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Fort Benning ends property management contract with Pinnacle; files lawsuit alleging fraud

Citing numerous instances of fraud to include bribery and kickbacks, the company formed to privatize Fort Benning housing has terminated its contract with property management firm Pinnacle.

In a lawsuit filed May 20 in Muscogee County Superior Court, Fort Benning Family Communities accuses American Management Services East, doing business as Pinnacle, and several of its employees of the following abuses:

Failing to implement adequate financial controls to prevent and detect fraud.

Attempting to cover up “systematic and pervasive fraud” by making “misrepresentations and omissions to FBFC.”

Participating in fraudulent acts and associated cover-ups to include accepting cash bribes and expensive gifts from vendors in exchange for fictitious billing, and hiring companies owned by Pinnacle employees or relatives of Pinnacle employees to perform work at Fort Benning.

Paying vendors above-market rates for products and services, paying for vendors’ double-billing and paying for services that were not performed.

Allowing at least one vendor to perform work at the personal residences of certain Pinnacle employees for a fraction of the market rate in exchange for being allowed to provide its services on post at inflated rates.

Engaging in a scheme to harvest and sell valuable scrap metal and other potentially valuable material from Benning homes slated for demolition, and using the proceeds for personal benefit.

In a counterclaim filed June 23 in Muscogee County Superior Court, Pinnacle denies all allegations of fraud and abuse, and asks the court to rule in its favor regarding breach of contract claims. In addition, Pinnacle asks the court to award it court costs and attorney fees, and grant it any other relief deemed appropriate by the court.

Calls to Pinnacle’s Central Regional Office seeking comment were not returned.

New Management

Despite a notice being issued by FBFC on June 11 terminating its contract with Pinnacle, the suit seeks declaratory judgment to end the Benning Property Management Agreement between FBFC and Pinnacle as well as financial restitution. FBFC, meanwhile, has tapped Interstate Realty Management, or IRM, to manage all properties on post.

“FBFC has previous experience with IRM on other installations and were very satisfied with their management capability,” said Fort Benning Deputy Garrison Commander George Steuber. “And, quite frankly, they’ve done a superb job. They were absolute lifesavers coming in here for us.”

Steuber said post officials had little time to find another manager after Pinnacle got its termination notice June 11. Aggravating an already difficult situation, temperatures that day soared into the mid-to upper 90s. It was so hot, Steuber remembered, that his immediate concern was who would do the maintenance should air conditioners fail or other issues arise.

“IRM jumped immediately into the breech and within two hours of our finding out that Pinnacle was going to cease as the property management piece, IRM was doing it,” Steuber said. “They hired everybody back; I think it was more than 90 percent of the folks had gone from being Pinnacle employees to being IRM employees in two hours.”

IRM currently manages houses on three Air Force bases and two Army posts. It is an affiliate of Michaels Development Company, an integrated real estate development and management company. IRM has more than 50,000 market-rate and privatized military housing units under management.

Audits

According to FBFC’s lawsuit, a 2007 audit of the Fort Benning privatized housing project, called the Benning Project in court documents, revealed deficiencies in financial and other controls. A follow-up audit in 2009 showed Pinnacle failed to correct those deficiencies.

While the 2009 audit was under way, Pinnacle abruptly fired its top three managers on Fort Benning. According to an auditor, the fired workers signed separation agreements that prevented their discussing the events leading to their terminations. In exchange, they got a full release and 1.5 months of severance pay from Benning Project funds, the suit alleges.

“In response to concerns raised by both Clark Benning (half of FBFC’s managing body, Clark Pinnacle Benning LLC) and the Army, Pinnacle stated only that these employees were fired for ‘lack of leadership’ and gave no indication that the employees were fired for conduct that could have or did cause harm to the Benning Project,” the suit says.

Based on the two audits, FBFC last year engaged outside auditors, who to date have found widespread fraud dating back to 2006, when Pinnacle became the Fort Benning property manager, the suit says.

FBFC terminated Pinnacle’s contract as a result of findings in the ongoing audit.

“The audit found business practices that weren’t consistent with what Fort Benning Family Communities wanted here on the project,” said Phil Cowley, project manager for FBFC. “At the end of the day, FBFC wants to provide the best service for our military family residents, the highest quality and the management practices that were found as part of the audit, which is ongoing by the way, weren’t consistent with that.”

Privatized housing on post

Congress established the Military Housing Privatization Initiative in 1996 to help the military improve the quality of life for service members by improving the conditions of their housing.

“The MHPI was designed and developed to attract private sector financing, expertise and innovation to provide necessary housing faster and more efficiently than traditional Military Construction processes would allow,” states the Office of the Deputy Undersecretary of Defense Installations and Environment website. “The Office of the Secretary of Defense has delegated to the Military Services the MHPI and they are authorized to enter into agreements with private developers selected in a competitive process to own, maintain and operate family housing via a fifty-year lease.”

Under the MHPI, the Army entered into a limited liability company agreement with Clark Pinnacle Benning LLC on Jan. 1, 2006, to form FBFC for the purpose of developing and operating a family housing portfolio and related facilities at Fort Benning. Clark Pinnacle Benning LLC is an affiliate of Clark Realty Capital.

“Fort Benning Family Communities is the organization that owns all the houses,” Cowley said. “So it owns all the houses. It has all the assets and then Fort Benning Family Communities hires service providers.”

One of the service providers FBFC hired in January 2006 was American Management Services East LLC, or Pinnacle. Pinnacle was awarded a 50-year contract to serve as the property manager for all post housing. FBFC also tapped Clark affiliate Clark Benning Builders LLC to be the builder on the Benning Project.

Clark Pinnacle Benning LLC is a partnership between Clark Benning LLC and Pinnacle Benning LLC. Pinnacle Benning LLC is an affiliate of American Management Services LLC, or AMS. American Management Services East, or Pinnacle, is an affiliate of AMS.

Cowley said Pinnacle is a minority member of the housing management structure consisting of Clark, Pinnacle and the Army at the FBFC level.

“The decision maker more or less for FBFC is not Pinnacle,” Cowley said, adding that Clark is the managing member.

Residents not effected

Residents should have noticed little to no change in the day-to-day maintenance operations when IRM stepped in officially on June 14 as the post’s property manager, Steuber said. That’s because most of the personnel working with Pinnacle were hired by IRM when it took over.

“So you had the institutional memory and knowledge from the prior operation just transferred right over to IRM and so literally from the standpoint of the folks in the houses we had no gap in the maintenance operations.”

Residents are encouraged to follow up with pending work orders to make sure they haven’t been lost in the transition.

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