NORTH COUNTY -- With many North County school districts mired in some phase of construction, school officials are turning to an increasingly popular kind of building contract that they say can save taxpayers money while speeding up the arduous development process.

Known in industry lingo as a "lease-leaseback" agreement, the contract creates a private-public partnership that allows a school district to buy land, then temporarily lease it to a developer who will build a campus.

The deal typically includes a cap on construction costs and makes the developer responsible for financing the project. Such an arrangement means that school districts don't have to worry about the rising costs of concrete, steel or other materials -- previously a budget buster for major building projects.

However, the contracts don't guarantee the final price tag for a campus, officials say. Districts still must pay for changes made along the way -- increasing the final figure -- or for unforeseen environmental problems that can add extra work.

"It's just another tool in the basket," said Bob Nicholson, senior director of facility planning services for the San Diego County Office of Education.

At least 60 schools have been built in San Diego County over the last five years using this type of contract. Those projects include Mission Hills High School in San Marcos, a handful of campuses in Poway and the dual-magnet high school taking shape in the Vista Unified School District.

How it works

The strategy of having the developer lease the land -- usually at a price of about $1 a year -- works because it puts the builder in the "owner's seat," motivating the company to do the work as efficiently as possible, officials say.

"It just kind of changes the focus a little bit and makes the owner more a part of the process," Nicholson said.

When the project is done, the district pays the developer and the land reverts to district ownership with a new or renovated school.

Although the financing method has been allowed by state education code for decades, the number of districts using it has increased over the last several years, Nicholson said.

There are few downsides to the method for public agencies, said Doug Mann, executive director of facilities at Poway Unified School District, which has built several schools recently with lease-leaseback contracts.

However, contractors appear to have mixed feelings about the arrangements. While some like the lease-leaseback method because it can speed projects along, others are concerned that it is used as a way to circumvent bidding requirements.

"Because it's not a standard bidding construction opportunity, there are a lot of 'buddy deals' that go on with these lease-leaseback things," said Bill Davis, spokesman for the Southern California Contractors Association.

Some school districts "misuse" the method to pick their contractor without asking for estimates from other developers, said Cathryn Hilliard, executive director of the Construction Industry Force Account Council, an organization that monitors public agencies to make sure they are complying with competitive bidding laws.

"There's room for cronyism," she said. "They don't have to do formal competitive bidding, so they believe that it's easier."

Price guarantee

Once the project specifications are set, the developer offers the district a contract, including a "guaranteed maximum price." This maximum price requires the developer to pay for many of the things that typically cause construction costs to rise, such as cost of materials and labor.

But districts must be careful to read the fine print. Vista Unified School District trustees have raised questions in the last month over what exactly is covered in the district's $91 million "guaranteed maximum price" contract for a huge magnet high school project in eastern Oceanside.

When district officials brought a $1.6 million cost increase, made up of dozens of itemized "change orders," to the school board on April 30, some trustees questioned whether the contractor, Temecula-based EDGE Development, was allowed to raise the price of the project.

"Our assumption when we signed this agreement was that it would not cost us one penny more," board President Jim Gibson said. "So, why are we getting these change orders?"

District officials said the district would have to pay the extra money because they requested the changes, which included revisions to the heating and air-conditioning system and additional environmental measures.

"It has been preliminarily approved, and is what we feel is fair and reasonable," Donna Caperton, district purchasing director, said about the price increase.

If the school board decides against accepting the change order, the district and contractor will have to go back into negotiations to decide what needs to be done and how much it should cost.

Then, a revised change order would come before the board for approval.

Administrators at other North County school districts said they also had been hit with cost increases on projects where the contract included a guaranteed maximum price.

Still, they said, the final price tag was better than if the schools had been built under a conventional contract.

When San Marcos Unified School District built San Elijo Elementary with a lease-leaseback arrangement, there were several cost increases, which was to be expected, said Kathy Tanner, director of facilities, planning and development for that district.

"Most any construction project, you're going to have change orders," she said, "Certainly, if the school district decides to make changes, there are going to be costs."

Contact staff writer Stacy Brandt at (760) 631-6622 or sbrandt@nctimes.com.