In July 2020, Colorado Springs Utilities hired a consultant to do a feasibility study for building an oversized fiber backbone network — and only nine months later expanded the project’s scope, increasing the cost 300-fold.
The four-year contract with Las Vegas-based The Broadband Group (TBG) cited a cost “not to exceed” $244,940.
But it morphed into a $73.5 million, nine-year deal with far-reaching tasks, including tenant acquisition, construction oversight and design and engineering, according to records obtained by the Indy through the Colorado Open Records Act (CORA).
The Utilities Board — composed of City Council members — didn’t approve the contract, because policy doesn’t require it.
Though Utilities’ Excellence in Governance Policy Manual promotes “competitive acquisition practices,” it hired TBG for the feasibility study and then, through a “sole source” justification, amended the contract to add development tasks costing more than $70 million.
Moreover, there’s little evidence Utilities collected meaningful competing proposals prior to expanding TBG’s deal.
Hiring the same firm that performs a feasibility study for actual project development creates “an ethical minefield,” a business management expert says.
The goal of the project is to improve existing fiber lines used by Utilities to manage electric, gas and water utilities and add excess capacity to be leased to internet service providers (ISPs) to deliver high-speed broadband capabilities citywide.
The entire project, which will cost $600 million, according to a report in Broadband Communities magazine, has progressed under a cloud of secrecy. The consultant’s reports the Indy received are heavily redacted and detailed briefings have been held in Utilities Board closed executive sessions that exclude the public.
Utilities at first said all purchasing rules were followed but later admitted a “misinterpretation” led to omission of a sole-source justification. It also said withholding information from the public assures ratepayers will get the best deal while Utilities complies with disclosure laws.
Asked why there’s been little or no community engagement, CEO Aram Benyamin said in a statement, “This network is necessary to maintain modern utility systems…. Implementing a digital communications platform will allow us to connect every source and demand for utilities in our service territory with secure and reliable high-bandwidth communication.”
Records show that Utilities refers to a Request for Qualifications for the feasibility study in internal email communications, but there was no posting of the fiber consultant work on a public website Utilities uses to advertise solicitations.
According to emails obtained by the Indy, three firms responded: The Broadband Group, which didn’t provide a price quote;CTC Technology & Energy, of Kensington, Maryland, which did provide a price quote; and Stowe Utility Group, Chattanooga, Tennessee, which was deemed in May 2020 as lacking capacity because it was a “one-man show,” a Utilities official noted.
The emails note all three were associated with a Huntsville, Alabama, fiber project.
On May 22, 2020, CTC provided a “fiber planning proposal,” which was forwarded from one Utilities official to another with the advisory, “see attached from CTC this should help with the creation of a SOW [scope of work].”
Utilities withheld the CTC and TBG proposals from the Indy, citing a CORA trade secrets exemption. Stowe apparently didn’t submit a proposal but rather a résumé.
On July 22, 2020, Utilities’ chief energy services officer Travas Deal signed a professional services agreement with TBG, for one year with three one-year renewal options. The $244,940 cost was to cover “conceptual fiber network architecture and system level design and market analysis”; a design cost estimate; a financial and business analysis, including a 10-year “functional financial model”; market analysis; identification of a private partner, and help with negotiating a specific agreement for such a partner; and “identifying and evaluating the political and regulatory feasibility concerns to executing a fiber network system….”
In other words, TBG was to conduct a feasibility study within six months.
In October, $65,700 was added to the contract, with Utilities officials citing reasons in a sole-source justification as “fiber network design and engineering for the downtown Central Business District and the ‘New Downtown’ area” and “business necessity.”
In February 2021, Utilities submitted a sole-source justification to its procurement department to increase the contract’s cost by $66 million, saying TBG was uniquely qualified.
The two-page form cited TBG’s “unique/specialized skill set,” fears that hiring another company would lead to “leaking information,” and a savings of time and money, though procurement rules state that sole-sourcing “should not be used for lack of planning.”
“To align with another firm would have lengthened the overall project timeline by another six to eight months with additional money spent for the other firm to familiarize itself with the work conducted by The Broadband Group,” Utilities says via email in response to the Indy’s questions.
The justification also cited TBG’s “successful implementations” in Huntsville, Alabama, and Springfield, Missouri, and noted that Utilities had contacted two other firms deemed unfit for the work — CTC and Stowe.
Utilities has not produced evidence that CTC and Stowe were contacted again in 2021 before expanding TBG’s contract to $73.5 million.
Jay Stowe, who ran Stowe Utility Group from fall 2019 until he was hired in November 2020 as CEO of Jacksonville, Florida’s power utility, served as president and CEO of Huntsville Utilities from 2014 to 2016 when the fiber project was launched with TBG as the consultant.
“I don’t think I ever submitted anything formal,” Stowe tells the Indy.
CTC didn’t respond to requests for comment.
The two-page sole-source justification was approved by Utilities Telecommunications Enterprise Manager Brian Wortinger, who says in an interview he didn’t know how Utilities came to hire TBG to begin with because it predated his April 2021 hire.
But he says he did know that the Huntsville project served as an incentive, because TBG helped “successfully deploy” the same model Utilities wanted to build. ( “Mixed signals.”)
Wortinger later said via email TBG “had both the experience and capability to ensure a successful project.”
After Wortinger approved the justification on April 21, the request navigated the procurement process in less than a day, records show. The contract extension increasing the contract to $73,526,940 was signed on April 28, 2021.
The amendment added design and operation of network infrastructure for Utilities’ purposes and design of the “dark” fiber for lease by third-party
tenants “to improve the financial return metrics of the network.” It also added tenant acquisition; pre-construction preparation; engineering; and network construction and activation.
That led TBG to select an anchor tenant — Ting Fiber Inc., Charlottesville, Virginia — without an open competitive process.
Most of the financial information contained in TBG’s report about the project, called Colorado Springs Utilities Fiber Network Expansion Plan, was redacted before it was released to the Indy, making it impossible for ratepayers to determine whether the project is financially viable and how much it will cost.
Wortinger says confidentiality is required “to protect our ratepayers” by allowing Utilities to get the best deal with other ISPs that want to use the fiber system.
Utilities Board Chair Wayne Williams admitted he didn’t know “the exact size” of the contract until told by an Indy reporter on April 8, nearly a year after Utilities increased the contract’s value.
“There are a number of contracts that I do not know the precise amount [of],” Williams said. “Some are presented [to Utilities Board], some are not.”
Utilities policies don’t require board approval of contracts.
Sole-source contracting isn’t unheard of but the rules are usually rigorous. Other agencies, including the federal government, the state and El Paso County, require documentation of why a vendor is uniquely qualified. Some require an estimated cost outline and public posting of the intent to award a sole-source contract.
Utilities’ procurement policies call for competition but allow personnel to acquire supplies, materials, equipment, construction or services costing up to $99,999 without competitive bids, though three documented quotes are “highly encouraged.”
Purchases of $99,999 to $249,999 require “three actual bids that are written,” received by phone or email. If none can be found, “the file must be documented showing efforts made to obtain at least three bids.”
Sole-sourcing requires officials to submit a request that contains “a price analysis to document rationale supporting price reasonableness.” Neither sole-source request — for the feasibility study and project development — contained such an analysis.
Utilities now clarifies via email that the Indy’s questions prompted “a deeper review” of the contract’s history and a realization that “a misinterpretation” of policies occurred at the time the $244,940 contract was approved. Policy required a sole source justification prior to signing that $244,940 contract, which didn’t happen. “Staff will review them [policies] again to ensure sole source justification requirements are clear and adhered to in the future,” Utilities says.
City Auditor Jacqueline Rowland ruled, in response to a complaint filed by Utilities watchdog Sam Masias in early March about the TBG contract, that purchases under $250,000 “generally do not require a formal sourcing event.” But she notes to the Indy, a review of policies was “in progress.”
Utilities says it’s spent $2,956,207 on the fiber project so far; all but $32,870 was paid to TBG.
Meanwhile, it appears others might have bid on the contract that went to TBG, given the chance.
Chris Kramer, vice president of Spectrum Planning of Saint Charles, Missouri, says his firm helps power cooperatives deliver fiber links to homes. “There are six companies I know that could have bid on this,” he says.
Patrick Gault, chief revenue officer for JSI of Greenbelt, Maryland, says JSI is a “complete broadband” company that handles feasibility, engineering, implementation, design, deployment and compliance.
“We work with utilities leasing dark fiber to other ISPs,” he says. “We’ve been heavily involved in electric co-ops where we helped them lease excess fiber to others.” He also noted there are many similar broadband companies across the country.
Hiring the same firm to conduct a feasibility study for a project and then to carry it out is considered bad business practice, experts say.
Andrew Clarke, president of Ground Floor Partners consultancy in Chicago, specializes in feasibility studies for counties and municipalities, industrial parks and manufacturing facilities. He says it’s important that the consultant performing the feasibility study remain unbiased to give the client the unvarnished truth about a proposed project.
If serving in both [feasibility and development] roles on the same project, “My incentive to be positive about it are immense,” he says, “because I stand to make millions of dollars [in developing the project].”
Told of the extension of TBG’s contract, Clarke called it a “conflict of interest” and says if Utilities wanted to award TBG the project development work, a second feasibility study was in order to “get a different viewpoint.”
Scott Van Ness, instructor of operations management in the UCCS School of Business, calls such a dual role “an ethical minefield.”
Responding to Indy questions in which the players were not identified, Van Ness says, “Just from a smart business practice, I would always open that up and let other people have a shot at it. I would say don’t limit yourself.
“It raises questions you don’t need to have raised. It’s almost like a case of what not to do,” says Van Ness, who also serves as assistant director of the Daniels Fund Ethics Initiative at UCCS. “They may do everything right, but you just cast a shadow over the process [that] you didn’t need to do. It’s not good business.”
TBG President Jeff Reiman disputed that there’s a conflict between performing the feasibility study and carrying out the project.
The city of Fountain opted to separate the two parts of its fiber project. Officials began investigating a broadband system in 2018 and posted a request for proposals (RFP) for a feasibility study in 2019. Twelve responses were received.
A staff committee reviewed them and chose Finley Engineering of Slayton, Minnesota, for the $64,800 contract, Fountain’s Technical Services Director Lisa Godwin says in an interview. The scope of work included reviewing potential designs, market analysis and financial modeling.
Finley’s 148-page feasibility study was released to the Indy without redactions.
“We wanted to have someone to come in and walk us through the process, and we wanted to be fully transparent,” Godwin says. “We were really interested in the own-and-operate model. But we wanted someone to be a realist to us whether or not that was feasible. Just because something in another community was successful doesn’t mean it would be successful here.”
Fountain opted for a partnership model, which led to a competitive process in which Underline Infrastructure Inc., was chosen.
Besides redacting pertinent market and financial data from TBG’s report, Utilities has failed to brief the Utilities Board during public sessions. All briefings took place in closed executive session under the guise of legal advice and matters subject to negotiations, topics allowed for closed meetings by the Open Meetings Law.
Two days after a closed session on Dec. 15, 2021, CEO Benyamin signed the 25-year, no-bid contract with anchor tenant Ting Fiber. Utilities has refused to disclose how much Ting will pay, saying via email, “In order to negotiate with subsequent tenants most effectively on behalf of our customers, it would not be in their interest to provide the exact amount of the Ting lease payments.”
As previously noted, much of the information in TBG’s reports was redacted, but one report contains this cautionary statement: “It is impossible to calculate an Internal Rate of Return for the model’s project option due to the periods of negative cash flow created by debt service payments.” (Emphasis added.)
That conflicts with Utilities’ statements that the fiber project will be funded with cash on hand, not debt.
Utilities also asserts that customer rates won’t be increased to fund the project, but that money will come from “existing base rates.” In 2022, for example, Utilities’ budget contains $390.4 million for capital projects, of which $45 million has been set aside for the fiber project. It was unclear as of the Indy’s press time which capital projects have gotten sidelined to fund the fiber line.
Colorado Springs Utilities has launched a project that officials claim will give all residents an opportunity to access gig-speed internet and…