Lou Smith (above) relies on management information systems and early morning meeting to kepp projects in line. (Photo by Tony Illia for ENR)

Midway through a $1.51-billion school construction program funded by a ballot measure called Proposition MM, San Diego school officials are quietly preparing for the next bond measure, due for a vote in 2006. With the current construction program humming like a well-oiled engine, it isn’t too soon or too audacious to think about a sequel.

If Proposition MM continues on its present course, voters will be more inclined to say, "Do it again." And San Diego City Schools will have achieved a rare feat for California–completing all of the work promised to voters before the money runs out. As it stands, Proposition MM currently is within budget and two years ahead of schedule. Program director Lou Smith, according to many people, is the main reason for that feat.

A former commander of the Naval Facilities Engineering Command (NAVFAC), Smith was considering lucrative private-sector offers when the San Diego city school district interviewed him in 2000. At that time, turning around what had already become a troubled, slow-moving school construction program was not high on his list of priorities. He went to see about the job with little intention of accepting it.

But since Smith took on the job as program director in December 2000, the school district has earned respect from unexpected admirers. Proposition MM received a Regional Golden Watchdog Award for efficient use of government funds from the San Diego County Taxpayers Association. It is a nonprofit organization whose mission is to inform and educate taxpayers about the good, the bad and occasionally the ugly of government spending, says Executive Director Geoff Patnoe.

Smith himself has been credited with reinvigorating a small staff and reining in sloppy project management practices, getting costs back in line, booting poor-performing contractors and partnering with firms with which the district chooses to work. "Smith doesn’t take any B.S. from his contractors," says Steve Thompson, president of locally based contractor Soltek Pacific. "He is more demanding, expecting better quality and on-time performance."

Proposition MM is San Diego’s largest, most ambitious public works project ever. It calls for 13 new schools, three rebuilt schools and 161 facility upgrades by 2008.

Before Proposition MM, the district never had awarded more than $50 million worth of construction in a single year. By contrast, for 2003-04, it will spend $324 million for school land acquisition, design and construction, averaging $1 million a day in construction work. It entails renovations and expansions at 161 of the district’s 187 schools, plus relocating 3,110 residents in order to build the new facilities, a delicate problem that has confronted school builders in Los Angeles, too (ENR 4/7 p. 32).
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By the end of 2003, 48% of total Proposition MM funds, or $732 million, will have been spent, resulting in nearly 80 modernizations. But things haven’t always run so smoothly.

Initially, the massive multifaceted program overwhelmed the district’s small management staff. Projects fell behind schedule, costs escalated and lawsuits began. The district didn’t have the experienced people needed to handle a program of such size and there were too few inspectors to ensure quality control. At one school, for example, contractors painted over rotted windowsills because the plans didn’t call for the decaying wood to be replaced. As a result, much of the work had to be redone.

Rushing to finish 25 facility repairs in time for the fall 2000 school year, the district approved $7.9 million in emergency cost overruns for new flooring materials, at triple the cost. The change was made after officials discovered that originally specified vinyl composition tiles were not durable enough for school use and often failed to adhere to the concrete floors.

The new building on the campus of La Jolla High School. (Photo © Vince Streano, 2002)

Legal troubles also flared. Local subcontractors sued in 1999 over the district’s plan to award work to large firms in job contract bundles. The district settled the suit for $95,000 in attorneys’ fees.

By 2000, all the problems led to negative stories in local newspapers. San Diego has the nation’s 13th-largest school district and the second largest in California, with 140,753 students, 17,705 employees and a $1.2-billion annual budget. Yet Proposition MM seemingly had fallen short, squandering millions in tax dollars through inefficiency. Simply put, things had to change.

Enter Lou Smith. A Milwaukee native, Smith is a compact man with thick wavy hair and an easy smile. As a rear admiral and former NAVFAC commander, he oversaw $8 billion of annual business worldwide, with $4.3 billion a year in fixed-price, competitively bid construction contracts and a military and civilian work force of 18,000. Smith was retiring after a distinguished 32-year career in the Navy and was weighing more lucrative private-sector offers.

When Smith was asked to apply for the job, "I figured it would be an opportunity to brush up on my interviewing skills and visit some friends in San Diego," Smith recalls. "What struck me is that these people really needed my help...so I closed my eyes and signed the contract."

Smith, 59, who is married to a kindergarten teacher, came aboard as chief operating officer of the facilities management branch of San Diego City Schools and executive director of Proposition MM in December 2000. On arrival, he purchased a blue dress shirt–a must for California chic. Next, he hired a lawyer, knowing there were battles ahead.

Once prepared, Smith stopped hiring companies judged to have performed poorly. "The first thing we did was to throw out all the bums," he says. "We were getting shoddy work from all our suppliers. The architect-engineers didn’t do a good job, then the construction contractor wouldn’t do a good job, and what you wind up with is junk."

At the same time, Smith reached out to contractors. Partnering sessions began with local trade groups where expectations for future projects were put on the table. The district began prequalifying contractors for jobs over $1 million and rejected those who fell short.

The process became more selective for choosing architect-engineering firms. In 1999, the district hired 30 of 33 architectural firms that sought contracts. After Smith’s arrival, only 16 were picked from 60 applicants. The district also began working with the state architect’s office to reduce plan approval time by up to 75%.

Relations with contractors started to improve. "Working with the San Diego Unified School District was extremely difficult for the contractors," says Jim Ryan, executive vice president of the local chapter of the Associated General Contractors of California. "There was difficulty in getting paid and problems in getting plans out....Now, contractors see the district as tough but fair."

Smith hired some big-name consultants to help the district. He picked Jacobs Engineering Inc., Pasadena, Calif., to audit project scope and original change orders. The firm found $6 million in completed work not outlined in the bond measure’s "to-do" list that subsequently was paid from the district’s maintenance budget. Proposition MM firewalls maintenance funding so that it can’t be cut back. Before its passage, the school maintenance budget was a scant $3 million a year. It has since been ramped up to $25 million annually, ensuring that the Proposition MM work won’t deteriorate prematurely.

The district also hired URS Corp. in June 2001 as a program services support contractor. It will be paid $7 million a year with bonuses based on performance.

Since initial planning for Proposition MM began in 1998, land and construction costs in San Diego have increased well beyond their original 5% annual inflation projections. Property prices have more than doubled, from $2 million to $4.7 million per acre, and construction expenses have risen by 20%. However, by keeping project sizes small–there will only be three contract awards over $15 million–bidding competition has been robust. The building designs also allow for smaller lot sizes of 6.5 acres for a new elementary school, as opposed to the state average of 13 acres. The new schools are wood-framed buildings, averaging 56,000 sq ft in floor area.

Proposition MM has put more than 100 new libraries and media centers onto the district campuses, including the library at the Loma Portal Elementary School. (Photo © Vince Streano, 2002)

Smith carefully tracks variables through total cost forecasts, flow charts, cash management and probability percentages. "You can’t manage looking into the rearview mirror," he says.

Only a small district staff of 47 people oversees Proposition MM, the same number when Smith first came on board. But the measure’s program management costs now are 6.2%, or $33.4 million, while the industry average is 8 to 10%. Change orders are 4.74%. And a $201-million cost-savings effort approved in February has bridged a potential funding shortfall.

Despite the public pressure, Smith has no regrets about taking the challenge. "In the end, I looked at this job and asked, ‘What is really important?’"