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Keller questions payment procedure

A former School Board member has questioned the way the Hudson School District handles some of the construction costs for the new River Crest Elementary School.

The dispute centers on how the district is paying "reimbursables" on the school project and the role of the construction manager on the project.

Steve Keller, a former partner in Keller Construction and a construction consultant, said the district should not pay these costs without having the receipts or invoices in its possession.

Hoffman Total Project Management of Appleton, a division of the architectural firm that designed the school, was hired to perform the role of construction manager, and bills the district for reimbursable costs monthly. Invoices and receipts are not forwarded with the monthly report but are retained by Hoffman.

After a review of the report, Tim Erickson, district director of fiscal services, authorizes payment.

Reimbursables are expenses in addition to the construction manager's fee and include such things as onsite dumpsters, toilets, enclosures, heating, fencing and signage, site visit costs, postage, printing and project labor.

The construction budget for the $12.5 million school includes $720,000 for reimbursable expenses. To date, $538,553.89 of that money has been spent.

The board and district administrators said Hoffman was hired to act as their representative on the project and they count on the firm's experience and expertise to review and evaluate reimbursable costs.

Dr. Stan Goetz, an assistant professor of operations, construction and management at UW-Stout, said the method used by Hoffman and the district is common industry practice on a project that uses a construction manager.

Not the way to do business

Keller, who was a member of the Hudson School Board for 15 years, sent a letter to the Hudson Board of Education earlier this summer (and copied it to the Star-Observer) expressing concern over how the district was paying reimbursables on the project.

Keller said that the district is paying those expenses "without any itemized documentation of paid invoices." Keller said he repeatedly asked district administration for paid receipts. He was told that all they received was the monthly general conditions report.

"The school district has no idea of where this money has gone other than to the construction manager. Who he paid is a complete mystery. Without documentation, the School Board is a 'sitting duck' for any accusation that someone might have. You have no proof of where this money went...," he wrote.

Keller added that in all of his years on the School Board, "reimbursable expenses were never paid without complete documentation."

Keller served as an "owner's representative" on the Willow River remodeling project and was board president during the construction of the Hudson Middle School and other district remodeling projects. He said he is not accusing Hoffman of anything illegal, but the procedure being used makes the district vulnerable.

Keller was one of several candidates that bid for the job of construction manager on River Crest. The contract went to Hoffman TPM at a cost of $490,000. Keller's bid was $265,000.

District responds

School Board President Dan Tjornehoj disagrees with Keller. In an interview with him that included district Superintendent Mary Bowen-Eggebraaten and Erickson, Tjornehoj said the board has not given up any oversight on the project and supports the method being used.

He said the district chose the construction manager model because it wanted someone with construction expertise in sustainable design to oversee the project.

"They (Hoffman) have a strong track record in Wisconsin building the kind of school we wanted in Hudson. We checked their references and they come highly recommended by the districts where they have worked," said Tjornehoj.

He said that the board also wanted a construction manager so that the administrative staff could focus on the day-to-day job of managing the district and its educational program, including gearing up for the opening of a new school.

"In Hoffman, we found a firm we could trust to handle the day-to-day details of the school construction and, with the project nearing completion, they have shown themselves to deserve that trust... I know this model is different than what Steve (Keller) is used to, but we have checked and the way we are paying these costs is consistent with the way other districts using construction managers have done it. Steve seems to want the (school) board to perform the construction manager's job," said Tjornehoj.

Standard practice

The Star-Observer asked Professor Goetz whether the process being used by Hoffman and the district to pay the reimbursables is different from what he sees in the industry.

In a phone interview, Goetz said that the method being used by Hoffman and the school district is common practice. Goetz said the construction manager acts as the district's representative in reviewing the reimbursables, and it is his job to evaluate the expenses.

"He has the necessary expertise and familiarity with construction costs to determine if they are appropriate and reasonable. The district's financial people may not recognize or understand all of the terms and costs associated with a major construction project. That's part of the construction manager's job to evaluate and verify those costs."

Goetz said it is not typical for a construction manager to forward all invoices and receipts for the reimbursables to the district prior to payment as Keller suggests.

"That would be an extra burden that is not a general practice in the industry. You could end up spending a lot of time explaining things that the financial guy might not understand or recognize. That's what you pay the CM for, his knowledge and expertise. It is his job to question anything that seems out of the ordinary or excessive," said Goetz.

Goetz said that the construction manager then should prepare a report that lists all the expenses and forward it to the district to approve payment. Goetz said in his experience the method of payment being used by the Hudson School District and Hoffman is standard operating procedure and seemed "appropriate and usual."

As a result of Keller's inquiries, the district has been receiving copies of outside vendor invoices or receipts with the general conditions report since April. They do not, however, get copies of Hoffman's internal expenses.

In a letter to Keller in July, the superintendent said he was free to inspect the invoices and receipts at the district office. The letter went on to say that the district is working with Hoffman to "identify internal records that can be provided to the district each month without charge." She also said that Keller could visit Hoffman's office in Appleton to review "any and all documentation related to River Crest Elementary School."

River Crest Elementary School will be the district's sixth elementary school and the first sustainable design building. It is scheduled to open to students on Sept. 2.

For more information, contact the school district at (715) 377-3702 or go online at and click on New Elementary School.

Meg Heaton

Meg Heaton has been a reporter with the Hudson Star Observer since 1990. She has a bachelor’s degree in anthropology and Native American Studies from the University of Wisconsin-Eau Claire.

(715) 808-8604