Audit highly critical of state deal with Jones Lang LaSalle

Comptroller's office finds amended deal creates conflict of interest [Updated with JLL response]

The state comptroller's office released an audit Wednesday morning highly critical of the Haslam Administration's real estate management practices, finding that a contract with Jones Lang LaSalle to manage state assets was altered in a way that could benefit JLL.

"We believe the first and second amendments also placed JLL in a position to offer the state advice and then reap the benefits of its own recommendations, creating an organizational conflict of interest," the audit states, noting later that the changes "increase the risk that JLL may recommend unnecessary leases so that it can profit from them."

At the heart of the audit is a $1 million deal with JLL for a statewide facility assessment and management services. After getting the contract, the state amended it, increasing JLL's possible payout by $6.6 million.

From the audit:

Based on our review of the RFP and the Master Planning Contract, we found that STREAM’s (State of Tennessee Real Estate Asset Management) original contract with JLL described a broad scope of services, making it difficult to know what services JLL would be providing for the $1,000,000. As of July 31, 2013, STREAM management amended the original scope and contract dollar maximum with five amendments which increased the maximum contract liability to $7,650,000.

We discussed the contract amendments with STREAM management to determine the basis for the amendments and why the original contract did not specifically include the services procured through the amendments. According to the Director of Real Estate Compliance, STREAM intended from the beginning of the contract period to obtain all the services it ultimately secured through the contract amendment process. Based on our review and our discussion with the Office of the Comptroller of the Treasury’s Office of Management Services, we could not determine that some of the amendments were within the scope of services of the 25original contract. In two cases, the amendments created organizational conflicts of interest whereby JLL could profit from its own planning and leasing recommendations.

The audit contains lengthy dissents from the administration, which notes, "this finding is not based on any alleged violation of statute, rule, or policy, but is instead a judgment of the Real Estate division’s business decisions."

Similarly, JLL officials issued a statement Wednesday afternoon saying that their work with the state complies with "applicable laws, policies and real estate industry practices."

"All recommendations JLL makes to the state are made exclusively in support of effecting the state’s goals for real estate services," the statement says. "The state provides criteria for our evaluations, and then either accepts, rejects or modifies our recommendations in its complete discretion."

Still, as state Rep. Sherry Jones told NewsChannel 5 last week, the contracts pay JLL to make determinations about state properties — such as demolishing the Cordell Hull office building (pictured) — and then to earn commissions negotiating leases for new office space.

"We're moving people around just so JLL can make money," Jones said to reporter Phil Williams. "If I were JLL and I got money for each building that I said to tear down and then I got to oversee that and get money and then I got to oversee leasing space and I got money for that ... I could find lots of places for people to go, I could find lots of buildings to tear down."