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Monday, January 9, 2017

Review of Mediaworld Contract Negotiations with RA on the Tetra Review, Mediaworld LLC, January 9, 2017

This is the text of a Mediaworld review of its recent negotiations with RA to develop a contract to review the purchase of the Tetra property.

             In 2014, the Tetra Partnership, then the owner of the property on Lake Newport which had been the Reston Visitors Center, approached the Reston Association with a proposal to sell the property and the house.  In January2015, the RA board authorized Cate Fulkerson, the RA Chief Executive Officer, to negotiate terms for the sale and to hold a referendum for the membership to approve the purchase.  An outside appraisal gave the value of the property at $1.3 million as office space and $2.65 million as a restaurant, assuming that the seller made needed repairs, estimated to cost about $275,000.  The condition of the building and necessity of repairs was confirmed by an engineering consultant to RA.  RA estimated it would cost an additional $256,000 to renovate the building and $9,000 for basic landscape improvements.  On February 9, 2015, the Board authorized the CEO to proceed with a letter of intent for the purchase and prepare the referendum.  After considerable public discussion, much of it critical to the purchase, the Board approved the purchase for $2.65 million.  In May the referendum passed and in July 2015, RA closed on the purchase, $275,000 was held in escrow to pay for needed repairs, and a group was formed to make recommendations on the use of the property.  In May, 2016, the staff informed the Board that the renovation costs were about $687,000 ($428,000 higher than previously announced) and that the income from the proposed use of the property would be significantly less than previously estimated.

            Given the significant cost overruns and revenue shortfall, the Board approved an independent review of the Tetra purchase and renovation, what processes and controls were in place, and whether RA procedures for major purchases should be changed.  A Request for Proposals was prepared in July 2016.  A committee was formed of Board members and outside RA members to review 12 submitted proposals.  One of the proposals was submitted by a team of Reston citizens with the appropriate professional backgrounds formed by Mediaworld Ventures, a Reston corporation headed by Mr. Sridhar Ganesan, also president of the Reston Citizens Association.  The Mediaworld team offered to do the study for $1, essentially volunteering their time and expertise.  On September 8, 2016, the Mediaworld team met with the selection committee, as did other firms submitting proposals.  The committee recommended acceptance of the Mediaworld proposal and on September 22 the Board approved this proposal.

            On October 5, the group received a draft contract from RA’s legal counsel, for the review.  The draft was 17 pages long and contained provisions that required Mediaworld to hand over all notes, communications and internal written memorandum to RA, which would own this material.  It gave RA the right to remove or replace any of the team members.  The team’s final report would be owned by RA and the draft contract gave RA the explicit right to modify the report and publish the altered report.  Mediaworld would not be allowed to convey or disclose anything with regard to the work.  Each member of the team would be required to sign a confidentiality agreement that basically made everything involving the work confidential, indemnify RA from any and all damages RA might suffer as a result of the team’s work or for breach of the contract, and the team would be jointly and severally liable for any breach by any team member.  That meant that each of us would be liable to pay damages for any breach of confidentiality by any of the team members.  The confidentiality conditions would last indefinitely.

            To say that we were shocked by such a contract would be an understatement.  It was as if we were entering a contract with the Defense Dept. on a review of national security.  Such a contract would rob the team of independence, a key element of our proposal, and it would put each of us and our families at considerable risk. The confidentiality and punitive clauses went far beyond any consultant contract RA had previously employed and were very inappropriate for private RA members volunteering to do the study at no cost.

            After reviewing and discussing the draft contract and consulting an attorney used by Mediaworld, who also volunteered his time, the group redlined the draft contract and sent our changes to RA’s counsel on October 24.  We agreed that each of us would sign an agreement to hold our work confidential; we would be individually responsible to uphold confidentiality but not be jointly and severally responsible for breaches of the contract by others.  We also eliminated clauses that would substantially reduce the group’s independence.  We would own our own notes and materials and RA would have unlimited license for its exclusive use of the final report but not be allowed to alter it and make the revised version public as our work.  Three weeks later, on November 10, we received a note from RA’s counsel basically rejecting all of our substantive changes.

            A Board meeting was set for about one month after that, on December 7, to discuss the contract.  We explained our problems with the original draft contract and insisted that any final contract could not impair our ability to conduct the work independently, would not have onerous punitive clauses that would put our families at risk, and would not allow RA to alter the report and make the revised version public as our work.  One board member produced a consulting contract that RA had recently signed with Quantum Governance that was four pages long and did not have the punitive clauses of the 17 page draft given to us   The Board then went into executive session to provide further guidance to its counsel.

            December 16, 2016, we received a revised draft contract that ameliorated many of the clauses to which we objected but still had problems from our point of view.  Confidential material was redefined as essentially everything not in the public domain; Mediaworld would own its notes, documents and communications but they would be considered confidential; RA would own the final report and the copyright; individual team members would no longer be responsible for breaches by other team members but Mediaworld would be responsible for any damages to RA caused by the work and breaches of confidentiality by any team member; RA would pay for liability insurance up to $1 million, but a liquidated damages clause required Mediaworld to pay $2,000 for each breach of confidentiality by any team member plus any other available remedy.  Basically, the new draft eased the punitive burdens on individual team members but increased the risk to Mediaworld.

            Mr. Ganesan was not willing for Mediaworld to assume such risk and other team members felt that the revised draft was still over-reaching, beyond what was normal for a consultant contract, much less a pro bono project.  Perhaps more importantly, several of us felt that the rather extreme adversarial approach that RA was taking to the contract, and the time it had taken, indicated a lack of trust in the group which would make it very difficult to do the work objectively and independently.  So, on December 22 Mr. Ganesan wrote to the RA Board that we could not accept the contract although we might consider a shorter less punitive version such as the contract RA signed with Quantum Governance.  Not hearing from RA, Mr. Ganesan withdrew from negotiations on January 4, 2017.

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