INDEPENDENT WEEKLY: I have a copy of the proposed amendments [to the DPAC Operating Agreement], but it didn't include the livable wage amendment.
ALAN DELISLE: We did not do the livable wage section. Those were pulled out, because the city's working on a more comprehensive approach to that, with other departments and other issues.
You write to Council that "over the passage of time" the acceptance date was pushed back from July 1 to December 1. When exactly did you realize that the acceptance date was not going to happen as originally planned?
I can't pin down an exact time. Going back to the deal-point document, early on in the project, we had a different time frame. As time went on, and we got closer and closer to construction, and things kept sliding and sliding and sliding, for a lot of good reasons, then we ended up recognizing that that original date could not be met, and that's when it slid back to what we're looking at today.
What were some of those reasons?
The time that it takes to get a huge project like this accomplished—getting approvals, getting the council comfortable with all the different aspects of the project. I couldn't go back, after three years, and tell you exactly all of those issues. But, on a project of this size, it is not uncommon for things to slide.
The real issue there is, we were all taking cuts to make the project go. We were 'value engineering' like crazy, and we had talked to the operator, in early discussions, about needing to cap the pre-opening budget at $500,000—because that's all we had at the time. Subsequent to the first budget we had taken to Council—there was a lot of changes to the documentation, just because of changes that occurred over time ... For example, when we first went to Council, there was actually a $700,000 gap in the project. Then, once we actually went to financing, the interest rates had dropped, and we gained about $900,000. We ate up the $700,000, and gained another $900,000. Then, we gained additional money when Duke made a contribution to the City, and the City decided to put that money into the theater. So we had another 1.5 million, I think, on top of that. We ended up with a much stronger project, in the end, than we first thought when we moved in.
The operator, and the city, were always having discussions about this pre-opening budget, but we didn't make any commitments until the very end to make sure we had all of our finances covered. We ended up going back, recently, and agreeing to put in another $100,000, as long as they [PFM/ Nederlander] put in another $100,000 as well. In addition to that—they're projecting the pre-opening budget to be $638,000—really, they're eating that $38,000, plus they're investing another $100,000, from their end, into marketing and image. It doesn't have anything to do with the construction, or Skanska, or anything like that. This is purely between the City and the operators.
As far as Skanska, and construction of building, it was a no-risk, maximum amount that it would cost, and that would be capped.
Correct. And that's exactly what is occurring. That $100,000 is not going into the construction of the building. That $100,000 is going to the operator.
If the construction is taking longer than what was once projected, shouldn't Skanska be responsible for the extra money that is now due to PFM/ Nederlander? Why is the City responsible for that money?
No. That doesn't make any sense at all. It has nothing to do with the contract with Skanska. It has nothing to do with guaranteed maximum price. This is an agreement separate from that, with PFM/ Nederlander, to say, 'Look, we're agreeing to put another $100,000 into your soft costs, for the operation of the facility, based on that history I just talked about.' It will not impact the GMP. It's not like we're adding another $100,000 to the project.
The way this project was set-up was that Skanska would take on all the cost, and then on the Acceptance Date, hand that cost over to the operator. It seems like this $100,000 is an extra cost that wasn't anticipated by the City.
It's definitely an extra cost to the operator. And, that's why we took it to Council to see if they were comfortable with that, and they approved it.
I just want to make it clear that Skanska has, and will, deliver a final project that is within the timeframes that were established, based on the sliding of the schedule, up until the point where we did the contract that said, 'You will have it done by such-and-such date.' They're right on schedule, and right on budget.
I have an Operating Agreement that still says the July 1 Acceptance Date. I was talking to Phil Szostak, and he said that the construction was scheduled all along for November 30. How did those things cross-over, where in the operating agreement, it was still saying that there would be a July 1 opening date?
If you're talking about the memo that I wrote to Council regarding the Operating Agreement, that's kind of background history information that basically said, at one point, when we were planning the project—not subject to any contracts—but when we were planning the project, it was contemplated that we were going to have a July 1 completion date.
The original goal, in our planning process, was for the operator to get a full season, and therefore have that fall opening. Over time, it became apparent, in our planning process, that that wasn't going to occur. At that point, we had had a tremendous amount of discussion, and had put a tremendous amount of work into our budget, and our 'value engineering' process to get us to the number we needed to be at, at that time. When things changed, for the positive, and we had some additional resources, that's when we locked in the contract. By then, we knew the date was going to be much later. That's when all the contracts were initiated, based on the more enlightened view of what our actual schedule was.
The building must have begun, for example, before Bob Klaus started, and the whole pre-operating budget began. Didn't the City know that the building would actually be completed in November, by the time they hired the pre-operating team?
Well, yeah. The real point that's being made in that memo is that we all knew the budget was tight, and we all did what we needed to do, including the operator, as we—and I can't give you exact dates—as we worked through the pre-opening budget. There was hope that there was going to be more money available in the pre-opening budget. As the schedule started to slide, the City did not entertain those thoughts, because the budget was so tight, until we were able to see where we were, closer to the end. That's why we then brought forward, now, this concept of being able to add back some money into the pre-opening budget. We, staff, in our discussions with the operator, believe that pre-opening effort is extremely important to the success of the theater, and of course we all know what the economy's like. So, we did not disagree, that a small investment in the pre-opening budget—separate from the construction of the theater—would make sense, and we brought that forward to the Council, and they agreed with it.
I'd like to know when Council was presented with those separate things: one, that it was going to open in November, and two, that this pre-operating budget was going to cost more money.
I went to them, during this last cycle, and explained all that to them, and they approved it.
Regarding the status of livable wage, the City Council did not approve that amendment?
We took that provision out, because the City's working on a more comprehensive approach to the Livable Wage Ordinance. We were not aware of it initially, so we're going to allow that amendment [to the Livable Wage Ordinance] deal with the issues that the DPAC has asked us to look at.
Right now, the Operating Agreement as its stands makes no mention of livable wage?
No. In the Operating Agreement, currently, there is. What we did not do is do an amendment to the current agreement, as it relates to livable wage. That is going to be dealt with, fairly soon, in an agenda item.
The only other question for me is the nine months, versus twelve months. It's still a little confusing, timeline-wise. I know you don't have the exact dates right now, but the question that remains for me is: why, if it was clear that this theater would be opening in Nov./Dec., wasn't the start of the pre-operating period pushed back three months? Was it because this was, essentially, an investment to give another three months into [PFM/ Nederlander's] marketing? What was the reasoning behind that?
I'm trying to understand. I thought I just explained it pretty well, but I might be missing something.
When I think of the timeline, there's two things: one, when the theater was going to actually open—November 30—and, two, when it was decided that the pre-operating team would come in and start selling tickets. It seems, in your letter, that you were anticipating a July 1 opening, and that the pre-operating segment—when the general manager would come in and start working—that that was all set, in accordance with the July 1 Acceptance Date. Correct me if I'm wrong here: why was that pre-operating date not pushed back another three months?
When you say 'push back,' do you mean, 'why didn't they adjust their pre-opening?'
Yes. Why didn't they just start later?
When they take possession of the theater, they want to be generating revenue right away. While they didn't do a full season of Broadway in the fall, they're still doing their first show November 30. Their goal is to generate income as soon as possible, so they would not be able to do anything differently than what they did, which is to start when they did, because even though they don't have a full season, they still are doing shows for essentially a month of the year. The only point, for them, is they didn't start the shows in September. They're starting in the end of November. So, I don't know if that answers the question, but in part, there's a lot of thought and detail that goes into every decision they make, in terms of putting their team together, and getting prepared to do what they've done, to prepare for the season. The point is, from our perspective, they had a legitimate issue that they brought forward, in terms of having to, essentially, sustain cuts, essentially have a longer period of time before the building opens.
There's a lot of history here that I tried to capture in those two paragraphs [in the memo to Council] to say, 'Look, this is essentially what took place.' I know that it's very difficult for someone who didn't go through that process to look at it and say, 'What really took place?' But, all I can do is tell you is what did take place.
Were they operating off-site for box-office sales?
That was the other thing that they brought forward, that was a legitimate issue, that in the agreement, we had agreed to house them, and we ended up not housing them on-site, so they did go off-site, and their staff has been off-site the whole time.
It seems that they had to pay double: they had to work off-site, and they also worked longer than what was originally budgeted: 12 months instead of nine months.
Right. And the point is, we always knew ... To get the project off the ground, everybody gave. Everybody did their part: the architect, the contractor, the city, the operator. We all gave, to make the project work. We always knew, and I especially knew, that we had really shorted them [PFM/ Nederlander] in the [pre-] opening budget, so I was open to their argument, but only as we got closer to the end, and I had a better feel for where we were in the project.