South Carolina RO, Box 21398 sci Cotunbi, South Cratina Law Enforcement Division ns Caring Henry D. MeMastes, Governor ‘Tl: (803) 787-9000 Mark A. Kec, Oief ‘September 12, 2022 INVESTIGATIVE REPORT TO: File 59-15-0024 FROM: Special Agent Jomar Albayalde RE: Misconduct in Office Ferris, Robert (Subject) Defeo, Joe (Subject) Horry County, Horry County School District (Victim) COUNTY: Horry Introduction On December 7, 2015, the South Carolina Law Enforcement Division (SLED) received a verbal request from the South Carolina Attorney General’s (SCAG) Office, Assistant Attomey General (AG) Rick Hubbard, to investigate the improper award of a Horry County School District (HCSD) construction contract. SLED Lieutenant (Lt.) Pete Logan assigned Special Agent (S/A) Jomar Albayalde to conduct the investigation, assisted by S/A Gregory Antley. Overview ‘According to preliminary information provided by the SCAG’s Office (Attachment 1), Assistant AG Rick Hubbard met with Charleston, SC Attorney Michael Timbes, and discussed allegations relating to the improper award of a HCSD contract worth approximately $150 million dollars. The contract was awarded to the company First Floor Energy Positive (FFEP), CALBA — Ar Accredited Lew Enforcement Agency anfasFile 59-15-0024 — Investigative Report September 12, 2022 Page 2 of 24 CEO Robert Ferris, in Raleigh, NC and involved the construction of five new schools to be built simultaneously in Horry County, SC. Timbes advised that Charles Jordan and McKenzie Jordan from Conway, SC, requested to meet with the AG’s Office to discuss information and share their knowledge of the allegation. Summary Agent's Note: All interviews are summarized herein and are not intended to be a verbatim account and do not memorialize all statements made or documentation provided during the interviews, Refer to the recordings, Memorandum of Interviews, and written statements for the complete context of the interviews. On December 17, 2015, S/A Albayalde and S/A Antley conducted an interview with Charles McKenzie, which was summarized in a Memorandum of Interview (MOI) (Attachment 2). Charles McKenzie provided interviewing agents the following information: Charles McKenzie ‘was a local “Universal Contractor” in Horry County and had forty (40) years experience in the professional business. When he officially retired, his son, McKenzie Jordan, took over his business for Chancel Builders. Charles McKenzie previously owned Chancel Construction Incorporated & Group (CCIG), to which the firm built many projects for the HCSD and other projects in Horry County. In February 2007, he sold CCIG to M.B. Kahn Construction (one of three construction firms that originally competed for the contract to build the five new HCSD schools), Charles McKenzie continued to work for M.B. Kahn Construction, serving as their public relations officer and senior executive vice president. He retired from the company on December 31, 2013 or 2014. Although he had no firsthand knowledge of illegal activity that ‘was criminal in nature, Charles McKenzie indicated that as “a tax payer of the County,” he had an obligation to report what he felt was inappropriate activity associated with the building contract awarded to FFEP on November 2, 2015. He provided interviewing Agents with a letter that he drafted on December 14, 2015, and other supporting documentation, (see Attachment 2), that addressed his concerns with the HCSD school board. In summary, the majority of Charles McKenzie’s concerns pointed out building project cost inaccuracies reported to the school board and misleading contractual clauses by FFEPFile 59-15-0024 — Investigative Report September 12, 2022 Page 3 of 24 On December 17, 2015, S/A Albayalde and $/A Antley met with HCSD Superintendent, Doctor (Dr.) Rick Maxey. An MOI (Attachment 3) was completed to document the meeting. Agents elected to meet with Dr. Maxey and obtain background information on the status of the HCSD’s construction project. Dr. Maxey provided the following information: In February 2013, a proposal to replace and/or renovate HCSD facilities was initiated. In October 2013, a solicitation RFQ (Request for Qualifications) was issued seeking out consulting services to design new elementary and middle schools listed as follows: Socastee Elementary, Socastee Middle, Carolina Forest Middle, St. James Intermediate, and Myrtle Beach Middle. In year 2014, Dr. Maxey indicated some members of the HCSD Board of Education (hereinafter the Board, consisting of 12 members including the Chairman) who were assigned to the Conceptual Design Committee, came into contact with Ferris (CEO of FFEP) at a February 2014 South Carolina School Board Association Conference in Myrtle Beach, SC. A subsequent tour was arranged on May 2, 2014, to look at one of FFEP’s projects, Dillon Middle School. Present at this event was Dr. Maxey, the Conceptual Design Steering Committee, other members of the Board, and HCSD staff. In October 2014, the Board went in a different direction with their construction program. At the time, Dr. Maxey was the Deputy Supervisor over Support Services which included the facilities, department. He took over as Interim Superintendent following the resignation of Cindy Elsbery, the former HCSD Superintendent. On October 20, 2014, FFEP was placed on the school board agenda, in which Ferris was allowed to present his proposal on a “high performance / energy-positive” schools concept. On November 10, 2014, the Board approved a motion to cancel the previous RFQ process and moved forward to proceed with new procurements for the new school construction, to include high performance / energy- positive standards. During a February 9, 2015 Board meeting, a “written determination” was approved to move from the previous Design-Bid-Build process to a Design-Build delivery method to build the new schools. Ara Heinz was the HCSD Procurement Director at the time and had direct ‘communications with Attorney Keith Powell from the law firm, Childs & Halligan, whoFile 59-15-0024 ~ Investigative Report September 12, 2022 Page 4 of 24 suggested the use of the Design-Build selection process to procure a construction vendor to build the new schools. In March 2015, a Selection Committee was then erected to review potential construction firms that qualified for the proposed Design-Build contract. This committee consisted of five Board members (Neil James, Holly Heniford, Sherrie Todd, Ray Winters, and David Cox) and five HCSD office employees (Dary! Brown, Mark Wolfe, Dennis McCrary, Janice Christie, and James Laper). From March to October 2015, the selection committee underwent their evaluation and search for potential construction firms. On November 3, 2015, the late Board Chairman, Joe Defeo, issued a “written determination” on behalf of the Board and awarded all five school building contracts to FFEP. Board members James and John Poston were the only members who voted no to the approval of FFEP. Dr. Maxey advised HCSD funding was already being drawn for the building project from the HCSD Capital Fund. He indicated the source of the funding came from bonds and a 2008 local option sales tax that was in effect from 2009-2014. ‘The HCSD, Coastal Carolina University, and Horry/Georgetown Technical College share this funding to build new construction and satisfy any capitol debt outstanding, When questioned if he knew of any improprieties by the Board that may have influenced their decision to vote for the contract award to FFEP, Dr. Maxey did not have any firsthand observations or knowledge of such activity. Dr. Maxey provided Agents with additional documentation associated with the building contract award and the Selection Committee evaluation process (see Attachment 19) ‘On January 6, 2016, S/A Albayalde and S/A Antley met with Ara Heinz at the HCSD office in ‘Conway, SC and subsequently obtained a prepared statement (Attachment 4). Her recollection, of the HCSD school buildings project was extensive and included very detailed information regarding a timeline of events encompassing the school buildings project. Heinz provided the following: She was the Procurement Specialist for the HCSD since October 31, 2011, and issued various types of solicitations for goods and services. Within the last 3 years, mostFile 59-15-0024 — Investigative Report September 12, 2022 Page 5 of 24 solicitations she issued involved the Construction Management area. Heinz provided an overview from the initial construetion firm search/selection process beginning in year 2013, leading to the “Design-Build Delivery” method used to build the schools that was ultimately accepted by the Board in November 2015. She stated the following: As referenced by Dr. Maxey, on October 21, 2013, the District issued an RFQ for consulting services for Conceptual Design. Submitted qualification packages from competing vendors were reviewed and evaluated by a Selection Committee appointed by the HCSD Superintendent. Upon the completed evaluation process by the Selection Committee, the vendor SHW Group, Ine. was the highest ranked firm. ‘The vendor was then awarded the contract on December 16, 2013. In the summer of 2014, Heinz began working on the secondary process known as a solicitation for Professional Design Services for Production Architecture. On November 10, 2014, the Board voted to cancel the existing solicitation, and issue a new solicitation for the schools to be “Energy Positive Schools.” Following the February 9, 2015 written determination to move forward with the Design-Build method, HCSD staff and the Childs & Halligan staff conducted two meetings to review and finalize the new RFQ. On February 26, 2015, the new Design-Build RFQ was released to the public. On March 11, 2015, Heinz was notified the new “evaluation committee” (AKA the Selection Committee) would be comprised of five HCSD staff members and five HCSD Board members, the same HCSD representatives previously mentioned by Dr. Maxey. Nine firms responded to the updated RFQ, which was due on April 7, 2015. Between April to June 2015, the committee held four evaluation meetings on the nine firms. Heinz stated, “During the meeting on June 2, 2015, the committee made a motion to short-list all firms who scored an average of 85 points or higher on the evaluations. These firms would be invited to respond to the Request for Proposals for the Design-Build Delivery of New School Facilities. Four firms met this requirement. They were (in rank order from highest to lowest): MBB. Kahn Construction Co., Inc.; Thompson Turner Construction - a division of Thompson Construction Group, Inc.; First Floor Energy Positive; and The Whiting-Turer Contracting Company. All firms who responded to the RFQ were notified of the short-l list on June 3, 2015,File 59-15-0024 ~ Investigative Report September 12, 2022 Page 6 of 24 .. Proposals were due on September 3, 2015, and 3 of the 4 short-listed firms submitted proposals in response to the RFP. (The Whiting-Turner Contracting Company notified me on August 28, 2015 that they would not be submitting a proposal to us for a few reasons). Upon receipt of the proposals, a Childs & Halligan courier came to pick up the hard copies of all proposals and corresponding drawings so that they could be carried to Louis Batson, the independent architect who was hired to assist in the technical review of the proposals.” On September 8, 15, and 24, 2015, the committee continued their evaluation and review of the three remaining proposals from M.B. Kahn Construction Co., Inc., Thompson Turner Construction, and FFEP. On October 9, 2015, the committee conducted interviews with the three firms, followed by evaluations of each firm afterward. Heinz provided the following instance, where she believed the event was a possible conflict of interest during the firm selection process: “After evaluations were completed and tured in, the evaluation committee was free to leave if they wanted, but they had the option to stay as the scores were being tallied. During this time, I was informed by 2 different committee members (Dr. Christy and Dennis McCrary) that they saw another committee member (Holly Heniford) talking with Robbie Ferris of First Floor in the parking lot. (After being informed of this, I also stepped outside of the building and saw the 2 of them talking as well). While I do not know what they were discussing, all committee members had just been reminded prior to the evaluations that all events related to this solicitation were still confidential since no award had been made and that the Procurement Integrity and Non- Disclosure forms that they all signed at the beginning of the process were still in effect. Speaking with the firms during an on-going solicitation could give the appearance of a conflict of interest, whether real or perceived. I relayed what Dr. Christy and Dennis saw to Mr. Childs (of Childs & Halligan), and I was told that it wasn’t a problem. | then told John Gardner of the events and of Mr. Childs’ response to me, and I told him that I considered it a problem. He agreed.” On Monday, October 12, 2015 (prior to the Board meeting scheduled that night), the committee completed their construction firm scoresheet process for each school project. The scores were tallied, and then final rankings were provided to the committee before they adjourned. “A.File 59-15-0024 — Investigative Report September 12, 2022 Page 7 of 24 consensus report prepared by Childs & Halligan that provided final rankings of each firm by school was then signed by all members of the evaluation committee,” Heinz said. During the scheduled full Board evening meeting, the consensus report was presented and recommended “the Board approve contract negotiations for each project in rank order.” The Board then ‘moved to adopt the report to initiate the selection process of a construction firm. Heinz stated the following: “Since First Floor Energy Positive (FFEP) was the highest ranked firm for all 5 schools, the negotiation process started with them on Thursday, October 15, 2015. The evaluation committee was not involved in the negotiation process. Rather, the following HCS staff was included in the negotiation discussions: Dr. Rick Maxey, Superintendent; Edward Boyd, Chief Officer ~ Accountability and Information; Daryl Brown, Chief Officer — ‘Support Services; John Gardner, Chief Officer ~ Fiscal Services; Kenny Generette, Staff Attomey, Office of Policy & Legal Services; Mark Wolfe, Executive Director ~ Facilities; Dennis McCrary, Engineering Manager; Mark Koll, Design Manager; and myself. (An attorney from Childs & Halligan was present during all negotiation meetings as well.)” Heinz continued, “Although FFEP was the highest ranked firm, they were substantially over budget. The goal of the discussions was to negotiate back within budget while still maintaining all other aspects of the scope of the solicitation. At the conclusion of this first meeting, HCS. asked FFEP to review their budgets for each school and revise them by removing whatever “extras” would not affect the scope of the project. They were to bring this information to the next meeting scheduled for Tuesday, October 20, 2015. FFEP did bring a spreadsheet with revised budgets for each school to the second negotiation meeting. However, the prices were still substantially over budget.” Heinz continued, “Since the Board had set and approved the budgets for these projects, the HCS staff involved in the negotiations did not feel that they could authorize or recommend awarding a contract for these projects in these amounts. ‘Therefore, it was determined that negotiations with FFEP would not continue, but negotiations with the second and third highest ranked firms were planned (as allowed in the HCS Procurement Code). Thompson Turner (TT), the second highest ranked firm was asked to meet with HCS staff on Tuesday, October 27, 2015. TheyFile 59-15-0024 — Investigative Report September 12, 2022 Page 8 of 24 ‘were notified via email that we were hoping to enter into negotiations regarding scope and price for the five schools. In the end, we were not able to negotiate within budget with Thompson Turner, Therefore, we moved into negotiations with the third highest ranked firm, M.B. Kahn (MBK), regarding scope and budget. This meeting was held on Friday, October 30, 2015. Again, negotiations within scope and budget were unsuccessful. John Gardner prepared a report for Dr. Maxey outlining the results of the contract negotiations with all firms on October 31, 2015, At the Board meeting on Monday, November 2, 2015, the Board moved to increase the budgets for the 5 schools to successfully enter into contracts with FFEP and directed the administration to issue a Notice of Intent to Award for the projects. Five separate Notices of Intent to Award (1/school) were issued to Firstfloor Energy Positive, LLC on November 3, 2015. The mandatory protest period (as required by the HCS Procurement Code) associated with these Notices of Intent to Award ended on Wednesday, November 18, 2015, and no protests were received.” On November 23, 2015, a motion was made during the Board meeting that authorized the Board Chair, Joe Defeo, to sign five separate contracts with FFEP. Defeo signed the contracts following the motion approval. On November 24, 2015, Gardner advised Heinz that Defeo had signed the contracts. She noted this was not standard procedure, and that Gardner was responsible for signing all contracts greater than $50,000 in value (unless an alternative signing authority was designated by Gardner to someone else). They discovered the projected construction completion date (May 1, 2017 for all five schools) had not been changed; however, the terms of the number of weather days allotted to FFEP had been changed. “Therefore, upon looking at the contract, everything regarding the date appears to be the same. However, because the number of weather days had been changed, the project time was actually given more days,” Heinz advised. This prompted her to review HCSD’s procurement code and determine if the contracts were “legally binding since someone other than John had signed them.” Through email communications, she voiced her concern to Gardner, Mark Wolfe, Kenny Generet Daryl Brown, and Dr. Maxey. Her information was passed on to Childs & Halligan, to which Childs responded the Board “has authority to provide s Section 59-19-90) and the Board had ownership of the contracts.” joolhouses” (per the S.C. Code Ann,File 59-15-0024 — Investigative Report September 12, 2022 Page 9 of 24 “Childs recommended that the District should process the pay application for FFEP and issue payment to them. The requisitions for all five schools were then entered into HCSD’s accounting software. After a review of the pay applications by Mark Wolfe and John Gardner, a check for $5,321,424.93 was issued to FFEP. This amount represents the sum of each project for “Design Services prior to contract execution,” she said. A second payment to FFEP was issued on January 19, 2016, in the amount of $6,242,814.68. Heinz further explained the details associated with the second payment, and the oversite process the HCSD had established following the awarded contracts to FFEP. Heinz said the following: “This amount represents payment for sum of the following for each of the schools: the design build fee, bonds, insurances, permits, A/E Services ~ Design Development, and, in the case of the new Carolina Forest Middle School, sitework (clearing & grubbing). Going forward, all pay applications will be reviewed by Mark Wolfe (or someone he designates) before they are forwarded to Finance for payment. At this time, the District does not have a specific person or persons to oversee the building of these five facilities. At one point in time, it was thought that we would solicit for project management oversight services, but at this time, the Board has not authorized us to move forward with this solicitation.” (On January 22, 2016, S/A Albayalde and S/A Antley met with HCSD Chief Financial Officer, John Gardner, which was summarized in an MOI (Attachment 5). Gardner provided the following information to interviewing Agents: He had been with the HCSD for nineteen (19) years, and previously served as the Executive over Finance for 10 years before becoming the Chief Finance Officer. The building project for the five new schools had been discussed going, back to year 2013. Gardner offered similar information regarding the extensive process the HCSD underwent that led to the selection of FFEP, as well the difficulties their HCSD office had experienced in dealing with the company. He provided email communications (see ‘Attachment 5) that detailed the HCSD office discussions following Heinz’s concem over the Board Chairman, Defeo, signing the contractual agreements with FFEP. In an email response dated November 24, 2015, the Childs & Halligan Law Firm replied with the following: “In response to the inquires earlier today, simply stated, the five contracts for theFile 59-15-0024 — Investigative Report September 12, 2022 Page 10 of 24 Design-Build schools are legally valid, executed, and enforceable according to their terms, The Board made the awards by its motion on November 2, 2015, as explained in the written determination of November 3, 2015, followed after the expiration of the protest period by the Board’s motion yesterday authorizing the Board Chair to sign the contracts. In brief, the Board’s authority is founded on 8.C. Code 59-19-90 (1) to provide suitable schoothouses and (5) “to manage and control the school property.” It exercised its authority as stated in the RFP to “confirm” the awards, and the Board explicitly has made its decisions as the governing body of Horry County Schools.” In terms of the Board’s authority, Gardner stated they had “total autonomy” and were not required to report to anyone (i.e., Horry County Council, a political delegation, or State Representatives). Each Board member served a four-year term and were paid $8000 - $9000 per year. The Board Chairman was compensated at $15,000 per year. When questioned about any observations of criminal activity by any members of the Board during the selection process/evaluation of the construction firms, Gardner did not have any firsthand knowledge of such activity. Gardner provided Agents with a copy of the subsequent validation of each building contract award for the five schools. He also included copies of HCSD email ‘communications between HCSD Staff and Childs & Halligan on this matter (see Attachment 5). On January 9, 2019, S/A Albayalde and S/A Antley conducted an audio-recorded interview (see ‘Attachment 20) with Mark Wolfe (HCSD Director of Facilities), which was summarized in an ‘MOI (Attachment 6). Wolfe provided the following: Wolfe began his employment at HCSD in January 2014 as the Coordinator of Design & Engineering. He was a landscape architect by trade and worked thirty (30) years for an architecture firm. He was very familiar with the area of Horry County and “educational design.” In his role as the HCSD Coordinator of Design & Engineering, he was primarily hired and assigned to help with the design of the new schools. Prior to his employment, he noted a Horry County, ten (10) year, penny-sales tax generated funding for the HCSD to build new schools to address overcrowding and hire new employees to facilitate the building process. His position was generated from the penny-sales tax. In March 2015, he became the Executive Director following the former Director, Matt Dean’s separation fiom the HCSD.File 59-15-0024 — Investigative Report September 12, 2022 Page 11 of 24 Back in 2014, he oversaw the “Steering Committee,” which was tasked with conceptional design work on the five schools and spanned over an approximate six-month period. The designs were subsequently used as the basis for the RFQs to select architect firms during the original Design-Bid-Build process. The RFQ architect firm selection process; however, was subsequently dissolved by HCSD at the direction of the Board in early 2015. Interviewing Agents asked Wolfe when the concept of the Design-Build process, in lieu of the traditional method of Design-Bid-Build, was first brought to his attention. Wolfe recalled in late 2014, he tried to explain his opposition to the Design-Build process during a meeting at the HCSD office (Room 151). He could not remember who organized the meeting. He believed Daryl Brown (his current supervisor) and Dr. Cindy Elsberry (the HCSD Superintendent at the time) were present during the meeting. This was Wolfe’s first interaction with the Board chairman Defeo. Based on Wolfe’s experience, coupled with his first year working at the HCSD and learning what the District’s resources and capabilities were, Wolfe objected and did not believe the HCSD was “in a position to properly administer a Design-Build, or oversee a Design-Build contract.” He stated a Design-Build contract was a situation where the architect and the contractor were under the same umbrella, giving HCSD less control and oversight. The Design-Build process gave a contracting firm too much leeway and control over “bottom-line” cost. Defeo advised him the Board had already made up their mind to proceed forward with the Design-Build process. Defeo told Wolfe not to object to the Board’s decision. A short time after, the FFEP CEO Ferris was permitted to present a business proposal of his company to the Board. Following a later Board meeting and motion to vote, the Board elected to move forward with the Design-Build process with an emphasis on the solicitation for “high performance energy positive schools.” A newly erected “Evaluation Committee” (AKA the Selection Committee) was formulated to oversee the company selection that would execute the Design-Build process. He went on to describe the same process Dr. Maxey and Heinz stated, regarding the Selection. Committee’s evaluation process to select a construction firm.File 59-15-0024 ~ Investigative Report September 12, 2022 Page 12 of 24 After the Selection Committee reviewed the business proposal submissions, three firms were selected to be interviewed. They were Thompson Turner, M-B. Kahn, and FFEP. Wolfe noted at that time, two of the committee members, Heniford and Todd, had a list of prepared questions. The rest of the committee panel was not supplied with the same list of questions. In his opinion, the questions were confusing to the Selection Committee, and were too technical in seope given Heniford and Todd’s background. The interviewees (Thompson Tumer and M.B. Kabn) were also confused and did not know how to respond to the questions. On the other hand, FFEP provided answers to the same questions. Wolfe recalled Heniford’s questions addressed changes that the Board allowed in an addendum (Number 4), which offered the firms to make a change to their conceptual designs. Wolfe noted HCSD had previously invested time and money establishing conceptual architecture designs for the new schools in the original RFQ in 2014, and the established designs were already included in the new RFQ. Thompson Tumer and M.B. Kahn followed the designs in their proposals, but FFEP submitted completely different designs. Following a Selection Committee meeting on October 12, 2015, Wolfe questioned Attomey Kenneth Childs (Childs & Halligan Law Firm) why the Board chairman Defeo was present and interjecting himself during the committee meeting, when it should have been an executive session type setting. Defeo was very “plugged in” to the selection process and knew what each firm’s costs were projected to be, Wolfe was not provided a follow-up answer to his question by Childs. ‘After FFEP was awarded the contract in November 2015, the Childs & Halligan Law Firm became involved with the construction contract parameters. Wolfe advised there were difficulties in negotiating the contract with FFEP and cited the number of rain days as one of those difficulties. Five (5) days a month was the HCSD’s minimum standard they had established for years. The HCSD office was not afforded adequate time to review the contract, or make any necessary changes, prior to a Monday Board meeting set to sign-off on the contract award to FFEP. They (Wolfe, Heinz, and other HCSD staff) were handed a copy of the finalized contract at 5:00 p.m, by Attomey Keith Powell from Childs & Halligan, before the 6:00 p.m. scheduled full Board meeting. Chairman Defeo ultimately signed the contractFile 59-15-0024 — Investigative Report September 12, 2022 Page 13 of 24 between HCSD and FFEP. Wolfe believed Attorney Powell was serving the interests of the Board and the HCSD simultaneously during this period, as well as negotiating the contract between the school district and FFEP. Wolfe cited an email drafted by Dr. Maxey that was sent to Board member David Cox, as well as Chairman Defeo and the rest of the Board, addressing the concerns by the HCSD staff's inability to properly review the drafts of the contract, prior to Chairman Defeo signing off on the final contract. ‘Wolfe went on to provide information pertaining to questionable landscaping bid proposals associated with the new school building projects. He noted the HCSD office requested to see a list of the subcontractors that were hired by FFEP, via through the contractor (Southern Asphalt) that dealt with the landscaping, but they were denied the request through the advisement of Childs & Halligan. Dusty Thome was Wolfe’s point of contact from Souther Asphalt. Wolfe later took it upon himself to contact each landscaping business (Low Country Landscaping, Cardinal Landscaping, and Seed Slingers) and requested their projected costs. OF the three businesses, John Boyd from Low Country Landscaping said his proposed cost was $330,000 for St, James Intermediate School. This was different from $380,000 quoted to the HCSD office. He was unable to acquire any documentation from Seed Slingers. Cardinal Landscaping’s numbers appeared to be relatively the same and in line with the information reported to HCSD. When Metcon (primary contractor for FFEP) was questioned about the discrepancy, they advised it was an oversight on their report and the amount was reduced to the original quoted cost by Low Country Landscaping. Agent's Note: Refer to Attachments 14-17 HCSD emails and MOIs regarding the landscaping issues. Wolfe proceeded to share a recorded conversation from March 9, 2017, associated with an OAC (Owner, Architect, and Contractor) regular meeting on the building progress of the schools (see ‘Attachment 20). Ferris wanted to speak with Wolfe about the landscaping contracts at the conclusion of the meeting. Metcon Project Executive, Ryan Parker, was also present during the conversation, Ferris and Parker were unaware they were being recorded by Wolfe. The conversation surrounded the perceived pressure Ferris was receiving from certain BoardFile 59-15-0024 — Investigative Report September 12, 2022 Page 14 of 24 members to use Sam Johnson of Seed Slingers (for sod purchase and jobsite work), specifically Board member Shanda Allen (elected in 2016). Ferris indicated Johnson’s references were not favorable and his costs were too high (25% above other landscaping businesses), as he voiced his opinions to Board member Allen. Ultimately Ferris gave in and permitted Seed Slingers to engage in work for landscaping. Ferris admitted to Parker and Wolfe that he should not have interjected himself in the situation and should have deferred the matter to them instead. Parker confirmed that Seed Slingers had one (1) job; the other companies (Low Country Landscaping and Cardinal Landscaping) had the remaining jobs. ‘When cost was discussed, Parker said, “I’m just checking the numbers Mark, making sure no one slipped a dollar here or there. They just marked up what’s currently on the jobs, and then they deducted the overhead for profit from the original allowance. That make sense?” Wolfe replied, “I think so.” “That was the easiest way to represent those numbers,” Parker said. Wolfe advised Agents that he thought Parker was referring to mark-up values that they (FFEP, Metcon, and the associated landscaping companies) were entitled to by contract. “Sometimes they charged it. Sometimes they didn’t. And I could never figure out when they were going to charge it, and when they weren’t,” he said. Wolfe told Parker and Ferris that he was familiar with Seed Slingers and Low Country Landscaping; he was not familiar with Cardinal Landscaping. Parker replied that Cardinal had done some work for them back in Raleigh, NC. Wolfe advised Agents that marked the end of the conversation. He did not play or offer any additional audio during the interview. He offered no specific information regarding any inappropriate criminal activity by any of the Board members. Wolfe noted FFEP did not meet the May 2017 deadline to open all five (5) schools. Ten Oaks Middle School, Socastee Elementary, and St. James Intermediate opened in August 2017. Myrtle Beach Middle School opened in January 2018. Socastee Middle School opened in August 2018. There were delay issues with the latter two schools dealing with land permitting and other issues outside the control of FFEP.File 59-15-0024 — Investigative Report September 12, 2022 Page 15 of 24 When questioned about his knowledge of the study involving the projected cost savings from the schools’ generation of power coming from the solar energy infrastructure, he reiterated his opinion against the HCSD’s need of going energy positive. He cited long term problems, such as the costs associated with the replacement of the schools’ roofs with the solar panels. There was also uncertainty how much the HCSD was going to be reimbursed for the power generated from the solar paneling. He also advised his maintenance staff did not have the adequate training to manage the energy positive schools properly. Visually, the new school facilities appeared to be wide open, lots of space, and conducive to a learning environment. From a facilities management perspective, he noted there were problems with workmanship in the schools. He also saw potential future issues based on the complexity of the Central Energy Plant in each school and stated no one on his staff new how to work on this area(s). A scheduled date to train his staff by FFEP was still pending. A three-year performance guarantee was in place for FFEP to prove the company showed the schools would be energy positive. At the conclusion of the interview, Wolfe provided documentation that listed the Budget Information for the three (3) competing firms, before FFEP was awarded the building contract, (see Attachment 6). On December 9, 2019, Lt. Logan and S/A Albayalde conducted an interview with FFEP CEO Robert Ferris, which was summarized in an MOI (Attachment 7). Ferris provided interviewing Agents with the following information: He was the president and CEO of FFEP and SLFTA Architects located in Fayetteville, NC, with offices located in Myrtle Beach. His company’s primary focus was to provide development for educational institutions with energy positive construction. His company was selected by the HCSD Board to build the five schools. Although he could not recall the exact date, sometime in February 2014, some of the Board members encountered members of FFEP at a school board conference in Myrtle Beach. ‘Arrangements were made for some of the Board members to tour the FFEP project in Dillon, SC. Shortly thereafter, Ferris presented a proposal to the HCSD office, in an effort to be selected to build the schools. Ferris went on to say that he personally was not on the Dillon school tour but believes his employee, Marvin Wise, was present, Ferris pointed out that his company used the Design-Build method of building schools and felt that this was the mostFile 59-15-0024 — Investigative Report September 12, 2022 Page 16 of 24 efficient way to handle school buildings. According to what he was told, his architect, Marvin Wise, and Matt Dean, who was the HCSD Director of Facilities, talked about the project. During the discussions, Ferris explained to the Board that the school district could save money by utilizing a Design-Build project. He also told the Board the school district could save 8% a year if they borrowed money and that he had suggested a lender if the Board would accept it. He had several emails back and forth to the Board members, especially to the Chairman Defeo. Around the same time, he and possibly Marvin Wise, met with Dean at his office. Ferris explained to Dean that if they built all the schools at once, they could save between 60 and 80 million dollars, He told Dean that financing could be arranged, and that if the HCSD borrowed the money, they could save a lot of money. Ferris stated that he talked with and emailed ‘Attomey Keith Powell (Childs & Halligan Law Firm), who coordinated the schoo! efforts and was familiar with the procurement code. Ferris also contacted Attomey Brent Jeffcoat in Columbia, SC., who was an expert in financing school projects ‘Although he could not recall the exact date, he acknowledged attending a meeting that was held in Neil Jones’ office at Santee Cooper in Conway, SC, for a discussion with Defeo, James (vice chairman on the Board), Heniford, and Marvin Wise. The Board seemed to like what they were hearing from FFEP, and as a result, an RFQ was sent out. It was around this same time when the superintendent of education, Cindy Ellsberry, was forced out and Dr. Maxey took over. The RFQ was advertised in the paper around the middle of 2014, and Defeo put out a schedule for individuals to present their agenda to the full Board. The HCSD Staff and the Board did not agree, and as a result, the RFQ was cancelled. Sometime later, Ferris was placed on the Board agenda, at which time FFEP provided a proposal for energy positive schools. The Board subsequently advertised another RFQ and several firms responded. FFEP was not selected initially and shortly thereafter, the RFQ was cancelled. ‘The Board hired a consultant and ultimately the budget for the five schools was reconfigured. Ferris then advised that FFEP was selected, and they immediately started negotiations on a contract. During the negotiations around October 2015, Wolfe (the HCSD Director of Facilities) got upset and walked out of the meeting. Wolfe wanted M.B. Kahn to have theFile 59-15-0024 — Investigative Report September 12, 2022 Page 17 of 24 contract and fought against FFEP every step of the way. It was not until Monday before ‘November 2015 when the contract was finalized. Ferris advised the first three schools were built between November 2015 and August 2017. The other two schools took some time and were finally finished in August 2018. ‘When questioned about his association with Board members, he readily admitted talking extensively to Defeo, estimating he talked with him in person at least each month and by phone several times. He would update Defeo and answer any questions that he or the Board may have had. When questioned further, Ferris stated that he never offered or gave anything of value to Defeo, or any other members of the Board. Ferris felt that the Board fully understood that he had the most efficient building design and they all voted for him to have the contract. Ferris made available a copy of a letter sent to the HCSD Procurement Services office in October 2015 (see Attachment 7). ‘On December 9, 2019, Lt. Logan and SLED SS/A Holly Siniard interviewed Keith Powell (a former Childs & Halligan attorney) at his law office in Columbia, SC. An MOI (Attachment '8) was completed documenting the meeting, Powell provided the following: Sometime around 2000, he met Kenneth Childs at a National Schoo! Board meeting, somewhere in SC. Shortly thereafter, he joined the Childs & Halligan Law Firm. While practicing for the firm, he worked with a lot of school districts specializing in infrastructure financing. In 2004, he worked on the procurement code for the HCSD. Then in 2014, Childs became interested in the HCSD project to build the five schools. Powell advised that his first objective in working with the school was to focus on what was ‘going on and what had been done. It was around the same time when he received a call from Brent Jeffcoat, a bond attorney, who had a specialty in finding ways to finance school projects without a bond referendum, Powell learned that the late Board Chairman, Defeo, who was a retired policeman from New Jersey, and expressed a desire to have a sole source for the building project. There was no question in anyone’s mind that Defeo wanted FFEP to build the schools. Powell stated that he could recall Defeo asking him to talk with the Board in support of his, position,File 59-15-0024 — Investigative Report September 12, 2022 Page 18 of 24 Around the same time, Defeo had the Board arrange to fire the HCSD Superintendent (Cindy Ellsberry), stating that the building project was not progressing fast enough. Defeo let it be known that he wanted FFEP to handle the project because they had done similar projects in North Carolina. It was shortly thereafter that Ferris appeared before the Board. Powell went on to say that he talked with Ferris a few times and learned that Ferris wanted a sole source “design build project.” There were several differences of opinion between some of the Board members and because of these difficulties, Halligan’s Law Firm was told not to be involved further. The Procurement Department made a study with how to build schools and felt that they needed an energy positive building. It was around this time when Gardner and Dr. Maxey decided to cancel the RFQ. In November 2014, Powell leamed that Wolfe and Gardner did not agree with Defeo’s sole source project, and that as a result, the Board decided to do a design build project. He could recall Board member James came up with a written document that the Board had approved. He pointed out that Gardner would not sign off on the document, but he did not know the reason. ‘When questioned further, Powell advised that he wondered why Defeo supported Ferris, who was doing business at FFEP. Powell had concerns as to what was going on between Defeo and Ferris, When questioned further, Powell stated he was not aware of all the subcontractors in the project but identified two as being Metcom and Loving Contractors, both from North Carolina. It was his understanding that Ferris had refused to identify the other subcontractors to the school officials, and he had no idea why Ferris refused this request. He could not figure out why Ferris withheld the names, Powell went on to say he noticed there was a close relationship between Ferris and Defeo; however, he could offer no additional information regarding their association and there was nothing improper or illegal that they were or may be doing. Powell indicated he ‘would continue to cooperate and furnish any documents in his possession that were needed. ‘On March 22, 2019, Powell was re-contacted at the Law Office of Jonathan Milling to determine if Powell had any information regarding payoffs to HCSD members by anyone associated with the building of the new schools. Powell furnished the following information inFile 59-15-0024 ~ Investigative Report September 12, 2022 Page 19 of 24 the presence of his attorney: As a member of the Childs & Halligan Law Firm, he represented the HCSD in 2014 during the time they were preparing to build the five schools. It was his job to oversee the legal aspects of building the schools. He was especially interested in negotiations regarding the building per the Horry County Procurement Regulations. He advised the Board selected FFEP and Real Estate Company to build the five schools. It appeared to him the Board ‘wanted FFEP to build the schools because of their expertise in building energy positive buildings. The Board ultimately decided on a Design-Build project wherein FFEP would handle the architecture and complete the schools. Powell went on to say that Defeo wanted Ferris to get the contract and would often comment that he had the Board votes. Defeo was heavily involved with FFEP, and Powell felt uncomfortable conceming this relationship. He further advised that everyone associated with the school project wondered why, and was concerned as to why, Defeo was so involved in the process. Defeo was aggressive and would just talk about anything to get his way. When questioned further, Powell had no further information that Defeo was being paid off by Ferris or FFEP. Powell was shown several emails between himself and Ferris (see Attachment 8). After reading the various emails, he explained he was trying to assist FFEP regarding procurement procedures and to facilitate building the schools. He never represented Ferris or FFEP and was only answering questions to make the project go smoothly. He never represented Ferris in anyway and was not connected with his FFEP company. He advised Ferris had never given him anything, such as money, trips, or anything of value for assisting him. He knew nothing that ‘was illegal or unethical regarding the building of the schools and the people involved. Powell provided a copy of a Horry County ordinance Number 02-10 (see Attachment 8), that repealed existing ordinances relating to the County procurement and to enact Horry County Procurement Code as an appendix to the Horry County Code of Ordinances. Agent's Note: During the course of the investigation, the HCSD Board Chairman, Joe Defeo, passed away at the age of 65, on May 3, 2018, as a result of @ health-related event. Agents were not able to establish an interview with Defeo prior to his passing.File 59-15-0024 — Investigative Report September 12, 2022 Page 20 of 24 On January 30, 2019, S/A Albayalde served a search warrant to Branch Banking and Trust Company (BB&T), at the local banking institution (banking representative Felicia Bellamy) located on 310 Wright Boulevard, Conway, SC. The search warrant requested BB&T financial records for Robert Ferris, FFEP, and SfLta Architects associated accounts. On March 5, 2019, BB&T furnished the requested records via mail (Attachment 9) and provided the following documents: 135 pages of bank records, one data CD contai CDs containing records for SfL+a Architects, and two data CDs containing records for ‘SUFEJOLI Partnership (AKA SfL+a Architects). Following a review of the records, and with ing records for Ferris, five data the assistance of the SCAG’s Office, there were no apparent irregulates detected within the provided financial records. Agent's Note: The next series of interviews consisted of the following Board members: Sherrie Todd, Pam Timms, Janet Graham, Janice Morreale, David Cox, Neil James, Ray Winters, Holly Heniford, and Jeffrey Garland. Except for James, the remaining Board members voted in favor to award the construction contract to FFEP. During each interview, the Board members denied being offered any type of bribe or incentive to vote for a particular construction firm or proposal. They received no form of compensation from FFEP, any person(s), entity, or construction firm. Furthermore, the Board members were not aware, or had any firsthand Imowledge of fellow Board members receiving gifts or favors from Ferris, FFEP, or any other person(s) or entity. Each interview was summarized in an MOI (Attachment 10), with most of the interviews being captured via an audio-recording (see Attachment 20). On March 19, 2019, SLED S/A Herbert Hayden conducted a review of the Campaign Disclosure reports filed electronically with the State Ethics Commission by current and past HCSD Board members. The purpose of the review was to determine whether any Board ‘members received contributions from anyone associated with firms involved with the school construction projects. $/A Hayden prepared a report that detailed his analysis and findings (Attachment 11). The following Board members received contributions from firms and/or individuals associated with the HCSD’s Design-Build construction project: Cox ($4000), Jeffrey Garland ($1000), and Timms ($4500). On June 23, 2018, an excess of $1500 was refunded back to FFEP, Metcon, and SFL+a Architects by Timms based on the South CarolinaFile 59-15-0024 — Investigative Report September 12, 2022 Page 21 of 24 Code of Laws, Section 8-13-1314. Agent's Note: Refer to S/A Hayden's report for more detailed information ‘The following documents were obtained pursuant to this investigation: HCSD Email Communications and Supporting Documentation (Attachment 12) FFEP Invoice and Check Payment Documentation (Attachment 13) Dr. Maxey Email Communications and Supporting Documentation Referencing a Landscaping Contract Issue (Attachment 14) Low Country Landscaping MOI (Attachment 15) James Rodney Hyman MOI (former Low Country Landscaping employee) and Supporting Documentation (Attachment 16) Dustin Thome MOI (Southern Asphalt employee) and Supporting Documentation (Attachment 17) Lt. Pete Logan MOI (Excessive Markups) (Attachment 18) SLED Property Sheet (HCSD Construction Documentation binder, Selection Committee Evaluation and Score Sheets, Selection Committee Score Sheet Poster Board, New School Building punch list binder) (Attachment 19) SLED Interview Audio-Recording and Mark Wolfe 3/9/2017 Meeting audio recording, CD (Attachment 20) Conclu ‘The following statements are based upon facts obtained during the investigation: On December 7, 2015, the South Carolina Law Enforcement Division (SLED) received a verbal request from the South Carolina Attomey General’s (SCAG) Office, Assistant ‘Attomey General (AG) Rick Hubbard, to investigate the improper award of a Horry County School District (HCSD) construction contract to First Floor Energy Positive (FFEP) (Attachments | and 2). On November 2, 2015, following the HCSD Board meeting, the Board voted to award First Floor Energy Positive (FFEP) the contract to build new schools for Socastee Elementary, Socastee Middle, Carolina Forest Middle, St. James Intermediate, andFile 59-15-0024 — Investigative Report September 12, 2022 Page 22 of 24 Myrtle Beach Middle. Thompson Tumer and M.B. Kahn were the other two competing, construction firms for the new school building contract (Attachments 2 and 3). © Although allegations arose that the Board Chairman, Joe Defeo, and certain other Board members received compensation to vote in favor for FFEP, there were no HCSD staff members, Board members, or outside representatives who had firsthand knowledge or documentation to validate the allegation(s) (Attachments 2, 3, 6, 8, 10, 19, and 20). © Interviews were conducted with Board members Sherrie Todd, Pam Timms, Janet Graham, Janice Morreale, David Cox, Neil James, Ray Winters, Holly Heniford, and Jefivey Garland. Each Board member provided their reasons for voting in favor of FFEP. They denied being offered any type of bribe or incentive to vote for a particular construction firm or proposal. ‘They received no form of compensation from FFEP, any person(s), entity, or construction firm. Furthermore, the Board members were not aware, or had any firsthand knowledge of fellow Board members receiving gifts or favors from Ferris, FFEP, or any other person(s) or entity (Attachments 10, 19, and 20). © The following Board members received contributions from firms and/or individuals associated with the HCSD’s Design-Build construction project: Cox ($4000), Jeffrey Garland ($1000), and Timms ($4500). On June 23, 2018, an excess of $1500 was refunded back to FFEP, Metcon, and SFL+a Architects by Timms based on the South Carolina Code of Laws, Section 8-13-1314 (Attachment 11). . On December 9, 2019, FFEP CEO Robert Ferris was interviewed. He readily admitted talking extensively to Defeo, estimating he talked with him in person at least each ‘month and by phone several times. He would update Defeo and answer any questions that he or the Board may have had. Ferris stated that he never offered or gave anything of value to Defeo, or any other members of the Board. Ferris felt that the Board fully ‘understood that he had the most efficient building design and they all voted for him to have the contract (Attachments 7 and 20). . During the investigation, the HCSD Board Chairman, Joe Defeo, passed away at the age of 65, on May 3, 2018, as a result of health-related event. Agents were not able to establish an interview with Defeo prior to his passing.File 59-15-0024 — Investigative Report September 12, 2022 Page 23 of 24 This report will be submitted to the proper prosecutorial authority for review. S/A Jomar AlbayaldeFile 59-15-0024 — Investigative Report September 12, 2022 Page 24 of 24 Attachments 1 Se nN Awe wD ML 12. 13. 14. 15. 16. V7. 18. 19. 20. SCAG’s Office Preliminary Documentation Charles McKenzie MOT Dr. Rick Maxey MOT Ara Heinz Prepared Voluntary Statement John Gardner MOL Mark Wolfe MOI Robert Ferris MOT Keith Powell MOI and FFEP Email Communication Documents BB&T Search Warrant, Financial Records, and Data CDs HCSD Board Member MOIs for Sherrie Todd, Pam Timms, Janet Graham, Janice Morreale, David Cox, Neil James, Ray Winters, Holly Heniford, and Jeffrey Garland SLED S/A Hayden Campaign Disclosure Report Dr. Rick Maxey Email Communications (landscaping contract issue) Low Country Landscaping MTF, LCL and Southem Asphalt Text Messages, and HCSD to Contractor to Subcontractor Email Communications Rodney Hyman (former LCL Employee) MOI Dusty Thorne (Southern Asphalt Representative) MOI HCSD Email Communications and Supporting Documentation Dr. Maxey provided binder containing HCSD Documentation HHCSD Invoice and Payment Documentation SLED Property Sheet (HCSD Construction Documentation binder, Selection Committee Evaluation and Score Sheets, Selection Committee Score Sheet Poster Board, New School Building punch list binder) SLED Interview Audio-Recordings and Mark Wolfe 3/9/2017 Meeting audio recording CD