Santa Clara initiates litigation against business group accused of overbilling

Santa Clara lawmakers voted Tuesday to sue the former Santa Clara Chamber of Commerce, following a recent audit that claimed the chamber overbilled the city for nearly $580,000 while managing the city’s convention center.

The announcement was made by City Attorney Brian Doyle at the start of Tuesday’s City Council meeting.

“The council authorized the initiation of litigation against the chamber of commerce relating to the audit,” Doyle said. “The vote was 5-1.”

Doyle did not say which of the six councilmembers on Tuesday voted against filing a lawsuit. Vice Mayor Patricia Mahan was not present Tuesday.

The decision comes after city-hired consultant TAP International unveiled an audit in November that alleged the chamber had overbilled the city while running the Santa Clara Convention Center and the Convention-Visitors Bureau, or CVB.

The report details about five years of questionable expenses paid by the city as part of the chamber’s contract to manage the facility, an agreement that had been in place since 1975.

That contract to manage the convention center and the CVB ended this year after TAP International found in a separate audit that the publicly-owned convention center was not being managed “with appropriate stewardship, accountability and transparency,” according to city documents. The chamber this year rebranded from the Santa Clara Chamber of Commerce to the Silicon Valley Central Chamber of Commerce.

Nick Kaspar, president and CEO for the chamber, told councilmembers last month he could provide additional documents to the city to address some of the overbilling allegations in the audit.

“We do have some questions and things that can be cleared up,” he told San José Spotlight in an interview leading up to the November meeting. “Our goal is to work with the city to resolve this quickly so we can continue the work we are doing with the city and move forward.”

Kaspar did not immediately respond to a request for comment on the litigation threat Tuesday night.

Councilmembers last month agreed to meet privately to sort out the audit results and decide how much of the overbillings in the audit to pursue.

TAP International Principal Consultant Denise Callahan told councilmembers Nov. 12 that the bulk of the overbillings — about $448,068 worth — outlined in the audit comes from a single source and whether that money should be repaid is open to interpretation.

The nuance is in how city officials interpret the chamber’s contract, which offered a maximum payment, or a “not to exceed” amount, to operate the convention center. The city paid the chamber monthly for services up to $1.5 million annually, but the chamber spent considerably less than that to operate the convention center.

TAP International interpreted the contract to mean the unspent funds should be returned to the city because of that “not to exceed” language, which is commonly used in agreements where work is completed and then invoiced up to a maximum dollar amount.

“This is why we said you need to consider whether you want to collect those unspent funds, because typically under a ‘not to exceed’ contract, you don’t have this issue … because billing is done in arrears, or after services are rendered,” Callahan said.

Other overbilled expenses TAP International found were more straightforward. For instance, pricey dinners raised red flags because the chamber’s contract allowed only for breakfast and lunch expenses. In other instances, expenses could not be validated because of missing documentation. The auditor also found some miscalculations with splitting operations expenses between the chamber and the city, according to TAP International.

“I find it extremely disturbing that this has happened,” Mayor Lisa Gillmor said following the audit presentation last month. “To think that there were 30 years that this possibly was going on and I think of the potential millions of dollars of public funds that were spent incorrectly. This is over half a million (dollars) of which I want to make sure that we’ll be in closed session and we’ll discuss this and that the public is fully reimbursed for all of this.”

A city spokesperson did not immediately respond to a request for more information on the vote to initiate litigation Tuesday night.

Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.