first jail maintenance contract.
As sheriff, Pendergraph was responsible for the 1996 decision to outsource the maintenance – a job previously done by sheriff’s department employees. Since 2001, he received more than $30,000 in campaign contributions from officials with The Keith Corp. – and about $86,000 more in consulting fees from the company’s jail maintenance subsidiary, now known as TKC Management Services.
Both Pendergraph and TKC officials say the consulting fees and campaign contributions had nothing to do with the contract. The large majority of contributions came during Pendergraph’s 2012 run for Congress, five years after he left the Sheriff’s Office. Pendergraph said his decision to hire TKC served taxpayers well, dramatically improving maintenance.
“It was obvious that we could save a lot of money and have better service,” Pendergraph said. “Everything I did was aboveboard and legal.”
Experts agree that there’s no indication laws were broken by those who negotiated the county jail maintenance contract. Critics fault the arrangement, nonetheless.
The decision to award the contract without competitive bidding was not in the best interest of taxpayers, according to contracting expert Paul Light. Seeking bids from competing companies helps ensure that the public gets the best possible deal, experts say.
“The citizens of Charlotte should ask whether they got the best value,” said Light, a professor of public service at New York University.
Bob Hall, head of Democracy North Carolina, a group pushing for campaign-finance reform, said the political contributions and consulting fees raise questions, too.
Such arrangements, he said, lead the public to believe government is a pay-to-play system.
“So others will begin to follow the example of The Keith Corp.,” he said. “That’s very disturbing. And it costs us money.”
Time for a change
As Pendergraph remembers it, the quality of maintenance at the county jails was once a “total disaster.”
In 1994, soon after Pendergraph began his 13-year stint as sheriff, a snowstorm knocked out power to the jail annex on Statesville Road.
“The maintenance was so poor, the emergency generators wouldn’t start because the batteries were dead,” he said.
When Pendergraph went to the jail, he found hundreds of inmates sitting in the dark. The jail’s electronically operated doors were unlocked. Pendergraph remembers calling in every available deputy to ensure that no prisoners escaped.
He said the incident convinced him it was time for a change. But his expertise was in law enforcement, not maintenance, he said, so he began looking for a company to take over that work.
Soon after that snowstorm, Pendergraph said, he was attending a Good Fellows holiday fundraiser when Graeme Keith introduced himself. Keith had heard about maintenance problems at the jail, Pendergraph remembers, and said his company might be able to help.
The Keith Corp., a commercial real estate company, knew how to maintain large buildings but had no experience taking care of jails. So company officials hired a retiree from the federal Bureau of Prisons to coach them on the requirements of prison maintenance.
Rachel Vanhoy, the longtime business manager for the Sheriff’s Office, ran the numbers. Her analysis predicted that by privatizing jail maintenance, the county would save money – about $315,000 the first year.
‘The cleanest jails’
In 1996, the Sheriff’s Office awarded the maintenance contract to TKC. The office sought no competitive bids.
Pendergraph said his office didn’t think that was necessary because it wasn’t aware of other companies that could provide the needed maintenance.
While state law generally requires competitive bidding on construction and repair work, it doesn’t mandate bidding on service contracts, such as the jail maintenance agreement.
Felicia McAdoo, chief deputy for the Mecklenburg Sheriff’s Office, said that after TKC took over maintenance, the quality greatly improved, and “the place seemed to sparkle.”
The American Correctional Association, a group that has accredited Mecklenburg’s jails, also gave the company high marks.
“The ACA auditor has indicated that the MCSO (Mecklenburg County) jails were the cleanest jails they had ever visited,” county officials wrote in their September 2014 monthly report.
TKC officials said in a statement that they are able to provide “better service at lower costs by training workers across disciplines, effectively allocating personnel across facilities, and achieving economies of scale in purchasing supplies and services.
“In addition to saving taxpayer money, our high-quality work has extended the life of the County’s detention facilities.”
Starting in 2000, the Sheriff’s Office allowed TKC to automatically renew its contract each year. Both the county and the company have the right to cancel the agreement with 90 days’ written notice.
Today, the contract is one of the largest at the Sheriff’s Office, costing Mecklenburg taxpayers about $7 million a year. Under the terms of that agreement, TKC charges the county for its actual costs, plus a management fee. This year, that fee amounts to about $358,000 – roughly 5 percent of the total contract cost.
The agreement has also proved valuable to TKC in other ways, helping it secure additional jail and prison maintenance business.
TKC also won a number of other Mecklenburg County contracts over the past decade. Under those agreements, the company was paid about $29 million to maintain the courts complex, the libraries, the parks and other government facilities. Most of those contracts were awarded after competitive bidding.
As they worked to expand their jail maintenance business, The Keith Corp. began helping Pendergraph, too. Since 2001, company officials contributed more than $32,000 to Pendergraph’s various campaigns – for sheriff, for county commissioner and for his unsuccessful run against Robert Pittenger for the congressional seat vacated by Sue Myrick.
Everything I did was aboveboard and legal.
Former Mecklenburg County Sheriff Jim Pendergraph, on his decision to give a no-bid jail maintenance contract to The Keith Corp.
Pendergraph formed a consulting company in 2009, two years after leaving his job as sheriff. TKC soon became his main client. The company says it paid him $86,538 for his work from August 2009 through January 2013.
As a consultant, Pendergraph says, it was his job to introduce TKC executives to other sheriffs who might be interested in using the company’s services.
Pendergraph says that he got no campaign contributions from company officials until after TKC got its contract to maintain the Mecklenburg jails. And by the time he began doing consulting work for TKC in 2009, he had already left the Sheriff’s Office.
Records show that when Pendergraph served as a Mecklenburg commissioner in 2011 and 2012, he recused himself from votes on the county’s contracts with TKC.
“There was absolutely nothing wrong with it,” Pendergraph said of his relationship with The Keith Corp. “If there had been, I’m sure somebody would have said something, or fined me or prosecuted me for something.”
TKC officials say they contributed to Pendergraph’s campaign because they considered him an excellent candidate. Mike Cox, TKC’s head of new business development, said the company hired Pendergraph as a consultant because his appreciation for the company’s maintenance work made him “the best spokesman we could have gotten.”
Last year, TKC lost some of its business with Mecklenburg County. When the county re-bid all of its facility maintenance contracts in 2014, TKC failed to win the jobs because its bids were too high. Three other companies are now doing that work, for about $5 million a year less than TKC said it could do the job.
Critics: A bad deal
Some experts say it was a mistake for the Sheriff’s Office to award such a large jail contract without first seeking bids from several companies.
“This doesn’t sound like the way you’d get maximum taxpayer value,” said Light, the NYU contracting expert. “If you don’t bid it, you have basic questions about whether you got the best value for the dollar.”
Today, other large companies, including Aramark and Johnson Controls, do jail maintenance work, the Observer found. Meridian Management Corp. – a Florida-based firm that has maintained many government buildings, including jails in Houston – said it would likely compete to take care of Mecklenburg’s jails if that job was ever put out to bid.
Allowing the contract to renew automatically each year was also inadvisable, Light said. Putting limits on the duration of contracts serves taxpayers better because it gives public officials a chance to improve the terms, he said.
The two sheriffs who succeeded Pendergraph – Chipp Bailey and Irwin Carmichael – have kept the contract in place. Those sheriffs also got campaign contributions from officials with The Keith Corp.
Bailey, who served as sheriff for seven years before retiring in 2014, said he recalls no talk about putting the service out to bid.
“If you know what you’re getting, and what you’re getting is an excellent product, I didn’t see any need to go out and bid it,” Bailey said.
Bailey said he kept the contract in place because he was pleased with the company’s work. Campaign contributions had nothing to do with the decision, he said.
Carmichael, who was elected sheriff last year, declined the Observer’s request for an interview. But according to McAdoo, the chief deputy, Carmichael has instructed her and his executive team “to advise him if we need to pursue a competitive process.”
The money that has flowed to The Keith Corp. and from its officials speaks to a broader problem, campaign-finance experts say. Often, they say, campaign contributions are used to influence how public dollars are spent – or reward cooperative public officials – to the detriment of taxpayers.
Two bills debated in the General Assembly in 2010 and 2011 would have limited how much state contractors could contribute to the campaigns of elected officials who have the power to grant contracts. Neither bill became law.
Keith Corp. contributions
After securing a Mecklenburg County jail contract, officials for The Keith Corp. contributed at least:
▪ $3,000 to Jim Pendergraph’s 2001 campaign for Mecklenburg sheriff
▪ $2,600 to Pendergraph’s 2010 run for county commissioner
▪ $27,300 to Pendergraph’s 2012 campaign for Congress
▪ $1,330 to Chipp Bailey’s 2010 campaign for sheriff
▪ $3,505 to Sheriff Irwin Carmichael’s 2014 campaign
Note: Mecklenburg County campaign-finance data prior to 2001 was not immediately available.
Source: Observer research, campaign-finance reports
Questions over state contracts
Last month, The Charlotte Observer and The (Raleigh) News and Observer reported that Gov. Pat McCrory personally intervened on behalf of Graeme Keith Sr., a friend and political donor who wanted to renew $3 million in prison maintenance contracts.
The governor convened a 2014 meeting, where, according to a Department of Public Safety memo, Keith said he had given a lot of political contributions, and that it was “now time for him to get something in return.” The contracts were renewed in December 2014, over the objections of top prison officials. In a statement, Keith has called the DPS memo a “misrepresentation.”
FBI agents have been gathering documents and interviewing public officials.
On Wednesday, Secretary of Public Safety Frank Perry told lawmakers that he heard Keith say on four occasions that he wanted something in return for his political donations. But State Budget Director Lee Roberts told legislators that the contract renewal was “handled in a standard and ethical way.”
Last month, the prison system notified Keith’s firm that the contract would not be renewed after it expires at the end of this year.